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, 1996
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: (860) 722-1866
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class 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.....X.......
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of February 13, 1997 was $908,818,577.
Number of shares of common stock outstanding as of February 13, 1997:
20,041,678.
Documents Incorporated By Reference
- -----------------------------------
Portions of the Proxy Statement dated March 26, 1997 for the Annual Meeting of
Shareholders to be held April 24, 1997 are incorporated by reference in Parts
III and IV herein.
<PAGE>
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 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 providing 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 the Company's
insurance products were $448.6 million for 1996, which accounted for
approximately 81.7 percent of the Company's revenues. See Note 8 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, 1996 the Company increased its membership
participation in Industrial Risk Insurers (IRI) from 14 percent to 23.5 percent.
Prior to December 1, 1995, the Company's participation was .5 percent. IRI is a
voluntary, unincorporated joint underwriting association, comprised of property
casualty insurance members, 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 has increased its share over
the last two years because it believes that participation in the IRI represents
an opportunity to apply the Company's underwriting, engineering and reinsurance
skill sets to a large block of business and to potentially provide a quick
turnaround of IRI's underwriting results with only a limited capital outlay of
Company funds. 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 to 23.5
percent will initially be reflected in the first quarter financial results for
1997. Also during the third quarter of 1996, the Company assumed IRI's electric
utility book of business (gross written premium of $8.6 million) in term in
order to strengthen the Company's position in the power generation industry and
its coordination with IRI.
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. In 1996 net engineering
services revenues were $55.8 million, which accounted for approximately 10.2
percent of the Company's revenues.
In January 1996, the Company completed the formation of Radian
International LLC ("Radian International"), 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
(1)
<PAGE>
with the formation of the new company, the Company contributed substantially all
of the assets of its wholly-owned subsidiary, 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
help support the businesses expected to be conducted by the joint venture
company. Radian International currently is 40 percent owned by Radian
Corporation and 60 percent owned by Dow Environmental Inc. Prior to 1996, Radian
Corporation's results were included with the Company's on a fully consolidated
basis. In 1996, the Company's share of the joint venture's results are recorded
as equity in Radian rather than in net engineering services revenue and other
income statement accounts. Radian International's contribution to pre-tax
earnings declined by approximately $15.7 million during 1996 largely due to
delays in the transition of Radian International's business to one that is more
economically driven and less government regulatory driven.
The Company 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.
In 1996 the revenues and pre-tax income associated with operations outside of
the United States were approximately 18.9 percent and 28.3 percent,
respectively. Identifiable assets associated with operations outside of the
United States are approximately 23.1 percent of the consolidated amount.
Below is a summary of the identifiable assets by business segments at
year-end 1996 and 1995. Certain assets have not been allocated.
<TABLE>
1996
(In millions)
Total Insurance Investment Engineering Other
----- --------- ---------- ----------- -----
<CAPTION>
Asset Category
<S> <C> <C> <C> <C> <C>
Cash and Invested Assets ...... $ 600.9 -- $600.9 -- --
Insurance Premiums Receivable . 106.4 $106.4 -- -- --
Engineering Services Receivable 11.7 -- -- $ 11.7 --
Fixed Assets .................. 31.7 -- -- -- $ 31.7
Prepaid Acquisition Costs ..... 40.6 40.6 -- -- --
Capital Lease ................. 16.1 -- -- -- 16.1
Investment in Radian .......... 79.7 -- -- 79.7 --
Reinsurance Assets ............ 162.9 162.9 -- -- --
Other Assets .................. 66.3 -- -- -- 66.3
------- ------ ------ ----- ------
Total ...................... $1,116.3 $309.9 $600.9 $ 91.4 $ 114.1
% of Total 100% 27.8% 53.8% 8.2% 10.2%
</TABLE>
(2)
<PAGE>
<TABLE>
1995
(In millions)
<CAPTION>
Total Insurance Investment Engineering Other
----- --------- ---------- ----------- -----
Asset Category
- --------------
<S> <C> <C> <C> <C> <C>
Cash and Invested Assets $ 553.8 --- $553.8 --- ---
Insurance Premiums Receivable 87.2 $ 87.2 --- --- ---
Engineering Services Receivable 68.8 --- --- $ 68.8 ---
Fixed Assets 62.3 --- --- 22.6 $ 39.7
Prepaid Acquisition Costs 34.1 34.1 --- --- ---
Capital Lease 16.8 --- --- --- 16.8
Reinsurance Assets 59.5 59.5 --- --- ---
Other Assets 89.0 --- --- 23.0 66.0
-------- -------- ------- ------- -------
Total $ 971.5 $ 180.8 $553.8 $114.4 $122.5
% of Total 100% 18.6% 57.0% 11.8% 12.6%
</TABLE>
For additional information on the Company's business segments, see Notes 1
and 3 to the Consolidated Financial Statements located in Item 8 of Part II
herein.
B. PRODUCTS AND SERVICES
Insurance
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Equipment breakdown 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 accepted by
state and other regulatory jurisdictions for their certification purposes.
Without a certificate of inspection by the insurance carrier or another
inspection agency, policyholders cannot legally operate many types of equipment.
The Company also writes all risk property insurance for risks with
significant machinery and equipment exposures, in addition to its more
traditional boiler and machinery products. 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.
(3)
<PAGE>
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 International, its engineering
affiliate jointly owned with The Dow Chemical Company (Dow), focuses on
researching and developing potential new products and services, and new markets
for current services.
Radian International 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. Currently its customer base is
almost equally divided between the government and private sector, although it is
moving towards a client mix that is more commercial based. 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 services, materials and mechanical technologies, specialty
chemicals, 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. The formation of Radian
International by the Company and The Dow Chemical Company ("Dow") as described
on page 2, was a significant step in implementing this strategy, as the new
company integrates the environmental and engineering strengths of Radian
Corporation with Dow's access to chemical industry process technology and
environmental remediation capabilities. Radian International recognizes revenues
from contracts as costs are incurred and includes estimated earned fees in the
proportion of cost incurred to date to total estimated cost.
Other engineering subsidiaries include HSB Reliability Technologies Corp.
(HSB RT) and HSB Professional Loss Control Inc. (HSB PLC). HSB RT maintains an
extensive database on equipment maintenance and reliability and provides
preventive maintenance consulting services and programs to a wide range of
businesses and industries. Such services and programs are designed to increase
production, reduce maintenance, energy and spare parts inventory costs, and
extend equipment life. HSB PLC is a fire protection consulting and engineering
firm. Its services include inspections, hazards analysis and risk assessment,
engineering design, code consulting, research and testing, and training.
C. COMPETITION
Insurance
- ---------
The Company is the largest writer of equipment breakdown insurance in North
America and is establishing a significant 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 percent, has remained fairly stable over
the past ten years. Based on net premiums written reported in the 1996 edition
of Best's Aggregates and Averages, no other single company has more than a 10
percent market share. Members of an affiliated group of insurers, the Factory
Mutual System, have a market share of approximately 22 percent.
(4)
<PAGE>
In general, the insurance market is influenced by the total insurance
capacity available based on policyholder surplus. Over the last few years,
global capacity has grown as new insurers enter the property casualty market. In
addition to available capacity, competition in the equipment breakdown 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 primarily competes by offering a high level of service, not by
offering the lowest-priced product.
Competition in the equipment breakdown insurance market, as well as the
property casualty market in general, has intensified in recent years as a result
of continuing restructuring and consolidation in the insurance industry.
However, because the Company primarily underwrites risks which require
engineering expertise and jurisdictionally mandated inspections, it believes
that it is well-positioned to manage such competition since it maintains the
largest force of inspectors and engineers in the industry.
Engineering Services
- --------------------
The Company provides a wide range of engineering, consulting and inspection
services as described on page 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, and technicians is spread throughout
the world. Ongoing training programs ensure that the Company's inspectors,
engineers, and technicians are kept up-to-date on the latest engineering and
technical 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 1996 68.2 percent of its net written premiums (exclusive of
IRI) related to risks located in the United States. Of the direct premiums
written in the United States in 1996 (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, New York, Pennsylvania and Texas, no state
accounted for more than 5 percent of such premiums. No insurance customer
accounted for more than 10 percent of the consolidated revenues in 1996.
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 various 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
(5)
<PAGE>
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 minimum
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, Kuala Lumpur,
Madrid and Miami.
Additionally, the Company markets its insurance products through the
distribution channels of the companies which it reinsures.
IRI markets its products primarily through large brokers.
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 International, 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.
No engineering services customer (including Radian International customers)
accounts for more than 10 percent of the Company's consolidated revenues.
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
(6)
<PAGE>
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.
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 1996.
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 1996.
The Company's operations are subject to examination by insurance regulators
at regular intervals. The most recently concluded insurance examination for the
Company was conducted for the year ended December 31, 1994 by the Connecticut
Insurance Department, the Company's domestic regulator. No material findings
were 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, none of which have been
material, through premium tax offsets and policy surcharges. The Company has
recorded its ultimate estimate of assessments in its financial statements.
See Note 4 to the Consolidated Financial Statements located in Item 8 of
Part II herein for additional information on statutory reporting.
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.
(7)
<PAGE>
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 Radian International, and to a much lesser extent Radian
International itself, are subject to various state and federal environmental
laws in connection with their ongoing business operations. Although the
liabilities imposed by these laws more directly relate to the business
operations of Radian International'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 such customers, Radian
International could become subject to liabilities under such laws.
The Company believes that it is unlikely that the nature of such 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
Policies
- --------
Pricing for the Company's insurance policies is based upon the rates the
Company has developed for use with its various products. In many jurisdictions
in which the Company does business, such rates, as well as the policy forms
themselves, must be approved by the jurisdiction's insurance regulator. 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.
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 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
equipment breakdown 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.
The Company's underwriting policy is to manage its risks to probable
maximum losses not in excess of $50 million and maximum foreseeable losses not
in excess of $100 million. The Company's current reinsurance
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<PAGE>
program generally limits the Company's retention on any one loss to $3 million,
with potentially higher per risk retentions dependent on aggregate losses
experienced by the Company during the reinsurance period.
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.
The Company has reinsurance agreements with over 100 multi-line insurance
companies to reach the small to mid-size customers that purchase such package
policies. This business primarily focuses on small and mid-sized commercial
customers and it offers a significant opportunity for growth by the Company
since, the Company estimates, equipment breakdown coverage is only provided
currently to less than 5 percent of the over 10 million insured companies and
institutions in the United States. (See "Reinsurance Ceded" below.)
Under the reinsurance agreements, the Company's reinsured companies may
include equipment breakdown 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 percent of each boiler
and machinery risk, subject to the capacity specified in the agreement, and will
receive the entire equipment breakdown 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 equipment breakdown
insurance department of the reinsured company and provides all equipment
breakdown underwriting (that is, the examination and evaluation of the risk
based on its engineering judgments), claims and engineering services as if it
were part of that organization. Traditionally, as part of the underwriting
process, the Company retains the right to decline or restrict coverage in the
same manner as it does for its own business. In 1996 the Company began to write
a simplified program (referred to as ReSource) under which a reinsured company
agrees to include equipment breakdown insurance on an entire portfolio of
accounts meeting specific underwriting guidelines and occupancy parameters,
which the Company agrees to reinsure for equipment breakdown losses.
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 under the arrangements
described above could be affected.
The Company also assumes reinsurance primarily on a facultative basis for
certain large risks and several insurance pools.
The written premium generated through reinsurance assumed totaled $232.6
million in 1996, representing approximately 41 percent of the Company's gross
written premium.
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 high risk lines, and to provide additional capacity to
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<PAGE>
write business. Under the Company's current treaty reinsurance program (and not
taking into account its participation in IRI), its retention on any one risk is
generally limited to $3 million, with potentially higher per risk retentions
depending 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 net losses
greater than $15 million.
As a result of the Company's growth and global expansion, combined with
loss experience in prior years, the Company has been incurring higher ceded
reinsurance costs in recent years. In 1995 the Company centralized and
consolidated its global ceded reinsurance operations to more closely manage its
reinsurance costs. In 1994 and continuing through 1996 the Company increased its
non-IRI retentions by adding a $5 million aggregate deductible to its
reinsurance program to lessen the impact of higher reinsurance costs. Of the
four losses in the July 1994 -July 1995 treaty year that exceeded $3 million,
the Company retained an additional $1.4 million in 1994 and $1.2 million in 1995
due to the inclusion of the $5 million annual aggregate deductible. Reinsurance
costs were reduced approximately $2.9 million for both 1994 and 1995. In 1996
the Company's reinsurance ceded costs increased $42 million over 1995 which was
almost entirely attributable to its increased participation in IRI.
The Company utilizes well-capitalized domestic and international
reinsurance companies and syndicates for its reinsurance program and monitors
their financial condition on an ongoing basis. For reinsurers that are not
accredited in their state of domicile, the Company requires collateral for
reinsurance recoverable from such carriers. 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.
The following table displays information concerning the primary
participants in the Company's current reinsurance program as of December 31,
1996.
<TABLE>
(In Millions)
<CAPTION>
Reinsurer Ceded Premium Reinsurance Recoverable 1996 A.M. Best's Rating
- --------- ------------- ----------------------- -----------------------
<S> <C> <C> <C>
General Reinsurance Corp. $33.4 $54.9 A+ + (Superior)
American Re-insurance $ 6.9 $13.8 A+ (Superior)
Company
</TABLE>
As of year-end 1996 no other reinsurance recoverable of the Company from
any single reinsurer exceeded 3 percent of shareholders' equity. Certain Lloyds
syndicates participate in the excess of loss reinsurance program, primarily in
the excess layers. The highest aggregate percentage participation of such
syndicates, at 50.3 percent, is in the $50 million excess of $100 million layer.
No individual syndicate has more than an 8 percent participation in any of the
excess layers. The Company's reinsurance recoverables in the aggregate from all
Lloyd's syndicates is less than 2 percent of shareholders' equity at December
31, 1996.
For additional information on reinsurance, see Note 8 to the Consolidated
Financial Statements located in Item 8 of Part II herein.
(10)
<PAGE>
Pools and Joint Underwriting Associations
- -----------------------------------------
With the exception of Industrial Risk Insurers (IRI) as described on page 1
and discussed below, 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. Generally, the
Company's policy with respect to assessments made by state guaranty funds or
joint underwriting associations which require payouts over a multi-year period,
such as in the case of the assessment in connection with Hurricane Andrew in
Florida, is to establish an accrual for the full anticipated amount. The
unprecedented level of catastrophes in recent years has required the Company to
pay higher assessments to such associations. However, such assessments have not
been material in any of the years presented in the 1996 Financial Statements.
Participation in Industrial Risk Insurers
- -----------------------------------------
Industrial Risk Insurers (IRI) is an unincorporated, voluntary property
underwriting association currently comprised of twenty-three property casualty
insurance companies. IRI primarily writes policies on a syndicate basis which
specifies to the insured the percentage share of risk accepted by each member of
the association. Each member company, therefore, operates as a direct insurer or
reinsurer on such policies and participates in the premiums and losses generated
thereunder in proportion to its membership interest. The Company's membership
interest is currently 23.5 percent. In 1996 and 1995 its membership shares were
14 percent and .5 percent, respectively.
In essence, the IRI facilitates the proportional sharing of risk under one
policy where each member is essentially considered to be the direct writer for
reporting, premium tax and other regulatory purposes. Liability on such policies
is several and not joint, and therefore, members are not responsible for policy
liabilities of the other members. An increased participation doesn't expose the
Company to the effect of adverse loss development on claims incurred prior to
the effective date of the increase.
Other than a nominal deposit, which is refunded if participation ceases,
there is no cost to becoming a member of the IRI. Members can change or
terminate their participation on an annual basis. Typically participation levels
vary based on a member's expectations of future profits.
The primary business risk the Company faces as a result of its
participation in IRI relates to the frequency and severity of claims. The
Company has attempted to mitigate and manage the risk through its active
participation since December 1, 1995 in the governance of IRI, specifically in
the area of underwriting guidelines, reinsurance program design and engineering
standards. Additionally, the Company maintains reinsurance for its own account
that would help to mitigate any adverse loss experience.
IRI's underwriting policy is to manage its risks to probable maximum losses
(PML) not to exceed $125 million and maximum foreseeable losses (MFL) not to
exceed $400 million. On a per risk basis IRI retains the first $75 million of
loss and has in place excess of loss reinsurance of $325 million excess of $75
million. Should an MFL event take place, the Company's proportionate share, net
of IRI reinsurance, would be $25.6 million. The Company maintains other
reinsurance programs for its own account which could absorb up to 50 percent of
this amount. IRI maintains reinsurance coverage of $100 million in excess of its
MFL.
(11)
<PAGE>
The Company also reinsures IRI on certain facultative placements. The ceded
premium for such placements was $1.5 million for 1996.
Claims and Claim Adjustment
- ---------------------------
Essentially all claims under the Company's policies of insurance are
handled by the Company's own claims handlers. Management believes that the
Company's handlers are better able to make the connection between loss
prevention and loss control. The Company employs claims handlers in its various
offices throughout the country, Canada and the U.K. Claims handlers, in many
cases, 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 somewhat skewed in
terms of claim dollars (as noted in the schedule on page 17) as it is the larger
claims that often take longer to adjust. 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.
(12)
<PAGE>
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, 1996, 1995 and 1994.
RECONCILIATION OF NET LIABILITY FOR
CLAIMS AND CLAIM ADJUSTMENT EXPENSES
1996 1995 1994
------ ------ ------
(In millions)
Net liability for claims and
adjustment expenses at January 1 $145.5 $161.3 $171.3
------ ------ ------
Plus:
Provision for claims and adjustment
expenses occurring in the current year 214.2 152.2 141.7
Increase (decrease) in estimated claims
and adjustment expenses arising
in prior years (9.8) 2.7 1.5
------ ------ ------
Total incurred claims and
adjustment expenses 204.4 154.9 143.2
------ ------ ------
Less:
Payment for claims arising in:
Current year 91.4 58.9 63.5
Prior years 80.7 111.8 108.7
------ ------ ------
Total payments 172.1 170.7 172.2
------ ------ ------
Plus:
Full Consolidation of EIG Co. at
December 31, 1994 - - 19.0
------ ------ ------
Net liability for claims and
adjustment expenses at December 31 $177.8 $145.5 $161.3
====== ====== ======
The 1996 loss ratio was 45.6 percent compared to 39.8 percent and 42.5
percent for 1995 and 1994, respectively. The increase in loss ratio in 1996 is
primarily the result of losses from unusually severe weather conditions (2.0
percent) and the increased share in IRI (1.7 percent). In 1996, the decrease in
claims arising from prior periods includes $4.9 million of subrogation
recoveries, and favorable development of certain large claims
(13)
<PAGE>
in the Company's international operations. The improvement in the loss ratio in
1995 is largely attributable to the reunderwriting efforts which began 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.
RECONCILIATION OF NET LIABILITY TO GROSS LIABILITY
FOR CLAIMS AND CLAIM ADJUSTMENT EXPENSES
1996 1995 1994
------ ------ ------
(In millions)
Net liability for claims and $177.8 $145.5 $161.3
adjustment expenses at December 31
Reinsurance recoverable on unpaid claims
and adjustment expenses 125.1 45.4 38.1
------ ------ ------
Gross liability for claims and
adjustment expenses at December 31 $302.9 $190.9 $199.4
====== ====== ======
(14)
<PAGE>
RECONCILIATION OF GROSS LIABILITY FOR CLAIMS AND CLAIM ADJUSTMENT EXPENSES
1996 1995 1994
------ ------ ------
(In millions)
Gross liability for claims and claim
adjustment expenses at January 1
$190.9 $199.4 $214.4
Plus:
Provision for claims and claim
adjustment expenses
occurring in the current year 313.3 183.3 159.1
Increase in estimated claims and
claim adjustment expenses arising
in prior years 16.1 12.6 9.9
------ ------ ------
Total incurred claims and claim
adjustment expenses $329.4 $195.9 $169.0
------ ------ ------
Less:
Payment for claims arising in:
Current year $103.3 $ 65.1 $ 62.0
Prior years 114.1 139.3 144.2
------ ------ ------
Total payments $217.4 $204.4 $206.2
------ ------ ------
Plus:
Full consolidation of EIG, Co.
at December 31, 1994 -- -- 22.3
------ ------ ------
Gross liability for claims and claim
adjustment expenses at December 31 $302.9 $190.9 $199.5
====== ====== ======
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
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.
(15)
<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.
(16)
<PAGE>
<TABLE>
RECONCILIATION OF BEGINNING AND ENDING CLAIMS RESERVES
AND EXHIBIT OF REDUNDANCIES (DEFICIENCIES)
(In Millions)
Net Reserves
<CAPTION>
YEAR ENDED 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995* 1996**
- ---------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Liability for
Unpaid Claims and $126.1 $147.5 $157.4 $139.6 $115.7 $111.4 $132.8 $171.3 $161.3 $145.5 $177.8
Claim Adjustment
Expenses
Cumulative Amount Paid as of:
End of Year - - - - - - - - - - -
One Year Later 54.9 57.4 78.8 85.6 86.7 91.2 99.7 108.8 111.7 80.6 -
Two Years Later 73.6 75.9 92.1 104.2 109.7 115.5 134.0 152.1 126.9 - -
Three Years Later 79.5 74.5 95.5 110.3 120.6 127.0 154.4 153.4 - - -
Four Years Later 79.7 75.4 95.4 112.5 127.6 137.7 151.1 - - - -
Five Years Later 80.4 74.5 93.6 118.9 132.7 135.7 - - - - -
Six Years Later 79.0 74.2 100.5 123.0 131.4 - - - - - -
Seven Years Later 78.8 80.4 101.5 121.4 - - - - - - -
Eight Years Later 84.1 80.4 100.1 - - - - - - - -
Nine Years Later 84.1 79.6 - - - - - - - - -
Ten Years Later 83.5 - - - - - - - - - -
Net Liability Reestimated as of:
End of Year 126.1 147.5 157.4 139.6 115.7 111.4 132.8 171.3 161.3 145.5 177.8
One Year Late 126.4 131.9 129.4 129.4 135.4 137.5 159.7 172.7 163.9 135.7 -
Two Years Later 115.8 100.4 108.7 127.4 138.0 139.7 166.6 173.9 157.3 - -
Three Years Later 96.1 86.0 106.8 127.8 136.9 141.1 165.2 170.6 - - -
Four Years Later 88.0 83.7 103.0 125.0 137.9 142.0 163.0 - - - -
Five Years Later 86.9 80.8 102.3 125.8 135.7 141.4 - - - - -
Six Years Later 83.6 82.0 104.0 125.5 136.0 - - - - - -
Seven Years Later 85.7 82.9 103.8 125.8 - - - - - - -
Eight Years Later 86.0 82.6 104.2 - - - - - - - -
Nine Years Later 86.4 83.6 - - - - - - - - -
Ten Years Later 87.3 - - - - - - - - - -
Cumulative Redundancy
(Deficiency) 38.8 63.9 53.2 13.8 (20.3) (30.0) (30.2) 0.7 4.0 9.8 -
</TABLE>
The above table includes information related to the Company's participation in
the IRI.
* The Company carried reserves in the amount of $3.2 million at December 31,
1995 related to its .5 percent participation in IRI.
**For 1996, incurred claims and claims adjustment expenses include $22.8 million
related to the Company's 14 percent participation in IRI effective December 1,
1995, and .5 percent for prior years, of which $23.2 million relates to the 1996
accident year and ($.4 million) relates to prior accident years. The Company
carried net reserves in the amount of $11.6 million related to its participation
in IRI at December 31, 1996.
<TABLE>
Gross Reserves
YEAR ENDED 1993 1994 1995 1996
- ---------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Gross Liability for
Unpaid Claims and Claim
Adjustment Expenses $214.4 $199.4 $190.9 $302.9
Cumulative Amount Paid as of:
End of Year - - - -
One Year Later 144.2 135.2 108.9 -
Two Years Later 189.9 164.1 - -
Three Years Later 200.2 - - -
Gross Liability Reestimated as of:
End of year 214.4 199.4 190.9 302.9
One Year Later 224.3 212.0 205.5 -
Two Years Later 227.0 228.3 - -
Three Years Later 243.4 - - -
Cumulative Redundancy
(Deficiency) (29.0) (28.9) (14.6) -
</TABLE>
(17)
<PAGE>
G. INVESTMENTS
Income from the Company's investment portfolio contributes significantly to
earnings. Each year there is a significant net inflow of cash from insurance,
engineering services and investment operations into the Company's investment
portfolio. In addition, cash flow is affected by the normal maturity of fixed
income investments, and the purchase and sale of equity securities.
<TABLE>
(in millions)
1996 1995 1994 1993 1992 1991
------ ------ ------ ----- ------ -----
<CAPTION>
<S> <C> <C> <C> <C> <C>
Net Investment Income $ 32.3 $ 28.2 $ 26.2 $ 29.3 $ 32.0 $ 36.5
Realized Investment Gains 12.1 2.8 8.7 26.1 30.8 33.9
----- ------ ------ ----- ----- -----
Income from Investment Operations $ 44.4 $ 31.0 $ 34.9 $ 55.4 $ 62.8 $ 70.4
Net Unrealized Gains $ 81.4 $ 65.4 $ 16.5 $ 59.2 $ 69.5 $ 93.1
Statutory Surplus $292.4 $280.6 $ 238.0 $259.2 $307.6 $362.6
</TABLE>
The fluctuations in income from investment operations is largely driven by
the amount of realized gains generated in any given year. The Company's strategy
continues to be maximization of total return on the investment portfolio over
the long term through investment income and capital appreciation. Investment
strategies for any given year are developed based on many factors including
operational results, tax implications, regulatory requirements, interest rates,
dividends to stockholders and market conditions. In 1994 the stock market
experienced a significant decline which impacted both the Company's realized and
unrealized gains. In 1995 the Company curtailed its realized gains in order to
take advantage of a strongly performing market and to build statutory surplus.
In 1996 the Company continued to build statutory surplus, however, high
valuations towards the end of the year caused the Company to realize gains.
Net investment income reached its lowest level during 1994 as a result of a
lower average investment portfolio as holdings were liquidated to pay dividends,
repay debt, and purchase fixed assets and treasury stock. The increase in 1995
resulted from the full consolidation of EIG, Co. offset by a lower interest rate
environment.
The Company's investment portfolio consists 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. The Company held no derivative financial instruments in
its investment portfolio at December 31, 1995. In December 1996 the Company
entered into three "zero cost collar" contracts to mitigate the effects of
market risk on its common stock portfolio. At December 31, 1996 the Company had
approximately 40 percent of its invested assets in fixed maturities as compared
to 47 percent at year-end 1995. In the period 1991-1996 the Company gradually
reduced its investments in common stocks as part of its overall capital
management strategy. This has resulted in common stocks now representing 28.0
percent of invested assets at year-end 1996, as compared to 45.5 percent five
years ago.
The Company does not engage in cash-flow underwriting; it seeks to have
underwriting profit each year. None of the Company's claim reserves are
discounted as most claims settle, on average, within one year. Therefore, the
Company does not use duration measurements in managing its interest rate
exposure. Instead, the Company manages its portfolio by laddering its maturities
such that the average maturity is generally
(18)
<PAGE>
maintained between 5-10 years. This technique provides the Company with a
predictable cash flow each year and enables it to respond to the previously
discussed parameters that impact its investment strategy.
See "Investment Operations" in the Management's Discussion and Analysis of
Consolidated Financial Condition and Results of Operations located in Item 7 and
Note 5 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:
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)
1996 $572.6 $31.3 5.9% 5.4% $12.1 $16.0
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)
(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.
(19)
<PAGE>
H. EMPLOYEES
At year-end 1996, the Company, including its wholly-owned subsidiaries, had
2,027 full and part-time employees. Management believes that its relations with
its employees are satisfactory.
I. FORWARD-LOOKING STATEMENTS
For a summary of factors that may materially affect the Company's future
business, see "Forward- Looking Statements" in the Management's Discussion and
Analysis of Consolidated Financial Condition and Results of Operations in Item
7.
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 Canada, and in a small number of other foreign locations. The Company
considers the office facilities and other operating resources to be suitable and
adequate for its current and anticipated level of operations.
See Notes 7 and 11 to Consolidated Financial Statements located in Item 8
of Part II herein for additional information.
Item 3. Legal Proceedings.
- ---------------------------
The Company is involved in three arbitration or litigation proceedings
regarding the extent to which certain explosion events are insured under boiler
and machinery policies of the Company or under the all-risk property insurance
policies issued by other companies. Management believes the Company's policies
do not provide coverage for losses resulting from the explosion events that are
the subject of these proceedings.
In the fourth quarter of 1996, a court decision in one of these cases held
that an explosion did occur, and that the Company was not liable for losses of
the insured resulting from the explosion. Notwithstanding, the Company has
estimated and recorded a gross loss of $30 million and a reinsurance recoverable
of $25 million for potential losses under the policy issued by the Company in
this case; which losses resulted from events which occurred prior to the
excluded explosion.
The Company has accrued $6.5 million with respect to the other two cases
for potential loss adjustment expenses, including legal costs to defend the
Company's position. In the event that the Company is held liable for one or both
of the remaining claims, amounts in excess of the Company's net maximum
aggregate retention of $8.5 million is recoverable from the Company's
reinsurers. Claim amounts potentially recoverable from reinsurers in the event
of a possible adverse outcome in these cases could range, in the aggregate, from
$40 million to $195 million.
The obligations of the Company's reinsurers with respect to these cases are
not in dispute. Therefore, management believes that any adverse outcomes in
these cases will not, in the aggregate, have a material effect on either the
results of operations or financial condition of the Company. The Company's
reinsurance contracts do not require the Company to reimburse its reinsurers for
any losses such reinsurers might incur
(20)
<PAGE>
should these cases not be decided in the Company's favor. Nevertheless,
reinsurers often quote rates for future coverages based upon their or other
reinsurer's experience on a particular account. Therefore, in the event the
Company's reinsurers pay significant sums pursuant to the arbitration or
litigation proceedings described above, it is likely the Company's reinsurance
rates would increase in future periods. However, given the insured capacity that
exists in reinsurance markets worldwide, coupled with the Company's ability to
negotiate a redesign or restructuring of its reinsurance program, it does not
necessarily mean that such an increase would be material.
The Company is also involved in various other 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 results of operations or the 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 executive 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, 49, Chief Executive Officer, President and Director since 4/94;
President and Director 9/93 - 4/94; 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.
Saul L. Basch, 50, Senior Vice President, Treasurer and Chief Financial Officer
since 10/95; Partner, Coopers & Lybrand LLP 9/73 - 10/95, most recently as
Partner-in-Charge of Coopers & Lybrand's New York Insurance Industry Practice.
Michael L. Downs, 47, 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, 51, 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, 59, 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, 50, Senior Vice President and Corporate Secretary since 2/94;
Second Vice President 4/89 - 2/94; Assistant Vice President 1/84 - 4/89.
(21)
<PAGE>
William Stockdale, 51, 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, 53, Senior Vice President -Claims and General Counsel since
1/95; Senior Vice President - Claims 3/94 - 1/95; 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 13, 1997, the Company had 5,580 holders of
record.
Dividends paid by the Company are limited by state insurance regulations.
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 calculated as of the December
31st last preceding. Regulatory approval was not required for the payment of
1996 dividends but will be required for the payment of dividends in 1997 in
excess of $31 million, the Company's 1996 statutory net income.
Quarterly dividends declared for the 1996 and 1995 fiscal years were as
follows:
First Second Third Fourth Year
----- ------ ----- ------ ----
1996 $.57 $.57 $.57 $.57 $2.28
1995 $.55 $.55 $.57 $.57 $2.24
Quarterly market prices for the Company's common stock were as follows for
the two most recent years:
First Second Third Fourth Year
----- ------ ----- ------ ----
1996 High $52 1/2 $50 3/4 $49 $47 1/8 $52 1/2
1996 Low $48 $46 $43 1/4 $42 3/4 $42 3/4
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
(22)
<PAGE>
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>
(in millions, except per share amounts)
<CAPTION>
1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Summary of Consolidated Statements of Operations
Revenues:
Insurance premiums $448.6 $389.1 $336.6 $349.2 $342.9
Net engineering services 55.8 252.1 232.1 231.5 231.0
Income from investment operations 44.4 31.0 34.9 55.4 62.8
Total revenues (1) 548.8 672.2 603.6 636.1 636.7
Income before taxes and accounting changes 71.3 86.3 73.6 16.9 73.4
Income taxes 17.9 23.7 21.7 3.8 17.1
Income before accounting changes 53.4 62.6 51.9 13.1 56.3
Income per common share before accounting changes 2.65 3.07 2.54 .63 2.71
Dividends paid per common share 2.28 2.22 2.14 2.12 2.03
- --------------------------------------------------------------------------------------------------------------------
Summary of Consolidated Statements of Financial Position
Total assets $1,116.3 $971.5 $905.7 $877.9 $886.4
Long-term borrowings and
capital lease obligations 53.0 53.4 28.4 28.4 28.4
Convertible preferred 20.0 -- -- -- --
Common 345.6 341.1 299.5 324.7 374.3
Per common share 17.25 16.81 14.67 15.80 18.05
High $52.50 $50.38 $53.38 $59.50 $59.25
Low 42.75 39.25 36.13 43.25 45.13
Close 46.38 50.00 39.88 44.50 58.38
Common shares outstanding
at end of year(2) 20.0 20.3 20.4 20.5 20.7
Insurance
Operating gain (loss) $21.8 $ 34.2 $ 20.7 $ (26.4) $ 1.8
Loss ratio 45.6% 39.8% 42.5% 57.1% 50.3%
Expense ratio 49.1% 50.9% 50.5% 50.5% 49.2%
Combined ratio 94.7% 90.7% 93.0%(3) 107.6% 99.5%
Engineering Services (1)
Gross revenues $ 55.8 $280.9 $253.6 $256.1 $264.7
Subcontract & equipment resale costs -- 28.8 21.5 24.6 33.7
Net revenues 55.8 252.1 232.1 231.5 231.0
Operating gain 7.3 22.6 18.2 11.8 14.7
Gross margin 13.2% 8.0% 7.2% 4.6% 5.6%
Net margin 13.2% 8.9% 7.9% 5.1% 6.4%
- ---------------------------------------------------------------------------------------------------------------------
Investments
Net investment income $ 32.3 $ 28.2 $ 26.2 $ 29.3 $ 32.0
Realized investment gains 12.1 2.8 8.7 26.1 30.8
Income from investment operations 44.4 31.0 34.9 55.4 62.8
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Excludes revenues from investments accounted for under the equity method.
(2) Reflects the repurchase of approximately .3 million shares in 1996, .1
million shares in 1995, .1 million shares in 1994, .2 million shares in
1993, .3 million shares in 1992 and 1 million shares in 1987.
(3) Excludes charge for Proposition 103. Had the $2.9 million charge been
included, the expense ratio would have been 51.3 % and the combined ratio
would have been 93.8%.
(23)
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations.
- --------------
(dollar amounts in millions, except per share amounts)
Summary of Results of Operations
For the years ended December 31, 1996 1995 1994
- -----------------------------------------------------------
Revenues:
Insurance premium $448.6 $389.1 $336.6
Net engineering
services revenues 55.8 252.1 232.1
Net investment income 32.3 28.2 26.2
Realized investment gains 12.1 2.8 8.7
- ----------------------------------------------------------
Total revenues $548.8 $672.2 $603.6
Pro forma, exclusive of Radian:
Total revenues $548.8 $470.0 $419.5
Percent change 16.8% 12.0%
Net income $ 53.4 $ 62.6 $ 51.9
Net income per
common share $ 2.65 $ 3.07 $ 2.54
- ----------------------------------------------------------
Net income in 1996 declined 14.7 percent from 1995. In our domestic
insurance operations, catastrophe losses from unusually severe weather
conditions depressed underwriting results. Despite this, HSB continues to
produce combined ratios under 100 percent due to the Company's emphasis on
disciplined underwriting. The reduction in pretax underwriting results of $12.4
million was essentially offset by a $13.4 million increase in income from
investment operations.
While HSB experienced growth in most of its engineering businesses, results
for the Radian International LLC joint venture (owned 60 percent by Dow Chemical
and 40 percent by HSB), were disappointing, largely due to delays associated
with the transition of Radian's client mix to one that is more commercial based
than government based. Radian's contribution to pretax earnings declined by
approximately $15.7 million during 1996, which compares to the decline in
consolidated pretax profits of $15.0 million. Revenue shortfalls caused the
venture to reduce its work force during the year by about 10 percent, resulting
in a charge of $3.5 million. Increases in 1995 consolidated earnings relative to
1994 were a result of 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.
Consolidated revenues decreased 18.4 percent in 1996 to $548.8 million
largely due to a change in the method of reporting results of Radian (see note
2). Effective January 1996, HSB's interest in Radian is accounted for on the
consolidated financial statements under the equity method of accounting. Under
this method, detailed revenues and expenses and assets and liabilities of Radian
are not presented in the 1996 financial statements. Exclusive of Radian, pro
forma consolidated revenues increased 16.8 percent over 1995, with increased
participation in Industrial Risk Insurers (IRI) and growth in international
business operations the largest contributing factors. 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. Effective December 1, 1995 the Company
increased its participation from .5 to 14 percent, and from 14 to 23.5 percent
on December 1, 1996. The 1995 change in participation level generated an
increase in earned premium of $33.2 million in 1996. 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 is reflected in the
first
(24)
<PAGE>
quarter of the year subsequent to the change in membership participation. This
additional participation increased revenue and expenses for 1996 as well as
several balance sheet accounts.
Consolidated revenues in 1995 were greater than 1994 due to 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, a partnership which was
jointly formed with General Reinsurance Corporation (Gen Re) in 1988. 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 2). At the time of the acquisition, EIG was
incorporated with the Company acquiring all of the common shares and Gen Re
acquiring all of the preferred shares of the new Company, EIG, Co. Effective
December 30, 1996 HSB opted to exchange the EIG, Co. preferred stock for HSB
convertible preferred stock.
The effective tax rate for 1996 was 25.1 percent compared to 27.5 and 29.5
percent for 1995 and 1994, respectively. The change from 1995 is due primarily
to reduced underwriting profit, the loss at Radian, and increased realized
gains, the combination of which affected the mix of pretax income between fully
taxable earnings and tax-preferred investment income. The difference from 1995
to 1994 is due primarily to the change in the mix of foreign and domestic
business and utilization of related credits.
Insurance Operations
For the years ended December 31,1996 1995 1994
- ----------------------------------------------------------
Gross earned premium $556.5 $455.0 $381.7
Ceded premium 107.9 65.9 45.1
- ----------------------------------------------------------
Insurance premium $448.6 $389.1 $336.6
Claims and adjustment
expenses 204.4 154.9 143.2
Underwriting, acquisition
and other expenses 222.4 200.0 172.7
- ----------------------------------------------------------
Underwriting gain $ 21.8 $ 34.2 $ 20.7
Loss ratio 45.6% 39.8% 42.5%
Expense ratio 49.1% 50.9% 50.5%
Combined ratio 94.7% 90.7% 93.0%
- ----------------------------------------------------------
Insurance operations include the underwriting results of HSB, HSB
Engineering Insurance Limited (EIL), The Boiler Inspection and Insurance Company
of Canada (BI&I), The Allen Insurance Company, Ltd. and HSB's participation in
IRI and various other pools.
Insurance premiums in 1996 increased 15.3 percent from 1995. This increase
is primarily attributable to the increased participation in IRI ($33.2 million)
and to growth in the global markets. The significant increase in 1995 was
primarily attributable to the acquisition and full consolidation of EIL.
Insurance premiums representing coverage outside the U.S. increased 18.8
percent to $87.1 million from $73.3 million in 1995. The Company continues to
see opportunities for growth, particularly in those countries where
infrastructure development is moving to the private sector. At the same time,
softening of the pricing in this market has occurred globally as the number of
insurers offering capacity has expanded.
Domestically, exclusive of IRI, premiums increased approximately $12.3
million, or 3.9 percent. This increase was a combination of 19.2 percent growth
in written premiums from our recurring client companies, and the addition of new
client companies, offset by a loss of business as a result of industry
consolidation. The insurance industry, in general, continues to undergo
significant restructuring and consolidation. Considerable merger and acquisition
activity has occurred recently and more is possible 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
(25)
<PAGE>
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
multiline 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 re-evaluates its exposures and reinsurance needs annually
to implement a program which corresponds with the level of exposure the Company
is willing to retain. Because HSB has primary responsibility to its insureds,
the Company carefully evaluates the financial strength of those reinsurers it
cedes business to. The Company's reinsurance costs continue to be impacted by
its prior loss experience and business growth. In 1996, the Company's
reinsurance ceded costs increased $42 million from 1995, which was almost
entirely attributable to its increased participation in IRI.
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 reinsurance costs. In 1994 and continuing through 1996, HSB
increased its non-IRI retentions in order to mitigate the rising cost of
reinsurance.
For the years ended December 31, 1996 1995 1994
- ---------------------------------------------------------
Provision for claims and
adjustment expenses
occurring in the
current year $214.2 $152.2 $141.7
Increase (decrease) in
estimated claims and
adjustment expenses
arising in prior years (9.8)* 2.7 1.5
- ---------------------------------------------------------
Total incurred claims and
adjustment expenses $204.4 $154.9 $143.2
Loss ratio 45.6% 39.8% 42.5%
- ---------------------------------------------------------
* Includes $4.9 million of subrogation recoveries.
The loss ratio increased by 5.8 percent in 1996 as compared to 1995. The
increase is primarily the result of losses from unusually severe weather
conditions (2.0 percent) and the increased share in IRI (1.7 percent). 1995
claims and adjustment expenses reflect the acquisition and full consolidation of
EIG, Co. Claims and adjustment expenses, exclusive of EIG, Co., decreased $3.9
million in 1995 compared with 1994. Claim costs in 1994 include $4.8 million of
losses related to the California earthquake. The components of claims and
adjustment expenses, net of reinsurance, are displayed above.
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.
(26)
<PAGE>
The Company is involved in three arbitration or litigation proceedings
primarily with other insurers regarding significant loss events that occurred in
the late 1980s and early 1990s. The areas of dispute concern questions as to
whether the Company or the property insurer has responsibility for coverage of
certain property damage and business interruption losses sustained by the
insureds. It is management's position that the Company's insurance contract
terms exclude such losses, whereas the property insurers contend the policy
language is broad enough to extend coverage. The ultimate responsibility for
such losses will be determined through arbitration or the legal system. While
the timing of the resolution of these cases is unclear, management is of the
opinion that an adverse outcome will not have a material effect on the results
of operations or the financial position of the Company due to reinsurance
contracts in place for those years. Nevertheless, in the event the Company's
reinsurers are obliged to pay significant sums pursuant to the arbitration or
legal proceedings, it is likely the Company's reinsurance rates would increase
in future periods.
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. Insurance company 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. Such
assessments have not been material in any of the years presented.
Engineering Services Operations
As Reported
For the years ended December 31, 1996 1995 1994
- ---------------------------------------------------------
Net engineering
services revenues $55.8 $252.1 $232.1
Net engineering
services expenses 48.5 229.5 213.9
- ---------------------------------------------------------
Operating gain $ 7.3 $ 22.6 $ 18.2
Net margin 13.2% 8.9% 7.9%
- ---------------------------------------------------------
Pro Forma*
For the years ended December 31, 1996 1995 1994
- ---------------------------------------------------------
Net engineering
services revenues $55.8 $49.9 $48.0
Net engineering
services expenses 48.5 43.2 43.7
- ----------------------------------------------------------
Operating gain $ 7.3 $ 6.7 $ 4.3
Net margin 13.2% 13.3% 9.0%
- ----------------------------------------------------------
* Excludes Radian in 1995 and 1994. In 1996 Radian has been reported using the
equity method.
Engineering services operations include the results of HSB's and BI&I's
engineering services, HSB Reliability Technologies (HSB RT), HSB Professional
Loss Control and HSB International. The 1995 and 1994 results include Radian
Corporation on a fully consolidated basis. The 1996 engineering services results
do not include Radian, as HSB's share of the joint venture results were recorded
as equity in Radian rather than in net engineering services revenue and other
income statement accounts.
Net engineering services pro forma revenues increased 11.9 percent in
comparison to 1995. The growth in revenues was primarily due to increases
generated by HSB RT as their revenues were $4.8 million (35 percent) higher in
1996 compared to 1995, almost entirely attributable to increases in volume. Pro
forma net engineering services revenue
(27)
<PAGE>
increased 3.9 percent in 1995 compared to 1994. Increased profitability resulted
from the disposition of certain unprofitable HSB RT operations in 1994.
Investment Operations
For the years ended December 31, 1996 1995 1994
- ---------------------------------------------------------
Net investment income $ 32.3 $ 28.2 $ 26.2
Realized investment gains 12.1 2.8 8.7
- ---------------------------------------------------------
Income from investment
operations $ 44.4 $ 31.0 $ 34.9
- ---------------------------------------------------------
Total cash and invested
assets, at fair value $600.9 $553.8 $489.7
Unrealized gains, pretax $ 81.4 $ 65.4 $ 16.5
- ---------------------------------------------------------
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. On December 19, 1996, the Company entered into three "zero
cost collar" contracts to mitigate the effects on its common stock investments
and its capital of any severe declines in the common equities market. In
addition to offering downside protection for market declines in excess of
approximately 6 percent, the collar permits the Company to receive the dividends
on its common stock investments and retain a certain level of upside
appreciation depending upon market movements. 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, dividends to stockholders and market
conditions.
Net investment income increased 14.5 percent in 1996 due to an increased
level of investable assets and to a lesser extent by dividend increases on the
Company's common stock investments. Invested assets growth was due to
significant cash flow from operations during 1995 as well as the portfolio
transfer arising from the increased participation in IRI during 1996. Investment
income in the global market also increased as these operations have shown
significant growth over the past year.
The increase in 1995 was due to the full consolidation of EIG, Co. offset
by lower interest rates. In 1996 and 1995, the portfolio mix was shifted to more
holdings in tax preferred securities, which tend to moderate growth in pretax
investment income.
The Company's investment portfolio continues to consist of high grade
domestic and foreign investments. Excluding short term investments, the
Company's investments are primarily comprised of publicly traded, highly liquid
securities. At the end of 1996, the Company's fixed maturities portfolio
comprised 39.5 percent of the value of the invested assets. The credit quality
of the Company's bond investments at December 31, 1996, averaged a AA rating.
The Company's portfolio does not include any bonds in default as to either
principal or interest. Bonds held at December 31, 1996, had a fair value of
$134.2 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 also moderated investment income
growth.
The carrying value of the equity securities portfolio represented 44.0
percent of the investments at December 31, 1996. This included $79.8 million of
unrealized investment gains, which had a net increase of $19.4 million from 1995
on a sharp upturn in the stock market in 1996. The Company also recorded $10.5
million of dividends and $11.5 million of net pretax realized gains from this
portfolio in 1996. The Company's largest single holding accounted for less than
1 percent of total consolidated assets. Realized investment gains increased
significantly over 1995 as the
(28)
<PAGE>
Company managed its portfolio to respond to changing market conditions and tax
planning opportunities. The redemption of callable securities generated $1.4
million of gains.
Liquidity and Capital Resources
Balances at December 31, 1996 1995 1994
- --------------------------------------------------------
Total assets $1,116.3 $971.5 $905.7
Short-term investments 97.9 73.8 73.8
Cash 4.5 9.3 12.1
Short-term borrowings 3.2 13.4 50.9
Shareholders' equity 365.6 341.1 299.5
- --------------------------------------------------------
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, 1996, $3.2 million was outstanding. 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 Radian International LLC and currently has no
significant capital commitments planned for 1997. The Company has authorized a
guaranty of up to $16 million of Radian International LLC borrowings. At
December 31, 1996, the Company has guaranteed $7.6 million of Radian
International LLC debt. Based upon Radian's business plan, it is possible the
Company's guarantee could increase to $50 million subject to insurance
regulatory approval.
Cash provided from operations was $92.2 million in 1996 compared to $95.5
million in 1995 and $40.3 million in 1994. Insurance operations cash flow
increased in 1996 as premiums collected were up 6.7 percent while claim payments
increased at 1.7 percent. The additional participation in IRI impacted
components of the Company's Statements of Cash Flows for 1996, including a $.3
million contribution to cash provided from operations. The Radian International
LLC transaction had minimal impact on cash flow from operations. In 1995, $17
million of cash flow from operations was attributable to the full consolidation
of EIG, Co. Additional improvement in 1995 cash flow was due to better
underwriting and engineering services results. Excluding the impact of EIG, Co.,
in 1995, 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 279,200; 136,943; and 147,486 shares of its common stock in 1996,
1995 and 1994, 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 estimates it can pay approximately $31 million in dividends in 1997
without requesting regulatory approval. In granting such approval the insurance
regulators evaluate the adequacy and reasonableness of the Company's surplus and
other factors bearing on the financial condition of the Company. Based on the
Company's current financial condition, approval of its regular dividend is
expected to be received for 1997.
As previously noted, in December 1996, HSB exchanged EIG, Co. preferred
stock of $20 million for HSB convertible preferred stock.
As part of HSB's strategic planning process, the Company periodically
assesses its capital structure to ensure that appropriate capital is available
for redeployment to support its growth. In conjunction with this process, the
Company
(29)
<PAGE>
will be requesting that its shareholders approve the formation of a revised
holding company structure at a special meeting in 1997.
Statutory Financial Information
- -------------------------------
During 1996 the NAIC issued a model investment law which is available for
adoption by the states. The model investment law, known as the "defined limits"
version, provides 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 impact on HSB's investment practices
is expected to be minimal.
Regulator concerns about the consistency and comparability of Statutory
Accounting Principles (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 1998.
Forward-Looking Statements
- --------------------------
Certain statements contained in this report are forward-looking and are based on
management's current expectations. Actual results may differ materially from
such expectations depending on the outcome of certain factors described with
such forward-looking statements and other factors including: significant natural
disasters and severe weather conditions; changes in interest rates and the
performance of the financial markets; changes in the availability, cost and
collectibility of reinsurance; changes in domestic and foreign laws, regulations
and taxes; the entry of new or stronger competitors and the intensification of
pricing competition; the loss of current customers or the inability to obtain
new customers; changes in the coverage terms selected by insurance customers,
including higher deductibles and lower limits; the adequacy of loss reserves;
changes in asset valuations; consolidation and restructuring in the insurance
industry; changes in the demand and customer base for engineering and inspection
services offered by the Company and Radian International LLC whether resulting
from changes in the law or otherwise, and other general market conditions.
(30)
<PAGE>
Item 8. Financial Statements and Supplementary Data.
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
Page No.
--------
Report of Independent Accountants 32
Financial Statements
Consolidated Statements of Operations
for the years ended December 31, 1996,
1995 and 1994. 33
Consolidated Statements of Financial
Position - December 31, 1996 and 1995. 34
Consolidated Statements of Cash Flows
for the years ended December 31, 1996,
1995 and 1994. 35
Consolidated Statements of Changes in
Shareholders' Equity for the years ended
December 31, 1996, 1995 and 1994. 36
Notes to Consolidated Financial Statements 37
Schedule I - Summary of Investments-
Other than Investments in Related Parties 56
Schedule IV - Reinsurance 57
Schedule V - Valuation and Qualifying Accounts 58
Schedule VI - Supplemental Information Concerning
Property-Casualty Insurance Operations 59
No other schedules are required to be filed herewith pursuant to Article 7 of
Regulation S-X.
(31)
<PAGE>
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 consolidated 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,
1996 and 1995, and the consolidated results of their operations and their cash
flows for each of the three years in the period ended December 31, 1996, 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, presentfairly, in
all material respects, the information required to be included therein.
Coopers & Lybrand L.L.P.
Hartford, Connecticut
January 27, 1997
(32)
<PAGE>
FINANCIAL STATEMENTS
Consolidated Statements of Operations
For the years ended December 31, (in millions, except per share amounts)
<TABLE>
<CAPTION>
1996 1995 1994
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Insurance premiums $448.6 $389.1 $336.6
Net engineering services 55.8 252.1 232.1
Net investment income 32.3 28.2 26.2
Realized investment gains 12.1 2.8 8.7
- --------------------------------------------------------------------------------------------
Total revenues 548.8 672.2 603.6
- --------------------------------------------------------------------------------------------
Expenses:
Claims and adjustment 204.4 154.9 143.2
Policy acquisition 86.0 78.1 64.7
Underwriting and inspection 136.4 121.9 108.0
Net engineering services 48.5 229.5 213.9
Interest 1.0 1.5 1.6
- --------------------------------------------------------------------------------------------
Total expenses 476.3 585.9 531.4
- --------------------------------------------------------------------------------------------
Equity in operations of insurance association -- -- 1.4
Equity in Radian (1.2) -- --
- --------------------------------------------------------------------------------------------
Income before taxes 71.3 86.3 73.6
- --------------------------------------------------------------------------------------------
Income taxes (benefit):
Current 26.3 24.3 18.7
Deferred (8.4) (.6) 3.0
- --------------------------------------------------------------------------------------------
Total income taxes 17.9 23.7 21.7
- --------------------------------------------------------------------------------------------
Net income $ 53.4 $ 62.6 $ 51.9
- --------------------------------------------------------------------------------------------
Net income per common share $ 2.65 $ 3.07 $ 2.54
- --------------------------------------------------------------------------------------------
Average common shares outstanding and
common stock equivalents 20.2 20.4 20.5
============================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
(33)
<PAGE>
<TABLE>
Consolidated Statements of Financial Position
At December 31, (in millions, except per share amounts)
<CAPTION>
1996 1995
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Assets:
Cash $ 4.5 $ 9.3
Short-term investments, at cost 97.9 73.8
Fixed maturities, at fair value (cost - $231.3; $247.6) 235.8 255.3
Equity securities, at fair value (cost - $182.9; $155.0) 262.7 215.4
- -------------------------------------------------------------------------------------------
Total cash and invested assets 600.9 553.8
Insurance premiums receivable 106.4 87.2
Engineering services receivable 11.7 68.8
Fixed assets 31.7 62.3
Prepaid acquisition costs 40.6 34.1
Capital lease 16.1 16.8
Investment in Radian 79.7 --
Reinsurance assets 162.9 59.5
Other assets 66.3 89.0
- -------------------------------------------------------------------------------------------
Total assets $1,116.3 $971.5
- -------------------------------------------------------------------------------------------
Liabilities:
Unearned insurance premiums $ 270.6 $216.2
Claims and adjustment expenses 302.9 190.9
Short-term borrowings 3.2 13.4
Long-term borrowings 25.1 25.6
Capital lease 27.9 27.8
Deferred income taxes 23.7 18.9
Dividends payable 11.4 11.6
Minority interest -- 20.0
Other liabilities 85.9 106.0
- -------------------------------------------------------------------------------------------
Total liabilities 750.7 630.4
- -------------------------------------------------------------------------------------------
Shareholders' equity:
Common stock (stated value; shares authorized 50.0;
shares issued 21.3; shares outstanding 20.0; 20.3) 10.0 10.0
Convertible preferred stock (stated value;
shares authorized, issued and outstanding 0.002) 20.0 --
Additional paid-in capital 34.0 33.9
Unrealized investment gains, net of tax 52.8 43.9
Retained earnings 312.6 305.1
Treasury stock, at cost (shares 1.3; 1.0) (59.5) (47.7)
Benefit plans (4.3) (4.1)
- -------------------------------------------------------------------------------------------
Total shareholders' equity 365.6 341.1
- -------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $1,116.3 $971.5
- -------------------------------------------------------------------------------------------
Common shareholders' equity per share $ 17.25 $16.81
===========================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
(34)
<PAGE>
<TABLE>
Consolidated Statements of Cash Flows
For the years ended December 31, (in millions)
<CAPTION>
1996 1995 1994
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities:
Net Income $ 53.4 $62.6 $51.9
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation and amortization 9.8 19.4 19.3
Deferred income taxes (10.0) (.6) 3.0
Realized investment gains (12.1) (2.8) (8.7)
Change in:
Insurance premiums receivable (19.2) (4.1) (4.3)
Engineering services receivable (2.7) 3.3 6.9
Prepaid acquisition costs (6.5) 1.4 (2.0)
Reinsurance assets (103.4) (.8) (4.8)
Unearned insurance premiums 54.4 14.9 8.5
Claims and adjustment expenses 112.0 (8.5) (37.2)
Investment in Radian 12.9 -- --
Other 3.6 10.7 7.7
- ----------------------------------------------------------------------------------------------------
Cash provided by operating activities 92.2 95.5 40.3
- ----------------------------------------------------------------------------------------------------
Investing activities:
Fixed asset additions (1.0) (16.8) (16.8)
Investments:
Sale (purchase) of short-term investments, net (24.1) -- 2.5
Purchase of fixed maturities (89.0) (152.1) (52.3)
Proceeds from sale of fixed maturities 93.1 91.5 13.5
Redemption of fixed maturities 11.5 17.0 20.5
Purchase of equity securities (149.3) (95.0) (151.1)
Proceeds from sale of equity securities 131.2 122.9 216.6
Cash acquired in connection with EIG acquisition -- -- .3
Cash transferred to Investment in Radian (.7) -- --
- ----------------------------------------------------------------------------------------------------
Cash provided by (used in) investment activities (28.3) (32.5) 33.2
- ----------------------------------------------------------------------------------------------------
Financing activities:
Decrease in short-term borrowings, net (10.2) (37.5) (15.9)
Repayment of long-term debt (.5) (.1) (.1)
Increase in long-term debt -- 25.1 --
Dividends paid to shareholders (46.1) (45.3) (43.9)
Repayment of employee stock ownership plan debt -- (1.7) (2.1)
Purchase of treasury stock (13.0) (6.3) (6.8)
Exercise of stock options 1.1 -- .1
- ----------------------------------------------------------------------------------------------------
Cash used in financing activities (68.7) (65.8) (68.7)
- ----------------------------------------------------------------------------------------------------
Net increase (decrease) in cash (4.8) (2.8) 4.8
Cash at beginning of period 9.3 12.1 7.3
- ----------------------------------------------------------------------------------------------------
Cash at end of period $ 4.5 $ 9.3 $ 12.1
- ----------------------------------------------------------------------------------------------------
Interest paid $ 1.0 $ 1.5 $ 1.6
- ----------------------------------------------------------------------------------------------------
Federal income tax paid $ 25.7 $23.4 $ 8.2
====================================================================================================
</TABLE>
Non-cash investing and financing activities: Issuance of HSB convertible
preferred stock in exchange for EIG, Co. preferred stock in 1996 (See note 2).
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.
(35)
<PAGE>
<TABLE>
Consolidated Statements of Changes in Shareholders' Equity
For the years ended December 31, (in millions)
<CAPTION>
Net
Total Unrealized
Share- Convertible Additional Investment
holders' Common Preferred Paid-in Gains Retained Treasury Benefit
Equity Stock Stock Capital (Losses) Earnings Stock Plans
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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)
- ------------------------------------------------------------------------------------------------------------------
Net income 53.4 -- -- -- -- 53.4 -- --
Dividends declared (45.9) -- -- -- -- (45.9) -- --
Issuance of convertible
preferred stock 20.0 -- 20.0 -- -- -- -- --
Change in unrealized investment
gains, net of tax 8.9 -- -- -- 8.9 -- -- --
Benefit plans -- -- -- -- -- -- .2 (.2)
Exercise of stock options 1.1 -- -- .1 -- -- 1.0 --
Purchase of treasury stock (13.0) -- -- -- -- -- (13.0) --
- -------------------------------------------------------------------------------------------------------------------
Balances at December 31, 1996 $365.6 $10.0 $20.0 $34.0 $52.8 $312.6 $(59.5) $(4.3)
===================================================================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
(36)
<PAGE>
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. Certain amounts for 1995 and 1994 have been reclassified to conform
with the 1996 presentation.
Insurance
- ---------
Insurance premium revenues are net of reinsurance ceded and are generally earned
on a pro rata basis over the contract period, which could range from one to
three years. 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.
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 Company records
subrogation when recoverability is probable, such as when a judgment is
returned, liability is admitted to or settlement is reached. 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, and contract terms, policy coverage and
inflation. The establishment of reserves frequently 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 9.)
Reinsurance assets represent amounts due from reinsurers for paid and unpaid
claims, paid and unpaid loss adjustment expenses and the unearned portion of
premiums ceded through reinsurance agreements.
Engineering Services
- --------------------
The Company recognizes the majority of engineering services contract revenues as
services are provided. Costs on such contracts are included in operations as
incurred. Provisions are made for losses on contracts at the time such losses
become known. In 1995, when Radian was a fully consolidated subsidiary, revenues
were presented net of related subcontract costs. (See note 2.)
Investments
- -----------
Short-term investments have a maturity of one year or less and are carried at
cost which, together with accrued interest thereon, approximates fair value.
Fixed maturities include bonds, notes and redeemable preferred stocks. Equity
(37)
<PAGE>
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. 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.
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.
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.
Financial instruments which qualify for hedge accounting are recorded at market
with gains and losses reflected in shareholders' equity. To the extent such
instruments do not qualify for hedge accounting related gains and losses are
reflected in results of operations.
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/depreciation on fixed maturities and equity securities available
for sale, prepaid acquisition costs, loss reserve discounting, 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 represents the excess of the cost of acquiring a company over the fair
value of its net 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 $12.1 and $21.5 million at December 31, 1996 and 1995, respectively.
The Company evaluates the realizability of goodwill based upon projections of
undiscounted cash flows.
2. Corporate Investment Activity
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 all preferred shares of the new
company, EIG, Co.
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. Prior to this acquisition,
(38)
<PAGE>
the Company's 50 percent ownership in EIG had been accounted for under the
equity method. Accordingly, the results of operations for 1994 have been
reflected under the caption "Equity in operations of insurance association" in
the Consolidated Statements of Operations, while the 1996 and 1995 results of
operations for EIG, Co. are fully consolidated.
HSB had the option to request Gen Re to exchange the EIG, Co. preferred stock
for HSB convertible preferred stock at the end of 1996. This option was
exercised on December 30, 1996 resulting in the issuance of 2,000 shares of HSB
convertible preferred stock. (See note 12).
In January 1996, HSB and The Dow Chemical Company (Dow) formed a new company,
Radian International LLC (Limited Liability Company). Radian International LLC
provides 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 is initially 60 percent Dow
and 40 percent HSB, via the wholly-owned subsidiaries of each company. Income is
subject to a preference return to HSB in the first two years. At the date of the
transaction, HSB transferred virtually all of the assets and liabilities of
Radian Corporation at historical cost to Radian International LLC. No gain was
recognized on the transfer.
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.
The agreement provides that during 1998, HSB has the right to put its share of
Radian International LLC to Dow for net proceeds of approximately $145 million.
In 1996, HSB's interest in Radian International LLC of $79.7 million was
accounted for in the consolidated financial statements under the equity method
of accounting. Had the formation of the joint venture occurred at the beginning
of 1995 total revenues and total expenses would have been $470.7 and $398.5
million, respectively, and consolidated assets and liabilities at December 31,
1995 would have been $954.1 and $613.0, respectively.
Summarized financial data for Radian follows:
1996* 1995 1994
- --------------------------------------------------------
Assets $156.3 $108.6 $115.2
Liabilities $ 62.1 $ 37.1 $ 56.2
Revenues $229.6 $202.2 $184.1
Expenses $233.6 $188.1 $171.8
*100 percent
- --------------------------------------------------------
3. Segment Information
HSB is a multi-national company operating primarily in North American, European,
and Asian markets. The Company operates three principal businesses - insurance,
engineering services and investments. Revenues, expenses and all significant
segment specific assets and liabilities are reported in the Company's financial
statements. The Company does not allocate all assets between business segments.
The Company primarily offers coverage for machinery intensive risks and 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.
(39)
<PAGE>
The following presents financial data of the Company based on geographic
location:
For the years ended December 31, 1996 1995 1994
- ------------------------------------------------------------------------------
Revenues
U.S. $ 444.9 $581.7 $561.6
Non-U.S. 103.9 90.5 42.0
- ------------------------------------------------------------------------------
Total revenues $ 548.8 $672.2 $603.6
- ------------------------------------------------------------------------------
Income before taxes
U.S. $ 51.1 $ 68.6 $ 66.9
Non-U.S. 20.2 17.7 6.7
- ------------------------------------------------------------------------------
Total income $ 71.3 $ 86.3 $ 73.6
==============================================================================
For the years ended December 31, 1996 1995 1994
- ------------------------------------------------------------------------------
Identifiable assets
U.S. $ 858.3 $758.2 $744.0
Non-U.S. 258.0 213.3 161.7
- ------------------------------------------------------------------------------
Total assets $1,116.3 $971.5 $905.7
==============================================================================
HSB's foreign operations (primarily insurance) are widely dispersed such that no
country or logical aggregation of countries in a geographic area comprise a
significant concentration with respect to either revenues or identifiable
assets.
4. 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) and are not consolidated. Statutory accounting
practices (SAP) also differ in certain other 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 1996 and 1995, policyholders' surplus on a statutory
basis was $292.4 and $280.6 million, respectively. Statutory net income,
adjusted to include the earnings of all HSB domestic insurance subsidiaries for
1996, 1995 and 1994 was $32.1, $66.7, and $40.1 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, $30.9 million of statutory surplus
is available for distribution to shareholders in 1997 without prior regulatory
approval.
During 1996 the NAIC issued a model investment law which is available for
adoption by the states. The model investment law, known as the "defined limits"
version, provides 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 impact on HSB's investment practices
is expected to be minimal.
Regulator concerns about the consistency and comparability of SAP have 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 1998.
(40)
<PAGE>
5. Investments
<TABLE>
<CAPTION>
1996 1995 1994
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income from Investment Operations
Net investment income:
Short-term interest $ 4.8 $ 6.2 $ 2.0
Fixed maturities:
Taxable interest 9.8 9.0 4.1
Tax exempt interest 1.8 1.9 2.5
Redeemable preferred dividends 7.9 6.3 6.4
Equity securities:
Common dividends 4.6 4.0 6.7
Non-redeemable preferred dividends 5.9 4.6 5.1
Other 1.0 1.2 2.3
- --------------------------------------------------------------------------------------------
Total investment income 35.8 33.2 29.1
Investment expenses (3.5) (5.0) (2.9)
- --------------------------------------------------------------------------------------------
Net investment income $ 32.3 $ 28.2 $ 26.2
Realized investment gains (losses):
Fixed maturities:
Bonds:
Gains $ 2.0 $ .7 $ 1.2
Losses (.2) (1.5) (.7)
- ---------------------------------------------------------------------------------------------
Net gains (losses) 1.8 (.8) .5
Redeemable preferred stocks:
Gains .3 .7 1.7
Losses (1.5) (.6) (.2)
- ---------------------------------------------------------------------------------------------
Net gains (losses) (1.2) .1 1.5
Equity securities:
Common stocks:
Gains 14.6 11.4 19.3
Losses (3.3) (7.4) (17.3)
- ---------------------------------------------------------------------------------------------
Net gains 11.3 4.0 2.0
Non-redeemable preferred stocks:
Gains 4.2 .2 5.0
Losses (4.0) (.7) (.3)
- ---------------------------------------------------------------------------------------------
Net gains (losses) .2 (.5) 4.7
- ---------------------------------------------------------------------------------------------
Realized investment gains $ 12.1 $ 2.8 $ 8.7
=============================================================================================
</TABLE>
(41)
<PAGE>
Realized investment gains and losses for 1996 included $.8 million of losses on
non-redeemable preferred 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, and in 1994 other than temporary losses were $1.5 million on
common stock holdings.
1996 1995 1994
- ---------------------------------------------------------------------------
Unrealized Investment Gains, Net of Tax
Fixed maturities:
Gains $ 6.1 $ 9.3 $ 2.4
Losses (1.6) (1.6) (8.7)
- ----------------------------------------------------------------------------
Net gains (losses) 4.5 7.7 (6.3)
Equity securities:
Gains 82.0 64.2 35.8
Losses (2.2) (3.8) (9.6)
- ----------------------------------------------------------------------------
Net gains 79.8 60.4 26.2
Foreign exchange (2.9) (2.7) (3.4)
- ----------------------------------------------------------------------------
Total unrealized investment gains 81.4 65.4 16.5
Income taxes (28.6) (21.5) (2.6)
- ----------------------------------------------------------------------------
Unrealized investment gains, net of tax $52.8 $43.9 $13.9
============================================================================
(42)
<PAGE>
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>
1996
- -------------------------------------------------------------------------------------------------
<CAPTION>
Estimated Gross Gross
Amortized Fair Unrealized Unrealized
Category Cost Value Gains Losses
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Redeemable preferred stocks $ 99.6 $101.6 $3.1 $1.1
States and municipalities 39.4 40.7 1.6 .3
Foreign governments 30.1 30.5 .5 .1
Corporate and other 62.2 63.0 .9 .1
US Treasury and agencies -- -- -- --
- ------------------------------------------------------------------------------------------------
Total fixed maturities $231.3 $235.8 $6.1 $1.6
================================================================================================
1995
- ------------------------------------------------------------------------------------------------
Estimated Gross Gross
Amortized Fair Unrealized Unrealized
Category Cost Value Gains Losses
- ------------------------------------------------------------------------------------------------
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 --
US Treasury and agencies .1 .1 -- --
- --------------------------------------------------------------------------------------------------
Total fixed maturities $ 247.6 $ 255.3 $9.3 $1.6
==================================================================================================
</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.
1996
- ---------------------------------------------------------------------------
Estimated
Amortized Fair
Maturity Cost Value
- ---------------------------------------------------------------------------
One year or less $ 18.2 $ 18.1
Over one year through five years 105.0 107.3
Over five years through ten years 48.0 48.6
Over ten years 60.1 61.8
- ---------------------------------------------------------------------------
Total fixed maturities $231.3 $235.8
===========================================================================
(43)
<PAGE>
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:
1996
- ------------------------------------------------------------------------------
Estimated Gross Gross
Fair Unrealized Unrealized
Cost Value Gains Losses
- -------------------------------------------------------------------------------
Common stocks $ 95.7 $168.3 $73.6 $ 1.0
Non-redeemable preferred stocks 87.2 94.4 8.4 1.2
- -------------------------------------------------------------------------------
Total equity securities $182.9 $262.7 $82.0 $ 2.2
===============================================================================
1995
- -------------------------------------------------------------------------------
Estimated Gross Gross
Fair Unrealized Unrealized
Cost Value Gains Losses
- -------------------------------------------------------------------------------
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
===============================================================================
On December 19, 1996 the Company entered into three "zero cost collar" contracts
to mitigate the effects of market risk on its common stock portfolio. Each
contract has a notional amount of $50.0 million and maturity dates ranging from
November 1997 to January 1998. The fair value of the contracts at December 31,
1996 is estimated to be $(.1) million based upon quotes obtained from the
counterparties to the contract. The contracts, which were entered into when the
S&P index was 744.3, allow the Company to recover from the counterparty if the
index is below 695.20 at the time of maturity and require the Company to
reimburse the counterparty if the index is above a range of 811.287 to 818.730
at the time of maturity. The collar subjects the Company to off balance-sheet
risk which includes market and counterparty credit risk. The Company manages
this exposure by entering into contracts with internationally recognized
financial institutions, which are expected to perform under the terms of the
contract, and evaluating the creditworthiness of such institutions by taking
into account credit ratings and other factors.
The Company held no derivative financial instruments in its investment portfolio
at December 31, 1995. 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
option contracts are exercised or expire. During 1995, aggregate premiums
received by the Company on covered call options amounted to less than $.1
million. Net gains recognized on sales of underlying instruments amounted to
less than $.1 million for 1995. Generally the duration of covered call options
written by the Company does not exceed thirty days.
(44)
<PAGE>
6. Engineering Services
Engineering services receivable is summarized as follows:
1996 1995
- ------------------------------------------------------------------------------
Amounts billed $10.9 $45.9
Amounts unbilled 1.0 18.1
Amounts due upon completion of contracts -- 5.5
- ------------------------------------------------------------------------------
11.9 69.5
Less allowance for bad debts (.2) (.7)
- ------------------------------------------------------------------------------
Engineering services receivable $11.7 $68.8
==============================================================================
At December 31, 1995, engineering services receivable included $59.7 million
related to Radian Corporation.
Net engineering services revenues have been reduced by subcontract costs of
$28.8 and $21.5 million for 1995 and 1994, respectively.
7. Fixed Assets
Fixed assets are summarized as follows:
1996 1995
- ----------------------------------------------------------------------
Land and buildings $ 7.3 $ 7.4
Furniture, equipment and other 65.7 129.9
- ----------------------------------------------------------------------
73.0 137.3
Less accumulated depreciation (41.3) (75.0)
- ----------------------------------------------------------------------
Fixed assets $31.7 $ 62.3
======================================================================
At December 31, 1995, fixed assets, net of accumulated depreciation, included
$22.6 million related to Radian Corporation.
8. Reinsurance
The components of net written and net earned insurance premiums were as follows:
1996 1995 1994
- ------------------------------------------------------------------------------
Written premiums:
Direct $338.6 $285.3 $251.7
Assumed 232.6 182.9 137.9
Ceded (116.8) (59.9) (49.3)
- ------------------------------------------------------------------------------
Net written insurance premiums $454.4 $408.3 $340.3
- ------------------------------------------------------------------------------
Earned premiums:
Direct $343.4 $279.7 $242.6
Assumed 213.1 175.3 139.1
Ceded (107.9) (65.9) (45.1)
- ------------------------------------------------------------------------------
Net earned insurance premiums $448.6 $ 389.1 $336.6
==============================================================================
The Company writes direct business through agencies and brokerage firms. In
addition, the Company assumes boiler and machinery exposures from over 100
insurance companies and several insurance pools. A significant amount of
(45)
<PAGE>
this assumed book is underwritten by the Company. The insurance industry, in
general, is undergoing restructuring and consolidation. A significant amount of
merger and acquisition activity has occurred recently and may continue 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 reinsurance
assets, rather than netted against the related liability accounts. The Company
is not party to any contracts which do not comply with the risk transfer
provisions of Statement of Financial Accounting Standards (SFAS) No. 113,
"Accounting and Reporting for Reinsurance of Short-Duration and Long-Duration
Contracts". The Company recorded $113.9, $28.5 and $31.0 million of reinsurance
recoveries as a reduction of its claims and adjustment expenses for the years
ended December 31, 1996, 1995 and 1994, respectively. Reinsurance recoverable on
paid claims and adjustment expenses was $8.0 and $2.5 million at December 31,
1996 and 1995, respectively.
Effective December 1, 1996 and 1995, HSB increased its participation in
Industrial Risk Insurers (IRI) to 23.5 and 14 percent, respectively. Prior to
the December 1, 1995 increase in participation, HSB's interest in IRI was .5
percent. The 1995 increase in interest resulted in the Company assuming
approximately $27.9 million net unearned premium reserves which have not been
reflected in written premiums. 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 December 1, 1996
increase in participation will initially be reflected in the first quarter
financial reports for 1997.
9. 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>
1996 1995 1994
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net liability for claims and adjustment expenses at January 1, $145.5 $161.3 $171.3
- ----------------------------------------------------------------------------------------------------
Plus:
Provision for claims and adjustment expenses
occurring in the current year 214.2 152.2 141.7
Increase (decrease) in estimated claims and
adjustment expenses arising in prior years (9.8) 2.7 1.5
- ----------------------------------------------------------------------------------------------------
Total incurred claims and adjustment expenses 204.4 154.9 143.2
- ----------------------------------------------------------------------------------------------------
Less:
Payment for claims arising in:
Current year 91.4 58.9 63.5
Prior years 80.7 111.8 108.7
- ----------------------------------------------------------------------------------------------------
Total payments 172.1 170.7 172.2
- ----------------------------------------------------------------------------------------------------
Plus:
Full consolidation of EIG, Co.
at December 31, 1994 (See note 2) -- -- 19.0
- ----------------------------------------------------------------------------------------------------
Net liability for claims and adjustment expenses
at December 31, $177.8 $145.5 $161.3
====================================================================================================
</TABLE>
(46)
<PAGE>
1996 claims and adjustment expenses incurred have been reduced by subrogation
recoveries of approximately $4.9 million relating to accident years 1995 and
prior. Subrogation recoveries included in 1995 and 1994 incurred claims and
adjustment expenses are immaterial.
A reconciliation of the net liability to the gross liability for claims and
adjustment expenses is as follows:
1996 1995 1994
- -------------------------------------------------------------------------------
Net liability for claims and adjustment expenses
at December 31, $177.8 $145.5 $161.3
Reinsurance recoverable on unpaid claims and
adjustment expenses 125.1 45.4 38.1
- -------------------------------------------------------------------------------
Gross liability for claims and adjustment expenses
at December 31, $302.9 $190.9 $199.4
===============================================================================
The Company is involved in three arbitration or litigation proceedings primarily
with other insurers regarding significant loss events that occurred in the late
1980s and early 1990s. The areas of dispute concern questions as to whether the
Company or the property insurer has responsibility for coverage of certain
property damage and business interruption losses sustained by the insureds. It
is management's position that the Company's insurance contract terms exclude
such losses, whereas the property insurers contend the language is broad enough
to extend coverage. The ultimate responsibility for such losses will be
determined through arbitration or the legal system. While the timing of the
resolution of these cases is unclear, management is of the opinion that an
adverse outcome will not have a material effect on the results of operations or
the financial position of the Company due to reinsurance contracts in place for
those years. Nevertheless, in the event the Company's reinsurers are obliged to
pay significant sums pursuant to the arbitration or legal proceedings, it is
likely the Company's reinsurance rates would increase in future periods.
(47)
<PAGE>
10. Income Taxes
Tax Provision
A reconciliation of income taxes at U.S. statutory rates to the income taxes as
reported is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------
% of % of % of
Pre-Tax Pre-Tax Pre-Tax
Amount Income Amount Income Amount Income
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income before taxes $71.3 100% $86.3 100% $73.6 100%
- ---------------------------------------------------------------------------------------------------------------------
Tax at statutory rates $25.0 35% $30.2 35% $25.8 35%
Income taxed at foreign rates .5 -- .2 -- .2 --
Dividends received deduction (4.5) (6) (3.9) (5) (4.3) (6)
Tax exempt interest (.6) (1) (.7) (1) (.7) (1)
Tax credits and others (2.5) (3) (2.1) (2) .7 1
- ---------------------------------------------------------------------------------------------------------------------
Total income taxes and effective tax rate $17.9 25% $23.7 27% $21.7 29%
=====================================================================================================================
</TABLE>
Income taxes (benefit) consisted of the following:
1996 1995 1994
- ------------------------------------------------------------------------------
Current provision:
U.S. $18.9 $16.1 $15.6
Foreign 7.4 8.2 3.1
- ------------------------------------------------------------------------------
Total current provision 26.3 24.3 18.7
- ------------------------------------------------------------------------------
Deferred provision:
U.S. (8.0) .8 2.8
Foreign (.4) (1.4) .2
- ------------------------------------------------------------------------------
Total deferred provision (8.4) (.6) 3.0
- ------------------------------------------------------------------------------
Total income taxes $17.9 $23.7 $21.7
==============================================================================
(48)
<PAGE>
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, 1996 and 1995
are as follows:
1996 1995
- ----------------------------------------------------------------------
Deferred tax liabilities:
Prepaid acquisition costs $(11.8) $ (9.8)
Accelerated depreciation (2.0) (3.8)
Pension asset (11.9) (11.5)
Unrealized investment gains (28.6) (21.5)
Other (12.7) (13.8)
- ----------------------------------------------------------------------
Total deferred tax liabilities (67.0) (60.4)
- ----------------------------------------------------------------------
Deferred tax assets:
Benefit plans 9.6 10.8
Capital lease 4.1 3.6
Unearned insurance premiums 14.0 12.4
Loss reserve discounting 6.5 5.9
Other 9.1 8.8
- ----------------------------------------------------------------------
Total deferred tax assets 43.3 41.5
- ----------------------------------------------------------------------
Net deferred tax liabilities $(23.7) $(18.9)
======================================================================
Other Information
Federal income tax returns for the years 1995, 1994 and 1993 are open to
examination by the Internal Revenue Service. If examined, no significant tax
adjustments impacting the consolidated financial statements are anticipated.
11. 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 $10.1 and $9.3 million at December 31,
1996 and 1995, 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 facility's
variable operating expenses. This amounted to approximately $2.8 million for
each of the years ended December 31, 1996, 1995 and 1994.
HSB 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, and 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,
automobiles and certain equipment which are accounted for as operating leases.
Lease expenses amounted to $5.7, $14.3 and $15.1 million in 1996, 1995 and 1994,
respectively.
(49)
<PAGE>
At December 31, 1996, 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:
- -----------------------------------------------------
1997 $ 4.9
1998 4.2
1999 3.1
2000 1.8
2001 1.2
2002 and thereafter 1.0
- -----------------------------------------------------
Total $16.2
- -----------------------------------------------------
12. Capital Structure
The Company's capital structure is as follows:
1996 1995
- --------------------------------------------------------------------------
Short-term borrowings $ 3.2 $ 13.4
Long-term borrowings* 25.1 25.6
Convertible preferred stock 20.0 --
Common shareholders' equity 345.6 341.1
*Excludes capital lease. See note 11.
- --------------------------------------------------------------------------
Short-term and Long-term Borrowings
The Company has a commercial paper program with a limit of $75 million.
Commercial paper outstanding at December 31, 1996 and 1995 was $3.2 million and
$12.0 million, respectively. Commercial paper outstanding at year end 1996
matures on January 23, 1997. Long-term debt consists of $25.1 million of senior
notes due May 15, 2000 at an interest rate of 6.83 percent. Such amount
approximates market at December 31, 1996.
Convertible Preferred Stock
On December 30, 1996, the Company exercised its right to exchange 2,000 shares
of EIG, Co. preferred stock, which was issued at the time HSB acquired the
remaining 50 percent interest in EIG, Co. from Gen Re, for 2,000 shares of HSB
convertible preferred stock. The stock has no par value, but has voting rights
and carries a quarterly dividend of $162.50 per share. The stock is convertible
into 398,406 shares of HSB common stock at a price of $50.20 per share and may
be redeemed at the option of the Company on or after the fifth anniversary of
issuance and by Gen Re after the eighth anniversary.
Financial Guarantees
The Company has guaranteed 40 percent of Radian International, LLC's loan
outstanding with Dow Chemical Company. At December 31, 1996, the amount
guaranteed was $7.6 million.
13. Pension Plans
The Company maintains various types of pension plans covering employees of HSB
and certain subsidiaries. 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. As a result of the
plan's investment returns, the Company made no contribution to the plan in 1996,
1995 or 1994. Assets available for plan benefits include approximately $16.6
million of Company stock at December 31, 1996.
(50)
<PAGE>
The pension expense for the U.S. pension plans was a net credit to earnings for
1996, 1995 and 1994 due to the over funded status of the primary plan. The
components of the credit were as follows:
1996 1995 1994
- ----------------------------------------------------------------------------
Service costs $ 3.6 $ 2.9 $ 3.6
Interest costs 10.2 10.2 9.7
Return on assets (20.1) (30.9) 6.6
Net amortization and deferral 4.0 15.3 (22.0)
- ----------------------------------------------------------------------------
Net pension credit $(2.3) $(2.5) $(2.1)
============================================================================
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
- ----------------------------------------------------------------------------------------------------------------------
1996 1995 1996 1995
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation $ 99.4 $ 95.8 $ 20.3 $ 24.0
- ----------------------------------------------------------------------------------------------------------------------
Accumulated benefit obligation $100.0 $ 96.5 $ 20.9 $ 26.0
- ----------------------------------------------------------------------------------------------------------------------
Projected benefit obligation $115.7 $113.8 $ 24.3 $ 27.8
Assets available for plan benefits (equity securities
and fixed income investments at fair value) 178.0 164.8 -- --
- ----------------------------------------------------------------------------------------------------------------------
Assets in excess of (less than) projected benefit obligation 62.3 51.0 (24.3) (27.8)
- ----------------------------------------------------------------------------------------------------------------------
SFAS 87 unamortized net transition asset (obligation) 10.5 12.6 (2.2) (1.4)
Unrecognized prior service costs (1.9) (2.3) (1.1) (4.1)
Unrecognized net gain (loss) 3.9 (3.4) (7.1) (7.1)
- ----------------------------------------------------------------------------------------------------------------------
Unrecognized net asset (liability) 12.5 6.9 (10.4) (12.6)
Additional liability -- -- (4.6) (5.5)
- ----------------------------------------------------------------------------------------------------------------------
Net pension asset (liability) $ 49.8 $ 44.1 $(18.5) $(20.7)
======================================================================================================================
</TABLE>
Assumptions used for the primary U.S. plan at years ended were as follows:
1996 1995 1994
- ----------------------------------------------------------------------------
Discount rate 7.5% 7.5% 8.5%
Long-term rate of return on assets 9.5% 9.5% 9.5%
Rate of increase in future compensation levels 4.5% 5.0% 5.0%
- ----------------------------------------------------------------------------
14. Postretirement Plans
The Company makes available health care and life insurance benefits for retired
employees of The Hartford Steam Boiler Inspection and Insurance Company (HSB)
and certain subsidiaries.
The Company makes contributions to the plans as claims are incurred.
Contributions totaled $2.4, $2.6 and $2.3 million for 1996, 1995 and 1994,
respectively. At December 31, 1996, 1995 and 1994 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 and terms of coverage.
(51)
<PAGE>
Components of net periodic postretirement benefit cost were:
Years Ended December 31,
- ----------------------------------------------------------------------------
1996 1995 1994
- ----------------------------------------------------------------------------
Service cost $ .3 $ .3 $ .3
Interest cost 2.0 2.3 2.2
Amortization of unrecognized obligations -- -- .2
- ----------------------------------------------------------------------------
Net periodic postretirement benefit cost $ 2.3 $ 2.6 $ 2.7
============================================================================
The following table sets forth the amounts recognized in the Consolidated
Statements of Financial Position at December 31, in accordance with SFAS 106
"Employers Accounting for Postretirement Benefits Other Than Pensions."
1996 1995
- ------------------------------------------------------------------------------
Accumulated postretirement benefit obligations for:
Retirees $22.0 $24.9
Other fully eligible plan participants 1.0 1.5
Other active plan participants 3.8 4.7
- ------------------------------------------------------------------------------
Total accumulated postretirement benefit obligation 26.8 31.1
Unrecognized net loss (3.0) (6.6)
- ------------------------------------------------------------------------------
Accrued postretirement benefit liability $23.8 $24.5
==============================================================================
The assumptions used to calculate the obligations at December 31, were as
follows:
1996 1995
- ----------------------------------------------------------------------------
Weighted average discount rate 7.5% 7.5%
Current year health care cost trend rate 8.0% 10.0%
Ultimate health care cost trend rate 4.5% 5.0%
- ----------------------------------------------------------------------------
For measurement purposes, the annual rate of increase in the per capita cost of
covered health care benefits ranges from 8 percent in 1996 decreasing gradually
to 4.5 percent by the year 2001 and remaining at that level thereafter. In the
prior year, the range was from 10 percent in 1995 decreasing gradually to 5
percent by the year 2001 and remaining at that level thereafter.
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, 1996 of $27.4 million by approximately $1.5
million and the aggregate of the service and interest cost for the year ended
December 31, 1996 by $.1 million.
15. Stock Compensation Plan
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 1996, 1995 and 1994 was $.6, $1.1 and $2.2
million, respectively. The
(52)
<PAGE>
unamortized compensation expense related to this plan is included in benefit
plans as a component of shareholders' equity. These amounts were $.7 million in
both 1996 and 1995. A summary of grants follow:
1996 1995 1994
- ---------------------------------------------------------------------------
Restricted shares awarded 13,250 9,350 10,375
Weighted-average fair value of shares on
grant date $48.85 $42.78 $46.29
- ---------------------------------------------------------------------------
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.
A summary of the status of the Company's stock options at December 31, 1996,
1995 and 1994 and changes during the years ended on those dates is presented
below:
<TABLE>
1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------
Weighted- Weighted- Weighted-
Shares Average Shares Average Shares Average
Exercise Price Exercise Price Exercise Price
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 1,300,000 $50.86 1,263,550 $54.42 1,095,100 $56.03
Granted 394,000 49.81 303,500 42.54 305,250 46.31
Exercised (24,250) 46.26 -- -- (52,200) 41.12
Forfeited (350,100) 58.29 (267,050) 58.39 (84,600) 54.19
- -----------------------------------------------------------------------------------------------------------------------
Outstanding at end of year 1,319,650 48.67 1,300,000 $50.83 1,263,550 $54.42
- -----------------------------------------------------------------------------------------------------------------------
Options exercisable at end of year 949,650 $48.23 1,003,500 $53.32 983,300 $56.73
Weighted-average fair value of options
granted during the year $ 7.05 $ 7.42
- --------------------------------------------------------------------------------------------
</TABLE>
The following table summarizes information about stock options outstanding at
December 31, 1996.
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- ---------------------------------------------------------------------------------------------
Weighted-
Range of Average Weighted- Weighted-
Exercise Number Remaining Average Number Average
Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$41 - $45 282,500 8.9 $42.22 270,500 $42.15
$46 - $50 709,000 7.0 48.53 331,000 46.84
$51 - $55 154,200 2.3 51.66 174,200 51.48
$56 - $60 173,950 3.3 57.06 173,950 57.06
- ---------------------------------------------------------------------------------------------
1,319,650 949,650
=============================================================================================
</TABLE>
The Company's Long-Term Incentive Plan grants senior management awards
contingent upon the Company's achievement of specified performance objectives
over a three-year period which may be paid out in cash or shares of common stock
(which may be restricted shares). The number of shares subject to grant under
this plan cannot exceed 150,000.
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock Based Compensation" was issued in October 1995 for implementation by year
end 1996. SFAS No. 123 allows the use of a fair value based method of accounting
for an employee stock option or similar equity instruments or the intrinsic
value based method prescribed by APB Opinion No. 25, "Accounting for Stock
Issued to Employees" with pro forma disclosures of net income and earnings per
share as if the fair value based method of accounting had been applied. The
Company has elected to continue using the intrinsic value based method. Had the
Company elected to recognize compensation cost using the fair value based
method, compensation would have been measured at date of grant and recognized
over the service
(53)
<PAGE>
period. Pro forma net income and earnings per common share would have been
reduced as follows for 1996 and 1995:
1996 1995
- ---------------------------------------------------------------------------
Net income As Reported $53.4 $62.6
Pro Forma 51.4 61.7
Primary earnings per common share As Reported $2.65 $3.07
Pro Forma 2.55 3.02
- ---------------------------------------------------------------------------
These pro forma disclosure amounts derived by the use of SFAS No. 123 are not
indicative of future amounts. SFAS No. 123 is not applicable to options granted
prior to 1995, and additional options may be granted in future years.
The fair value of each option grant was estimated on the date of grant using the
Black-Scholes option-pricing model with the following assumptions for 1996 and
1995, respectively: risk-free interest rates of 6.1 percent in 1996; and 6.9
percent and 5.9 percent in 1995; dividend yield of 5 percent for both years;
expected lives of 6 years; and volatility of 16.8 percent in 1996; and 19.5
percent and 18.9 percent in 1995.
16. 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.
(54)
<PAGE>
17. Consolidated Quarterly Data (unaudited)
<TABLE>
<CAPTION>
First Second Third Fourth
1996 Quarter Quarter Quarter Quarter Year
- ---- ------- ------- ------- ------- ----
<S> <C> <C> <C> <C> <C>
Insurance premiums $108.4 $112.9 $113.8 $113.5 $448.6
Net engineering services 12.7 14.1 14.0 15.0 55.8
Net investment income 8.0 7.9 7.6 8.8 32.3
Realized investment gains .9 5.1 2.5 3.6 12.1
-- --- --- --- ----
Total revenues* $130.0 $140.0 $137.9 $140.9 $548.8
====== ====== ====== ====== ======
Income before taxes $ 23.7 $ 17.7 $ 15.1 $ 14.8 $ 71.3
Income taxes 6.7 4.3 3.5 3.4 17.9
--- --- --- --- ----
Net income $ 17.0 $ 13.4 $ 11.6 $ 11.4 $ 53.4
====== ====== ====== ====== ======
Per common share:
Net income $ .84 $ .66 $ .58 $ .57 $ 2.65
======= ======= ======= ======= =======
Dividends declared $ .57 $ .57 $ .57 $ .57 $ 2.28
Common stock price ranges:
High 52 1/2 50 3/4 49 47 1/8 52 1/2
Low 48 46 43 1/4 42 3/4 42 3/4
Close 50 5/8 49 1/8 44 3/4 46 3/8 46 3/8
Common shareholders at December 31, 5,644
</TABLE>
<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
Common shareholders at December 31, 5,864
</TABLE>
*Total revenues exclude revenues for investments accounted for under the
equity method.
(55)
<PAGE>
<TABLE>
Schedule I
The Hartford Steam Boiler Inspection and Insurance Company
Summary of Investments - Other Than Investments in Related Parties
(in millions)
<CAPTION>
Column A Column B Column C Column D Column E Column F Column G
- ---------------------------------------------------- ------------------------------------------------------------------------------
1996 1995
--------------------------------------- -------------------------------------
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. Government and Government Agencies
and Authorities $0.0 $0.0 $0.0 $ 0.1 $ 0.1 $ 0.1
States, Municipalities and Political
Subdivisions 39.4 40.7 40.7 $25.3 $27.0 $27.0
Foreign Governments 30.1 30.5 30.5 45.3 46.7 46.7
Convertibles and Bonds with Warrants Attached 0.0 0.0 0.0 0.0 0.0 0.0
All Other Bonds 51.1 51.9 51.9 95.8 99.0 99.0
Mortgage Receivable 11.1 11.1 11.1 11.1 11.1 11.1
Redeemable Preferred Stocks 99.6 101.6 101.6 70.0 71.4 71.4
----------------------------------- --------------------------------------
Total Fixed Maturities $231.3 $235.8 $235.8 $247.6 $255.3 $255.3
Equity Securities:
Common Stocks:
Public Utilities 15.3 16.6 16.6 $6.3 $7.0 $7.0
Banks and Insurance 12.0 20.0 20.0 10.6 13.6 13.6
Industrial and Other 68.4 131.7 131.7 81.3 132.9 132.9
Non-Redeemable Preferred Stocks 87.2 94.4 94.4 56.8 61.9 61.9
----------------------------------- --------------------------------------
Total Equity Securities $182.9 $262.7 $262.7 $155.0 $215.4 $215.4
Short-term Investments and Cash: $102.4 $102.4 $102.4 $83.1 $83.1 $83.1
----------------------------------- --------------------------------------
Total Investments $516.6 $600.9 $600.9 $485.7 $553.8 $553.8
=================================== ======================================
</TABLE>
(56)
<PAGE>
<TABLE>
Schedule IV
The Hartford Steam Boiler Inspection and Insurance Company
Reinsurance
(in millions)
<CAPTION>
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
Companies Companies Assumed to Net
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1996
Property and
Liability
Insurance $343.4 $107.9 $213.1 $448.6 47.5%
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%
</TABLE>
(57)
<PAGE>
<TABLE>
SCHEDULE V
THE HARTFORD STEAM BOILER INSPECTION AND INSURANCE COMPANY
Valuation and Qualifying Accounts
(in millions)
<CAPTION>
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 Accounts Describe (a) Period
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1996
Reserve for Accounts Receivable $3.3(b) $1.4 $0.0 $1.7 $3.0
1995
Reserve for Accounts Receivable $3.1 $2.6 $0.0 $2.1 $3.6(b)
1994
Reserve for Accounts Receivable $2.1 $2.2 $0.0 $1.2 $3.1
</TABLE>
(a) Engineering Services and Insurance Premium Receivables written off as
uncollectible.
(b) Radian International LLC, an affiliate of Hartford Steam Boiler, was
accounted for under the consolidation method of accounting in 1995 and the
equity method of accounting for 1996. As such, $0.3 million of receivables
is included in the 1995 balance but included on a different line in the
1996 financial statements (not included above).
(58)
<PAGE>
<TABLE>
Schedule VI
The Hartford Steam Boiler Inspection and Insurance Company
Supplemental Information Concerning Property-Casualty Insurance Operations
For Years Ended December 31, 1996, 1995, and 1994
<CAPTION>
Column A Column B Column C Column D Column E Column F Column G Column H Column I Column J Column K
Affiliation Reserves Discount, Unearned Earned Net Claims and Claim Amortization Paid claims Premiums
with Prepaid for if any premium premiums investment Adjustment of prepaid and claim written
Registrant Acquisition unpaid deducted income expenses policy adjustment
(Consolidated Costs claims in incurred acquisition expenses
property- and claim Column C related to costs
casualty adjustment Current Prior
entities) expenses Year Years
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996 40.6 302.9 - 270.6 448.6 32.3 214.2 -9.8 86.0 172.1 454.4
1995 34.1 190.9 - 216.2 389.1 28.2 152.2 2.7 78.1 170.7 408.3
1994 35.5 199.4 - 201.3 336.6 26.2 141.7 1.5 64.7 172.2 340.3
(59)
<PAGE>
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 2000" and "Members of the Board of Directors Continuing in Office"
on pages 3-5 of the Company's Proxy Statement dated March 26, 1997 are
incorporated herein by reference. Also see pages 21-22 herein.
Item 11. Executive Compensation.
"Meetings and Remuneration of the Directors" on pages 6-7, "Human Resources
Committee Report on Executive Compensation" on pages 9-11, "Summary Compensation
Table" on page 12, "Stock Option and Long-Term Incentive Plan Tables" on pages
13-14, "Retirement Plans" on pages 14-15, "Employment Arrangements" on pages
15-16, "Compensation Committee Interlocks and Insider Participation" on page 16,
and "Performance Graphs" on page 17 of the Company's Proxy Statement dated March
26, 1997 are incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners
and Management.
"Security Ownership of Certain Beneficial Owners and Management" on page
8-9 of the Company's Proxy Statement dated March 26, 1997 is incorporated herein
by reference.
Item 13. Certain Relationships and Related Transactions.
"Compensation Committee Interlocks and Insider Participation" on page 16 of
the Company's Proxy Statement dated March 26, 1997 is incorporated herein by
reference.
(60)
<PAGE>
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 31
herein are filed as part of this report.
(b) Reports on Form 8-K - Form 8-K dated February 24, 1997 to announce the
election of Simon W. Leathes as a director of the Registrant.
(c) The exhibits listed in the accompanying Index to Exhibits are filed as
part of this report.
(61)
<PAGE>
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
Gordon W. Kreh
President and Chief
Executive Officer
March 28, 1997
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 Officer
March 28, 1997 and Director
/s/ Saul L. Basch Senior Vice President, Treasurer
Saul L. Basch and Chief Financial Officer
March 28, 1997 (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
(62)
<PAGE>
(Lois Dickson Rice)* Director
(John M. Washburn, Jr.)* Director
(Wilson Wilde)* Director
*By: /s/ Robert C. Walker
Robert C. Walker
(Attorney-in-Fact)
March 28, 1997
(63)
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description
(3)(i) Charter of The Hartford Steam Boiler Inspection and
Insurance Company, as amended effective December 30, 1996.
(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 November 28, 1988 between
Registrant and The First National Bank of Boston, as
Rights Agent; incorporated by reference to Exhibit 4(i) to
registrant's Form 10-K for the year ended December 31, 1995 .
(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
(64)
<PAGE>
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 3, 1997
between the Registrant and various executive
officers.*
(b) The Hartford Steam Boiler Inspection and
Insurance Company Long-Term Incentive Plan, as
amended and restated effective December 23, 1996.*
(c) The Hartford Steam Boiler Inspection and
Insurance Company Short-Term Incentive Plan, as
amended and restated December 23, 1996. *
(d) The Hartford Steam Boiler Inspection and
Insurance Company 1985 Stock Option Plan, as
amended and restated December 23, 1996. *
(e) The Hartford Steam Boiler Inspection and
Insurance Company 1995 Stock Option Plan,
amended and restated effective December 23, 1996. *
(f) Pre-Retirement Death Benefit and Supplemental
Pension Agreement between the Registrant and
various executive officers, as amended and
restated effective March 14, 1997. *
(g) Pre-Retirement Death Benefit and Supplemental
Pension Agreement between the Registrant and
William A. Kerr, dated March 14, 1997. *
(h) Pre-Retirement Death Benefit and Supplemental
Pension Agreement between the Registrant and
Robert C. Walker, dated March 14, 1997.*
(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
Directors Stock and Deferred Compensation Plan*
(k) Description of certain arrangements not set forth in any formal
documents, as described on pages
(65)
<PAGE>
6 - 7 , with respect to directors' compensation, and on pages 9
-16, with respect to executive officer's compensation, which
pages are incorporated by reference to Registrant's Proxy
Statement dated March 26, 1997. *
(21) Subsidiaries of the Registrant.
(23) Consent of experts and counsel -
consent of Coopers & Lybrand.
(24) Power of attorney.
(27) Financial Data Schedule.
* Management contract, compensatory plan or arrangement required to be filed as
an exhibit pursuant to Item 14(c) of this report.
(66)
<PAGE>
</TABLE>
Exhibit (3)(i)
CHARTER
of
THE HARTFORD STEAM BOILER INSPECTION AND INSURANCE COMPANY
Hartford, Connecticut
as
AMENDED EFFECTIVE
DECEMBER 30, 1996
<PAGE>
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 determine. 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
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 such class or series of 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;
(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 provisions 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.
g. Such Interested Stockholder shall not have made or caused the making
of any major change in the Corporation's business or equity capital
structure without the approval of a majority of the continuing
Directors.
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 capital 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 (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.
AMENDMENT NO. 1
The Charter of The Hartford Steam Boiler Inspection and Insurance Company is
hereby amended effective December 30, 1996 by the addition of Attachment A to
Section 3 thereof:
Attachment A
SECTION 1. Number of Shares and Designations.
Two thousand (2,000) shares of the Preferred Stock, without par value,
of the Corporation are constituted as a series thereof designated as
Series B Convertible Preferred Stock (the "Series B Preferred Stock").
SECTION 2. Definitions. For purposes of the Series B Preferred Stock, the
following terms shall have the meanings indicated:
2.1 "Accrued Dividends" shall have the meaning set forth in Section
4.1 below.
2.2 "Board of Directors" shall mean the board of directors of the
Corporation or any committee authorized by such board of
directors to perform any of its responsibilities with respect to
the Series B Preferred Stock.
2.3 "Business Day" shall mean any day other than a Saturday, Sunday
or a day on which state or federally chartered banking
institutions in New York, New York are not required to be open.
2.4 "Call Event" shall mean the consummation of a transaction
pursuant to Section 2.2 of the Transaction Agreement.
2.5 "Charter" shall mean the Charter of the Corporation, as amended
from time to time.
2.6 "Common Stock" shall mean the common stock of the Corporation,
without par value.
2.7 "Constituent Person" shall have the meaning set forth in Section
8.5 below.
2.8 "Conversion Price" shall mean the conversion price per share of
Common Stock for which the Series B Preferred Stock is
convertible, as such Conversion Price may be adjusted pursuant to
Section 8.
below. The initial conversion price will be $ 50.20.
2.9 "Current Market Price" of publicly traded shares of Common Stock
or any other class of capital stock or other security of the
Corporation or any other issuer for any day shall mean the last
reported sales price, regular way on such day, or, if no sale
takes place on such day, the average of the reported closing bid
and asked prices on such day, regular way, in either case as
reported on the New York Stock Exchange Composite Tape or, if
such security is not listed or admitted for trading on the New
York Stock Exchange ("NYSE"), on the principal national
securities exchange on which such security is listed or admitted
for trading or, if not listed or admitted for trading on any
national securities exchange, on the National Market System of
the National Association of Securities Dealers, Inc. Automated
Quotations System ("NASDAQ") or, if such security is not quoted
on such National Market System, the average of the closing bid
and asked prices on such day in the over-the-counter market as
reported by NASDAQ or, if bid and asked prices for such security
on such day shall not have been reported through NASDAQ, the
average of the bid and asked prices on such day as furnished by
any NYSE member firm regularly making a market in such security
selected for such purpose by the Board of Directors.
2.10 "Dividend Payment Date" shall mean the last business day of
January, April, July and October in each year, commencing on the
last business day of January, 1997, provided, however, that if
any Dividend Payment Date falls on any day other than a Business
Day, the dividend payment due on such Dividend Payment Date shall
be paid on the Business Day immediately following such Dividend
Payment Date.
2.11 "Dividend Periods" shall mean quarterly dividend periods
commencing on the last business day of January, April, July and
October of each year and ending on and including the day
preceding the first day of the next succeeding Dividend Period
(other than the initial Dividend Period, which shall commence on
the Issue Date and end on and include January 30, 1997).
2.12 "Fair Market Value" shall mean the average of the daily Current
Market Prices of a share of Common Stock during the five (5)
consecutive Trading Days selected by the Corporation commencing
not more than 20 Trading Days before, and ending not later than,
the earlier of the day in question and the day before the "ex"
date with respect to the issuance or distribution requiring such
computation. The term "'ex' date," when used with respect to any
issuance or distribution, means the first day on which the Common
Stock trades regular way, without the right to receive such
issuance or distribution, on the exchange or in the market, as
the case may be, used to determine that day's Current Market
Price.
2.13 "Issue Date" shall mean the first date on which shares of Series
B Preferred Stock are issued and sold.
2.14 "Junior Stock" shall mean the Common Stock, the Series A
Preferred Stock and any other class or series of shares of the
Corporation over which the Series B Preferred Stock has
preference or priority in the payment of dividends or in the
distribution of assets on any liquidation, dissolution or winding
up of the Corporation.
2.15 "Liquidation Preference" shall have the meaning set forth in
Section 4.1 hereof.
2.16 "non-electing share" shall have the meaning set forth in Section
8.5 hereof.
2.17 "Person" shall mean any individual, firm, partnership,
corporation or other entity, and shall include any successor (by
merger or otherwise) of such entity.
2.18 "Put Event" shall mean the consummation of a transaction pursuant
to Section 2.3 of the Transaction Agreement.
2.19 "Redemption Date" shall have the meaning set forth in Section
5.3 hereof.
2.20 "Rights" shall mean the rights of the Corporation which are
issuable under the Corporation's Rights Agreement dated as of
November 28, 1988, and as amended from time to time, or rights to
purchase any capital stock of the Corporation under any successor
shareholder rights plan or plans adopted in replacement of the
Corporation's Rights Agreement.
2.21 "Securities" shall have the meaning set forth in Section
8.4(c) below.
2.22 "Series A Preferred Stock" shall mean the series of Preferred
Stock of the Corporation, without par value, designated Series A
Junior Participating Preferred Stock.
2.23 "Series B Preferred Stock" shall have the meaning set forth in
Section 1 hereof.
2.24 "set apart for payment" shall be deemed to include, without any
action other than the following, the recording by the Corporation
in its accounting ledgers of any accounting or bookkeeping entry
which indicates, pursuant to a declaration of dividends or other
distribution by the Board of Directors, the allocation of funds
to be so paid on any series or class of capital stock of the
Corporation; provided, however, that if any funds for any class
or series of Junior Stock or any class or series of stock ranking
on a parity with the Series B Preferred Stock as to the payment
of dividends are placed in a separate account of the Corporation
or delivered to a disbursing, paying or other similar agent, then
"set apart for payment" with respect to the Series B Preferred
Stock shall mean placing such funds in a separate account or
delivering such funds to a disbursing, paying or other similar
agent.
2.25 "Stated Value" shall have the meaning set forth in Section 4.1
hereof.
2.26 "Trading Day" shall mean any day on which the securities in
question are traded on the NYSE, or if such securities are not
listed or admitted for trading on the NYSE, on the principal
national securities exchange on which such securities are listed
or admitted, or if not listed or admitted for trading on any
national securities exchange, on the National Market System of
the NASDAQ, or if such securities are not quoted on such National
Market System, in the applicable securities market in which the
securities are traded.
2.27 "Transaction" shall have the meaning set forth in Section
8.5 hereof.
2.28 "Transaction Agreement" shall mean that certain Transaction
Agreement, dated as of December 30, 1994, by and among the
Corporation and General Reinsurance Corporation.
2.29 "Transfer Agent" means The First National Bank of Boston or such
other agent or agents of the Corporation as may be designated by
the Board of Directors as the transfer agent for the Series B
Preferred Stock.
SECTION 3. Dividends.
3.1 The holders of shares of the Series B Preferred Stock shall be
entitled to receive, when, as and if declared by the Board of
Directors out of assets legally available for that purpose,
dividends payable in cash at the rate per annum of $650 per share
of Series B Preferred Stock. Such dividends shall be cumulative
from the Issue Date, whether or not in any Dividend Period or
Periods there shall be assets of the Corporation legally
available for the payment of such dividends, and shall be payable
quarterly, when, as and if declared by the Board of Directors, in
arrears on Dividend Payment Dates, commencing on January 31,
1997. Each such dividend shall be payable in arrears to the
holders of record of shares of the Series B Preferred Stock, as
they appear on the stock records of the Corporation at the close
of business on such record dates, which shall not be more than 60
days nor less than 10 days preceding the payment dates thereof,
as shall be fixed by the Board of Directors or a duly authorized
committee thereof. Accrued and unpaid dividends for any past
Dividend Periods may be declared and paid at any time, without
reference to any Dividend Payment Date, to holders of record on
such date, not exceeding 45 days preceding the payment date
thereof, as may be fixed by the Board of Directors.
3.2 The amount of dividends payable for each full Dividend Period for
the Series B Preferred Stock shall be computed by dividing the
annual dividend rate by four. The amount of dividends payable for
the initial Dividend Period, or any other period shorter or
longer than a full Dividend Period, on the Series B Preferred
Stock shall be computed on the basis of twelve 30-day months and
a 360-day year. Holders of shares of Series B Preferred Stock
shall not be entitled to any dividends, whether payable in cash,
property or stock, in excess of cumulative dividends, as herein
provided, on the Series B Preferred Stock. No interest, or sum of
money in lieu of interest, shall be payable in respect of any
dividend payment or payments on the Series B Preferred Stock that
may be in arrears.
3.3 So long as any shares of the Series B Preferred Stock are
outstanding, no dividends, except as described in the next
succeeding sentence, shall be declared or paid or set apart for
payment on any class or series of stock of the Corporation
ranking, as to dividends and amounts distributable upon
liquidation, dissolution or winding up, on a parity with the
Series B Preferred Stock, for any period unless full cumulative
dividends have been or contemporaneously are declared and paid or
declared and a sum sufficient for the payment thereof set apart
for such payment on the Series B Preferred Stock for all Dividend
Periods terminating on or prior to the date of payment of the
dividend on such class or series of parity stock. When dividends
are not paid in full or a sum sufficient for such payment is not
set apart, as aforesaid, all dividends declared upon shares of
the Series B Preferred Stock and all dividends declared upon any
other class or series of stock ranking on a parity as to
dividends and amount distributable upon liquidation, dissolution
or winding up shall be declared ratably in proportion to the
respective amounts of dividends accumulated and unpaid on the
Series B Preferred Stock and accumulated and unpaid on such
parity stock.
3.4 So long as any shares of the Series B Preferred Stock are
outstanding, no dividends (other than (i) the Rights and (ii)
dividends or distributions paid in shares of, or options,
warrants or rights to subscribe for or purchase shares of, Junior
Stock) shall be declared or paid or set apart for payment or
other distribution declared or made upon Junior Stock, nor shall
any Junior Stock or any series of stock of the Corporation
ranking, as to dividends and amounts distributable upon
liquidation, dissolution or winding up, on a parity with Series B
Preferred Stock be redeemed, purchased or otherwise acquired
(other than a redemption, purchase or other acquisition of shares
of Common Stock made for purposes of an employee incentive or
benefit plan of the Corporation or any subsidiary) for any
consideration (or any moneys be paid to or made available for a
sinking fund for the redemption of any shares of any such stock)
by the Corporation, directly or indirectly (except by conversion
into or exchange for Junior Stock), unless in each case the full
cumulative dividends on all outstanding shares of the Series B
Preferred Stock and any other stock of the Corporation ranking on
a parity with the Series B Preferred Stock, as to dividends and
amounts distributable upon liquidation, dissolution or winding up
shall have been paid or set apart for payment for all past
Dividend Periods with respect to the Series B Preferred Stock and
all past dividend periods with respect to such parity stock.
SECTION 4. Payments upon Liquidation.
4.1 In the event of any liquidation, dissolution or winding up of the
Corporation before any payment or distribution of the assets of
the Corporation (whether capital or surplus) shall be made to or
set apart for the holders of Junior Stock, the holders of the
shares of Series B Preferred Stock shall be entitled to receive
Ten Thousand Dollars ($10,000) per share of Series B Preferred
Stock (the "Stated Value") plus an amount equal to all dividends
(whether or not earned or declared) accrued and unpaid thereon
("Accrued Dividends") to the date of final distribution to such
holders (the "Liquidation Preference"); but such holders shall not
be entitled to any further payment. If, upon any liquidation,
dissolution or winding up of the Corporation, the assets of the
Corporation, or proceeds thereof, distributable among the holders
of the shares of Series B Preferred Stock shall be insufficient to
pay in full the Liquidation Preference, and the liquidation
preference on all other shares of any class or series of stock
ranking, as to dividends and amounts distributable upon
liquidation, dissolution or winding up, on a parity with the
Series B Preferred Stock, then such assets, or the proceeds
thereof, shall be distributed among the holders of shares of
Series B Preferred Stock and any such other parity stock ratably
in accordance with the respective amounts that would be payable on
such shares of Series B Preferred Stock and any such other stock
if all amounts payable thereon were paid in full. For the purposes
of this Section 4., (i) a consolidation or merger of the
Corporation with one or more corporations, or (ii) a sale or
transfer of all or substantially all of the Corporation's assets,
shall not be deemed to be a liquidation, dissolution or winding
up, voluntary or involuntary, of the Corporation.
4.2 Subject to the rights of the holders of shares of any series or
class or classes of stock ranking on a parity with or prior to the
Series B Preferred Stock as to dividends and amounts distributable
upon liquidation, dissolution or winding up of the Corporation,
after payment shall have been made to the holders of the Series B
Preferred Stock, as and to the fullest extent provided in this
Section 4, any other series or class or classes of Junior Stock
shall, subject to the respective terms and provisions (if any)
applying thereto, be entitled to receive any and all assets
remaining to be paid or distributed, and the holders of the Series
B Preferred Stock shall not be entitled to share therein.
SECTION 5. Redemption at the Option of the Corporation.
5.1 The shares of Series B Preferred Stock shall be redeemable at the
option of the Corporation by resolution of its Board of Directors,
in whole (i) at any time on or after the fifth anniversary of the
Issue Date or (ii) if on the date of a notice pursuant to Section
5.3 hereof, the Current Market Price of all Common Stock which
would be issuable upon conversion of all of the 2,000 shares of
Preferred Stock originally issued, as of any date within ten
Business Days prior to such notice date, exceeded $22 million. In
either case, such redemption shall be at the Stated Value, plus
all dividends accrued and unpaid on the shares of Series B
Preferred Stock up to the date fixed for the redemption, upon
giving notice as provided hereinbelow.
5.2 At least 90 days prior to the date fixed for the redemption of
shares of Series B Preferred Stock, a written notice shall be
mailed in a postage prepaid envelope to each holder of record of
the shares of Series B Preferred Stock to be redeemed, addressed
to such holder at his post office address as shown on the records
of the Corporation, notifying such holder of the election of the
corporation to redeem such shares, stating the date fixed for
redemption thereof (the "Redemption Date"), and calling upon such
holder to surrender to the Corporation, on the Redemption Date at
the place designated in such notice, his certificate or
certificates representing the number of shares specified in such
notice of redemption.
On or after the Redemption Date, each holder of shares of Series B
Preferred Stock to be redeemed shall present and surrender his
certificate or certificates for such shares to the Corporation at
the place designated in such notice and thereupon the redemption
price of such shares shall be paid to or on the order of the
person whose name appears on such certificate or certificates as
the owner thereof and each surrendered certificate shall be
canceled. In case less than all the shares represented by any such
certificate are redeemed, a new certificate shall be issued
representing the unredeemed shares.
From and after the Redemption Date (unless default shall be made
by the Corporation in payment of the redemption price), all
dividends on the shares of Series B Preferred Stock designated for
redemption in such notice shall cease to accrue, and all rights of
the holders thereof as stockholders of the Corporation, except the
right to receive the redemption price of such shares (including
all accrued and unpaid dividends up to the Redemption Date) upon
the surrender of certificates representing the same, shall cease
and terminate and such shares shall not thereafter be transferred
(except with the consent of the Corporation) on the books of the
Corporation, and such shares shall not be deemed to be outstanding
for any purpose whatsoever. At its election, the Corporation,
prior to the Redemption Date, may deposit the redemption price
(including all accrued and unpaid dividends up to the Redemption
Date) of shares of Series B Preferred Stock so called for
redemption in trust for the holders thereof with a bank or trust
company (having a capital surplus and undivided profits
aggregating not less than $50,000,000) in the Borough of
Manhattan, City and State of New York, or in any other city in
which the Corporation at the time shall maintain a transfer agency
with respect to such shares, in which case the aforesaid notice to
holders of shares of Series B Preferred Stock to be redeemed shall
state the date of such deposit, shall specify the office of such
bank or trust company as the place of payment of the redemption
price, and shall call upon such holders to surrender the
certificates representing such shares at such place on or after
the date fixed in such redemption notice (which shall not be later
than the Redemption Date) against payment of the redemption price
(including all accrued and unpaid dividends up to the Redemption
Date). Any interest accrued on such funds shall be paid to the
Corporation from time to time. Any moneys so deposited which shall
remain unclaimed by the holders of such shares of Series B
Preferred Stock at the end of two years after the Redemption Date
shall be returned by such bank or trust company to the
Corporation.
If a notice of redemption has been given pursuant to this Section
5 and any holder of shares of Series B Preferred Stock shall,
prior to the close of business on the day preceding the Redemption
Date, give written notice to the Corporation pursuant to Section
8 below of the conversion of any or all of the shares to be
redeemed held by such holder (accompanied by a certificate or
certificates for such shares, duly endorsed or assigned to the
Corporation, and any necessary transfer tax payment, as required
by Section 8 below), then such redemption shall not become
effective as to such shares to be converted, such conversion shall
become effective as provided in Section 8 below, and any moneys
set aside by the Corporation for the redemption of such shares of
converted Series B Preferred Stock shall revert to the general
funds of the Corporation.
SECTION 6. Redemption at the Option of the Holder.
The Corporation, when requested to do so in writing by a holder of
Series B Preferred Stock at any time after the earlier of (i) the
eighth anniversary of an Issue Date pursuant to a Call Event or (ii)
the fifth anniversary of an Issue Date pursuant to a Put Event, shall
purchase or redeem the share or shares of Series B Preferred Stock
identified by such holder, such purchase or redemption to occur on a
date not more than thirty days after receipt by the Corporation of such
request, at the Stated Value of the share or shares to be purchased or
redeemed, plus all dividends accrued and unpaid on such share or shares
up to the date of such purchase or redemption.
SECTION 7. Shares to Be Retired.
All shares of Series B Preferred Stock which shall have been issued and
reacquired in any manner by the Corporation (excluding, until the
Corporation elects to retire them, shares which are held as treasury
shares) shall be restored to the status of authorized but unissued
shares of Preferred Stock, without designation as to series.
SECTION 8. Conversion.
Holders of shares of Series B Preferred Stock shall have the right to
convert all or a portion of such shares into shares of Common Stock, as
follows:
8.1 Subject to and upon compliance with the provisions of this
Section 8, a holder of shares of Series B Preferred Stock shall
have the right, at its option, at any time after 5 Business Days
after the Issue Date, to convert such shares into the number of
fully paid and nonassessable shares of Common Stock obtained by
dividing the aggregate Stated Value of such shares by the
Conversion Price (as in effect on the date provided for in the
last paragraph of Section 8.2) by surrendering such shares to be
converted, such surrender to be made in the manner provided in
Section 8.2; provided, however, that the right to convert shares
called for redemption pursuant to Section 5 of this article shall
terminate at the close of business on the day preceding the
Redemption Date, unless the Corporation shall default in making
payment of the cash payable upon such redemption under Section 5
of this article. Certificates will be issued for the remaining
shares of Series B Preferred Stock in any case in which fewer
than all of the shares of Series B Preferred Stock represented by
a certificate are converted.
8.2 In order to exercise the conversion right, the holder of shares
of Series B Preferred Stock to be converted shall surrender the
certificate or certificates representing such shares, duly
endorsed or assigned to the Corporation or in blank, at the
office of the Transfer Agent in the Borough of Manhattan, City of
New York, accompanied by written notice to the Corporation that
the holder thereof elects to convert Series B Preferred Stock.
Unless the shares issuable on conversion are to be issued in the
same name as the name in which such share of Series B Preferred
Stock is registered, each share surrendered for conversion shall
be accompanied by instruments of transfer, in form satisfactory
to the Corporation, duly executed by the holder or such holder's
duly authorized attorney and an amount sufficient to pay any
transfer or similar tax (or evidence reasonably satisfactory to
the Corporation demonstrating that such taxes have been paid).
Holders of shares of Series B Preferred Stock at the close of
business on a dividend payment record date shall be entitled to
receive the dividend payable on such shares on the corresponding
Dividend Payment Date notwithstanding the conversion thereof
following such dividend payment record date and prior to such
Dividend Payment Date. Except as provided above, the Corporation
shall make no payment or allowance for unpaid dividends, whether
or not in arrears, on converted shares or for dividends on the
shares of Common Stock issued upon such conversion.
As promptly as practicable after the surrender of certificates
for shares of Series B Preferred Stock as aforesaid, the
Corporation shall issue and shall deliver at such office to such
holder, or on his or her written order, a certificate or
certificates for the number of full shares of Common Stock
issuable upon the conversion of such shares in accordance with
provisions of this Section 8, and any fractional interest in
respect of a share of Common Stock arising upon such conversion
shall be settled as provided in Section 8.3.
Each conversion shall be deemed to have been effected immediately
prior to the close of business on the date on which the
certificates for shares of Series B Preferred Stock shall have
been surrendered and such notice (and if applicable, payment of
an amount equal to the dividend payable on such shares) received
by the Corporation as aforesaid, and the person or persons in
whose name or names any certificate or certificates for shares of
Common Stock shall be issuable upon such conversion shall be
deemed to have become the holder or holders of record of the
shares represented thereby at such time on such date and such
conversion shall be at the Conversion Price in effect at such
time on such date, unless the stock transfer books of the
Corporation shall be closed on that date, in which event such
person or persons shall be deemed to have become such holder or
holders of record at the close of business on the next succeeding
day on which such stock transfer books are open, but such
conversion shall be at the Conversion Price in effect on the date
upon which such shares shall have been surrendered and such
notice received by the Corporation.
8.3 No fractional shares or scrip representing fractions of shares of
Common Stock shall be issued upon conversion of the Series B
Preferred Stock. Instead of any fractional interest in a share of
Common Stock that would otherwise be deliverable upon the
conversion of a share of Series B Preferred Stock, the
Corporation shall pay to the holder of such share an amount in
cash based upon the Current Market Price of Common Stock on the
Trading Day immediately preceding the date of conversion. If more
than one share shall be surrendered for conversion at one time by
the same holder, the number of full shares of Common Stock
issuable upon conversion thereof shall be computed on the basis
of the aggregate number of shares of Series B Preferred Stock so
surrendered.
8.4 The Conversion Price shall be adjusted from time to time as
follows:
(a) If the Corporation shall after the Issue Date (A) pay a
dividend or make a distribution on its capital stock in
shares of its Common Stock, (B) subdivide its outstanding
Common Stock into a greater number of shares, (C) combine
its outstanding Common Stock into a smaller number of shares
or (D) issue any shares of capital stock by reclassification
of its Common Stock, the Conversion Price in effect at the
opening of business on the day next following the date fixed
for the determination of stockholders entitled to receive
such dividend or distribution or at the opening of business
on the day next following the day on which such subdivision,
combination or reclassification becomes effective, as the
case may be, shall be adjusted so that the holder of any
share of Series B Preferred Stock thereafter surrendered for
conversion shall be entitled to receive the number of shares
of Common Stock that such holder would have owned or have
been entitled to receive after the happening of any of the
events described above had such share been converted
immediately prior to the record date in the case of a
dividend or distribution or the effective date in the case
of a subdivision, combination or reclassification. An
adjustment made pursuant to this subparagraph (a) shall
become effective immediately after the opening of business
on the day next following the record date (except as
provided in Section 8.8 below) in the case of a dividend or
distribution and shall become effective immediately after
the opening of business on the day next following the
effective date in the case of a subdivision, combination or
reclassification.
(b) If the Corporation shall issue after the Issue Date rights
or warrants (in each case, other than the Rights) to all
holders of Common Stock entitling them (for a period
expiring within 45 days after the record date mentioned
below) to subscribe for or purchase Common Stock at a price
per share less than the Fair Market Value per share of
Common Stock on the record date for the determination of
stockholders entitled to receive such rights or warrants,
then the Conversion Price in effect at the opening of
business on the day next following such record date shall be
adjusted to equal the price determined by multiplying (I)
the Conversion Price in effect immediately prior to the
opening of business on the day next following the date fixed
for such determination by (II) a fraction, the numerator of
which shall be the sum of (A) the number of shares of Common
Stock outstanding on the close of business on the date fixed
for such determination and (B) the number of shares that the
aggregate proceeds to the Corporation from the exercise of
such rights or warrants for Common Stock would purchase at
such Fair Market Value, and the denominator of which shall
be the sum of (A) the number of shares of Common Stock
outstanding on the close of business on the date fixed for
such determination and (B) the number of additional shares
of Common Stock offered for subscription or purchase
pursuant to such rights or warrants. Such adjustment shall
become effective immediately after the opening of business
on the day next following such record date (except as
provided in Section 8.8 below). In determining whether any
rights or warrants entitle the holders of Common Stock to
subscribe for or purchase shares of Common Stock at less
than such Fair Market Value, there shall be taken into
account any consideration received by the Corporation upon
issuance and upon exercise of such rights or warrants, the
value of such consideration, if other than cash, to be
determined by the Board of Directors.
(c) If the Corporation shall distribute to all holders of its
Common Stock any shares of capital stock of the Corporation
(other than Common Stock) or evidence of its indebtedness or
assets (excluding cash dividends or distributions paid from
profits or surplus of the Corporation) or rights or warrants
(in each case, other than the Rights) to subscribe for or
purchase any of its securities (excluding those rights and
warrants issued to all holders of Common Stock entitling
them for a period expiring within 45 days after the record
date referred to in subparagraph (b) above to subscribe for
or purchase Common Stock, which rights and warrants are
referred to in and treated under subparagraph (b) above (any
of the foregoing being hereinafter in this subparagraph (3)
called the "Securities"), then in each such case the
Conversion Price shall be adjusted so that it shall equal
the price determined by multiplying (I) the Conversion Price
in effect immediately prior to the close of business on the
date fixed for the determination of stockholders entitled to
receive such distribution by (II) a fraction, the numerator
of which shall be the Fair Market Value per share of the
Common Stock on the record date mentioned below less the
then fair market value (as determined by the Board of
Directors, whose determination shall be conclusive) of the
portion of the capital stock or assets or evidences of
indebtedness so distributed or of such rights or warrants
applicable to one share of Common Stock, and the denominator
of which shall be the Fair Market Value per share of the
Common Stock on the record date mentioned below. Such
adjustment shall become effective immediately at the opening
of business on the Business Day next following (except as
provided in Section 8.8 below) the record date for the
determination of shareholders entitled to receive such
distribution. For the purposes of this clause (c), the
distribution of a Security, which is distributed not only to
the holders of the Common Stock on the date fixed for the
determination of stockholders entitled to such distribution
of such security, but also is distributed with each share of
Common Stock delivered to a person converting a share of
Series B Preferred Stock after such determination date,
shall not require an adjustment of the Conversion Price
pursuant to this clause (c); provided that on the date, if
any, on which a Person converting a share of Series B
Preferred Stock would no longer be entitled to receive such
Security with a share of Common Stock (other than as a
result of the termination of all such Securities), a
distribution of such Securities shall be deemed to have
occurred and the Conversion Price shall be adjusted as
provided in this clause (c) (and such day shall be deemed to
be "the date fixed for the determination of the stockholders
entitled to receive such distribution" and "the record date"
within the meaning of the two preceding sentences).
(d) No adjustment in the Conversion Price shall be required
unless such adjustment would require a cumulative increase
or decrease of at least 1% in such price; provided, however,
that any adjustments that by reason of this subparagraph (d)
are not required to be made shall be carried forward and
taken into account in any subsequent adjustment until made;
and provided, further, that any adjustment shall be required
and made in accordance with the provisions of this Section 8
(other than this subparagraph (d)) not later than such time
as may be required in order to preserve the tax-free nature
of a distribution to the holders of shares of Common Stock.
Notwithstanding any other provisions of this Section 8, the
Corporation shall not be required to make any adjustment of
the Conversion Price for the issuance of any shares of
Common Stock pursuant to any plan providing for the
reinvestment of dividends on securities of the Corporation.
All calculations under this Section 8 shall be made to the
nearest cent (with $.005 being rounded upward) or to the
nearest 1/10 of a share (with .05 of a share being rounded
upward), as the case may be. Anything in this Section 8.4 to
the contrary notwithstanding, the Corporation shall be
entitled, to the extent permitted by law, to make such
reductions in the Conversion Price, in addition to those
required by this Section 8.4, as it in its discretion shall
determine to be advisable in order that any stock dividends,
subdivision of shares, reclassification or combination of
shares, distribution of rights or warrants to purchase stock
or securities, or a distribution of other assets (other than
cash dividends) hereafter made by the Corporation to its
stockholders shall not be taxable.
8.5 If the Corporation shall be a party to any transaction (including
without limitation a merger, consolidation, sale of all or
substantially all of the Corporation's assets or recapitalization
of the Common Stock and excluding any transaction as to which
Section 8.4(a) applies) (each of the foregoing being referred to
herein as a "Transaction"), in each case as a result of which
shares of Common Stock shall be converted into the right to
receive stock, securities or other property (including cash or
any combination thereof), each share of Series B Preferred Stock
which is not converted into the right to receive stock,
securities or other property in connection with such Transaction
shall thereafter be convertible into the kind and amount of
shares of stock, securities and other property (including cash or
any combination thereof) receivable upon the consummation of such
Transaction by a holder of that number of shares or fraction
thereof of Common Stock into which one share of Series B
Preferred Stock was convertible immediately prior to such
Transaction, assuming such holder of Common Stock (i) is not a
Person with which the Corporation consolidated or into which the
Corporation merged or which merged into the Corporation or to
which such sale or transfer was made, as the case may be
("Constituent Person"), or an affiliate of a Constituent Person
and (ii) failed to exercise his rights of election, if any, as to
the kind or amount of stock, securities and other property
(including cash) receivable upon such Transaction (provided that
if the kind or amount of stock, securities and other property
(including cash) receivable upon such Transaction is not the same
for each share of Common Stock of the Corporation held
immediately prior to such Transaction by other than a Constituent
Person or an affiliate thereof and in respect of which such
rights of election shall not have been exercised ("non-electing
share"), then for the purpose of this Section 8.5. the kind and
amount of stock, securities and other property (including cash)
receivable upon such Transaction by each non-electing share shall
be deemed to be the kind and amount so receivable per share by
the plurality of the non-electing shares). The Corporation shall
not be a party to any Transaction unless the terms of such
Transaction are consistent with the provisions of this Section
8.5. and it shall not consent or agree to the occurrence of any
Transaction until the Corporation has entered into an agreement
with the successor or purchasing entity, as the case may be, for
the benefit of the holders of the Series B Preferred Stock that
will contain provisions enabling the holders of the Series B
Preferred Stock that remains outstanding after such Transaction
to convert into the consideration received by holders of Common
Stock at the Conversion Price in effect immediately prior to such
Transaction. The provisions of this Section 8.5 shall similarly
apply to successive Transactions.
8.6 If:
(a) the Corporation shall declare a dividend (or any other
distribution) on the Common Stock (other than in cash out of
profits or surplus and other than the Rights); or
(b) the Corporation shall authorize the granting to the holders
of the Common Stock of rights or warrants (other than the
Rights) to subscribe for or purchase any shares of any class
or any other rights or warrants (other than the Rights); or
(c) there shall be any reclassification of the Common Stock
(other than an event to which Section 8.4(a) applies) or any
consolidation or merger to which the Corporation is a party
and for which approval of any stockholders of the
Corporation is required, or the sale or transfer of all or
substantially all of the assets of the Corporation as an
entirety; or
(d) there shall occur the voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, then the
Corporation shall cause to be filed with the Transfer Agent
and shall cause to be mailed to the holders of shares of the
Series B Preferred Stock at their addresses as shown on the
stock records of the Corporation, as promptly as possible,
but at least 15 days prior to the applicable date
hereinafter specified, a notice stating (A) the date on
which a record is to be taken for the purpose of such
dividend, distribution or rights or warrants, or, if a
record is not to be taken, the date as of which the holders
of Common Stock of record to be entitled to such dividend,
distribution or rights or warrants are to be determined or
(B) the date on which such reclassification, consolidation,
merger, sale, transfer, liquidation, dissolution or winding
up is expected to become effective, and the date as of which
it is expected that holders of Common Stock of record shall
be entitled to exchange their shares of Common Stock for
securities or other property, if any, deliverable upon such
reclassification, consolidation, merger, sale, transfer,
liquidation, dissolution or winding up. Failure to give or
receive such notice or any defect therein shall not affect
the legality or validity of the proceedings described in
this Section 8.
8.7 Whenever the Conversion Price is adjusted as herein provided, the
Corporation shall promptly file with the Transfer Agent an
officer's certificate setting forth the Conversion Price after
such adjustment and setting forth a brief statement of the facts
requiring such adjustment which certificate shall be prima facie
evidence of the correctness of such adjustment. Promptly after
delivery of such certificate, the Corporation shall prepare a
notice of such adjustment of the Conversion Price setting forth
the adjusted Conversion Price and the effective date of such
adjustment and shall mail such notice of such adjustment of the
Conversion Price to the holder of each share of Series B
Preferred Stock at such holder's last address as shown on the
stock records of the Corporation.
8.8 In any case in which Section 8.4 provides that an adjustment
shall become effective on the day next following a record date
for an event, the Corporation may defer until the occurrence of
such event (A) issuing to the holder of any share of Series B
Preferred Stock converted after such record date and before the
occurrence of such event the additional shares of Common Stock
issuable upon such conversion by reason of the adjustment
required by such event over and above the Common Stock issuable
upon such conversion before giving effect to such adjustment and
(B) paying to such holder any amount in cash in lieu of any
fraction pursuant to Section 8.3.
8.9. For purposes of this Section 8, the number of shares of Common
Stock at any time outstanding shall not include any shares of
Common Stock then owned or held by or for the account of the
Corporation. The Corporation shall not pay a dividend or make any
distribution on shares of Common Stock held in the treasury of
the Corporation.
8.10 There shall be no adjustment of the Conversion Price in case of
the issuance of any stock of the Corporation in a reorganization,
acquisition or other similar transaction except as specifically
set forth in this Section 8. If any action or transaction would
require adjustment of the Conversion Price pursuant to more than
one paragraph of this Section 8, only one adjustment shall be
made and such adjustment shall be the amount of adjustment that
has the highest absolute value.
8.11 If the Corporation shall take any action affecting the Common
Stock, other than action described in this Section 8, that in the
opinion of the Board of Directors would materially adversely
affect the conversion rights of the holders of the shares of
Series B Preferred Stock, the Conversion Price for the Series B
Preferred Stock may be adjusted, to the extent permitted by law,
in such manner, if any, and at such time, as the Board of
Directors may determine to be equitable in the circumstances.
8.12 The Corporation covenants that it will at all times reserve and
keep available, free from preemptive rights, out of the aggregate
of its authorized but unissued shares of Common Stock or its
issued shares of Common Stock held in its treasury, or both, for
the purpose of effecting conversion of the Series B Preferred
Stock, the full number of shares of Common Stock deliverable upon
the conversion of all outstanding shares of Series B Preferred
Stock not theretofore converted. For purposes of this Section
8.12, the number of shares of Common Stock that shall be
deliverable upon the conversion of all outstanding shares of
Series B Preferred Stock shall be computed as if at the time of
computation all such outstanding shares were held by a single
holder.
The Corporation covenants that any shares of Common Stock issued
upon conversion of the Series B Preferred Stock shall be validly
issued, fully paid and non-assessable. Before taking any action
that would cause an adjustment reducing the Conversion Price
below the then-par value of the shares of Common Stock
deliverable upon conversion of the Series B Preferred Stock, the
Corporation will take any corporate action that, in the opinion
of its counsel, may be necessary in order that the Corporation
may validly and legally issue fully-paid and nonassessable shares
of Common Stock at such adjusted Conversion Price.
8.13 The Corporation will pay any and all documentary stamp or similar
issue or transfer taxes payable in respect of the issue or
delivery of shares of Common Stock or other securities or
property on conversion of the Series B Preferred Stock pursuant
hereto; provided, however, that the Corporation shall not be
required to pay any tax that may be payable in respect of any
transfer involved in the issue or delivery of shares of Common
Stock or other securities or property in a name other than that
of the holder of the Series B Preferred Stock to be converted and
no such issue or delivery shall be made unless and until the
person requesting any issue or delivery has paid to the
Corporation the amount of any such tax or established, to the
reasonable satisfaction of the Corporation, that such tax has
been paid.
SECTION 9. Ranking. Any class or series of stock of the Corporation shall
be deemed to rank:
(a) prior to the Series B Preferred Stock, as to the payment of
dividends and as to distributions of assets upon liquidation,
dissolution or winding up, if the holders of such class or series
shall be entitled to the receipt of dividends and of amounts
distributable upon liquidation, dissolution or winding up in
preference or priority to the holders of Series B Preferred
Stock;
(b) on a parity with the Series B Preferred Stock, as to thepayment
of dividends and as to distribution of assets upon liquidation,
dissolution or winding up, whether or not the dividend rates,
dividend payment dates or redemption or liquidation prices per
share thereof be different from those of the Series B Preferred
Stock if the holders of such class of stock or series and the
Series B Preferred Stock shall be entitled to the receipt of
dividends and of amounts distributable upon liquidation,
dissolution or winding up in proportion to their respective
amounts of accrued and unpaid dividends per share or liquidation
preferences, without preference or priority one over the other;
and
(c) junior to the Series B Preferred Stock, as to the payment of
dividends or as to the distribution of assets upon liquidation,
dissolution or winding up, if such stock or series shall be
Common Stock or Series A Preferred Stock or if the holders of
Series B Preferred Stock shall be entitled to receipt of
dividends or of amounts distributable upon liquidation,
dissolution or winding up in preference or priority to the
holders of shares of such stock or series.
10. Voting.
10.1 The holders of shares of Series B Preferred Stock shall have the
following voting rights:
(a) Subject to the provision for adjustment hereinafter
setforth, each share of Series B Preferred Stock shall
entitle the holder thereof to 199 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
Issue 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 B 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, theholders of
shares of Series B 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.
10.2 Unless the affirmative vote or consent of the holders of a
greater number of shares shall then be required by law, the
consent of the holders of at least 66 2/3% of all of the
outstanding shares of Series B Preferred Stock (in addition to
any vote required by the terms of any other affected series of
Preferred Stock ranking on a parity with the Series B Preferred
Stock as to dividends and amounts distributable upon liquidation,
dissolution and winding up), given in person or by proxy, either
in writing or by a vote at a meeting called for the purpose, at
which the holders of shares of Series B Preferred Stock and such
other series of Preferred Stock shall vote together as a single
class without regard to series, shall be necessary for
authorizing, effecting or validating the amendment, alteration or
repeal of any of the provisions of this Charter or of any
certificate amendatory thereof or supplemental thereto (including
any Certificate of Designations, Preferences and Rights or any
similar document relating to any series of Preferred Stock) which
would materially adversely affect the preferences, rights, powers
or privileges of the Series B Preferred Stock; provided, however,
that the amendment of the provisions of this Charter so as to
authorize or create, or to increase the authorized amount of, any
Junior Stock or any shares of any class ranking on a parity with
the Series B Preferred Stock shall not be deemed to materially
adversely affect the preferences, rights, powers or privileges of
Series B Preferred Stock.
10.3 Unless the affirmative vote or consent of the holders of a
greater number of shares shall then be required by law, the
consent of the holders of at least 66 2/3% of all of the
outstanding shares of Series B Preferred Stock (in addition to
any vote required by the terms of any other series of Preferred
Stock ranking on a parity with the Series B Preferred Stock as
to dividends and amounts distributable upon liquidation,
dissolution or winding up), given in person or by proxy, either
in writing or by a vote at a meeting called for the purpose at
which the holders of shares of Series B Preferred Stock and such
other series of Preferred Stock shall vote together as a single
class without regard to series, shall be necessary for
authorizing, effecting or validating the creation, authorization
or issue of any shares of any class of stock of the Corporation
ranking prior to the Series B Preferred Stock as to dividends or
upon liquidation, dissolution or winding up, or the
reclassification of any authorized stock of the Corporation into
any such prior shares, or the creation, authorization or
issuance of any obligation or security convertible into or
evidencing the right to purchase any such prior shares.
10.4 For purposes of the provisions of Sections 10.2 and 10.3, each
share of Series B Preferred Stock shall have one (1) vote per
share.
10.5 Except as set forth herein, holders of Series B 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 11. Record Holders. The Corporation and the Transfer Agent may deem
and treat the record holder of any shares of Series B Preferred Stock as
the true and lawful owner thereof for all purposes, and neither the
Corporation nor the Transfer Agent shall be affected by any notice to the
contrary.
Exhibit 10(iii)(a)
SEVERANCE AGREEMENT
THIS AGREEMENT, dated February 3, 1997, is made by and between
The Hartford Steam Boiler Inspection and Insurance Company, a Connecticut
corporation (the "Company"), and_________________ (the "Executive").
WHEREAS, the Company considers it essential to the best
interests of its shareholders to foster the continued employment of key
management personnel; and
WHEREAS, the Board recognizes that, as is the case with many
publicly held corporations, the possibility of a Change in Control exists and
that such possibility, and the uncertainty and questions which it may raise
among management, may result in the departure or distraction of management
personnel to the detriment of the Company and its shareholders; and
WHEREAS, the Board has determined that appropriate steps
should be taken to reinforce and encourage the continued attention and
dedication of members of the Company's management, including the Executive, to
their assigned duties without distraction in the face of potentially disturbing
circumstances arising from the possibility of a Change in Control; and
WHEREAS, the Board desires to provide for a specific severance
benefit for certain terminations of employment unrelated to a Change in Control;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants herein contained, the Company and the Executive hereby agree as
follows:
1. Defined Terms. The definitions of capitalized terms used in this Agreement
are provided in the last Section hereof.
2. Term of Agreement. The Term of this Agreement shall
commence on the date hereof and shall continue in effect through December 31,
1999; provided, however, that commencing on January 1, 1998 and each January 1
thereafter, the Term shall automatically be extended for one additional year
unless, not later than September 30 of the preceding year, the Company or the
Executive shall have given notice not to extend the Term; and further provided,
however, that if a Change in Control shall have occurred during the Term, the
Term shall expire no earlier than thirty-six (36) months beyond the month in
which such Change in Control occurred.
3. Company's Covenants Summarized. In order to induce the
Executive to remain in the employ of the Company and in consideration of the
Executive's covenants set forth in Section 4 hereof, the Company agrees, under
the conditions described herein, to pay the Executive the Severance Payments and
the other payments and benefits described herein. This Agreement shall not be
construed as creating an express or implied contract of employment and, except
as otherwise agreed in writing between the Executive and the Company, the
Executive shall not have any right to be retained in the employ of the Company.
4. The Executive's Covenants. The Executive agrees that,
subject to the terms and conditions of this Agreement, in the event of a
Potential Change in Control during the Term, the Executive will remain in the
employ of the Company until the earliest of (i) a date which is six (6) months
following the date of such Potential Change in Control, (ii) the date of a
Change in Control, (iii) the date of termination by the Executive of the
Executive's employment for Good Reason or by reason of death, Disability or
Retirement, or (iv) the termination by the Company of the Executive's employment
for any reason.
5. Compensation Other Than Change in Control Severance Payments.
5.1 Following a Change in Control and during the Term, during
any period that the Executive fails to perform the Executive's full-time duties
with the Company as a result of incapacity due to physical or mental illness,
the Company shall pay the Executive's full salary to the Executive at the rate
in effect at the commencement of any such period, together with all compensation
and benefits payable to the Executive under the terms of any compensation or
benefit plan, program or arrangement maintained by the Company during such
period, until the Executive's employment is terminated by the Company for
Disability.
5.2 If the Executive's employment shall be terminated for any
reason during the Term, the Company shall pay the Executive's full salary to the
Executive through the Date of Termination at the rate in effect immediately
prior to the Notice of Termination or, in the event of a termination following a
Change in Control, such higher rate as may be in effect (i) immediately prior to
the Change in Control, or (ii) immediately prior to the first occurrence of an
event or circumstance constituting Good Reason in the event of a termination for
Good Reason, together with all compensation and benefits payable to the
Executive through the Date of Termination under the terms of the Company's
compensation and benefit plans, programs or arrangements as in effect
immediately prior to the Notice of Termination or, in the event of a termination
following a Change in Control and if more favorable to the Executive, as in
effect (i) immediately prior to the Change in Control, or (ii) immediately prior
to the first occurrence of an event or circumstance constituting Good Reason in
the event of a termination for Good Reason.
5.3 If the Executive's employment shall be terminated for any
reason during the Term, the Company shall pay to the Executive the Executive's
normal post-termination compensation and benefits, if any, as such payments
become due. Such post-termination compensation and benefits shall be determined
under, and paid in accordance with, the Company's retirement, insurance and
other compensation or benefit plans, programs and arrangements as in effect
immediately prior to the Notice of Termination or, in the event of a termination
following a Change in Control and if more favorable to the Executive, as in
effect (i) immediately prior to the Change in Control, or (ii) immediately prior
to the occurrence of the first event or circumstance constituting Good Reason in
the event of a termination for Good Reason.
5.4 If the Executive's employment shall be terminated by the Company for
any reason (other than for death, Disability or Cause) during the Term and the
Executive is not entitled to any Severance Payments as provided in Section 6.1
hereof, the Company shall pay to the Executive a severance payment, in cash,
equal to two times the Executive's base salary as in effect immediately prior to
issuance of the Notice of Termination in connection with such termination,
payable in substantially equal bi-weekly installments over the two year period
following such termination. The Company shall also provide the Executive with
outplacement services suitable to the Executive's position for a period expiring
three years after the Date or Termination, or, if earlier, until the first
acceptance by the Executive of an offer of employment. The severance benefits
payable under this Section 5.4 shall be in lieu of any severance benefits
otherwise payable to the Executive. The Company shall also pay to the Executive
all legal fees and expenses incurred by the Executive in seeking in good faith
to obtain or enforce any benefit or right provided by this Section 5.4;
provided, that such reimbursement shall only be payable if the Executive is
successful in obtaining or enforcing such benefit or right.
6. Change in Control Severance Payments.
6.1 If (i) the Executive's employment is terminated following
a Change in Control and during the Term, other than (A) by the Company for
Cause, (B) by reason of death or Disability, or (C) by the Executive without
Good Reason, or (ii) the Executive voluntarily terminates his/her employment for
any reason during the one-month period commencing on the first anniversary of
the Change in Control, then, in either such case, the Company shall pay the
Executive the amounts, and provide the Executive the benefits, described in this
Section 6.1 ("Severance Payments") and Section 6.2, in addition to any payments
and benefits to which the Executive is entitled under Section 5 hereof. For
purposes of this Agreement, the Executive's employment shall be deemed to have
been terminated following a Change in Control by the Company without Cause or by
the Executive with Good Reason, if (i) the Executive's employment is terminated
by the Company without Cause prior to a Change in Control (whether or not a
Change in Control thereafter occurs) and such termination was at the request or
direction of a Person who has entered into an agreement with the Company the
consummation of which would constitute a Change in Control, (ii) the Executive
terminates his/her employment for Good Reason prior to a Change in Control
(whether or not a Change in Control thereafter occurs) and the circumstance or
event which constitutes Good Reason occurs at the request or direction of such
Person, or (iii) the Executive's employment is terminated, after the occurrence
of a Potential Change in Control and prior to a Change in Control, by the
Company without Cause or by the Executive for Good Reason and such termination
or the circumstance or event which constitutes Good Reason is otherwise in
connection with or in anticipation of a Change in Control which occurs within
six months after the issuance of the Notice of Termination in connection with
such termination.
(A) In lieu of any further salary payments to the
Executive for periods subsequent to the Date of Termination and in lieu
of any severance benefit otherwise payable to the Executive, the
Company shall pay to the Executive a lump sum severance payment, in
cash, equal to three times the sum of (i) the Executive's base salary
as in effect immediately prior to the issuance of the Notice of
Termination in connection with such termination or, if higher, in
effect (1)immediately prior to the Change in Control or (2) immediately
prior to the first occurrence of an event or circumstance constituting
Good Reason in the event of a termination for Good Reason, and (ii) the
average bonus earned by the Executive pursuant to any annual bonus plan
and any short term or long term incentive plan maintained by the
Company in respect of the three fiscal years or performance periods(or
such shorter number of full fiscal years during which the Executive was
employed by the Company) ending immediately prior to the fiscal year in
which occurs the following, whichever average is highest: (1) the
issuance of the Notice of Termination in connection with such
termination; (2) the date of the Change in Control; or (3) the date of
the first event or circumstance constituting Good Reason.
(B) For the thirty-six (36) month period immediately
following the Date of Termination, the Company shall arrange to provide
the Executive and his/her dependents life, disability, accident,
dental, prescription drug and health insurance benefits substantially
similar to those provided to the Executive and his/her dependents
immediately prior to the issuance of the Notice of Termination in
connection with such termination or, if more favorable to the
Executive, those provided to the Executive and his/her dependents
(i)immediately prior to the Change in Control or (ii) immediately prior
to the first occurrence of an event or circumstance constituting Good
Reason in the event of termination for Good Reason, at no greater cost
to the Executive than the cost to the Executive immediately prior to
such date or occurrence. Benefits otherwise receivable by the Executive
pursuant to this Section 6.1 (B) shall be reduced to the extent
benefits of the same type are received by or made available to the
Executive at no greater cost during the thirty-six (36) month period
following the Executive's termination of employment (and any such
benefits received by or made available to the Executive shall be
reported to the Company by the Executive).
(C) In addition to any retirement benefits to which the
Executive is entitled under each Pension Plan or any successor plan
thereto, the Company shall pay the Executive a lump sum amount, in
cash, equal to the excess of (i) the actuarial equivalent of the
aggregate retirement pension (taking into account any early retirement
subsidies associated therewith and determined as a straight life
annuity commencing at the date (but in no event earlier than the third
anniversary of the Date of Termination) as of which the actuarial
equivalent of such annuity is greatest) which the Executive would have
accrued under the terms of all Pension Plans (without regard to any
amendment to any Pension Plan made subsequent to a Change in Control
or, if earlier, the Notice of Termination, which amendment adversely
affects in any manner the computation of retirement benefits
thereunder), determined as if the Executive were fully vested
thereunder and had accumulated (after the Date of Termination)
thirty-six (36) additional months of service credit thereunder at an
annual rate of compensation equal to the annual salary and average
bonus taken into account under Section 6.1(A) hereof, over (ii) the
actuarial equivalent of any aggregate vested retirement pension (taking
into account any early retirement subsidies associated therewith and
determined as a straight life annuity commencing at the date (but in no
event earlier than the Date of Termination) as of which the actuarial
equivalent of such annuity is greatest) which the Executive had accrued
pursuant to the provisions of the Pension Plans as of the Date of
Termination. For purposes of this Section 6.1(D), "actuarial
equivalent" shall be determined using the same assumptions utilized
under the Company's tax-qualified Pension Plan immediately prior to the
issuance of the Notice of Termination in connection with such
termination, or, if more favorable to the Executive, (i)immediately
prior to the Change in Control or (ii) immediately prior to the first
occurrence of an event or circumstance constituting Good Reason in the
event of a termination for Good Reason.
(D) Notwithstanding any provision of any annual or
long-term bonus or incentive plan to the contrary, the Company shall
pay to the Executive a lump sum amount, in cash, equal to the fair
market value of the sum of (i) any unpaid incentive compensation which
has been allocated or awarded to the Executive for a completed fiscal
year or other measuring period preceding the Date of Termination under
any such plan and (ii) a pro rata portion to the Date of Termination of
the aggregate value of all contingent incentive compensation awards to
the Executive for all then uncompleted periods under any such plan,
calculated as to each such award by multiplying the award that the
Executive would have earned on the last day of the performance award
period, assuming the achievement, at the target level, of the
individual and corporate performance goals established with respect to
such award, by the fraction obtained by dividing the number of full
months and any fractional portion of a month during such performance
award period through the Date of Termination by the total number of
months contained in such performance award period; provided, that, for
purposes of any annual bonus or incentive plan, the award shall be
calculated as if the annual performance period had been fully
completed; and further, provided, that, such incentive awards payable
under this Section 6.1(D) shall be reduced by the amount, if any, of
incentive awards paid to the Executive under any such plan or plans for
the same performance award periods or any portion thereof.
(E) The Company shall provide the Executive with
outplacement services suitable to the Executive's position for a period
expiring three years after the Date of Termination, or, if earlier,
until the first acceptance by the Executive of an offer of employment.
6.2 (A) Whether or not the Executive becomes entitled to the
Severance Payments, if any of the payments or benefits received or to be
received by the Executive in connection with a Change in Control or the
Executive's termination of employment (whether pursuant to the terms of this
Agreement or any other plan, arrangement or agreement with the Company, any
Person whose actions result in a Change in Control or any Person affiliated with
the Company or such Person) (such payments or benefits, excluding the Gross-Up
Payment, being hereinafter referred to as the "Total Payments") will be subject
to the Excise Tax, the Company shall pay to the Executive an additional amount
(the "Gross-Up Payment") such that the net amount retained by the Executive,
after deduction of any Excise Tax on the Total Payments and any federal, state
and local income and employment taxes and Excise Tax upon the Gross-Up Payment,
shall be equal to the Total Payments.
(A) For purposes of determining whether any of the Total
Payments will be subject to the Excise Tax and the amount of such Excise Tax,
(i) all of the Total Payments shall be treated as "parachute payments" (within
the meaning of section 280G(b)(2) of the Code) unless, in the opinion of tax
counsel ("Tax Counsel") reasonably acceptable to the Executive and selected by
the accounting firm which was, immediately prior to the Change in Control or, if
different, immediately prior to a Potential Change in Control, the Company's
independent auditor (the "Auditor"), such payments or benefits (in whole or in
part) do not constitute parachute payments, including by reason of section
280G(b)(4)(A) of the Code, (ii) all "excess parachute payments" within the
meaning of section 280G(b)(l) of the Code shall be treated as subject to the
Excise Tax unless, in the opinion of Tax Counsel, such excess parachute payments
(in whole or in part) represent reasonable compensation for services actually
rendered (within the meaning of section 280G(b)(4)(B) of the Code) in excess of
the Base Amount allocable to such reasonable compensation, or are otherwise not
subject to the Excise Tax, and (iii) the value of any noncash benefits or any
deferred payment or benefit shall be determined by the Auditor in accordance
with the principles of sections 280G(d)(3) and (4) of the Code. For purposes of
determining the amount of the Gross-Up Payment, the Executive shall be deemed to
pay federal income tax at the highest marginal rate of federal income taxation
in the calendar year in which the Gross-Up Payment is to be made and state and
local income taxes at the highest marginal rate of taxation in the state and
locality of the Executive's residence on the Date of Termination (or if there is
no Date of Termination, then the date on which the Gross-Up Payment is
calculated for purposes of this Section 6.2), net of the maximum reduction in
federal income taxes which could be obtained from deduction of such state and
local taxes.
(B) In the event that the Excise Tax is finally determined
(as hereinafter defined) to be less than the amount taken into account hereunder
in calculating the Gross-Up Payment, the Executive shall repay to the Company,
within five (5) business days following the time that the amount of such
reduction in the Excise Tax is finally determined, the portion of the Gross-Up
Payment attributable to such reduction (plus that portion of the Gross-Up
Payment attributable to the Excise Tax and federal, state and local income and
employment taxes imposed on the Gross-Up Payment being repaid by the Executive,
to the extent that such repayment results in a reduction in the Excise Tax and a
dollar-for-dollar reduction in the Executive's taxable income and wages for
purposes of federal, state and local income and employment taxes), plus interest
on the amount of such repayment at 120% of the rate provided in section
1274(b)(2)(B) of the Code. In the event that the Excise Tax is finally
determined to exceed the amount taken into account hereunder in calculating the
Gross-Up Payment (including by reason of any payment the existence or amount of
which cannot be determined at the time of the Gross-Up Payment), the Company
shall make an additional Gross-Up Payment in respect of such excess (plus any
interest, penalties or additions payable by the Executive with respect to such
excess) within five (5) business days following the time that the amount of such
excess is finally determined. The Executive and the Company shall each
reasonably cooperate with the other in connection with any administrative or
judicial proceedings concerning the existence or amount of liability for Excise
Tax with respect to the Total Payments. For purposes of this Agreement, "finally
determined" shall mean the earliest to occur of (i) a written agreement between
the parties or (ii) a final judgment, order or decree by an arbitrator or by a
court having proper jurisdiction which is not subject to appeal or for which the
time to appeal has lapsed.
6.3 The payments provided in subsections (A), (C) and (D) of
Section 6.1 hereof and in Section 6.2 hereof shall be made not later than the
fifth day following the Date of Termination; provided, however, that if the
amounts of such payments cannot be finally determined on or before such day, the
Company shall pay to the Executive on such day an estimate, as determined in
good faith by the Executive or, in the case of payments under Section 6.2
hereof, in accordance with Section 6.2 hereof, of the minimum amount of such
payments to which the Executive is clearly entitled and shall pay the remainder
of such payments (together with interest on the unpaid remainder (or on all such
payments to the extent the Company fails to make such payments when due) at 120%
of 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 (30th) day
after the Date of Termination. 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 the Executive, payable on the
fifth (5th) business day after demand by the Company (together with interest at
120% of the rate provided in section 1274(b)(2)(B) of the Code). At the time
that payments are made under this Agreement, the Company shall provide the
Executive with a written statement setting forth the manner in which such
payments were calculated and the basis for such calculations including, without
limitation, any opinions or other advice the Company has received from Tax
Counsel, the Auditor or other advisors or consultants (and any such opinions or
advice which are in writing shall be attached to the statement).
6.4 The Company also shall pay to the Executive all legal fees
and expenses incurred by the Executive in disputing in good faith any issue
under this Section 6 relating to the termination of the Executive's employment,
in seeking in good faith to obtain or enforce any benefit or right provided by
this Section 6 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 hereunder. Such payments shall be made within five (5) business
days after delivery of the Executive's written requests for payment accompanied
with such evidence of fees and expenses incurred as the Company reasonably may
require.
7. Termination Procedures and Compensation During Dispute.
7.1 Notice of Termination. During the Term, any purported
termination of the Executive's employment (other than by reason of death) shall
be communicated by written Notice of Termination from one party hereto to the
other party hereto in accordance with Section 10 hereof. For purposes of this
Agreement, a "Notice of Termination" shall mean a notice which shall indicate
the specific termination provision in this Agreement relied upon and shall set
forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of the Executive's employment under the provision so
indicated. Further, a Notice of Termination for Cause is required to include a
copy of a resolution duly adopted by the affirmative vote of not less than
three-quarters (3/4) of the entire membership of the Board at a meeting of the
Board which was called and held for the purpose of considering such termination
(after reasonable notice to the Executive and an opportunity for the Executive,
together with the Executive's counsel, to be heard before the Board) finding
that, in the good faith opinion of the Board, the Executive was guilty of
conduct set forth in clause (i) or (ii) of the definition of Cause herein, and
specifying the particulars thereof in detail.
7.2 Date of Termination. "Date of Termination," with respect
to any purported termination of the Executive's employment during the Term,
shall mean (i) if the Executive's employment is terminated for Disability,
thirty (30) days after Notice of Termination is given (provided that the
Executive shall not have returned to the full-time performance of the
Executive's duties during such thirty (30) day period), and (ii) if the
Executive's employment is terminated for any other reason, the date specified in
the Notice of Termination (which, in the case of a termination by the Company,
shall not be less than thirty (30) days (except in the case of a termination for
Cause) nor more than sixty (60) days and, in the case of a termination by the
Executive, shall not be less than fifteen (15) days nor more than sixty (60)
days, respectively, from the date such Notice of Termination is given).
7.3 Dispute Concerning Termination. If within fifteen (15)
days after any Notice of Termination is given, or, if later, prior to the Date
of Termination (as determined without regard to this Section 7.3), the party
receiving such Notice of Termination notifies the other party that a dispute
exists concerning the payment of amounts set forth in Section 6 of this
Agreement, the Date of Termination shall be extended until the earlier of (i)
the date on which the Term ends or (ii) the date on which the dispute is finally
resolved, either by mutual written agreement of the parties or by a final
judgment, order or decree of an arbitrator; provided, however, that the Date of
Termination shall be extended by a notice of dispute given by the Executive only
if such notice is given in good faith and the Executive pursues the resolution
of such dispute with reasonable diligence.
7.4 Compensation During Dispute. If a purported termination
occurs during the Term and the Date of Termination is extended in accordance
with Section 7.3 hereof, the Company shall continue to pay the Executive the
full compensation in effect when the notice giving rise to the dispute was given
(including, but not limited to, salary) and continue the Executive as a
participant in all compensation, benefit and insurance plans in which the
Executive was participating when the notice giving rise to the dispute was
given, until the Date of Termination, as determined in accordance with Section
7.3 hereof. Amounts paid under this Section 7.4 are in addition to all other
amounts due under this Agreement (other than those due under Section 5.2 hereof)
and shall not be offset against or reduce any other amounts due under this
Agreement.
8. No Mitigation. The Company agrees that, if the Executive's
employment with the Company terminates during the Term, the Executive is not
required to seek other employment or to attempt in any way to reduce any amounts
payable to the Executive by the Company pursuant to Sections 5.4, 6 or 7.4
hereof. Further, if the Date of Termination occurs following a Change in
Control, the amount of any payment or benefit provided for in this Agreement
(other than Section 6.1(B) hereof) shall not be reduced by any compensation
earned by the Executive as the result of employment by another employer, by
retirement benefits, by offset against any amount claimed to be owed by the
Executive to the Company, or otherwise.
<PAGE>
9. Successors; Binding Agreement.
9.1 In addition to any obligations imposed by law upon any
successor to the Company, 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 which is in connection with a
Change in Control shall be a breach of this Agreement and shall entitle the
Executive to compensation from the Company in the same amount and on the same
terms as the Executive would be entitled to hereunder if the Executive were to
terminate the Executive's employment for Good Reason after a Change in Control,
except that, for purposes of implementing the foregoing, the date on which any
such succession becomes effective shall be deemed the Date of Termination.
9.2 This Agreement shall inure to the benefit of and be
enforceable by the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If the
Executive shall die while any amount would still be payable to the Executive
hereunder (other than amounts which, by their terms, terminate upon the death of
the Executive) if the Executive had continued to live, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the terms of this
Agreement to the executors, personal representatives or administrators of the
Executive's estate.
10. Notices. 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, if
to the Executive, to the address inserted below the Executive's signature on the
final page hereof and, if to the Company, to the address set forth below, 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 actual receipt:
To the Company:
The Hartford Steam Boiler
Inspection and Insurance Company
One State Street
P.O. Box 5024
Hartford, CT 06102-5024
Attention: Corporate Secretary
11. 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 the Executive 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 of any lack of 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. This Agreement supersedes any
other agreements or representations, oral or otherwise, express or implied, with
respect to the subject matter hereof which have been made by either party,
including, but not limited to, the Letter Agreement between the parties, dated
________________. 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 and any additional withholding to which the
Executive has agreed. The obligations of the Company and the Executive under
this Agreement which by their nature may require either partial or total
performance after the expiration of the Term (including, without limitation,
those under Sections 5.4, 6 and 7 hereof) shall survive such expiration.
12. 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.
13. Counterparts. This Agreement may be executed in several counterparts,
each of which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
14. Settlement of Disputes; Arbitration.
14.1 All claims by the Executive for compensation or
benefits under this Agreement (other than claims for compensation
or benefits payable in connection with a Change in Control) shall
be directed to and determined by the Board and shall be in
writing. Any denial by the Board of such a claim for compensation
or benefits shall be delivered to the Executive in writing and
shall set forth the specific reasons for the denial and the
specific provisions of this Agreement relied upon. The Board
shall afford a reasonable opportunity to the Executive for a
review of the decision denying such a claim and shall further
allow the Executive to appeal to the Board a decision of the
Board within sixty (60) days after notification by the Board that
the Executive's claim has been denied.
14.2 Any dispute or controversy arising under this Agreement
in connection with any termination-related compensation or benefit and any such
dispute or controversy in connection with a claim for compensation or benefits
to which Section 14.1 applies (after application of the provisions of said
Section 14.1) 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. Notwithstanding any provision of this Agreement to the
contrary, the Executive shall be entitled to seek specific performance in any
court having proper jurisdiction of the Executive's right to be paid until the
Date of Termination during the pendency of any dispute or controversy arising
under or in connection with this Agreement.
<PAGE>
1. Definitions. For purposes of this Agreement, the following terms
shall have the meanings indicated below:
(A) "Affiliate" shall have the meaning set forth in Rule 12b-2
promulgated under Section 12 of the Exchange Act.
(B) "Auditor" shall have the meaning set forth in Section 6.2
hereof.
(C) "Base Amount" shall have the meaning set forth in section
280G(b)(3) of the Code.
(D) "Beneficial Owner" shall have the meaning set forth in
Rule 13d-3 under the Exchange Act.
(E) "Board" shall mean the Board of Directors of the Company.
(F) "Cause" for termination by the Company of the Executive's
employment shall mean (i) the willful and continued failure by the Executive to
substantially perform the Executive's duties with the Company (other than any
such failure resulting from the Executive's incapacity due to physical or mental
illness or any such actual or anticipated failure after the issuance of a Notice
of Termination for Good Reason by the Executive pursuant to Section 7.1 hereof)
after a written demand for substantial performance is delivered to the Executive
by the Board, which demand specifically (a)identifies the manner in which the
Board believes that the Executive has not substantially performed the
Executive's duties and (b) states a period of time within which the Executive
must correct such failure (which is reasonable based on the specific
circumstances of such failure), and the period of time specified in the demand
has expired; or (ii) the willful engaging by the Executive in conduct which is
demonstrably and materially injurious to the Company or its subsidiaries,
monetarily or otherwise. For purposes of clauses (i) and (ii) of this
definition, no act, or failure to act, on the Executive's part shall be deemed
"willful" unless done, or omitted to be done, by the Executive not in good faith
and without reasonable belief that the Executive's act, or failure to act, was
in the best interest of the Company.
(G) A "Change in Control" shall be deemed to have occurred if
the event set forth in any one of the following paragraphs shall have occurred:
(I) any Person is or becomes the Beneficial
Owner, directly or indirectly, of securities of the Company
(not including in the securities beneficially owned by such
Person any securities acquired directly from the Company or
its affiliates) representing 25% or more of the combined
voting power of the Company's then outstanding securities,
excluding any Person who becomes such a Beneficial Owner in
connection with a transaction described in clause (i) of
paragraph (III) below; or
(II) the following individuals cease for any
reason to constitute a majority of the number of directors
then serving: individuals who, on the date hereof, constitute
the Board and any new director (other than a director whose
initial assumption of office is in connection with an actual
or threatened election contest, including but not limited to a
consent solicitation, relating to the election of directors of
the Company) whose appointment or election by the Board or
nomination for election by the Company's shareholders was
approved or recommended by a vote of at least two-thirds (2/3)
of the directors then still in office who either were
directors on the date hereof or whose appointment, election or
nomination for election was previously so approved or
recommended; or
(III) there is consummated a merger or
consolidation of the Company or any direct or indirect
subsidiary of the Company with any other corporation, other
than (i) a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior
to such merger or consolidation continuing to represent
(either by remaining outstanding or by being converted into
voting securities of the surviving entity or any parent
thereof), in combination with the ownership of any trustee or
other fiduciary holding securities under an employee benefit
plan of the Company or any subsidiary of the Company, at least
60% of the combined voting power of the securities of the
Company or such surviving entity or any parent thereof
outstanding immediately after such merger or consolidation, or
(ii) a merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in
which no Person is or becomes the Beneficial Owner, directly
or indirectly, of securities of the Company (not including in
the securities Beneficially Owned by such Person any
securities acquired directly from the Company or its
Affiliates) representing 25% or more of the combined voting
power of the Company's then outstanding securities; or
(IV) the shareholders of the Company approve a plan of
complete liquidation or dissolution of the Company or there is
consummated an agreement for the sale or disposition by the
Company of all or substantially all of the Company's assets,
other than a sale or disposition by the Company of all or
substantially all of the Company's assets to an entity, at
least 60% of the combined voting power of the voting
securities of which are owned by shareholders of the Company
in substantially the same proportions as their ownership of
the Company immediately prior to such sale.
Notwithstanding the foregoing, a "Change in Control" shall not be
deemed to have occurred by virtue of the consummation of any transaction or
series of integrated transactions immediately following which the record holders
of the common stock of the Company immediately prior to such transaction or
series of transactions continue to have substantially the same proportionate
ownership in an entity which owns all or substantially all of the assets of the
Company immediately following such transaction or series of transactions.
(H) "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
(I) "Company" shall mean The Hartford Steam Boiler Inspection
and Insurance Company and, except in determining under Section 15(G) hereof
whether or not any Change in Control of the Company has occurred, shall include
any successor to its business and/or assets which assumes and agrees to perform
this Agreement by operation of law, or otherwise.
(J) "Date of Termination" shall have the meaning set forth in Section 7.2
hereof.
(K) "Disability" shall be deemed the reason for the
termination by the Company of the Executive's employment, if, as a result of the
Executive's incapacity due to physical or mental illness, the Executive shall
have been absent from the full-time performance of the Executive's duties with
the Company for a period of six (6) consecutive months, the Company shall have
given the Executive a Notice of Termination for Disability, and, within thirty
(30) days after such Notice of Termination is given, the Executive shall not
have returned to the full-time performance of the Executive's duties.
(L) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended from time to time.
(M) "Excise Tax" shall mean any excise tax imposed under section 4999 of
the Code.
(N) "Executive" shall mean the individual named in the first
paragraph of this Agreement.
(O) "Good Reason" for termination by the Executive of the
Executive's employment shall mean the occurrence (without the Executive's
express written consent) after any Change in Control, or prior to a Change in
Control under the circumstances described in clauses (i), (ii) and (iii) of the
second sentence of Section 6.1 hereof (treating all references in paragraphs (I)
through (VII) below to a "Change in Control" as references to a "Potential
Change in Control"), of any one of the following acts by the Company, or
failures by the Company to act, unless, in the case of any act or failure to act
described in paragraph (I), (V), (VI) or (VII) below, such act or failure to act
is corrected prior to the Date of Termination specified in the Notice of
Termination given in respect thereof:
(I) the assignment to the Executive of any
duties inconsistent with the Executive's status as a senior
executive officer of the Company or a substantial adverse
alteration in the nature or status of the Executive's
responsibilities from those in effect immediately prior to the
Change in Control;
(II) a reduction by the Company in the
Executive's annual base salary as in effect on the date hereof
or as the same may be increased from time to time, except for
across-the-board salary reductions similarly affecting all
senior executives of the Company and all senior executives of
any Person in control of the Company;
(III) the Company's requiring the Executive
to be based more than 50 miles from the Executive's principal
place of employment immediately prior to the Change in
Control, except for required travel on the Company's business
to an extent substantially consistent with the Executive's
present business travel obligations;
(IV) the failure by the Company to pay to
the Executive any portion of the Executive's current
compensation except pursuant to an across-the-board
compensation deferral similarly affecting all senior
executives of the Company and all senior executives of any
Person in control of the Company, or to pay to the Executive
any portion of an installment of deferred compensation under
any deferred compensation program of the Company, within seven
(7) days of the date such compensation is due;
(V) the failure by the Company to continue
in effect any compensation plan in which the Executive
participates immediately prior to the Change in Control which
is material to the Executive's total compensation, unless an
equitable arrangement (embodied in an ongoing substitute or
alternative plan) has been made with respect to such plan, or
the failure by the Company to continue the Executive's
participation therein (or in such substitute or alternative
plan) on a basis not materially less favorable, both in terms
of the amount or timing of payment of benefits provided and
the level of the Executive's participation relative to other
participants, as existed immediately prior to the Change in
Control;
(VI) the failure by the Company to continue
to provide the Executive with benefits substantially similar
to those enjoyed by the Executive under any of the Company's
pension, savings, life insurance, medical, health and
accident, or disability plans in which the Executive was
participating immediately prior to the Change in Control
(except for across the board changes similarly affecting all
senior executives of the Company and all senior executives of
any Person in control of the Company), the taking of any other
action by the Company which would directly or indirectly
materially reduce any of such benefits or deprive the
Executive of any material fringe benefit enjoyed by the
Executive at the time of the Change in Control, or the failure
by the Company to provide the Executive with the number of
paid vacation days to which the Executive is entitled on the
basis of years of service with the Company in accordance with
the Company's normal vacation policy in effect at the time of
the Change in Control; or
(VII) any purported termination of the
Executive's employment which is not effected pursuant to a
Notice of Termination satisfying the requirements of Section
7.1 hereof; for purposes of this Agreement, no such purported
termination shall be effective.
The Executive's right to terminate the Executive's employment for Good
Reason shall not be affected by the Executive's incapacity due to physical or
mental illness. The Executive's continued employment shall not constitute
consent to, or a waiver of rights with respect to, any act or failure to act
constituting Good Reason hereunder.
(P) "Gross-Up Payment" shall have the meaning set forth in Section 6.2
hereof.
(Q) "Notice of Termination" shall have the meaning set forth
in Section 7.1 hereof.
(R) "Pension Plan" shall mean any tax-qualified defined
benefit pension plan, or supplemental or excess benefit plan relating thereto
maintained by the Company and any other plan or agreement entered into between
the Executive and the Company which is designed to provide the Executive with
defined benefit type retirement benefits, other than the Pre-Retirement Death
Benefit and Supplemental Pension Agreement between Executive and the Company.
(S) "Person" shall have the meaning given in Section 3(a)(9)
of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof,
except that such term shall not include (i) the Company or any of its
subsidiaries, (ii) a trustee or other fiduciary holding securities under an
employee benefit plan of the Company or any of its Affiliates, (iii) an
underwriter temporarily holding securities pursuant to an offering of such
securities, or (iv) a corporation owned, directly or indirectly, by the
shareholders of the Company in substantially the same proportions as their
ownership of stock of the Company.
(T) "Potential Change in Control" shall be deemed to have
occurred if the event set forth in any one of the following paragraphs shall
have occurred:
(I) the Company enters into an agreement, the
consummation of which would result in the occurrence of a Change in Control;
(II) the Company or any Person publicly
announces an intention to take or to consider taking actions
which, if consummated, would constitute a Change in Control;
(III) any Person becomes the Beneficial
Owner, directly or indirectly, of securities of the Company
representing 10% or more of either the then outstanding shares
of common stock of the Company or the combined voting power of
the Company's then outstanding securities (not including in
the securities beneficially owned by such Person any
securities acquired directly from the Company or its
affiliates); or
(IV) the Board adopts a resolution to the
effect that, for purposes of this Agreement, a Potential
Change in Control has occurred.
(U) "Retirement" shall be deemed the reason for the
termination by the Executive of the Executive's employment if such employment is
terminated in accordance with the Company's retirement policy, including early
retirement, generally applicable to its salaried employees.
(V) "Severance Payments" shall have the meaning set forth in Section 6.1
hereof.
(W) "Tax Counsel" shall have the meaning set forth in Section
6.2 hereof.
(X) "Term" shall mean the period of time described in Section
2 hereof (including any extension, continuation or termination described
therein).
<PAGE>
(Y) "Total Payments" shall mean those payments so described in
Section 6.2 hereof.
THE HARTFORD STEAM BOILER INSPECTION AND INSURANCE COMPANY
By:
Name: /s/ Gordon W. Kreh
Title: President
EXECUTIVE
Address:
Exhibit (10)(iii)(b)
As Amended and restated effective 12/23/96
THE HARTFORD STEAM BOILER INSPECTION
AND INSURANCE COMPANY
LONG-TERM INCENTIVE PLAN
1. Purposes of Plan
The purposes of this Plan are: (a) to provide an additional incentive
for Senior Officers and other selected key employees to increase the
earnings of the Company on a long-term basis; (b) to attract and retain
in the employ of the Company and its subsidiaries persons of
outstanding abilities; and (c) to more closely align the interests of
the Senior Officers and other selected key employees with those of the
shareholders of the Company.
2. Definitions
(a) "Affiliate" shall have the meaning set forth in Rule 12b-2
promulgated under Section 12 of the Exchange Act.
(b) "Base Salary" shall mean the annual base salary of a Participant
in effect as of the December 31 of the year immediately preceding
the Performance Period for which a Performance Contingent Award
is made (as adjusted for any promotional increases during the
Performance Period), unless otherwise determined pursuant to
Section 5(a) hereof.
(c) "Beneficial Owner" shall have the meaning set forth in Rule 13d-3
under the Exchange Act.
(d) "Board" shall mean the Board of Directors of the Company.
(e) "Change in Control" shall be deemed to have occurred if the
events set forth in any one of the following paragraphs shall
have occurred:
(I) any Person is or becomes the Beneficial
Owner, directly or indirectly, of securities of the
Company (not including in the securities beneficially
owned by such Person any securities acquired directly
from the Company or its affiliates) representing 25%
or more of the combined voting power of the Company's
then outstanding securities, excluding any Person who
becomes such a Beneficial Owner in connection with a
transaction described in clause (i) of paragraph
(III) below; or
(II) the following individuals cease for
any reason to constitute a majority of the number of
directors then serving: individuals who, on December
23, 1996, constitute the Board and any new director
(other than a director whose initial assumption of
office is in connection with an actual or threatened
election contest, including but not limited to a
consent solicitation, relating to the election of
directors of the Company) whose appointment or
election by the Board or nomination for election by
the Company's shareholders was approved or
recommended by a vote of at least two-thirds (2/3) of
the directors then still in office who either were
directors on December 23, 1996 or whose appointment,
election or nomination for election was previously so
approved or recommended; or
(III) there is consummated a merger or
consolidation of the Company or any direct or
indirect subsidiary of the Company with any other
corporation, other than (i) a merger or consolidation
which would result in the voting securities of the
Company outstanding immediately prior to such merger
or consolidation continuing to represent (either by
remaining outstanding or by being converted into
voting securities of the surviving entity or any
parent thereof), in combination with the ownership of
any trustee or other fiduciary holding securities
under an employee benefit plan of the Company or any
subsidiary of the Company, at least 60% of the
combined voting power of the securities of the
Company or such surviving entity or any parent
thereof outstanding immediately after such merger or
consolidation, or (ii) a merger or consolidation
effected to implement a recapitalization of the
Company (or similar transaction) in which no Person
is or becomes the Beneficial Owner, directly or
indirectly, of securities of the Company (not
including in the securities Beneficially Owned by
such Person any securities acquired directly from the
Company or its Affiliates) representing 25% or more
of the combined voting power of the Company's then
outstanding securities; or
(IV) the shareholders of the Company approve a plan
of complete liquidation or dissolution of the Company
or there is consummated an agreement for the sale or
disposition by the Company of all or substantially
all of the Company's assets, other than a sale or
disposition by the Company of all or substantially
all of the Company's assets to an entity, at least
60% of the combined voting power of the voting
securities of which are owned by shareholders of the
Company in substantially the same proportions as
their ownership of the Company immediately prior to
such sale.
Notwithstanding the foregoing, a "Change in Control"
shall not be deemed to have occurred by virtue of the
consummation of any transaction or series of integrated
transactions immediately following which the record holders of
the common stock of the Company immediately prior to such
transaction or series of transactions continue to have
substantially the same proportionate ownership in an entity
which owns all or substantially all of the assets of the
Company immediately following such transaction or series of
transactions.
(f) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(g) "Committee" shall mean the Human Resource Committee of the Board
or any future committee of the Board performing similar
functions.
(h) "Company" shall mean The Hartford Steam Boiler Inspection and
Insurance Company, and, except in determining under this Plan
whether or not any Change in Control of the Company has occurred,
shall include any successor to its business and/or assets which
assumes this Plan by operation of law, or otherwise.
(i) "Disability" shall mean any condition which would entitle an
employee of the Company to receive benefits under the Company's
Long-Term Disability Plan.
(j) "Dividend Equivalent" shall mean an amount equal to the cash
dividends that would have been paid with respect to an award of
Performance Contingent Units paid hereunder if the award
constituted Stock, duly issued and outstanding on the date on
which a dividend is payable on the Stock.
(k) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(l) "Fair Market Value" shall mean the average of the high and low
prices per share of the Company's Stock as reported by the New
York Stock Exchange Composite Transaction Reporting System (NYSE)
on the date for which the Fair Market Value is being determined,
or if no quotations are available for the Company's Stock, for
the next preceding date for which such a quotation is available.
If shares of Company Stock are not then listed on the NYSE, Fair
Market Value shall be reasonably determined by the Committee in
its sole discretion.
(m) "Participant" shall mean an employee of the Company to whom an
award has been made under the Plan.
(o) "Performance Contingent Award" shall mean an award of Performance
Contingent Units.
(p) "Performance Contingent Unit" shall mean the right to receive up
to 100% of the value of shares of Stock, which value may be paid
in cash or shares of Stock, which may be Restricted Stock, as
determined by the Committee, contingent upon the achievement of
Performance Goals established by the Committee.
(q) "Performance Goals" shall mean specific levels of one or more
Performance Measures at a corporate and/or business unit level
established in writing by the Committee for a particular
Performance Period.
(r) "Performance Measures" shall mean any of the following:
- Combined Ratio
- Expense Ratio
- Net Income Per Share
- Return on Equity
- Total Shareholder Return
- Return on Assets
- Revenues
- Operating Margin
- Increase in Book Value
- Market Share
(s) "Performance Period" shall mean a three consecutive year period
beginning each January 1st.
(t) "Person" shall have the meaning given in Section 3(a)(9) of the
Exchange Act, as modified and used in Sections 13(d) and 14(d)
thereof, except that such term shall not include (i) the Company
or any of its subsidiaries, (ii) a trustee or other fiduciary
holding securities under an employee benefit plan of the Company
or any of its Affiliates, (iii) an underwriter temporarily
holding securities pursuant to an offering of such securities, or
(iv) a corporation owned, directly or indirectly, by the
shareholders of the Company in substantially the same proportions
as their ownership of stock of the Company.
(u) "Plan" shall mean the Long-Term Incentive Plan.
(v) "Restricted Stock" shall mean one or more shares of Stock issued
in payment of a Performance Contingent Award and subject to the
terms and conditions established by the Committee pursuant to
Section 7.
(w) "Retirement" shall mean the termination of employment under
circumstances which entitle an employee to receive retirement
benefits under the Company's Employees' Retirement Plan.
(x) "Stock" shall mean the Common Stock of the Company.
3. Administration of the Plan
The Plan shall be administered by the Committee as defined herein. Each
member of the Committee shall be a "disinterested director" within the
meaning of Rule 16b-3 of the General Rules and Regulations promulgated
under the Exchange Act and an "outside director" within the meaning of
Section 162(m) of the Code. The Committee is authorized to interpret
the Plan and shall adopt guidelines for carrying out the Plan as it may
deem appropriate. Such guidelines shall be consistent with the Plan and
may include, but need not be limited to, the size and terms of awards
to be made and the conditions for payment of such awards. Decisions of
the Committee shall be final, conclusive and binding upon all parties
concerned, unless otherwise determined by a vote of a majority of the
disinterested members of the Board of Directors.
4. Stock Subject To the Plan
Subject to the provisions of Section 9 of the Plan, the maximum number
of shares which may be issued under the Plan shall be 150,000 shares of
Stock.
5. Eligibility
(a) All Senior Officers of the Company (presently defined as Chief
Executive Officer, President, Executive Vice President, Senior
Vice President, Corporate Secretary and Treasurer) other than any
individual expressly excluded by the Committee, are eligible to
participate in this Plan. An individual who is elected by the
Board as a Senior Officer following the commencement of a
Performance Period shall, unless otherwise determined by the
Committee, be eligible for an award for such Performance
Period(s) based on such individual's Base Salary in effect at the
time of such election, and prorated for the number of full months
within such Performance Period that such individual was a Senior
Officer.
(b) The Committee, in its sole discretion, may designate from time to
time certain other officers or key employees of the Company, its
affiliates and subsidiaries who may participate in this Plan.
6. Establishment of Performance Goals and Performance Contingent Awards
(a) Prior to or within ninety days (or such shorter period as is
required under Section 162(m) of the Code) following the
commencement of each Performance Period, the Committee shall
establish in writing for each Participant, or all Participants as
a group, specific Performance Goals based on one or more
Performance Measures. For each Performance Goal an award schedule
of Performance Contingent Units shall be established for minimum,
target and maximum attainment of such goal. The actual
Performance Contingent Award to be paid to a Participant at the
conclusion of the Performance Period shall be based on the level
of attainment of the Performance Goals established for such
period. The Committee may designate that Performance Contingent
Awards shall be credited with Dividend Equivalents during the
Performance Period which shall be paid when and if such awards
are paid.
(b) The maximum award of Performance Contingent Units for any
Participant for a Performance Period cannot exceed 60% of such
Participant's Base Salary divided by the Fair Market Value of the
Stock on the first trading date of the Performance Period.
(c) After Performance Goals have been established, they shall not be
modified in respect to the Performance Period to which they
relate.
7. Payment of Performance Contingent Awards and Dividend Equivalents
(a) Following the end of a Performance Period, the Committee shall
ascertain and certify in writing whether and the degree to which
the Performance Goals for such period have been met. A
Participant shall be entitled to receive payment of an amount not
exceeding the Fair Market Value of the maximum award of
Performance Contingent Units established by the Committee
pursuant to Section 6 hereof based upon the level of attainment
of the Performance Goals determined by the Committee. The
Committee shall have the authority to reduce the award of any
Participant even if the Performance Goals attributable to such
award have been met. The Committee shall have no authority
hereunder to increase any award calculated under this Plan.
(b) As soon as practicable following certification by the Committee
pursuant to Section 7(a), payment of awards to Participants shall
be made. Payments shall be made in cash, shares of Stock or in
shares of Restricted Stock as prescribed by the Committee and
shall be subject to such other terms and conditions as the
Committee shall establish.
(c) Any Restricted Stock issued in payment of a Performance
Contingent Award may not be sold, transferred, or otherwise
disposed of by the Participant, except by will or the laws of
descent and distribution, for such period established by the
Committee. The Committee shall have the authority to cancel all
or any portion of any outstanding restrictions on such Restricted
Stock prior to the expiration of such period on such terms and
conditions as it may deem appropriate. During the restricted
period the shares of Restricted Stock shall be registered in the
name of the Participant and deposited with the Company, and the
Participant shall be entitled to vote such shares and receive any
dividends with respect to such shares.
(d) Payment of any award of Dividend Equivalents shall be made at the
same time as payment of the Performance Contingent Award to which
it relates and shall be made in cash or shares of Stock as
prescribed by the Committee.
(e) The maximum aggregate dollar value of Performance Contingent
Units and Dividend Equivalents which may be awarded to any
Participant for any Performance Period shall not exceed $1
million.
8. Election to Defer Payment
(a) A Participant may, with permission of the Committee elect to
defer receipt of all or a specified part of any Performance
Contingent Award and related Dividend Equivalents. Such an
election shall be subject to such terms and conditions as are
prescribed by the Committee. Deferral elections are
irrevocable and must be made during the time period and in the
manner prescribed by the Committee.
(b) The right of a Participant to receive any unpaid portion of
any amount deferred hereunder shall be an unsecured claim
against the general assets of the Company.
9. Adjustments in the Event of Change in Common Stock of the Company
In the event of any change in the Stock of the Company by reason of any
stock dividend, stock split, recapitalization, reorganization, merger,
consolidation, split-up, combination, or exchange of shares, or rights
offering to purchase Stock at a price substantially below Fair Market
Value, or of any similar change affecting the Stock, the number of
Performance Contingent Units awarded which have not been paid and the
number of shares of Stock which may be awarded hereunder shall be
appropriately adjusted consistent with such change in such manner as
the Board in its discretion may deem equitable to prevent substantial
dilution or enlargement of the awards and rights granted to, or
available for Participants hereunder. Any fractional shares resulting
from such adjustments shall be eliminated.
10. No Right to an Award or Continued Employment
(a) Nothing contained in this Plan or in any resolution adopted or
to be adopted by the Board of Directors will constitute the
granting of an award hereunder. The granting of an award
pursuant to the Plan will take place only when authorized by
the Committee. No award and no rights of ownership thereunder
will be transferable otherwise than pursuant to Section 12.
(b) Nothing in the Plan shall interfere with or limit in any way
the right of the Company to terminate any Participant's
employment at any time, nor confer upon any Participant any
right to continue in the employ of the Company.
11. Rights on Termination of Employment
(a) If a Participant in this Plan shall terminate employment with
the Company on account of Retirement or Disability or
otherwise terminate employment with the written consent of the
Company prior to the expiration of any Performance Period(s)
in respect of which such Participant may be eligible for an
award, or if a subsidiary at which a Participant is employed
shall cease to be a subsidiary of the Company prior to the
expiration of any Performance Period(s), the award(s) paid to
such Participant shall be prorated according to the number of
months of employment in each such Performance Period.
(b) A Participant whose employment terminates by dismissal with or
without cause, or who voluntarily terminates employment
without consent prior to the expiration of a Performance
Period, shall lose any right to receive payment of such award.
(c) In no event shall an award or a portion thereof the payment of
which has been deferred pursuant to Section 8 be subject to
forfeiture.
12. Death of a Participant
(a) A Participant may file with the Corporate Secretary of the
Company a designation of a beneficiary or beneficiaries on a form
to be provided by such Participant, which designation may be
changed or revoked by the Participant's sole action, provided
that the change or revocation is filed with the Corporate
Secretary on a form provided by such Participant. In case of the
death of the Participant, before or after termination of
employment, any earned but unpaid portion of an award to which he
or she is entitled and any deferred portions of a deceased
Participant's award shall be delivered to the beneficiary or
beneficiaries so designated or, if no beneficiary has been
designated or survives such Participant, shall be delivered to,
or in accordance with the directions of, the executor or
administrator of such Participant's estate.
(b) If a Participant shall die during a Performance Period, such
Participant's beneficiary shall only be entitled to receive the
award declared for the Performance Period ending in the year of
the Participant's death.
13. Tax Withholding
The Company shall have the right to require Participants to remit to
the Company an amount sufficient to satisfy any tax withholding
requirements or to deduct from any payments made pursuant to the Plan
amounts sufficient to satisfy tax withholding requirements.
14. Termination and Modification
(a) The Committee may at any time terminate or from time to time
modify or suspend, and if suspended, may reinstate any or all
of the provisions of this Plan except that no modification of
this Plan may be made which will adversely affect any rights
or obligations with respect to any awards theretofore made
under the Plan.
(b) No amendment to the Plan shall be made without shareholder
approval if such approval is required in order for the Plan to
continue to meet the requirements of Section 162(m) of the
Code and/or Rule 16b-3 of the General Rules and Regulations
promulgated under the Securities Exchange Act of 1934.
15. Change in Control
(a) In the event of a Change in Control of the Company, this Plan
shall continue to be binding upon the Company, any successor in
interest to the Company and all persons in control of the Company
or any successor thereto, and no transaction or series of
transactions shall have the effect of reducing or canceling the
award of a Participant that has been declared but not paid unless
consented to in writing by such affected Participant.
(b) As soon as practicable following a Change in Control, a
Participant shall be paid a lump sum amount in cash equal to the
aggregate value of the Performance Contingent Awards payable to
the Participant for each of the Performance Periods within which
the date of the Change in Control occurs, calculated as to each
such Performance Period by multiplying the award that the
Participant would have earned on the last day of such Performance
Period, assuming the achievement of each of the Performance Goals
at the target level established for such Performance Period, by
the fraction obtained by dividing the number of full months and
any fractional portion of a month during such Performance Period
prior to the change in control by the total number of months
contained in such Performance Period. For purposes of the
preceding sentence, the amount of cash delivered in payment of
the value of the Performance Contingent Awards shall equal the
number of Performance Contingent Units constituting such each
such award multiplied by the greater of (i) the highest Fair
Market Value per share of Stock at any time during the 60-day
period preceding the Change in Control and (ii) if applicable,
the price of a share of Stock which is paid or offered to be
paid, by any person or entity, in connection with the transaction
constituting the Change in Control. The amount paid hereunder
shall be in lieu of any other awards payable under this Plan for
the Performance Periods within which the Change in Control
occurs.
(c) In the event of a Change in Control, all restrictions on any
outstanding shares of Restricted Stock issued pursuant to Section
7 hereunder shall lapse as of the date of such Change in Control.
(d) As soon as practicable following a Change in Control, any awards
or Dividend Equivalents previously deferred by a Participant in
accordance with Section 8 hereof, plus interest accrued thereon
up until the date of payment, shall be paid in full.
16. Unfunded Obligations; Trust Agreement
(a) The Company will pay from its general assets all awards to be
made hereunder. However, the Company may in its discretion,
establish a trust, escrow agreement or similar arrangement in
order to aid the Company in meeting its obligations hereunder.
(b) Any assets transferred by the Company into any such
arrangement shall remain at all times assets of the Company
and subject to the claims of the Company's general creditors
in the event of bankruptcy or insolvency of the Company. No
security interest in such assets shall be created in a
Participant's favor and a Participant's rights under this Plan
and under any such arrangement shall be those of a general
unsecured creditor of the Company.
17. Assignment and Alienation
Benefits under this Plan may not be anticipated, assigned (either at
law or in equity), alienated, or subjected to attachment, garnishment,
levy, execution or other legal or equitable process. If any Participant
or beneficiary under this Plan becomes bankrupt or attempts to
anticipate, alienate, sell, transfer, assign, pledge, encumber or
charge any benefit under this Plan, such benefit shall, in the
discretion of the Committee cease and terminate, in which event the
Committee may hold or apply the same or any part thereof for the
benefit of such Participant, his or her beneficiary, spouse, children,
other dependents or any of such individuals, in such manner and in such
proportion as the Committee may deem proper.
18. Effective Date and Termination of the Plan
This Plan shall become effective as of January 1, 1994 subject to the
approval of the shareholders at their annual meeting in 1995. Unless
earlier terminated by the Committee subject to Section 14, the Plan
shall terminate on December 31, 1998. No Performance Contingent Award
shall be made pursuant to this Plan after the termination date, but
awards made prior to its termination date may extend beyond that date.
Exhibit 10(iii)(c)
As amended and restated 12/23/96
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) 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
(a) 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. The
following definitions shall apply in connection with the
determination of a "Change in Control" under the Plan:
(i) "Affiliate" shall have the meaning set forth in
Rule 12b-2 promulgated under Section 12 of the
Exchange Act.
(ii) "Beneficial Owner" shall have the meaning set
forth in Rule 13d-3 under the Exchange Act.
(iii) "Change in Control" shall be deemed to have
occurred if the events set forth in any one of the
following paragraphs shall have occurred:
(A) any Person is or becomes the
Beneficial Owner, directly or indirectly, of
securities of the Company (not including in
the securities beneficially owned by such
Person any securities acquired directly from
the Company or its affiliates) representing
25% or more of the combined voting power of
the Company's then outstanding securities,
excluding any Person who becomes such a
Beneficial Owner in connection with a
transaction described in clause (i) of
paragraph (C) below; or
(B) the following individuals cease
for any reason to constitute a majority of
the number of directors then serving:
individuals who, on December 23, 1996,
constitute the Board and any new director
(other than a director whose initial
assumption of office is in connection with
an actual or threatened election contest,
including but not limited to a consent
solicitation, relating to the election of
directors of the Company) whose appointment
or election by the Board or nomination for
election by the Company's shareholders was
approved or recommended by a vote of at
least two-thirds (2/3) of the directors then
still in office who either were directors on
December 23, 1996 or whose appointment,
election or nomination for election was
previously so approved or recommended; or
(C) there is consummated a merger
or consolidation of the Company or any
direct or indirect subsidiary of the Company
with any other corporation, other than (i) a
merger or consolidation which would result
in the voting securities of the Company
outstanding immediately prior to such merger
or consolidation continuing to represent
(either by remaining outstanding or by being
converted into voting securities of the
surviving entity or any parent thereof), in
combination with the ownership of any
trustee or other fiduciary holding
securities under an employee benefit plan of
the Company or any subsidiary of the
Company, at least 60% of the combined voting
power of the securities of the Company or
such surviving entity or any parent thereof
outstanding immediately after such merger or
consolidation, or (ii) a merger or
consolidation effected to implement a
recapitalization of the Company (or similar
transaction) in which no Person is or
becomes the Beneficial Owner, directly or
indirectly, of securities of the Company
(not including in the securities
Beneficially Owned by such Person any
securities acquired directly from the
Company or its Affiliates) representing 25%
or more of the combined voting power of the
Company's then outstanding securities; or
(D) the shareholders of the Company approve
a plan of complete liquidation or
dissolution of the Company or there is
consummated an agreement for the sale or
disposition by the Company of all or
substantially all of the Company's assets,
other than a sale or disposition by the
Company of all or substantially all of the
Company's assets to an entity, at least 60%
of the combined voting power of the voting
securities of which are owned by
shareholders of the Company in substantially
the same proportions as their ownership of
the Company immediately prior to such sale.
Notwithstanding the foregoing, a "Change in Control" shall
not be deemed to have occurred by virtue of the consummation
of any transaction or series of integrated transactions
immediately following which the record holders of the common
stock of the Company immediately prior to such transaction
or series of transactions continue to have substantially the
same proportionate ownership in an entity which owns all or
substantially all of the assets of the Company immediately
following such transaction or series of transactions.
(iv) "Company" shall mean The Hartford Steam Boiler
Inspection and Insurance Company and, except in determining
under this Plan whether or not any Change in Control of the
Company has occurred, shall include any successor to its
business and/or assets which assumes this Plan by operation
of law, or otherwise.
(v) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
(vi)"Person" shall have the meaning given in Section 3(a)(9)
of the Exchange Act, as modified and used in Sections 13(d)
and 14(d) thereof, except that such term shall not include
(A) the Company or any of its subsidiaries, (B) a trustee or
other fiduciary holding securities under an employee benefit
plan of the Company or any of its Affiliates, (C) an
underwriter temporarily holding securities pursuant to an
offering of such securities, or (D) a corporation owned,
directly or indirectly, by the shareholders of the Company
in substantially the same proportions as their ownership of
stock of the Company.
(b) As soon as practicable following a Change in Control, a
Participant shall be paid a lump sum amount in cash equal to the
award payable to the Participant where for purposes of
determining such award, the following are deemed to have
occurred: (i) 100% of the Budgeted Net Income for the Plan Year
in which the Change in Control occurs is achieved and pursuant to
the schedule of awards provided under Section 5(b) a 60%
incentive award for each Senior Officer (including the President)
and a 50% award for each other Officer is awarded and (ii) the
Change in Control occurs on the last day of the Plan Year. This
amount shall be paid in lieu of any other award payable hereunder
for the Plan Year within which the Change in Control occurs.
(c) As soon as practicable following a Change in Control, any awards
previously deferred by a Participant in accordance with Section
6(b) hereof, plus interest accrued thereon up until the date of
payment, shall be paid in full.
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)(d)
Amended and restated as of December 23, 1996
THE HARTFORD STEAM BOILER INSPECTION
AND INSURANCE COMPANY
1985 STOCK OPTION PLAN
ARTICLE I - PLAN ADMINISTRATION AND ELIGIBILITY
1.1 Purpose
The purpose of the 1985 Stock Option Plan is to attract and retain
persons of ability as employees of the Company and its Subsidiaries and
to motivate such employees to exert their best efforts to contribute to
the long-term growth of the Company by encouraging ownership in the
Company. The Plan is further designed to promote a closer identity of
interest between key employees and the Company's stockholders. The Plan
has been amended and restated, effective January 1, 1987, to provide
for the payment of a Related Tax Benefit upon the exercise of certain
options and for awards of Restricted Stock.
1.2 Definitions
(a) "Appreciation" shall mean the excess of the Fair Market Value
of a share over the option price per share specified in an
option agreement multiplied by the number of shares subject to
the option or portion thereof which is surrendered.
(b) "Affiliate" shall have the meaning set forth in Rule 12b-2
promulgated under Section 12 of the Exchange Act.
(c) "Beneficial Owner" shall have the meaning set forth in
Rule 13d-3 under the Exchange Act.
(d) "Beneficiary" shall mean the legal representative of the
estate of a deceased Optionee or the person or persons who
shall acquire the right to exercise an option or Stock
Appreciation Right by bequest or inheritance or by reason of
the death of the Optionee. In the case where a Participant's
right to shares of Restricted Stock vest as provided in
Section 2.6(d) on or prior to his date of death, the term
"Beneficiary" shall also mean the legal representative of the
estate of the Participant or the person or persons who shall
acquire the right to such vested shares of Stock by bequest or
inheritance or by reason of the death of such Participant.
(e) "Board" shall mean the Board of Directors of the Company.
(f) "Change in Control" shall be deemed to have occurred if
the events set forth in any one of the following paragraphs
shall have occurred:
(I) any Person is or becomes the Beneficial
Owner, directly or indirectly, of securities of the
Company (not including in the securities beneficially
owned by such Person any securities acquired directly
from the Company or its affiliates) representing 25%
or more of the combined voting power of the Company's
then outstanding securities, excluding any Person who
becomes such a Beneficial Owner in connection with a
transaction described in clause (i) of paragraph
(III) below; or
(II) the following individuals cease for
any reason to constitute a majority of the number of
directors then serving: individuals who, on December
23, 1996, constitute the Board and any new director
(other than a director whose initial assumption of
office is in connection with an actual or threatened
election contest, including but not limited to a
consent solicitation, relating to the election of
directors of the Company) whose appointment or
election by the Board or nomination for election by
the Company's shareholders was approved or
recommended by a vote of at least two-thirds (2/3) of
the directors then still in office who either were
directors on December 23, 1996 or whose appointment,
election or nomination for election was previously so
approved or recommended; or
(III) there is consummated a merger or
consolidation of the Company or any direct or
indirect subsidiary of the Company with any other
corporation, other than (i) a merger or consolidation
which would result in the voting securities of the
Company outstanding immediately prior to such merger
or consolidation continuing to represent (either by
remaining outstanding or by being converted into
voting securities of the surviving entity or any
parent thereof), in combination with the ownership of
any trustee or other fiduciary holding securities
under an employee benefit plan of the Company or any
subsidiary of the Company, at least 60% of the
combined voting power of the securities of the
Company or such surviving entity or any parent
thereof outstanding immediately after such merger or
consolidation, or (ii) a merger or consolidation
effected to implement a recapitalization of the
Company (or similar transaction) in which no Person
is or becomes the Beneficial Owner, directly or
indirectly, of securities of the Company (not
including in the securities Beneficially Owned by
such Person any securities acquired directly from the
Company or its Affiliates) representing 25% or more
of the combined voting power of the Company's then
outstanding securities; or
(IV) the shareholders of the Company approve a plan
of complete liquidation or dissolution of the Company
or there is consummated an agreement for the sale or
disposition by the Company of all or substantially
all of the Company's assets, other than a sale or
disposition by the Company of all or substantially
all of the Company's assets to an entity, at least
60% of the combined voting power of the voting
securities of which are owned by shareholders of the
Company in substantially the same proportions as
their ownership of the Company immediately prior to
such sale.
Notwithstanding the foregoing, a "Change in Control"
shall not be deemed to have occurred by virtue of the
consummation of any transaction or series of integrated
transactions immediately following which the record holders of
the common stock of the Company immediately prior to such
transaction or series of transactions continue to have
substantially the same proportionate ownership in an entity
which owns all or substantially all of the assets of the
Company immediately following such transaction or series of
transactions.
(g) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(h) "Committee" shall mean the Human Resources Committee of the
Board or any future committee of the Board performing similar
functions.
(i) "Company" shall mean The Hartford Steam Boiler Inspection and
Insurance Company and, except in determining under Section
1.2(f) hereof whether or not any Change in Control of the
Company has occurred, shall include any successor to its
business and/or assets which assumes this Plan by operation of
law, or otherwise.
(j) "Disability" shall mean any condition which would entitle an
employee of the Company or a Subsidiary to receive benefits
under the Company's Long-Term Disability Plan or any long-term
disability plan maintained by the Subsidiary.
(k) "Exchange Act" shall mean the Securities Act of 1934,
as amended.
(l) "Fair Market Value" shall mean the average of the high and low
prices per share of the Company's Stock as reported by the New
York Stock Exchange Composite Transaction Reporting System
(NYSE) on the date for which the Fair Market Value is being
determined, or if no quotations are available for the
Company's Stock, for the next preceding date for which such a
quotation is available. If shares of Company Stock are not
then listed on the NYSE, Fair Market Value shall be reasonably
determined by the Committee, in its sole discretion.
(m) "Incentive Stock Option" shall mean an option described in
Section 422A of the Code.
(n) "Nonstatutory Stock Option" shall mean an option which does
not qualify as an Incentive Stock Option under Section 422A of
the Code.
(o) "Optionee" shall mean an employee of the Company or one of
its Subsidiaries to whom an option is granted.
(p) "Participant" shall mean an employee of the Company or one of
its Subsidiaries to whom an option is granted or to whom
Restricted Stock is awarded.
(q) "Person" shall have the meaning given in Section
3(a)(9) of the Exchange Act, as modified and used in Sections
13(d) and 14(d) thereof, except that such term shall not
include (i) the Company or any of its subsidiaries, (ii) a
trustee or other fiduciary holding securities under an
employee benefit plan of the Company or any of its Affiliates,
(iii) an underwriter temporarily holding securities pursuant
to an offering of such securities, or (iv) a corporation
owned, directly or indirectly, by the shareholders of the
Company in substantially the same proportions as their
ownership of stock of the Company.
(r) "Plan" shall mean The Hartford Steam Boiler Inspection and
Insurance Company 1985 Stock Option Plan, as amended.
(s) "Related Tax Benefit" shall mean the payment to an Optionee,
upon the exercise of a Nonstatutory Stock Option designated by
the Committee as subject to a Related Tax Benefit, of an
amount, computed in accordance with the following formula
where X equals the lower of the percent established by the
Committee at the time of grant of the Related Tax Benefit, or
the highest marginal rate imposed under Section 1 of the Code
for the taxable year in which the exercise occurs:
(i) X percent of the excess of the Fair Market Value of
one share of Stock over the respective option price
per share multiplied by the number of whole and
fractional shares of Stock distributed by the Company
to the Optionee with respect to such an exercised
option or portion of such an option, the Fair Market
Value to be determined as of the date of such
distribution; divided by
(ii) One (1) minus X percent.
(t) "Restricted Stock" shall mean one or more shares of Stock
awarded to an eligible employee under Section 2.6 of the Plan
and subject to the terms and conditions set forth in Section
2.6.
(u) "Retirement" shall mean the termination of employment under
circumstances which entitle an employee to receive retirement
benefits under the Company's Employees' Retirement Plan or any
Subsidiary's retirement plan.
(v) "Stock" shall mean the Common Stock of the Company.
(w) "Stock Appreciation Right" shall mean a right to surrender to
the Company all or any portion of an option and, as determined
by the Committee, to receive in exchange therefor cash or
whole shares of Stock (valued at current Fair Market Value) or
a combination thereof having an aggregate value equal to the
excess of the current Fair Market Value of one (1) share over
the option price of one (1) share specified in such option
grant multiplied by the number of shares subject to such
option or the portion thereof which is surrendered.
(x) "Subsidiary" shall mean any corporation of which at least 50%
of the voting stock is owned by the Company and/or one or more
of its other Subsidiaries.
1.3 Administration
The Plan shall be administered by the Committee as defined herein. No
member of the Committee shall be eligible to be granted an option under
the Plan. Each member of the Committee shall be a "disinterested
director" within the meaning of Rule 16b-3 of the General Rules and
Regulations promulgated under the Exchange Act and an "outside
director" within the meaning of Section 162(m) of the Code. The
Committee shall have the responsibility of interpreting the Plan and
establishing and amending such rules and regulations necessary or
appropriate for the administration of the Plan or for the continued
qualification of any Incentive Stock Options granted hereunder. In
addition, the Committee shall have the authority to designate the
employees who shall be granted options and awarded Restricted Stock
under the Plan and the amount and nature of the options, related rights
and awards to be granted to each such employee. All interpretations of
the Plan or of any options, related rights or awards issued under it
made by the Committee or any subcommittee shall be final and binding
upon all persons having an interest in the Plan. No member of the
Committee shall be liable for any action or determination taken or made
in good faith with respect to this Plan or any option granted
hereunder.
1.4 Eligibility
Executive and middle management employees of the Company or its
Subsidiaries shall be eligible to receive grants of stock options and
awards of Restricted Stock under the Plan.
1.5 Stock Subject to the Plan
(a) The maximum number of shares which may be optioned or awarded
under the Plan shall be 2,600,000 shares of Stock. Preferred
Stock may be used in lieu of grants of Stock under the Plan
subject to further authorization of the Board of the Company.
The limitation on the number of shares which may be optioned
or awarded under the Plan shall be subject to adjustment under
Section 3.2 of this Plan.
(b) If any outstanding option under the Plan for any reason
expires, lapses or is terminated, the shares of the Stock
which were subject to such option shall be restored to the
total number of shares available for grant pursuant to the
Plan. Shares as to which there is a surrender in whole or in
part of an option upon the exercise of a Stock Appreciation
Right shall not again be available for grant pursuant to the
Plan. Stock delivered upon the exercise of a Stock
Appreciation Right shall not be charged against the number of
shares of Stock available for the grant of options.
(c) Upon the exercise of an option or a Stock Appreciation Right, or
payment of a Restricted Stock award, the Company may distribute
newly issued shares or shares previously repurchased on behalf of
the Company through a broker or other independent agent
designated by the Committee. Such repurchases shall be subject to
such rules and procedures as the Committee may establish
hereunder and shall be consistent with such conditions as may be
prescribed from time to time by law or by the Securities and
Exchange Commission ("SEC") in any rule or regulation or in any
exemptive order or no-action letter issued by the SEC to the
Company or the broker with respect to the making of such purchase
or otherwise.
ARTICLE II - OPTIONS, RELATED TAX BENEFITS, STOCK APPRECIATION
RIGHTS AND RESTRICTED STOCK
2.1 Granting of Options
The Committee may grant Incentive Stock Options (ISOs), Nonstatutory
Stock Options or any combination thereof, provided that the aggregate
Fair Market Value (determined at the time the option is granted) of the
shares of Stock with respect to which ISOs are exercisable for the
first time by an employee during any calendar year (under this Plan and
any other option plan of the Company or its Subsidiaries) shall not
exceed $100,000. No such maximum limitation shall apply to Nonstatutory
Stock Options.
2.2 Terms and Conditions of Options
Each option granted under the Plan shall be authorized by the Committee
and shall be evidenced by a written agreement, in a form approved by
the Committee, containing the following terms and conditions and such
other terms and conditions as the Committee may deem appropriate:
(a) Option Term - Each option agreement shall specify the term for
which the option thereunder is granted and shall provide that the
option shall expire at the end of such term. In no event shall
any option be exercisable any earlier than one year after the
date of such grant. The Committee shall have authority to grant
options exercisable in cumulative or non-cumulative installments.
No option shall be exercisable after the expiration of ten years
from the date upon which such option is granted. Notwithstanding
anything to the contrary contained herein, in the event of a
Change in Control, all outstanding options shall immediately
become exercisable.
(b) Option Price - The option price per share shall be determined by
the Committee at the time an option is granted, and shall not be
less than the Fair Market Value of one share of Stock on the date
the option is granted.
(c) Exercise of Option -
(1) Options may be exercised only by written notice to the
Company accompanied by the proper amount of payment for
the shares.
(2) No ISO granted prior to January 1, 1987 shall be
exercised while there is outstanding any other ISO
previously granted to the employee, pursuant to the
Plan or any other plan of the Company or any Subsidiary
(or a predecessor of any such corporations) to purchase
shares of Stock or stock of any Subsidiary (or any
predecessor of any such corporations). For purposes of
this section, an ISO shall be treated as outstanding
until such option is exercised in full or expires by
reason of the lapse of time. An ISO shall be considered
exercised in full when either the underlying option or
the related Stock Appreciation Right is exercised.
(3) The Committee may postpone any exercise of an option or
a Stock Appreciation Right or the delivery of Stock
following the lapse of certain restrictions with
respect to awards of Restricted Stock for such time as
the Committee in its discretion may deem necessary, in
order to permit the Company with reasonable diligence
(i) to effect or maintain registration of the Plan or
the shares issuable upon the exercise of the option or
the Stock Appreciation Right or the lapse of certain
restrictions respecting awards of Restricted Stock
under the Securities Act of 1933, as amended, or the
securities laws of any applicable jurisdiction, or (ii)
to determine that such shares and Plan are exempt from
such registration; the Company shall not be obligated
by virtue of any option agreement or any provision of
the Plan to recognize the exercise of an option or the
exercise of a Stock Appreciation Right or the lapse of
certain restrictions respecting awards of Restricted
Stock to sell or issue shares in violation of said Act
or of the law of the government having jurisdiction
thereof. Any such postponement shall not extend the
term of an option; neither the Company nor its
directors or officers shall have any obligation or
liability to the Optionee of an option or Stock
Appreciation Right, or to the Optionee's Beneficiary
with respect to any shares as to which the option or
Stock Appreciation Right shall lapse because of such
postponement.
(4) To the extent an option is not exercised for the total
number of shares with respect to which such options
become exercisable, the number of unexercised shares
shall accumulate and the option shall be exercisable,
to such extent, at any time thereafter, but in no event
later than ten years from the date the option was
granted or after the expiration of such shorter period
(if any) which the Committee may have established with
respect to such option pursuant to Subsection (a) of
this Section 2.2.
(d) Payment of Purchase Upon Exercise - Payment for the shares as to
which an option is exercised shall be made in one of the
following ways:
(1) payment in cash of the full option price of the shares
purchased;
(2) if permitted by the Committee, the delivery of Stock of
the Company held by the purchaser for at least six
months accompanied by the certificates therefor
registered in the name of such purchaser and properly
endorsed for transfer, having a Fair Market Value (as
of the date of exercise) equal to the full option
price; or
(3) if permitted by the Committee, a combination of cash
and Stock (as described in (2) above) such that the sum
of the amount of cash and the Fair Market Value of the
Stock (as of the date of exercise) is equal to the full
option price.
(e) Nontransferability - No option or Stock Appreciation Right
granted under the Plan shall be transferable other than by will
or by the laws of descent and distribution subject to Section 2.5
hereunder. During the lifetime of an Optionee, an option or Stock
Appreciation Right shall be exercisable only by such Optionee.
(f) Laws and Regulations - The Committee shall have the right to
condition any issuance of shares to any Optionee or Participant
hereunder on such Optionee's or Participant's undertaking in
writing to comply with such restrictions on the subsequent
disposition of such shares as the Committee shall deem necessary
or advisable as a result of any applicable law or regulation. In
the case of Stock issued or cash paid upon exercise of options or
associated Stock Appreciation Rights, or payment of a Related Tax
Benefit or the lapse of restrictions with respect to Restricted
Stock awarded to a Participant under the Plan, the Optionee,
Participant or other person receiving such Stock or cash shall be
required to pay to the Company or a Subsidiary the amount of any
taxes which the Company or Subsidiary is required to withhold
with respect to such Stock or cash. The Company or a subsidiary
may, in its sole discretion, permit an optionee or participant or
other person receiving such Stock or cash to satisfy any federal,
state or local (if any) tax withholding requirements, in whole or
in part by (i) delivering to the Company or subsidiary shares of
Stock held by such optionee, participant or other person having a
Fair Market Value equal to the amount of the tax or (ii)
directing the Company or subsidiary to retain Stock otherwise
issuable to the optionee, participant or other person under the
Plan having a Fair Market Value equal to the amount of the tax.
If Stock is used to satisfy tax withholding, such stock shall be
valued based on the Fair Market Value when the tax withholding is
required to be made.
(g) Modification - The Committee shall have authority to modify an
option agreement without the consent of the Optionee, provided
that such modification does not affect the exercise price or
otherwise materially diminish the value of such option agreement
to the Optionee, and provided further, that except in connection
with an amendment to the Plan, the Committee shall not have
authority to make any modification to any particular option
agreement that materially increases the value of the option
agreement to the Optionee.
2.3 Related Tax Benefit
(a) The Committee may, but shall not be required to designate an
option, either at date of grant of a Nonstatutory Stock Option or
thereafter, as being subject to a Related Tax Benefit. A Related
Tax Benefit shall be payable to the Optionee only upon the
exercise of the option with which it is associated and payment
shall be made at the time of such exercise. The conditions and
limitations of a Related Tax Benefit shall be determined by the
Committee and the Committee shall have the authority to amend the
formula set forth in Subsection (s) of Section 1.2 at any time
without the consent of the Optionee.
(b) On and after January 1, 1987, an Optionee may, with respect to
any unexercised Incentive Stock Option, apply to the Committee to
elect to convert, at the discretion of the Committee, such option
to a Nonstatutory Stock Option. The Committee may, but shall not
be required to, approve such conversion to a Nonstatutory Stock
Option. Effective upon approval of such conversion by the
Committee, the option that was an Incentive Stock Option prior to
such conversion shall cease to be an option described in Section
422A of the Code and shall be deemed to be a Nonstatutory Stock
Option. Following the approval of such conversion, the Committee
may, in accordance with the provisions of Section 2.3(a),
designate such Nonstatutory Stock Option as being subject to a
Related Tax Benefit in accordance with the provisions of this
Section 2.3.
(c) A Related Tax Benefit shall be payable in cash or, at the
discretion of the Committee, in Stock or a combination of cash
and Stock such that the sum of the amount of cash, if any, and
the Fair Market Value of the Stock (as of the date of exercise)
is equal to the amount of such Related Tax Benefit. Payment of
any Related Tax Benefit shall be subject to the provisions of
Section 2.2(f) respecting the payment of taxes which the Company
or Subsidiary is required to withhold.
2.4 Stock Appreciation Rights
(a) The Committee may, but shall not be required to, grant a Stock
Appreciation Right to the Optionee either at the time an option
is granted or by amending the option agreement at any time during
the term of such option. A Stock Appreciation Right shall be
exercisable only during the term of the option with which it is
associated. The Stock Appreciation Right shall be an integral
part of the option with which it is associated and shall have no
existence apart therefrom. The conditions and limitations of the
Stock Appreciation Right shall be determined by the Committee and
shall be set forth in the option agreement or amendment thereto.
An amendment granting a Stock Appreciation Right shall not be
deemed to be a grant of a new option for purposes of the Plan.
(b) A Stock Appreciation Right may be exercised by:
(1) filing with the Secretary of the Company a written election,
which election shall be delivered by the Secretary to the
Committee specifying:
(i) the option or portion thereof to be surrendered; and
(ii) the percentage of the Appreciation which the Optionee
desires to receive in cash, if any; and
(2) surrendering such option for cancellation or partial
cancellation, as the case may be, provided, however, that
any election to receive any portion of the Appreciation in
cash shall be of no force or effect unless and until the
Committee shall have consented to such election.
(c) No election to receive any portion of the Appreciation in cash
shall be filed with the Secretary and no Stock Appreciation Right
shall be exercised to receive any cash unless such election and
exercise shall occur during the period (hereinafter referred to
as the "Cash Window Period") beginning on the third business day
following the date of release for publication by the Company of a
regular quarterly or annual statement of sales and earnings and
ending on the twelfth business day following such date. The
Committee may consent to the election of a holder to receive any
portion of the Appreciation in cash at any time after such
election has been made. If such election is consented to, the
Stock Appreciation Right shall be deemed to have been exercised
during the Cash Window Period in which, or next occurring after
which, the Optionee completed all acts required of him under the
preceding paragraphs to exercise the Stock Appreciation Right.
Any Stock Appreciation Right exercised during said Cash Window
Period shall be valued and deemed exercised as of the date during
such Cash Window Period when the average of the high and low
prices for the shares of Stock as reported by the NYSE is the
highest.
2.5 Exercise of Option or Stock Appreciation Right in the Event
of Termination of Employment or Death
(a) Options and associated Stock Appreciation Rights shall terminate
immediately upon the termination of the Optionee's employment
with the Company or a Subsidiary unless the option agreement of
such Optionee provides otherwise. The conditions established by
the Committee in the agreement for exercising options and Stock
Appreciation Rights following termination of employment are
limited by the following restrictions.
(1) If termination of employment is by reason of the
death of the Optionee, no exercise by the Optionee's
Beneficiary may occur more than two years after the
Optionee's death.
(2) If termination of employment is the result of
Disability or Retirement, no exercise by the Optionee
or his Beneficiary may occur more than two years
following such termination of employment.
(3) If termination of employment is for a reason other
than death, Disability, Retirement or "involuntary
termination for cause", no exercise by the Optionee
may occur more than three months following such
termination of employment. As used herein
"involuntary termination for cause" shall mean
termination of employment by reason of the Optionee's
commission of a felony, fraud or willful misconduct
which has resulted, or is likely to result, in
substantial and material damage to the Company or its
Subsidiaries. Whether an involuntary termination is
for "cause" will be determined in the sole discretion
of the Committee.
(b) If the Optionee should die after termination of employment, such
termination being for a reason other than Disability, Retirement
or involuntary termination for cause, but while the option is
still exercisable, the option or associated Stock Appreciation
Right, if any, may be exercised by the Beneficiary of the
Optionee no later than one year from the date of termination of
employment of the Optionee.
(c) Under no circumstances may an option or Stock Appreciation Right
be exercised by an Optionee or Beneficiary after the expiration
of the term specified in the option agreement.
2.6 Awarding of Restricted Stock
(a) The Committee shall from time to time in its absolute discretion
select from among the eligible employees the Participants to whom
awards of Restricted Stock shall be granted and the number of
shares subject to such awards. Each award of Restricted Stock
under the Plan shall be evidenced by an instrument delivered to
the Participant in such form as the Committee shall prescribe
from time to time in accordance with the Plan. The Restricted
Stock subject to such award shall be registered in the name of
the Participant and held in escrow by the Committee during the
Restricted Period (as defined herein).
(b) Upon the award to a Participant of shares of Restricted Stock
pursuant to Section 2.6(a), the Participant shall, subject to
Subsection (c) of this Section 2.6, possess all incidents of
ownership of such shares, including the right to receive
dividends with respect to such shares and to vote such shares.
(c) Shares of Restricted Stock awarded to a Participant may not be
sold, assigned, transferred, pledged, hypothecated or otherwise
disposed of, except by will or the laws of descent and
distribution, for a period of five years, or such shorter period
as the Committee shall determine, from the date on which the
award is granted (the "Restricted Period"). The Committee may
also impose such other restrictions and conditions on the shares
as it deems appropriate and any attempt to dispose of any such
shares of Restricted Stock in contravention of such restrictions
shall be null and void and without effect. In determining the
Restricted Period of an award, the Committee may provide that the
foregoing restrictions shall lapse with respect to specified
percentages of the awarded shares on successive anniversaries of
the date of such award. In no event shall the Restricted Period
end with respect to awarded shares prior to the satisfaction by
the Participant of any liability arising under Section 2.2(f).
(d) The restrictions described in Section 2.6(c) shall lapse upon the
completion of the Restricted Period with respect to specific
shares of Restricted Stock and the Participant's right to such
shares shall vest on such date or, if earlier, on the date that
the Participant's employment terminates on account of the death,
Disability or Retirement of the Participant. The Company shall
deliver to the Participant, or the Beneficiary of such
Participant, if applicable, within 30 days of the termination of
the Restricted Period, the number of shares of Stock that were
awarded to the Participant as Restricted Stock and with respect
to which the restrictions imposed under Section 2.6(c) have
lapsed, less any stock returned by the Company to satisfy tax
withholding pursuant to Section 2.2(f), if applicable.
(e) Except as provided in Sections 2.6(d) and (f), if the
Participant's continuous employment with the Company or a
Subsidiary shall terminate for any reason prior to the expiration
of the Restricted Period of an award, any shares remaining
subject to restrictions shall thereupon be forfeited by the
Participant and transferred to, and reacquired by, the Company or
a Subsidiary at no cost to the Company or Subsidiary.
(f) The Committee shall have the authority (and the instrument
evidencing an award of Restricted Stock may so provide) to cancel
all or any portion of any outstanding restrictions prior to the
expiration of the Restricted Period with respect to any or all of
the shares of Restricted Stock awarded to an employee hereunder
on such terms and conditions as the Committee may deem
appropriate.
(g) In the event of a Change in Control, all restrictions on any
outstanding shares of Restricted Stock shall lapse as of the date
of such Change in Control.
ARTICLE III - GENERAL PROVISIONS
3.1 Authority
Appropriate officers of the Company designated by the Committee are
authorized to execute and deliver option agreements, and amendments
thereto, in the name of the Company, as directed from time to time by
the Committee.
3.2 Adjustments in the Event of Change in Common Stock of the
Company
In the event of any change in the Stock of the Company by reason of any
stock dividend, stock split, recapitalization, reorganization, merger,
consolidation, split-up, combination, or exchange of shares, or rights
offering to purchase Stock at a price substantially below Fair Market
Value, or of any similar change affecting the Stock, the number and
kind of shares which thereafter may be obtained and sold under the Plan
and the number and kind of shares subject to options in outstanding
option agreements and the purchase price per share thereof and the
number of shares of Restricted Stock awarded pursuant to Section 2.6(a)
with respect to which all restrictions have not lapsed, shall be
appropriately adjusted consistent with such change in such manner as
the Board in its discretion may deem equitable to prevent substantial
dilution or enlargement of the rights granted to, or available for,
Participants in the Plan. Any fractional shares resulting from such
adjustments shall be eliminated. However, without the consent of the
Optionee, no adjustment shall be made in the terms of an ISO which
would disqualify it from treatment under Section 421(a) of the Code or
would be considered a modification, extension or renewal of an option
under Section 425(h) of the Code.
3.3 Rights of Employees
The Plan and any option or award granted under the Plan shall not
confer upon any Optionee or Participant any right with respect to
continuance of employment by the Company or any Subsidiary nor shall
they interfere in any way with the right of the Company or Subsidiary
by which an Optionee or Participant is employed to terminate his
employment at any time. The Company shall not be obligated to issue
Stock pursuant to an option or an award of Restricted Stock for which
the restrictions hereunder have lapsed if such issuance would
constitute a violation of any applicable law. No Optionee shall have
any rights as a stockholder with respect to any shares subject to his
option prior to the date of issuance to such optionee of a certificate
or certificates for such shares. Except as provided herein, no
Participant shall have any rights as a stockholder with respect to any
shares of Restricted Stock awarded to such participant.
3.4 Amendment, Suspension and Discontinuance of the Plan
The Board may from time to time amend, suspend or discontinue the Plan,
provided that the Board may not, without the approval of the holders of
a majority of the outstanding shares entitled to vote, take any of the
following actions unless such actions fall within the provisions of
Section 3.2 herein:
(a) increase the number of shares reserved for options pursuant to
Section 1.5;
(b) alter in any way the class of persons eligible to participate in
the Plan;
(c) permit the granting of any option at an option price less than
that provided under Section 2.2(b) hereof; or
(d) extend the term of the Plan or the term during which any option
may be granted or exercised.
No amendment, suspension or discontinuance of the Plan shall impair an
Optionee's rights under an option previously granted to an Optionee
without the Optionee's consent.
3.5 Governing Law
This Plan and all determinations made and actions taken pursuant hereto
shall be governed by the laws of the State of Connecticut.
3.6 Effective Date of the Plan
The Plan as amended and restated shall be effective on January 1, 1987,
subject to the requisite approval of stockholders. No option shall be
granted pursuant to this Plan later than April 15, 1995, but options
granted before such date may extend beyond it in accordance with their
terms and the terms of the Plan.
Exhibit (10)(iii)(e)
As amended and restated
effective 12/23/96
THE HARTFORD STEAM BOILER INSPECTION
AND INSURANCE COMPANY
1995 STOCK OPTION PLAN
ARTICLE I - PLAN ADMINISTRATION AND ELIGIBILITY
1.1 Purpose of Plan
The purpose of the 1995 Stock Option Plan is to attract and retain
persons of ability as employees of the Company and its Subsidiaries and
to motivate such employees to exert their best efforts to contribute to
the long-term growth of the Company by encouraging ownership in the
Company. The Plan is further designed to promote a closer identity of
interest between key employees and the Company's shareholders.
1.2 Definitions
(a) "Appreciation" shall mean the excess of the Fair Market Value of
a share over the specified option price per share multiplied by
the number of shares subject to the option or portion thereof
which is surrendered.
(b) "Affiliate" shall have the meaning set forth in Rule 12b-2
promulgated under Section 12 of the Exchange Act.
(c) "Beneficial Owner" shall have the meaning set forth in Rule 13d-3
under the Exchange Act.
(d) "Beneficiary" shall mean the legal representative of the estate
of a deceased Optionee or the person or persons who shall acquire
the right to exercise an option or Stock Appreciation Right by
bequest or inheritance or by reason of the death of the Optionee.
In the case where a Participant's right to shares of Restricted
Stock vest as provided in Section 2.5(d) on or prior to the
Participant's date of death, the term "Beneficiary" shall also
mean the legal representative of the estate of the Participant or
the person or persons who shall acquire the right to such vested
shares of Stock by bequest or inheritance or by reason of the
death of such Participant.
(e) "Board" shall mean the Board of Directors of the Company.
(f) "Change in Control" shall be deemed to have occurred if the
events set forth in any one of the following paragraphs shall
have occurred:
(I) any Person is or becomes the Beneficial Owner, directly
or indirectly, of securities of the Company (not including
in the securities beneficially owned by such Person any
securities acquired directly from the Company or its
affiliates) representing 25% or more of the combined voting
power of the Company's then outstanding securities,
excluding any Person who becomes such a Beneficial Owner in
connection with a transaction described in clause (i) of
paragraph (III) below; or
(II) the following individuals cease for any reason to
constitute a majority of the number of directors then
serving: individuals who, on December 23, 1996, constitute
the Board and any new director (other than a director whose
initial assumption of office is in connection with an actual
or threatened election contest, including but not limited to
a consent solicitation, relating to the election of
directors of the Company) whose appointment or election by
the Board or nomination for election by the Company's
shareholders was approved or recommended by a vote of at
least two-thirds (2/3) of the directors then still in office
who either were directors on December 23, 1996 or whose
appointment, election or nomination for election was
previously so approved or recommended; or
(III) there is consummated a merger or consolidation of the
Company or any direct or indirect subsidiary of the Company
with any other corporation, other than (i) a merger or
consolidation which would result in the voting securities of
the Company outstanding immediately prior to such merger or
consolidation continuing to represent (either by remaining
outstanding or by being converted into voting securities of
the surviving entity or any parent thereof), in combination
with the ownership of any trustee or other fiduciary holding
securities under an employee benefit plan of the Company or
any subsidiary of the Company, at least 60% of the combined
voting power of the securities of the Company or such
surviving entity or any parent thereof outstanding
immediately after such merger or consolidation, or (ii) a
merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in
which no Person is or becomes the Beneficial Owner, directly
or indirectly, of securities of the Company (not including
in the securities Beneficially Owned by such Person any
securities acquired directly from the Company or its
Affiliates) representing 25% or more of the combined voting
power of the Company's then outstanding securities; or
(IV) the shareholders of the Company approve a plan of
complete liquidation or dissolution of the Company or there
is consummated an agreement for the sale or disposition by
the Company of all or substantially all of the Company's
assets, other than a sale or disposition by the Company of
all or substantially all of the Company's assets to an
entity, at least 60% of the combined voting power of the
voting securities of which are owned by shareholders of the
Company in substantially the same proportions as their
ownership of the Company immediately prior to such sale.
Notwithstanding the foregoing, a "Change in Control" shall not be
deemed to have occurred by virtue of the consummation of any
transaction or series of integrated transactions immediately
following which the record holders of the common stock of the
Company immediately prior to such transaction or series of
transactions continue to have substantially the same
proportionate ownership in an entity which owns all or
substantially all of the assets of the Company immediately
following such transaction or series of transactions.
(g) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(h) "Committee" shall mean the Human Resources Committee of the Board
or any future committee of the Board performing similar
functions.
(i) "Company" shall mean The Hartford Steam Boiler Inspection and
Insurance Company and, except in determining under Section 1.2(f)
hereof whether or not any Change in Control of the Company has
occurred, shall include any successor to its business and/or
assets which assumes this Plan by operation of law, or otherwise.
(j) "Disability" shall mean any condition which would entitle an
employee of the Company or a Subsidiary to receive benefits under
the Company's Long-Term Disability Plan or any long-term
disability plan maintained by the Subsidiary.
(k) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(l) "Fair Market Value" shall mean the average of the high and low
prices per share of the Company's Stock as reported by the New
York Stock Exchange Composite Transaction Reporting System (NYSE)
on the date for which the Fair Market Value is being determined,
or if no quotations are available for the Company's Stock, for
the next preceding date for which such a quotation is available.
If shares of Company Stock are not then listed on the NYSE, Fair
Market Value shall be reasonably determined by the Committee, in
its sole discretion.
(m) "Incentive Stock Option" shall mean an option described in
Section 422 of the Code.
(n) "Nonstatutory Stock Option" shall mean an option which does not
qualify as an Incentive Stock Option under Section 422 of the
Code.
(o) "Optionee" shall mean an employee of the Company or a Subsidiary
to whom an option is granted.
(p) "Participant" shall mean an employee of the Company or a
Subsidiary to whom an option is granted or to whom Restricted
Stock is awarded.
(q) "Person" shall have the meaning given in Section 3(a)(9) of the
Exchange Act, as modified and used in Sections 13(d) and 14(d)
thereof, except that such term shall not include (i) the Company
or any of its subsidiaries, (ii) a trustee or other fiduciary
holding securities under an employee benefit plan of the Company
or any of its Affiliates, (iii) an underwriter temporarily
holding securities pursuant to an offering of such securities, or
(iv) a corporation owned, directly or indirectly, by the
shareholders of the Company in substantially the same proportions
as their ownership of stock of the Company.
(r) "Plan" shall mean The Hartford Steam Boiler Inspection and
Insurance Company 1995 Stock Option Plan, as amended.
(s) "Restricted Stock" shall mean one or more shares of Stock awarded
to an eligible employee under Section 2.5 of the Plan and subject
to the terms and conditions set forth in Section 2.5.
(t) "Retirement" shall mean the termination of employment under
circumstances which entitle an employee to receive retirement
benefits under the Company's Employees' Retirement Plan or any
Subsidiary's retirement plan.
(u) "Stock" shall mean the Common Stock of the Company.
(v) "Stock Appreciation Right" shall mean a right to surrender to the
Company all or any portion of an option and, as determined by the
Committee, to receive in exchange therefor cash or whole shares
of Stock (valued at current Fair Market Value) or a combination
thereof having an aggregate value equal to the excess of the
current Fair Market Value of one (1) share over the option price
of one (1) share specified in such option grant multiplied by the
number of shares subject to such option or the portion thereof
which is surrendered.
(w) "Subsidiary" shall mean any corporation of which at least 50% of
the voting stock is owned by the Company and/or one or more of
the Company's other Subsidiaries.
1.3 Administration
The Plan shall be administered by the Committee as defined herein. No
member of the Committee shall be eligible to be granted an option under
the Plan. Each member of the Committee shall be a "disinterested
director" within the meaning of Rule 16b-3 of the General Rules and
Regulations promulgated under the Exchange Act and an "outside
director" within the meaning of Section 162(m) of the Code. The
Committee shall have the responsibility of interpreting the Plan and
establishing and amending such rules and regulations necessary or
appropriate for the administration of the Plan or for the continued
qualification of any Incentive Stock Options granted hereunder. In
addition, the Committee shall have the authority to designate the
employees who shall be granted options and awarded Restricted Stock
under the Plan and the amount and nature of the options, related rights
and awards to be granted to each such employee. All interpretations of
the Plan or of any options, related rights or awards issued under it
made by the Committee shall be final and binding upon all persons
having an interest in the Plan. No member of the Committee shall be
liable for any action or determination taken or made in good faith with
respect to this Plan or any option granted hereunder.
1.4 Eligibility
Executive and middle management employees of the Company or its
Subsidiaries shall be eligible to receive grants of stock options and
awards of Restricted Stock under the Plan.
1.5 Stock Subject to the Plan
(a) The maximum number of shares which may be optioned or awarded
under the Plan shall be 850,000 shares of Stock. Preferred Stock
may be used in lieu of grants of Stock under the Plan subject to
further authorization of the Board of the Company.
Notwithstanding the foregoing, in no event shall the Committee
grant any Participant Incentive Stock Options, Nonstatutory Stock
Options, Stock Appreciation Rights or Restricted Stock in any
single calendar year for more than 100,000 shares of Stock. The
limitation on the number of shares which may be optioned or
awarded under the Plan or to an individual Participant shall be
subject to adjustment under Section 3.2 of this Plan.
(b) If any outstanding option under the Plan for any reason expires,
lapses or is terminated, the shares of the Stock which were
subject to such option shall be restored to the total number of
shares available for grant pursuant to the Plan. Shares as to
which there is a surrender in whole or in part of an option upon
the exercise of a Stock Appreciation Right shall not again be
available for grant pursuant to the Plan. Stock delivered upon
the exercise of a Stock Appreciation Right shall not be charged
against the number of shares of Stock available for the grant of
options.
(c) Upon the exercise of an option or a Stock Appreciation Right, or
payment of a Restricted Stock award, the Company may distribute
newly issued shares or shares previously repurchased on behalf of
the Company through a broker or other independent agent
designated by the Committee. Such repurchases shall be subject to
such rules and procedures as the Committee may establish
hereunder and shall be consistent with such conditions as may be
prescribed from time to time by law or by the Securities and
Exchange Commission ("SEC") in any rule or regulation or in any
exemptive order or no-action letter issued by the SEC to the
Company or the broker with respect to the making of such purchase
or otherwise.
ARTICLE II - OPTIONS, STOCK APPRECIATION RIGHTS AND RESTRICTED STOCK
2.1 Granting of Options
The Committee may grant Incentive Stock Options (ISOs), Nonstatutory
Stock Options or any combination thereof, provided that the aggregate
Fair Market Value (determined at the time the option is granted) of the
shares of Stock with respect to which ISOs are exercisable for the
first time by an employee during any calendar year (under this Plan and
any other option plan of the Company or its Subsidiaries) shall not
exceed $100,000. No such maximum limitation shall apply to Nonstatutory
Stock Options.
2.2 Terms and Conditions of Options
Each option granted under the Plan shall be authorized by the Committee
and shall be evidenced by an instrument delivered to the Participant,
in a form approved by the Committee, containing the following terms and
conditions and such other terms and conditions as the Committee may
deem appropriate.
(a) Option Term - Each option shall specify the term for which the
option thereunder is granted and shall provide that the option
shall expire at the end of such term. In no event shall any
option be exercisable any earlier than one year after the date
of such grant. The Committee shall have authority to grant
options exercisable in cumulative or non-cumulative
installments. No option shall be exercisable after the
expiration of ten years from the date upon which such option
is granted. Notwithstanding anything to the contrary contained
herein, in the event of a Change in Control, all outstanding
options shall immediately become exercisable.
(b) Option Price - The option price per share shall be determined
by the Committee at the time an option is granted, and shall
not be less than the Fair Market Value of one share of Stock
on the date the option is granted.
(c) Exercise of Option -
(1) Options may be exercised only by written notice to the
Company accompanied by the proper amount of payment for
the shares.
(2) The Committee may postpone any exercise of an option or
a Stock Appreciation Right or the delivery of Stock
following the lapse of certain restrictions with
respect to awards of Restricted Stock for such time as
the Committee in its discretion may deem necessary, in
order to permit the Company with reasonable diligence
(i) to effect or maintain registration of the Plan or
the shares issuable upon the exercise of the option or
the Stock Appreciation Right or the lapse of certain
restrictions respecting awards of Restricted Stock
under the Securities Act of 1933, as amended, or the
securities laws of any applicable jurisdiction, or (ii)
to determine that such shares and Plan are exempt from
such registration; the Company shall not be obligated
by virtue of any option or any provision of the Plan to
recognize the exercise of an option or the exercise of
a Stock Appreciation Right or the lapse of certain
restrictions respecting awards of Restricted Stock to
sell or issue shares in violation of said Act or of the
law of the government having jurisdiction thereof. Any
such postponement shall not extend the term of an
option; neither the Company nor its directors or
officers shall have any obligation or liability to the
Optionee of an option or Stock Appreciation Right, or
to the Optionee's Beneficiary with respect to any
shares as to which the option or Stock Appreciation
Right shall lapse because of such postponement.
(3) To the extent an option is not exercised for the total
number of shares with respect to which such options
become exercisable, the number of unexercised shares
shall accumulate and the option shall be exercisable,
to such extent, at any time thereafter, but in no event
later than ten years from the date the option was
granted or after the expiration of such shorter period
(if any) which the Committee may have established with
respect to such option pursuant to Subsection (a) of
this Section 2.2.
(d) Payment of Purchase Upon Exercise - Payment for the shares as
to which an option is exercised shall be made in one of the
following ways:
(1) payment in cash of the full option price of the shares
purchased;
(2) if permitted by the Committee, the delivery of Stock of
the Company held by the purchaser for at least six
months accompanied by the certificates therefor
registered in the name of such purchaser and properly
endorsed for transfer, having a Fair Market Value (as
of the date of exercise) equal to the full option
price; or
(3) if permitted by the Committee, a combination of cash
and Stock (as described in (2) above) such that the sum
of the amount of cash and the Fair Market Value of the
Stock (as of the date of exercise) is equal to the full
option price.
(e) Nontransferability - No option granted under the Plan shall be
transferable other than by will or by the laws of descent and
distribution subject to Section 2.4 hereunder, unless the
Committee shall permit (on such terms and conditions as it shall
establish) such option to be transferred to a member of the
Participant's immediate family or to a trust or similar vehicle
for the benefit of such immediate family members, or to an
"alternate participant" pursuant to a Qualified Domestic
Relations Order as defined in the Code. During the lifetime of an
Optionee, an option shall be exercisable only by such Optionee,
or if applicable, a transferee. For purposes of Section 2.4
hereunder, a transferred option may be exercised by the
transferee to the extent that the Participant would have been
entitled had the option not been transferred.
(f) Laws and Regulations - The Committee shall have the right to
condition any issuance of shares to any Optionee or Participant
hereunder upon such Optionee's or Participant's undertaking in
writing to comply with such restrictions on the subsequent
disposition of such shares as the Committee shall deem necessary
or advisable as a result of any applicable law or regulation. In
the case of Stock issued or cash paid upon exercise of options or
associated Stock Appreciation Rights, or the lapse of
restrictions with respect to Restricted Stock awarded to a
Participant under the Plan, the Optionee, Participant or other
person receiving such Stock or cash shall be required to pay to
the Company or a Subsidiary the amount of any taxes which the
Company or Subsidiary is required to withhold with respect to
such Stock or cash. The Company or a Subsidiary may, in its sole
discretion, permit an Optionee or Participant or other person
receiving such Stock or cash to satisfy any Federal, state or
local (if any) tax withholding requirements, in whole or in part
by (i) delivering to the Company or subsidiary shares of Stock
held by such Optionee, Participant or other person having a Fair
Market Value equal to the amount of the tax or (ii) directing the
Company or Subsidiary to retain Stock otherwise issuable to the
Optionee, Participant or other person under the Plan having a
Fair Market Value equal to the amount of the tax. If Stock is
used to satisfy tax withholding, such Stock shall be valued based
on the Fair Market Value when the tax withholding is required to
be made.
(g) Modification - The Committee shall have authority to modify an
option without the consent of the Optionee, provided that such
modification does not affect the exercise price or otherwise
materially diminish the value of such option to the Optionee, and
provided further, that except in connection with an amendment to
the Plan, the Committee shall not have authority to make any
modification to any particular option that materially increases
the value of the option to the Optionee.
2.3 Stock Appreciation Rights
(a) The Committee may, but shall not be required to, grant a Stock
Appreciation Right to the Optionee either at the time an option
is granted or by amending the option at any time during the term
of such option. A Stock Appreciation Right shall be exercisable
only during the term of the option with which it is associated.
The Stock Appreciation Right shall be an integral part of the
option with which it is associated and shall have no existence
apart therefrom. The conditions and limitations of the Stock
Appreciation Right shall be determined by the Committee and shall
be set forth in the option or amendment thereto. An amendment
granting a Stock Appreciation Right shall not be deemed to be a
grant of a new option for purposes of the Plan.
(b) A Stock Appreciation Right may be exercised by:
(1) filing with the Secretary of the Company a written election,
which election shall be delivered by the Secretary to the
Committee specifying:
(i) the option or portion thereof to be surrendered; and
(ii) the percentage of the Appreciation which the Optionee
desires to receive in cash, if any; and
(2) surrendering such option for cancellation or partial
cancellation, as the case may be, provided, however, that
any election to receive any portion of the Appreciation in
cash shall be of no force or effect unless and until the
Committee shall have consented to such election.
(c) No election to receive any portion of the Appreciation in cash
shall be filed with the Secretary and no Stock Appreciation Right
shall be exercised to receive any cash unless such election and
exercise shall occur during the period (hereinafter referred to
as the "Cash Window Period") beginning on the third business day
following the date of release for publication by the Company of a
regular quarterly or annual statement of sales and earnings and
ending on the twelfth business day following such date. The
Committee may consent to the election of a holder to receive any
portion of the Appreciation in cash at any time after such
election has been made. If such election is consented to, the
Stock Appreciation Right shall be deemed to have been exercised
during the Cash Window Period in which, or next occurring after
which, the Optionee completed all acts required of such Optionee
under the preceding paragraphs to exercise the Stock Appreciation
Right. Any Stock Appreciation Right exercised during said Cash
Window Period shall be valued and deemed exercised as of the date
during such Cash Window Period when the average of the high and
low prices for the shares of Stock as reported by the NYSE is the
highest.
2.4 Exercise of Option or Stock Appreciation Right in the Event
of Termination of Employment or Death
(a) Options and associated Stock Appreciation Rights shall terminate
immediately upon the termination of the Optionee's employment
with the Company or a Subsidiary unless the written option
instrument of such Optionee provides otherwise. The conditions
established by the Committee in the instrument for exercising
options and Stock Appreciation Rights following termination of
employment are limited by the following restrictions.
(1) If termination of employment is by reason of the death of
the Optionee, no exercise by the Optionee's Beneficiary may
occur more than two years after the Optionee's death.
(2) If termination of employment is the result of Disability or
Retirement, no exercise by the Optionee or his Beneficiary
may occur more than two years following such termination of
employment.
(3) If termination of employment is for a reason other than
death, Disability, Retirement or "involuntary termination
for cause", no exercise by the Optionee may occur more than
three months following such termination of employment. As
used herein "involuntary termination for cause" shall mean
termination of employment by reason of the Optionee's
commission of a felony, fraud or willful misconduct which
has resulted, or is likely to result, in substantial and
material damage to the Company or its Subsidiaries. Whether
an involuntary termination is for "cause" will be determined
in the sole discretion of the Committee.
(b) If the Optionee should die after termination of employment, such
termination being for a reason other than Disability, Retirement
or involuntary termination for cause, but while the option is
still exercisable, the option or associated Stock Appreciation
Right, if any, may be exercised by the Beneficiary of the
Optionee no later than one year from the date of termination of
employment of the Optionee.
(c) Under no circumstances may an option or Stock Appreciation Right
be exercised by an Optionee or Beneficiary after the expiration
of the term specified for the option.
2.5 Awarding of Restricted Stock
(a) The Committee shall from time to time in its absolute discretion
select from among the eligible employees the Participants to whom
awards of Restricted Stock shall be granted and the number of
shares subject to such awards. Each award of Restricted Stock
under the Plan shall be evidenced by an instrument delivered to
the Participant in such form as the Committee shall prescribe
from time to time in accordance with the Plan. The Restricted
Stock subject to such award shall be registered in the name of
the Participant and held in escrow by the Committee during the
Restricted Period (as defined herein).
(b) Upon the award to a Participant of shares of Restricted Stock
pursuant to Section 2.5(a), the Participant shall, subject to
Subsection (c) of this Section 2.5, possess all incidents of
ownership of such shares, including the right to receive
dividends with respect to such shares and to vote such shares.
(c) Shares of Restricted Stock awarded to a Participant may not be
sold, assigned, transferred, pledged, hypothecated or otherwise
disposed of, except by will or the laws of descent and
distribution, for a period of five years, or such shorter period
as the Committee shall determine, from the date on which the
award is granted (the "Restricted Period"). The Committee may
also impose such other restrictions and conditions on the shares
as it deems appropriate and any attempt to dispose of any such
shares of Restricted Stock in contravention of such restrictions
shall be null and void and without effect. In determining the
Restricted Period of an award, the Committee may provide that the
foregoing restrictions shall lapse with respect to specified
percentages of the awarded shares on successive anniversaries of
the date of such award. In no event shall the Restricted Period
end with respect to awarded shares prior to the satisfaction by
the Participant of any liability arising under Section 2.2(f).
(d) The restrictions described in Section 2.5(c) shall lapse upon the
completion of the Restricted Period with respect to specific
shares of Restricted Stock and the Participant's right to such
shares shall vest on such date or, if earlier, on the date that
the Participant's employment terminates on account of the death,
Disability or Retirement of the Participant. The Company shall
deliver to the Participant, or the Beneficiary of such
Participant, if applicable, within 30 days of the termination of
the Restricted Period, the number of shares of Stock that were
awarded to the Participant as Restricted Stock and with respect
to which the restrictions imposed under Section 2.5(c) have
lapsed, less any stock returned by the Company to satisfy tax
withholding pursuant to Section 2.2(f), if applicable.
(e) Except as provided in Sections 2.5(d) and (f), if the
Participant's continuous employment with the Company or a
Subsidiary shall terminate for any reason prior to the expiration
of the Restricted Period of an award, any shares remaining
subject to restrictions shall thereupon be forfeited by the
Participant and transferred to, and reacquired by, the Company or
a Subsidiary at no cost to the Company or Subsidiary.
(f) The Committee shall have the authority (and the instrument
evidencing an award of Restricted Stock may so provide) to cancel
all or any portion of any outstanding restrictions prior to the
expiration of the Restricted Period with respect to any or all of
the shares of Restricted Stock awarded to an employee hereunder
on such terms and conditions as the Committee may deem
appropriate.
(g) In the event of a Change in Control, all restrictions on any
outstanding shares of Restricted Stock shall lapse as of the date
of such Change in Control.
ARTICLE III - GENERAL PROVISIONS
3.1 Authority
Appropriate officers of the Company designated by the Committee are
authorized to execute and deliver written instruments evidencing awards
hereunder, and amendments thereto, in the name of the Company, as
directed from time to time by the Committee.
3.2 Adjustments in the Event of Change in Common Stock of the
Company
In the event of any change in the Stock of the Company by reason of any
stock dividend, stock split, recapitalization, reorganization, merger,
consolidation, split-up, combination, or exchange of shares, or rights
offering to purchase Stock at a price substantially below Fair Market
Value, or of any similar change affecting the Stock, the number and
kind of shares which thereafter may be obtained and sold under the Plan
and the number and kind of shares subject to options in outstanding
option instruments and the purchase price per share thereof and the
number of shares of Restricted Stock awarded pursuant to Section 2.5(a)
with respect to which all restrictions have not lapsed, shall be
appropriately adjusted consistent with such change in such manner as
the Board in its discretion may deem equitable to prevent substantial
dilution or enlargement of the rights granted to, or available for,
Participants in the Plan. Any fractional shares resulting from such
adjustments shall be eliminated. However, without the consent of the
Optionee, no adjustment shall be made in the terms of an ISO which
would disqualify it from treatment under Section 421(a) of the Code or
would be considered a modification, extension or renewal of an option
under Section 425(h) of the Code.
3.3 Rights of Employees
The Plan and any option or award granted under the Plan shall not
confer upon any Optionee or Participant any right with respect to
continuance of employment by the Company or any Subsidiary nor shall
they interfere in any way with the right of the Company or Subsidiary
by which an Optionee or Participant is employed to terminate his
employment at any time. The Company shall not be obligated to issue
Stock pursuant to an option or an award of Restricted Stock for which
the restrictions hereunder have lapsed if such issuance would
constitute a violation of any applicable law. No Optionee shall have
any rights as a shareholder with respect to any shares subject to
option prior to the date of issuance to such Optionee of a certificate
or certificates for such shares. Except as provided herein, no
Participant shall have any rights as a shareholder with respect to any
shares of Restricted Stock awarded to such Participant.
3.4 Amendment, Suspension and Discontinuance of the Plan
The Board may from time to time amend, suspend or discontinue the Plan,
provided that the Board may not, without shareholder approval, take any
of the following actions unless such actions fall within the provisions
of Section 3.2 herein:
(a) increase the number of shares reserved for options pursuant to
Section 1.5;
(b) alter in any way the class of persons eligible to participate in
the Plan;
(c) permit the granting of any option at an option price less than
that provided under Section 2.2(b) hereof; or
(d) extend the term of the Plan or the term during which any option
may be granted or exercised.
No amendment, suspension or discontinuance of the Plan shall impair an
Optionee's rights under an option previously granted to an Optionee
without the Optionee's consent.
3.5 Governing Law
This Plan and all determinations made and actions taken pursuant hereto
shall be governed by the laws of the State of Connecticut.
3.6 Effective Date of the Plan
The Plan shall be effective on April 18, 1995, subject to the requisite
approval of shareholders. No option shall be granted pursuant to this
Plan later than April 17, 2005, but options granted before such date
may extend beyond it in accordance with their terms and the terms of
the Plan.
Exhibit 10(iii)(f)
PRE-RETIREMENT DEATH BENEFIT AND
SUPPLEMENTAL PENSION AGREEMENT
THIS AGREEMENT, made and entered into this14th day of March, 1997
between The Hartford Steam Boiler Inspection and Insurance Company, (hereinafter
referred to as the "Company"), a corporation organized and existing under the
laws of the State of Connecticut and _________ (hereinafter referred to as the
"Executive").
WHEREAS, the Company considers it essential to the best interests of
its shareholders to foster the continued employment of key management personnel;
and
WHEREAS, the Executive is willing to continue in the employ of the
Company if the Company will agree to pay him or his designees certain benefits
in accordance with the provisions and conditions hereinafter set forth;
NOW, THEREFORE, for value received and in consideration of the mutual
covenants contained herein, the parties covenant and agree as follows:
ARTICLE I - DEFINITIONS
For purposes of this Agreement, the following terms have the meanings set forth
below:
1.1 "Affiliate" shall have the meaning set forth in Rule 12b-2 promulgated
under Section 12 of the Exchange Act.
1.2 "Beneficial Owner" shall have the meaning set forth in Rule 13d-3 under the
Exchange Act.
1.3 "Beneficiary" shall mean the person or persons designated under Section 7.1
hereof to receive benefits payable under this Agreement upon the
Executive's death.
1.4 "Board" shall mean the Board of Directors of the Company.
1.5 "Cause" for termination by the Company of the Executive's employment
shall mean (i) the willful and continued failure by the Executive to
substantially perform the Executive's duties with the Company (other
than any such failure resulting from the Executive's incapacity due to
physical or mental illness or any such actual or anticipated failure
after the issuance of a Notice of Termination for Good Reason by the
Executive pursuant to Section 6.1 hereof) after a written demand for
substantial performance is delivered to the Executive by the Board,
which demand specifically (a) identifies the manner in which the Board
believes that the Executive has not substantially performed the
Executive's duties and (b) states a period of time within which the
Executive must correct such failure (which is reasonable based on the
specific circumstances of such failure), and the period of time
specified in the demand has expired; or (ii) the willful engaging by
the Executive in conduct which is demonstrably and materially injurious
to the Company or its subsidiaries, monetarily or otherwise. For
purposes of clauses (i) and (ii) of this definition, no act, or failure
to act, on the Executive's part shall be deemed "willful" unless done,
or omitted to be done, by the Executive not in good faith and without
reasonable belief that the Executive's act, or failure to act, was in
the best interest of the Company.
1.6 A "Change in Control" shall be deemed to have occurred if the event set
forth in any one of the following paragraphs shall have occurred:
(a) any Person is or becomes the Beneficial Owner, directly
or indirectly, of securities of the Company (not including in the
securities beneficially owned by such Person any securities acquired
directly from the Company or its affiliates) representing 25% or more
of the combined voting power of the Company's then outstanding
securities, excluding any Person who becomes such a Beneficial Owner in
connection with a transaction described in clause (i) of paragraph (c)
below; or
(b) the following individuals cease for any reason to constitute
a majority of the number of directors then serving: individuals who, on
the date hereof, constitute the Board and any new director (other than
a director whose initial assumption of office is in connection with an
actual or threatened election contest, including but not limited to a
consent solicitation, relating to the election of directors of the
Company) whose appointment or election by the Board or nomination for
election by the Company's shareholders was approved or recommended by a
vote of at least two-thirds (2/3) of the directors then still in office
who either were directors on the date hereof or whose appointment,
election or nomination for election was previously so approved or
recommended; or
(c) there is consummated a merger or consolidation of the
Company or any direct or indirect subsidiary of the Company with any
other corporation, other than (i) a merger or consolidation which would
result in the voting securities of the Company outstanding immediately
prior to such merger or consolidation continuing to represent (either
by remaining outstanding or by being converted into voting securities
of the surviving entity or any parent thereof), in combination with the
ownership of any trustee or other fiduciary holding securities under an
employee benefit plan of the Company or any subsidiary of the Company,
at least 60% of the combined voting power of the securities of the
Company or such surviving entity or any parent thereof outstanding
immediately after such merger or consolidation, or (ii) a merger or
consolidation effected to implement a recapitalization of the Company
(or similar transaction) in which no Person is or becomes the
Beneficial Owner, directly or indirectly, of securities of the Company
(not including in the securities Beneficially Owned by such Person any
securities acquired directly from the Company or its Affiliates)
representing 25% or more of the combined voting power of the Company's
then outstanding securities; or
(d) the shareholders of the Company approve a plan of complete
liquidation or dissolution of the Company or there is consummated an
agreement for the sale or disposition by the Company of all or
substantially all of the Company's assets, other than a sale or
disposition by the Company of all or substantially all of the Company's
assets to an entity, at least 60% of the combined voting power of the
voting securities of which are owned by shareholders of the Company in
substantially the same proportions as their ownership of the Company
immediately prior to such sale.
Notwithstanding the foregoing, a "Change in Control" shall not be
deemed to have occurred by virtue of the consummation of any
transaction or series of integrated transactions immediately following
which the record holders of the common stock of the Company immediately
prior to such transaction or series of transactions continue to have
substantially the same proportionate ownership in an entity which owns
all or substantially all of the assets of the Company immediately
following such transaction or series of transactions.
1.7 "Company" shall mean The Hartford Steam Boiler Inspection and Insurance
Company and, except in determining whether or not any Change in Control
of the Company has occurred, shall include any successor to its
business and/or assets which assumes and agrees to perform this
Agreement by operation of law, or otherwise.
1.8 "Date of Election" shall mean ____________________.
1.9 "Disability" shall be deemed the reason for the Termination of
Employment of the Executive by the Company if, as a result of the
Executive's incapacity due to physical or mental illness, the Executive
shall have been absent from the full-time performance of the
Executive's duties with the Company for a period of six (6) consecutive
months, the Company shall have given the Executive a notice of
termination for Disability, and, within thirty (30) days after such
notice of termination is given, the Executive shall not have returned
to the full-time performance of the Executive's duties.
1.10 "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
1.11 "Executive" shall mean the individual named in the first paragraph of
this Agreement.
1.12 "Executive's Base Annual Salary" shall mean annual salary, exclusive of
bonuses, in effect at the date of Termination of Employment of the
Executive or, if higher, in effect (i) immediately prior to the Change
in Control or (ii) immediately prior to the first occurrence of an
event or circumstance constituting Good Reason in the event of a
termination for Good Reason.
1.13 "Good Reason" for Termination of Employment by the Executive shall mean
the occurrence (without the Executive's express written consent) after
any Change in Control, or prior to a Change in Control under the
circumstances described in clauses (i), (ii) and (iii) of the first
sentence of Section 4.2 hereof (treating all references in paragraphs
(a) through (g) below to a "Change in Control" as references to a
"Potential Change in Control"), of any one of the following acts by the
Company, or failures by the Company to act, unless, in the case of any
act or failure to act described in paragraph (a), (e), (f) or (g)
below, such act or failure to act is corrected prior to the date of
termination specified in the Notice of Termination given in respect
thereof:
(a) the assignment to the Executive of any duties inconsistent
with the Executive's status as a senior executive officer of the
Company or a substantial adverse alteration in the nature or status of
the Executive's responsibilities from those in effect immediately prior
to the Change in Control;
(b) a reduction by the Company in the Executive's annual base
salary as in effect on the date hereof or as the same may be increased
from time to time, except for across-the-board salary reductions
similarly affecting all senior executives of the Company and all senior
executives of any Person in control of the Company;
(c) the Company's requiring the Executive to be based more than
50 miles from the Executive's principal place of employment immediately
prior to the Change in Control, except for required travel on the
Company's business to an extent substantially consistent with the
Executive's present business travel obligations;
(d) the failure by the Company to pay to the Executive any
portion of the Executive's current compensation except pursuant to an
across-the-board compensation deferral similarly affecting all senior
executives of the Company and all senior executives of any Person in
control of the Company, or to pay to the Executive any portion of an
installment of deferred compensation under any deferred compensation
program of the Company, within seven (7) days of the date such
compensation is due;
(e) the failure by the Company to continue in effect any
compensation plan in which the Executive participates immediately prior
to the Change in Control which is material to the Executive's total
compensation, unless an equitable arrangement (embodied in an ongoing
substitute or alternative plan) has been made with respect to such
plan, or the failure by the Company to continue the Executive's
participation therein (or in such substitute or alternative plan) on a
basis not materially less favorable, both in terms of the amount or
timing of payment of benefits provided and the level of the Executive's
participation relative to other participants, as existed immediately
prior to the Change in Control;
(f) the failure by the Company to continue to provide the
Executive with benefits substantially similar to those enjoyed by the
Executive under any of the Company's pension, savings, life insurance,
medical, health and accident, or disability plans in which the
Executive was participating immediately prior to the Change in Control
(except for across the board changes similarly affecting all senior
executives of the Company and all senior executives of any Person in
control of the Company), the taking of any other action by the Company
which would directly or indirectly materially reduce any of such
benefits or deprive the Executive of any material fringe benefit
enjoyed by the Executive at the time of the Change in Control, or the
failure by the Company to provide the Executive with the number of paid
vacation days to which the Executive is entitled on the basis of years
of service with the Company in accordance with the Company's normal
vacation policy in effect at the time of the Change in Control; or
(g) any purported termination of the Executive's employment which
is not effected pursuant to a Notice of Termination satisfying the
requirements of Section 6.1 hereof; for purposes of this Agreement, no
such purported termination shall be effective.
The Executive's right to terminate the Executive's employment for Good
Reason shall not be affected by the Executive's incapacity due to
physical or mental illness. The Executive's continued employment shall
not constitute consent to, or a waiver of rights with respect to, any
act or failure to act constituting Good Reason hereunder.
1.14 "Notice of Termination" shall have the meaning set forth in Section
6.1 hereof.
1.15 "Person" shall have the meaning given in Section 3(a)(9) of the
Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof,
except that such term shall not include (i) the Company or any of its
subsidiaries, (ii) a trustee or other fiduciary holding securities
under an employee benefit plan of the Company or any of its Affiliates,
(iii) an underwriter temporarily holding securities pursuant to an
offering of such securities, or (iv) a corporation owned, directly or
indirectly, by the shareholders of the Company in substantially the
same proportions as their ownership of stock of the Company.
1.16 "Potential Change in Control" shall be deemed to have occurred if the
event set forth in any one of the following paragraphs shall have
occurred:
(a) the Company enters into an agreement, the consummation of
which would result in the occurrence of a Change in Control;
(b) the Company or any Person publicly announces an intention to
take or to consider taking actions which, if consummated, would
constitute a Change in Control;
(c) any Person becomes the Beneficial Owner, directly or
indirectly, of securities of the Company representing 10% or more of
either the then outstanding shares of common stock of the Company or
the combined voting power of the Company's then outstanding securities
(not including in the securities beneficially owned by such Person any
securities acquired directly from the Company or its affiliates); or
(d) the Board adopts a resolution to the effect that, for
purposes of this Agreement, a Potential Change in Control has occurred.
1.17 "Termination of Employment" means the cessation of the Executive's
full-time employment.
ARTICLE II - PRE-RETIREMENT DEATH BENEFIT
2.1 If the Termination of Employment of the Executive is on account of the
Executive's death, a death benefit equal to fifty percent (50%) of the
Executive's Base Annual Salary at the time of his death will be paid
subject to the limitations under Article VII. This death benefit will
be paid by the Company to the Beneficiary of the Executive each year
for fifteen years (15) years. The amount to be paid each year will be
paid in equal monthly installments beginning on the first day of the
month following the date of the Executive's death and on the first day
of each month thereafter. If Termination of Employment of the Executive
is on account of any event other than death, no benefit will be paid by
the Company under this Article II.
ARTICLE III - SUPPLEMENTAL PENSION BENEFIT
3.1 Eligibility for Supplemental Pension Benefit on Termination of
Employment on or after Age 65
If Termination of Employment occurs on or after the Executive has
attained age 65, the Executive will be entitled to receive an annual
supplemental pension benefit under this Agreement in an amount equal to
thirty-five percent (35%) of the Executive's Base Annual Salary times a
fraction where the numerator represents the number of full calendar
months completed since the Date of Election up until the first day of
the month following the date of Termination of Employment (but not
greater than 60) and the denominator is sixty (60). This supplemental
pension benefit will be paid by the Company to the Executive each year
for fifteen (15) years. The amount to be paid each year will be paid in
equal monthly installments, beginning on the first day of the month
following the date of Termination of Employment of the Executive, and
on the first day of each month thereafter.
3.2 Eligibility for Supplemental Pension Benefit on Termination of Employment
after Age 55 but prior to age 65
If Termination of Employment occurs after the Executive has attained
age 55 but prior to attaining age 65, the Executive will be entitled to
receive the annual supplemental pension benefit calculated under
Section 3.1 under this Agreement multiplied by the applicable
percentage set forth in Appendix A. This supplemental pension benefit
will be paid by the Company to the Executive each year for fifteen (15)
years. The amount to be paid each year will be paid in equal monthly
installments beginning on the first day of the month following the date
of the Termination of Employment of the Executive and on the first day
of each month thereafter.
3.3 Eligibility for Supplemental Pension Benefit on Termination of
Employment by the Company Prior to Age 55
(a) If Termination of Employment of the Executive by the Company
occurs prior to the Executive attaining age 55, the Executive
will be entitled to receive the annual supplemental pension
benefit calculated under Section 3.1 under this Agreement
multiplied by seventy percent (70%). This supplemental pension
benefit will be paid by the Company to the Executive each year
for fifteen (15) years. The amount to be paid each year will be
paid in equal monthly installments beginning on the first day of
the month following the month within which the Executive attains
age 55 and on the first day of each month thereafter. In the
event the Executive dies prior to the commencement date of the
benefit, such benefits will be paid to the Executive's
Beneficiary in accordance with Section 7.1 hereof, beginning on
the first day of the month following the month within which the
Executive would have attained age 55.
(b) If Termination of Employment is by reason of the voluntary
resignation of the Executive prior to attainment of age 55 (other
than for death, Disability or Good Reason following a Change in
Control of the Executive pursuant to the provisions of Article
IV) hereof, the Executive shall not be entitled to any benefit
under this Agreement.
3.4 Eligibility for Supplemental Pension Benefit on Disability
(a) If Termination of Employment of the Executive occurs on account
of Disability the Executive will be entitled to receive a
supplemental pension benefit under this Agreement in an amount
equal to thirty-five percent (35%) of the Executive's Base Annual
Salary reduced by any benefit to which the Executive may be
entitled under Social Security, the Company's Long-Term
Disability Plan, Worker's Compensation awards, or any combination
thereof, on account of Disability. This supplemental pension
benefit, if any, will be paid by the Company to the Executive
each year for fifteen (15) years. The amount to be paid each year
will be paid in equal monthly installments, beginning on the
first day of the month following the date of Termination of the
Executive's Employment, and on the first day of each month
thereafter.
(b) If, at any time during a period in which the Executive is
entitled to receive payments on account of Disability, the
condition of Disability no longer exists, the Company's
obligation to make any further payments on account of such
Disability will terminate on the date on which such Disability no
longer exists.
ARTICLE IV - TERMINATION OF EXECUTIVE'S EMPLOYMENT FOLLOWING CHANGE IN CONTROL
4.1 In lieu of the benefit, if any, to which the Executive would be
entitled under the provisions of Article III hereof, if (i) Termination
of Employment of the Executive occurs within three years following a
Change in Control, other than (A) by the Company for Cause, (B) by
reason of death or Disability, or (C) by the Executive without Good
Reason, or (ii) the Executive voluntarily terminates his/her employment
for any reason during the one-month period commencing on the first
anniversary of the Change in Control, then, in either such case, the
Company shall pay the Executive the amounts determined in accordance
with Section 3.1 hereof as though the Executive had attained age 65
prior to such termination and had been in full-time employment for
sixty (60) months following the Executive's Date of Election. This
supplemental pension benefit will be paid by the Company to the
Executive each year for fifteen (15) years. The amount to be paid each
year will be paid in equal monthly installments beginning on the first
day of the month following the date of the termination of the Executive
and on the first day of each month thereafter.
4.2 For purposes of this Agreement, the Executive's employment shall be
deemed to have been terminated following a Change in Control by the
Company without Cause or by the Executive with Good Reason, if (i) the
Executive's employment is terminated by the Company without Cause prior
to a Change in Control (whether or not a Change in Control thereafter
occurs) and such termination was at the request or direction of a
Person who has entered into an agreement with the Company the
consummation of which would constitute a Change in Control, (ii) the
Executive terminates his/her employment for Good Reason prior to a
Change in Control (whether or not a Change in Control thereafter
occurs) and the circumstance or event which constitutes Good Reason
occurs at the request or direction of such Person, or (iii) the
Executive's employment is terminated, after the occurrence of a
Potential Change in Control and prior to a Change in Control, by the
Company without Cause or by the Executive for Good Reason and such
termination or the circumstance or event which constitutes Good Reason
is otherwise in connection with or in anticipation of a Change in
Control which occurs within six months after the issuance of the Notice
of Termination in connection with such termination.
ARTICLE V -TERMINATION OF EMPLOYMENT
OF THE EXECUTIVE FOR CAUSE
5.1 If Termination of Employment of the Executive is for Cause,
notwithstanding any other provision of this Agreement, the Executive
will not be entitled to receive any benefits hereunder.
ARTICLE VI - NOTICE OF TERMINATION
6.1 Any purported termination of the Executive's employment (i) by the
Company or (ii) following a Change in Control, by the Executive for
Good Reason or in accordance with clause (ii) of Section 4.1 shall be
communicated by written Notice of Termination from one party hereto to
the other party hereto in accordance with Section 9.12 hereof. For
purposes of this Agreement, a "Notice of Termination" shall mean a
notice which shall indicate the specific termination provision in this
Agreement relied upon and shall set forth in reasonable detail the
facts and circumstances claimed to provide a basis for termination of
the Executive's employment under the provision so indicated. Further, a
Notice of Termination for Cause is required to include a copy of a
resolution duly adopted by the affirmative vote of not less than
three-quarters (3/4) of the entire membership of the Board at a meeting
of the Board which was called and held for the purpose of considering
such termination (after reasonable notice to the Executive and an
opportunity for the Executive, together with the Executive's counsel,
to be heard before the Board) finding that, in the good faith opinion
of the Board, the Executive was guilty of conduct set forth in clause
(i) or (ii) of the definition of Cause herein, and specifying the
particulars thereof in detail.
6.2 The effective date of Termination of Employment of Executive for
termination of employment requiring notice pursuant to Section 6.1
hereof shall be (i) if the Executive's employment is terminated for
Disability, thirty (30) days after Notice of Termination is given
(provided that the Executive shall not have returned to the full-time
performance of the Executive's duties during such thirty (30) day
period), and (ii) if the Executive's employment is terminated for any
other reason, the date specified in the Notice of Termination (which,
in the case of a termination by the Company, shall not be less than
thirty (30) days (except in the case of a termination for Cause) nor
more than sixty (60) days and, in the case of a termination by the
Executive, shall not be less than fifteen (15) days nor more than sixty
(60) days, respectively, from the date such Notice of Termination is
given).
ARTICLE VII- BENEFICIARY OF DEATH BENEFIT
OR SUPPLEMENTAL PENSION
7.1 In the event that the termination of the Executive's employment with
the Company is on account of the Executive's death or that the
Executive should die prior to receipt of any amounts(s) due or
remaining to be paid under Articles III or IV of this Agreement, the
death benefit payable under Article II or any amounts remaining payable
under Articles III or IV, shall be paid at the times and in the manner
specified under the terms of Article II or Articles III or IV, as
applicable, to such Beneficiary or Beneficiaries as the Executive may
have designated by filing with the Company a notice in writing in a
form acceptable to the Company. In the absence of any such designation,
such unpaid amounts shall be paid to the Executive's surviving spouse,
or if the Executive should die without a spouse surviving, to the
Executive's estate.
ARTICLE VIII - CLAIMS PROCEDURE
8.1 Filing Claims
Any insured, Beneficiary or other individual (hereinafter, "Claimant")
entitled to benefits under the Agreement shall file a claim request
with the Administrator.
8.2 Notification of Claimant
If a claim request is wholly or partially denied, the Administrator
will furnish to the Claimant a notice of the decision within 90 days in
writing and in a manner calculated to be understood by the Claimant,
which notice will contain the following information:
(a) The specific reason or reasons for the denial;
(b) Specific reference to pertinent provisions of the Agreement upon
which the denial is based;
(c) A description of any additional material or information necessary
for the Claimant to perfect the Claim and an explanation of why
such material or information is necessary; and
(d) An explanation of the claims review procedure under the Agreement
describing the steps to be taken by a Claimant who wishes to
submit his claim for review.
8.3 Review Procedure
Claimant or his authorized representative may with respect to any
denied claims:
(a) Request a review upon written application filed
within sixty (60) days after receipt by the Claimant
of written notice of the denial of his claim;
(b) Review pertinent documents; and
(c) Submit issues and comments in writing.
Any request or submission must be in writing and directed to the
Fiduciary, as defined under Section 9.9, (or its designee). The
Fiduciary (or its designee) will have the sole responsibility for the
review of any denied claim and will take all steps appropriate in the
light of its findings.
8.4 Decision on Review
(a) The Fiduciary (or its designee) will render a decision
following its review. If special circumstances (such as the
need to hold a hearing on any matter pertaining to the denied
claim) warrant additional time, the decision will be rendered
as soon as possible, but not later than 120 days after receipt
of the request for review. Written notice of any such
extension will be furnished to the Claimant prior to the
commencement of the extension.
(b) The decision on review will be in writing and will include
specific reasons for the decision, written in a manner
calculated to be understood by the Claimant, as well as
specific references to the pertinent provisions of the
Agreement on which the decision is based.
(c) If the decision on the review is not furnished to the Claimant
within the time limits prescribed above, the claim will be
deemed denied on review.
ARTICLE IX - MISCELLANEOUS PROVISIONS
9.1 Misrepresentation.
(a) The Company may deem it appropriate to insure its obligation
to provide all or any part of the benefits described in this
Agreement. If the Company does deem it appropriate to insure
all or any part of any such benefits, the Company will so
notify the Executive. The Executive agrees to take whatever
actions may be necessary to enable the Company to timely apply
for, acquire and maintain such insurance and to fulfill the
requirements of the insurance company relative to the issuance
thereof.
(b) If the Executive is required by the Company to submit
information to one or more insurers in order to secure
insurance as described herein, and if the Executive has made a
material misrepresentation in any application for such
insurance, the Executive's right to a benefit under this
Agreement will be reduced by the amount of the benefit that is
not paid by the insurer(s) because of such material
misrepresentation.
9.2 Satisfaction of Claims
The Executive agrees that his rights and interests, and rights and
interests of any persons taking under or through him, will be
completely satisfied upon compliance by the Company with the provisions
of this Agreement.
9.3 Amendment; Waiver; Superseding Agreement.
(a) 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 the Executive 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 of any lack of 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. This
Agreement supersedes any other agreements or representations,
oral or otherwise, express or implied, with respect to the
subject matter hereof which have been made by either party,
including, but not limited to, the Preretirement Death Benefit
and Supplemental Pension Agreement between the parties, dated
---------------------.
(b) The Agreement may be altered, amended, or modified only by a
written instrument signed by the Company and the Executive. This
Agreement sets forth the entire understanding of the parties with
respect to the subject matter thereof.
9.4 Governing Law
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 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 and any additional
withholding to which the Executive has agreed.
9.5 Non-Assignable Rights
Neither the Executive nor his spouse, nor other Beneficiary, will have
any right to commute, sell, assign, transfer or otherwise convey the
right to receive any payments hereunder without the written consent of
the Company. Such payments and the right thereto are expressly declared
to be non-assignable and nontransferable.
9.6 Independence of Agreement
The benefits under this Agreement will be independent of, and in
addition to, any other agreement that may exist from time to time
between the parties hereto, or any other compensation payable by the
Company to the Executive, whether as salary, bonus or otherwise. This
Agreement will not be deemed to constitute a contract of employment
between the parties hereto, nor will any provision hereof restrict the
right of the Company to discharge the Executive, or restrict the right
of the Executive to terminate his employment.
9.7 Non-Secured Promise
The rights of the Executive under this Agreement and of any Beneficiary
of the Executive will be solely those of an unsecured creditor of the
Company. Any insurance policy or any other asset acquired or held by
the Company in connection with the liabilities assumed by it hereunder,
will not be deemed to be held under any trust for the benefit of the
Executive or his beneficiaries or to be security for the performance of
the obligations of the Company, but will be, and remain, a general,
unpledged, unrestricted asset of the Company and the Company will
retain all ownership rights in any such policy.
9.8 Successors; Binding Agreement
In addition to any obligations imposed by law upon any successor to the
Company, 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 which is in connection with a Change in Control shall be a
breach of this Agreement and shall entitle the Executive to
compensation from the Company in the same amount and on the same terms
as the Executive would be entitled to hereunder if the Executive were
to terminate the Executive's employment for Good Reason after a Change
in Control, except that, for purposes of implementing the foregoing,
the date on which any such succession becomes effective shall be deemed
the date of Termination of Employment of the Executive.
9.9 Fiduciary and Administrator
(a) The Human Resources Committee of the Board will be Fiduciary
and the Company will be Administrator of this Agreement. The
Company's Board of Directors may authorize a person or group
of persons to fulfill the responsibilities of the Company as
Administrator.
(b) The Fiduciary or the Administrator may employ others to render
advice with regard to its responsibilities under this
Agreement. The Fiduciary may also allocate fiduciary
responsibilities to others and may exercise any other powers
necessary for the discharge of its duties to the extent not in
conflict with any provisions of the Employee Retirement Income
Security Act of 1974 that may be applicable.
9.10 Waiver by Human Resources Committee
The Human Resources Committee of the Board is authorized to waive any
provisions of this Agreement which would otherwise operate to deny,
reduce or delay any benefit payments under any provisions of this
Agreement.
9.11 Arbitration
Any dispute or controversy arising under this Agreement in connection
with any termination-related compensation or benefit and any such
dispute or controversy in connection with a claim for compensation or
benefits to which Article VIII applies (after application of the
provisions of said Article VIII) 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.
9.12 Notices
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, if to the Executive, to the address inserted below
the Executive's signature on the final page hereof and, if to the
Company, to the address set forth below, 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 actual receipt:
To the Company:
The Hartford Steam Boiler
Inspection and Insurance Company
One State Street
P.O. Box 5024
Hartford, CT 06102-5024
Attention: Corporate Secretary
9.13 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.
9.14 Counterparts
This Agreement may be executed in several counterparts, each of which
shall be deemed to be an original but all of which together will
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have hereunto set their hands, the
Company by its duly authorized officer, on the day and year first
written above.
----------
Executive
THE HARTFORD STEAM BOILER
INSPECTION AND INSURANCE
COMPANY
/s/ Gordon W. Kreh
Its: President
APPENDIX A
ATTAINED AGE PERCENTAGE OF
AT TERMINATION OF BENEFIT
EMPLOYMENT
65 100
64 97
63 94
62 91
61 88
60 85
59 82
58 79
57 76
56 73
55 70
Exhibit (10)(iii)(g)
PRE-RETIREMENT DEATH BENEFIT AND
SUPPLEMENTAL PENSION AGREEMENT
THIS AGREEMENT, made and entered into this14th day of March, 1997
between The Hartford Steam Boiler Inspection and Insurance Company, (hereinafter
referred to as the "Company"), a corporation organized and existing under the
laws of the State of Connecticut and William A. Kerr (hereinafter referred to as
the "Executive").
WHEREAS, the Company considers it essential to the best interests of
its shareholders to foster the continued employment of key management personnel;
and
WHEREAS, the Executive is willing to continue in the employ of the
Company if the Company will agree to pay him or his designees certain benefits
in accordance with the provisions and conditions hereinafter set forth;
NOW, THEREFORE, for value received and in consideration of the mutual
covenants contained herein, the parties covenant and agree as follows:
ARTICLE I - DEFINITIONS
For purposes of this Agreement, the following terms have the meanings set forth
below:
1.1 "Affiliate" shall have the meaning set forth in Rule 12b-2 promulgated
under Section 12 of the Exchange Act.
1.2 "Beneficial Owner" shall have the meaning set forth in Rule 13d-3
under the Exchange Act.
1.3 "Beneficiary" shall mean the person or persons designated under Section
7.1 hereof to receive benefits payable under this Agreement upon the
Executive's death.
1.4 "Board" shall mean the Board of Directors of the Company.
1.5 "Cause" for termination by the Company of the Executive's employment
shall mean (i) the willful and continued failure by the Executive to
substantially perform the Executive's duties with the Company (other
than any such failure resulting from the Executive's incapacity due to
physical or mental illness or any such actual or anticipated failure
after the issuance of a Notice of Termination for Good Reason by the
Executive pursuant to Section 6.1 hereof) after a written demand for
substantial performance is delivered to the Executive by the Board,
which demand specifically (a) identifies the manner in which the Board
believes that the Executive has not substantially performed the
Executive's duties and (b) states a period of time within which the
Executive must correct such failure (which is reasonable based on the
specific circumstances of such failure), and the period of time
specified in the demand has expired; or (ii) the willful engaging by
the Executive in conduct which is demonstrably and materially injurious
to the Company or its subsidiaries, monetarily or otherwise. For
purposes of clauses (i) and (ii) of this definition, no act, or failure
to act, on the Executive's part shall be deemed "willful" unless done,
or omitted to be done, by the Executive not in good faith and without
reasonable belief that the Executive's act, or failure to act, was in
the best interest of the Company.
1.6 A "Change in Control" shall be deemed to have occurred if the event set
forth in any one of the following paragraphs shall have occurred:
(a) any Person is or becomes the Beneficial Owner, directly
or indirectly, of securities of the Company (not including in the
securities beneficially owned by such Person any securities acquired
directly from the Company or its affiliates) representing 25% or more
of the combined voting power of the Company's then outstanding
securities, excluding any Person who becomes such a Beneficial Owner in
connection with a transaction described in clause (i) of paragraph (c)
below; or
(b) the following individuals cease for any reason to constitute
a majority of the number of directors then serving: individuals who, on
the date hereof, constitute the Board and any new director (other than
a director whose initial assumption of office is in connection with an
actual or threatened election contest, including but not limited to a
consent solicitation, relating to the election of directors of the
Company) whose appointment or election by the Board or nomination for
election by the Company's shareholders was approved or recommended by a
vote of at least two-thirds (2/3) of the directors then still in office
who either were directors on the date hereof or whose appointment,
election or nomination for election was previously so approved or
recommended; or
(c) there is consummated a merger or consolidation of the
Company or any direct or indirect subsidiary of the Company with any
other corporation, other than (i) a merger or consolidation which would
result in the voting securities of the Company outstanding immediately
prior to such merger or consolidation continuing to represent (either
by remaining outstanding or by being converted into voting securities
of the surviving entity or any parent thereof), in combination with the
ownership of any trustee or other fiduciary holding securities under an
employee benefit plan of the Company or any subsidiary of the Company,
at least 60% of the combined voting power of the securities of the
Company or such surviving entity or any parent thereof outstanding
immediately after such merger or consolidation, or (ii) a merger or
consolidation effected to implement a recapitalization of the Company
(or similar transaction) in which no Person is or becomes the
Beneficial Owner, directly or indirectly, of securities of the Company
(not including in the securities Beneficially Owned by such Person any
securities acquired directly from the Company or its Affiliates)
representing 25% or more of the combined voting power of the Company's
then outstanding securities; or
(d) the shareholders of the Company approve a plan of complete
liquidation or dissolution of the Company or there is consummated an
agreement for the sale or disposition by the Company of all or
substantially all of the Company's assets, other than a sale or
disposition by the Company of all or substantially all of the Company's
assets to an entity, at least 60% of the combined voting power of the
voting securities of which are owned by shareholders of the Company in
substantially the same proportions as their ownership of the Company
immediately prior to such sale.
Notwithstanding the foregoing, a "Change in Control" shall not be
deemed to have occurred by virtue of the consummation of any
transaction or series of integrated transactions immediately following
which the record holders of the common stock of the Company immediately
prior to such transaction or series of transactions continue to have
substantially the same proportionate ownership in an entity which owns
all or substantially all of the assets of the Company immediately
following such transaction or series of transactions.
1.7 "Company" shall mean The Hartford Steam Boiler Inspection and Insurance
Company and, except in determining whether or not any Change in Control
of the Company has occurred, shall include any successor to its
business and/or assets which assumes and agrees to perform this
Agreement by operation of law, or otherwise.
1.8 "Date of Election" shall mean September 18, 1995.
1.9 "Disability" shall be deemed the reason for the Termination of
Employment of the Executive by the Company if, as a result of the
Executive's incapacity due to physical or mental illness, the Executive
shall have been absent from the full-time performance of the
Executive's duties with the Company for a period of six (6) consecutive
months, the Company shall have given the Executive a notice of
termination for Disability, and, within thirty (30) days after such
notice of termination is given, the Executive shall not have returned
to the full-time performance of the Executive's duties.
1.10 "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
1.11 "Executive" shall mean the individual named in the first paragraph of
this Agreement.
1.12 "Executive's Base Annual Salary" shall mean annual salary, exclusive of
bonuses, in effect at the date of Termination of Employment of the
Executive or, if higher, in effect (i) immediately prior to the Change
in Control or (ii) immediately prior to the first occurrence of an
event or circumstance constituting Good Reason in the event of a
termination for Good Reason.
1.13 "Good Reason" for Termination of Employment by the Executive shall mean
the occurrence (without the Executive's express written consent) after
any Change in Control, or prior to a Change in Control under the
circumstances described in clauses (i), (ii) and (iii) of the first
sentence of Section 4.2 hereof (treating all references in paragraphs
(a) through (g) below to a "Change in Control" as references to a
"Potential Change in Control"), of any one of the following acts by the
Company, or failures by the Company to act, unless, in the case of any
act or failure to act described in paragraph (a), (e), (f) or (g)
below, such act or failure to act is corrected prior to the date of
termination specified in the Notice of Termination given in respect
thereof:
(a) the assignment to the Executive of any duties inconsistent
with the Executive's status as a senior executive officer of the
Company or a substantial adverse alteration in the nature or status of
the Executive's responsibilities from those in effect immediately prior
to the Change in Control;
(b) a reduction by the Company in the Executive's annual base
salary as in effect on the date hereof or as the same may be increased
from time to time, except for across-the-board salary reductions
similarly affecting all senior executives of the Company and all senior
executives of any Person in control of the Company;
(c) the Company's requiring the Executive to be based more than
50 miles from the Executive's principal place of employment immediately
prior to the Change in Control, except for required travel on the
Company's business to an extent substantially consistent with the
Executive's present business travel obligations;
(d) the failure by the Company to pay to the Executive any
portion of the Executive's current compensation except pursuant to an
across-the-board compensation deferral similarly affecting all senior
executives of the Company and all senior executives of any Person in
control of the Company, or to pay to the Executive any portion of an
installment of deferred compensation under any deferred compensation
program of the Company, within seven (7) days of the date such
compensation is due;
(e) the failure by the Company to continue in effect any
compensation plan in which the Executive participates immediately prior
to the Change in Control which is material to the Executive's total
compensation, unless an equitable arrangement (embodied in an ongoing
substitute or alternative plan) has been made with respect to such
plan, or the failure by the Company to continue the Executive's
participation therein (or in such substitute or alternative plan) on a
basis not materially less favorable, both in terms of the amount or
timing of payment of benefits provided and the level of the Executive's
participation relative to other participants, as existed immediately
prior to the Change in Control;
(f) the failure by the Company to continue to provide the
Executive with benefits substantially similar to those enjoyed by the
Executive under any of the Company's pension, savings, life insurance,
medical, health and accident, or disability plans in which the
Executive was participating immediately prior to the Change in Control
(except for across the board changes similarly affecting all senior
executives of the Company and all senior executives of any Person in
control of the Company), the taking of any other action by the Company
which would directly or indirectly materially reduce any of such
benefits or deprive the Executive of any material fringe benefit
enjoyed by the Executive at the time of the Change in Control, or the
failure by the Company to provide the Executive with the number of paid
vacation days to which the Executive is entitled on the basis of years
of service with the Company in accordance with the Company's normal
vacation policy in effect at the time of the Change in Control; or
(g) any purported termination of the Executive's employment which
is not effected pursuant to a Notice of Termination satisfying the
requirements of Section 6.1 hereof; for purposes of this Agreement, no
such purported termination shall be effective.
The Executive's right to terminate the Executive's employment for Good
Reason shall not be affected by the Executive's incapacity due to
physical or mental illness. The Executive's continued employment shall
not constitute consent to, or a waiver of rights with respect to, any
act or failure to act constituting Good Reason hereunder.
1.14 "Notice of Termination" shall have the meaning set forth in Section
6.1 hereof.
1.15 "Person" shall have the meaning given in Section 3(a)(9) of the
Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof,
except that such term shall not include (i) the Company or any of its
subsidiaries, (ii) a trustee or other fiduciary holding securities
under an employee benefit plan of the Company or any of its Affiliates,
(iii) an underwriter temporarily holding securities pursuant to an
offering of such securities, or (iv) a corporation owned, directly or
indirectly, by the shareholders of the Company in substantially the
same proportions as their ownership of stock of the Company.
1.16 "Potential Change in Control" shall be deemed to have occurred if the
event set forth in any one of the following paragraphs shall have
occurred:
(a) the Company enters into an agreement, the consummation of
which would result in the occurrence of a Change in Control;
(b) the Company or any Person publicly announces an intention to
take or to consider taking actions which, if consummated, would
constitute a Change in Control;
(c) any Person becomes the Beneficial Owner, directly or
indirectly, of securities of the Company representing 10% or more of
either the then outstanding shares of common stock of the Company or
the combined voting power of the Company's then outstanding securities
(not including in the securities beneficially owned by such Person any
securities acquired directly from the Company or its affiliates); or
(d) the Board adopts a resolution to the effect that, for
purposes of this Agreement, a Potential Change in Control has occurred.
1.17 "Termination of Employment" means the cessation of the Executive's
full-time employment.
ARTICLE II - PRE-RETIREMENT DEATH BENEFIT
2.1 If the Termination of Employment of the Executive is on account of the
Executive's death, a death benefit equal to twenty five percent (25%)
of the Executive's Base Annual Salary at the time of his death will be
paid subject to the limitations under Article VII. This death benefit
will be paid by the Company to the Beneficiary of the Executive each
year for fifteen years (15) years. The amount to be paid each year will
be paid in equal monthly installments beginning on the first day of the
month following the date of the Executive's death and on the first day
of each month thereafter. If Termination of Employment of the Executive
is on account of any event other than death, no benefit will be paid by
the Company under this Article II.
ARTICLE III - SUPPLEMENTAL PENSION BENEFIT
3.1 Eligibility for Supplemental Pension Benefit on Termination of
Employment on or after Age 65
If Termination of Employment occurs on or after the Executive has
attained age 65, the Executive will be entitled to receive an annual
supplemental pension benefit under this Agreement in an amount equal to
seventeen and one half percent (17.5%) of the Executive's Base Annual
Salary times a fraction where the numerator represents the number of
full calendar months completed since the Date of Election up until the
first day of the month following the date of Termination of Employment
(but not greater than 60) and the denominator is sixty (60). This
supplemental pension benefit will be paid by the Company to the
Executive each year for fifteen (15) years. The amount to be paid each
year will be paid in equal monthly installments, beginning on the first
day of the month following the date of Termination of Employment of the
Executive, and on the first day of each month thereafter.
3.2 Eligibility for Supplemental Pension Benefit on Termination of
Employment after Age 55 but prior to age 65
If Termination of Employment occurs after the Executive has attained
age 55 but prior to attaining age 65, the Executive will be entitled to
receive the annual supplemental pension benefit calculated under
Section 3.1 under this Agreement multiplied by the applicable
percentage set forth in Appendix A. This supplemental pension benefit
will be paid by the Company to the Executive each year for fifteen (15)
years. The amount to be paid each year will be paid in equal monthly
installments beginning on the first day of the month following the date
of the Termination of Employment of the Executive and on the first day
of each month thereafter.
3.3 Eligibility for Supplemental Pension Benefit on Termination of
Employment by the Company Prior to Age 55
(a) If Termination of Employment of the Executive by the Company
occurs prior to the Executive attaining age 55, the Executive
will be entitled to receive the annual supplemental pension
benefit calculated under Section 3.1 under this Agreement
multiplied by seventy percent (70%). This supplemental pension
benefit will be paid by the Company to the Executive each year
for fifteen (15) years. The amount to be paid each year will be
paid in equal monthly installments beginning on the first day of
the month following the month within which the Executive attains
age 55 and on the first day of each month thereafter. In the
event the Executive dies prior to the commencement date of the
benefit, such benefits will be paid to the Executive's
Beneficiary in accordance with Section 7.1 hereof, beginning on
the first day of the month following the month within which the
Executive would have attained age 55.
(b) If Termination of Employment is by reason of the voluntary
resignation of the Executive prior to attainment of age 55 (other
than for death, Disability or Good Reason following a Change in
Control of the Executive pursuant to the provisions of Article
IV) hereof, the Executive shall not be entitled to any benefit
under this Agreement.
3.4 Eligibility for Supplemental Pension Benefit on Disability
(a) If Termination of Employment of the Executive occurs on account
of Disability the Executive will be entitled to receive a
supplemental pension benefit under this Agreement in an amount
equal to seventeen and one half percent (17.5%) of the
Executive's Base Annual Salary reduced by any benefit to which
the Executive may be entitled under Social Security, the
Company's Long-Term Disability Plan, Worker's Compensation
awards, or any combination thereof, on account of Disability.
This supplemental pension benefit, if any, will be paid by the
Company to the Executive each year for fifteen (15) years. The
amount to be paid each year will be paid in equal monthly
installments, beginning on the first day of the month following
the date of Termination of the Executive's Employment, and on the
first day of each month thereafter.
(b) If, at any time during a period in which the Executive is
entitled to receive payments on account of Disability, the
condition of Disability no longer exists, the Company's
obligation to make any further payments on account of such
Disability will terminate on the date on which such Disability no
longer exists.
ARTICLE IV - TERMINATION OF EXECUTIVE'S EMPLOYMENT FOLLOWING CHANGE IN CONTROL
4.1 In lieu of the benefit, if any, to which the Executive would be
entitled under the provisions of Article III hereof, if (i) Termination
of Employment of the Executive occurs within three years following a
Change in Control, other than (A) by the Company for Cause, (B) by
reason of death or Disability, or (C) by the Executive without Good
Reason, or (ii) the Executive voluntarily terminates his/her employment
for any reason during the one-month period commencing on the first
anniversary of the Change in Control, then, in either such case, the
Company shall pay the Executive the amounts determined in accordance
with Section 3.1 hereof as though the Executive had attained age 65
prior to such termination and had been in full-time employment for
sixty (60) months following the Executive's Date of Election. This
supplemental pension benefit will be paid by the Company to the
Executive each year for fifteen (15) years. The amount to be paid each
year will be paid in equal monthly installments beginning on the first
day of the month following the date of the termination of the Executive
and on the first day of each month thereafter.
4.2 For purposes of this Agreement, the Executive's employment shall be
deemed to have been terminated following a Change in Control by the
Company without Cause or by the Executive with Good Reason, if (i) the
Executive's employment is terminated by the Company without Cause prior
to a Change in Control (whether or not a Change in Control thereafter
occurs) and such termination was at the request or direction of a
Person who has entered into an agreement with the Company the
consummation of which would constitute a Change in Control, (ii) the
Executive terminates his/her employment for Good Reason prior to a
Change in Control (whether or not a Change in Control thereafter
occurs) and the circumstance or event which constitutes Good Reason
occurs at the request or direction of such Person, or (iii) the
Executive's employment is terminated, after the occurrence of a
Potential Change in Control and prior to a Change in Control, by the
Company without Cause or by the Executive for Good Reason and such
termination or the circumstance or event which constitutes Good Reason
is otherwise in connection with or in anticipation of a Change in
Control which occurs within six months after the issuance of the Notice
of Termination in connection with such termination.
ARTICLE V -TERMINATION OF EMPLOYMENT
OF THE EXECUTIVE FOR CAUSE
5.1 If Termination of Employment of the Executive is for Cause,
notwithstanding any other provision of this Agreement, the Executive
will not be entitled to receive any benefits hereunder.
ARTICLE VI - NOTICE OF TERMINATION
6.1 Any purported termination of the Executive's employment (i) by the
Company or (ii) following a Change in Control, by the Executive for
Good Reason or in accordance with clause (ii) of Section 4.1 shall be
communicated by written Notice of Termination from one party hereto to
the other party hereto in accordance with Section 9.12 hereof. For
purposes of this Agreement, a "Notice of Termination" shall mean a
notice which shall indicate the specific termination provision in this
Agreement relied upon and shall set forth in reasonable detail the
facts and circumstances claimed to provide a basis for termination of
the Executive's employment under the provision so indicated. Further, a
Notice of Termination for Cause is required to include a copy of a
resolution duly adopted by the affirmative vote of not less than
three-quarters (3/4) of the entire membership of the Board at a meeting
of the Board which was called and held for the purpose of considering
such termination (after reasonable notice to the Executive and an
opportunity for the Executive, together with the Executive's counsel,
to be heard before the Board) finding that, in the good faith opinion
of the Board, the Executive was guilty of conduct set forth in clause
(i) or (ii) of the definition of Cause herein, and specifying the
particulars thereof in detail.
6.2 The effective date of Termination of Employment of Executive for
termination of employment requiring notice pursuant to Section 6.1
hereof shall be (i) if the Executive's employment is terminated for
Disability, thirty (30) days after Notice of Termination is given
(provided that the Executive shall not have returned to the full-time
performance of the Executive's duties during such thirty (30) day
period), and (ii) if the Executive's employment is terminated for any
other reason, the date specified in the Notice of Termination (which,
in the case of a termination by the Company, shall not be less than
thirty (30) days (except in the case of a termination for Cause) nor
more than sixty (60) days and, in the case of a termination by the
Executive, shall not be less than fifteen (15) days nor more than sixty
(60) days, respectively, from the date such Notice of Termination is
given).
ARTICLE VII- BENEFICIARY OF DEATH BENEFIT
OR SUPPLEMENTAL PENSION
7.1 In the event that the termination of the Executive's employment with
the Company is on account of the Executive's death or that the
Executive should die prior to receipt of any amounts(s) due or
remaining to be paid under Articles III or IV of this Agreement, the
death benefit payable under Article II or any amounts remaining payable
under Articles III or IV, shall be paid at the times and in the manner
specified under the terms of Article II or Articles III or IV, as
applicable, to such Beneficiary or Beneficiaries as the Executive may
have designated by filing with the Company a notice in writing in a
form acceptable to the Company. In the absence of any such designation,
such unpaid amounts shall be paid to the Executive's surviving spouse,
or if the Executive should die without a spouse surviving, to the
Executive's estate.
ARTICLE VIII - CLAIMS PROCEDURE
8.1 Filing Claims
Any insured, Beneficiary or other individual (hereinafter, "Claimant")
entitled to benefits under the Agreement shall file a claim request
with the Administrator.
8.2 Notification of Claimant
If a claim request is wholly or partially denied, the Administrator
will furnish to the Claimant a notice of the decision within 90 days in
writing and in a manner calculated to be understood by the Claimant,
which notice will contain the following information:
(a) The specific reason or reasons for the denial; (b) Specific
reference to pertinent provisions of the Agreement upon which the
denial is based; (c) A description of any additional material or
information necessary for the Claimant to perfect the Claim and an
explanation of why such material or information is necessary; and (d)
An explanation of the claims review procedure under the Agreement
describing the steps to be taken by a Claimant who wishes to submit
his claim for review.
8.3 Review Procedure
Claimant or his authorized representative may with respect to any
denied claims:
(a) Request a review upon written application filed
within sixty (60) days after receipt by the Claimant
of written notice of the denial of his claim;
(b) Review pertinent documents; and
(c) Submit issues and comments in writing.
Any request or submission must be in writing and directed to the
Fiduciary, as defined under Section 9.9, (or its designee). The
Fiduciary (or its designee) will have the sole responsibility for the
review of any denied claim and will take all steps appropriate in the
light of its findings.
8.4 Decision on Review
(a) The Fiduciary (or its designee) will render a decision
following its review. If special circumstances (such as the
need to hold a hearing on any matter pertaining to the denied
claim) warrant additional time, the decision will be rendered
as soon as possible, but not later than 120 days after receipt
of the request for review. Written notice of any such
extension will be furnished to the Claimant prior to the
commencement of the extension.
(b) The decision on review will be in writing and will include
specific reasons for the decision, written in a manner
calculated to be understood by the Claimant, as well as
specific references to the pertinent provisions of the
Agreement on which the decision is based.
(c) If the decision on the review is not furnished to the Claimant
within the time limits prescribed above, the claim will be
deemed denied on review.
ARTICLE IX - MISCELLANEOUS PROVISIONS
9.1 Misrepresentation.
(a) The Company may deem it appropriate to insure its obligation
to provide all or any part of the benefits described in this
Agreement. If the Company does deem it appropriate to insure
all or any part of any such benefits, the Company will so
notify the Executive. The Executive agrees to take whatever
actions may be necessary to enable the Company to timely apply
for, acquire and maintain such insurance and to fulfill the
requirements of the insurance company relative to the issuance
thereof.
(b) If the Executive is required by the Company to submit
information to one or more insurers in order to secure
insurance as described herein, and if the Executive has made a
material misrepresentation in any application for such
insurance, the Executive's right to a benefit under this
Agreement will be reduced by the amount of the benefit that is
not paid by the insurer(s) because of such material
misrepresentation.
9.2 Satisfaction of Claims
The Executive agrees that his rights and interests, and rights and
interests of any persons taking under or through him, will be
completely satisfied upon compliance by the Company with the provisions
of this Agreement.
9.3 Amendment; Waiver; Superseding Agreement.
(a) 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 the Executive 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 of any lack of 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. This
Agreement supersedes any other agreements or representations,
oral or otherwise, express or implied, with respect to the
subject matter hereof which have been made by either party,
including, but not limited to, the Preretirement Death Benefit
and Supplemental Pension Agreement between the parties, dated
September 18, 1995.
(b) The Agreement may be altered, amended, or modified only by a
written instrument signed by the Company and the Executive. This
Agreement sets forth the entire understanding of the parties with
respect to the subject matter thereof.
9.4 Governing Law
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 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 and any additional
withholding to which the Executive has agreed.
9.5 Non-Assignable Rights
Neither the Executive nor his spouse, nor other Beneficiary, will have
any right to commute, sell, assign, transfer or otherwise convey the
right to receive any payments hereunder without the written consent of
the Company. Such payments and the right thereto are expressly declared
to be non-assignable and nontransferable.
9.6 Independence of Agreement
The benefits under this Agreement will be independent of, and in
addition to, any other agreement that may exist from time to time
between the parties hereto, or any other compensation payable by the
Company to the Executive, whether as salary, bonus or otherwise. This
Agreement will not be deemed to constitute a contract of employment
between the parties hereto, nor will any provision hereof restrict the
right of the Company to discharge the Executive, or restrict the right
of the Executive to terminate his employment.
9.7 Non-Secured Promise
The rights of the Executive under this Agreement and of any Beneficiary
of the Executive will be solely those of an unsecured creditor of the
Company. Any insurance policy or any other asset acquired or held by
the Company in connection with the liabilities assumed by it hereunder,
will not be deemed to be held under any trust for the benefit of the
Executive or his beneficiaries or to be security for the performance of
the obligations of the Company, but will be, and remain, a general,
unpledged, unrestricted asset of the Company and the Company will
retain all ownership rights in any such policy.
9.8 Successors; Binding Agreement
In addition to any obligations imposed by law upon any successor to the
Company, 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 which is in connection with a Change in Control shall be a
breach of this Agreement and shall entitle the Executive to
compensation from the Company in the same amount and on the same terms
as the Executive would be entitled to hereunder if the Executive were
to terminate the Executive's employment for Good Reason after a Change
in Control, except that, for purposes of implementing the foregoing,
the date on which any such succession becomes effective shall be deemed
the date of Termination of Employment of the Executive.
9.9 Fiduciary and Administrator
(a) The Human Resources Committee of the Board will be Fiduciary
and the Company will be Administrator of this Agreement. The
Company's Board of Directors may authorize a person or group
of persons to fulfill the responsibilities of the Company as
Administrator.
(b) The Fiduciary or the Administrator may employ others to render
advice with regard to its responsibilities under this
Agreement. The Fiduciary may also allocate fiduciary
responsibilities to others and may exercise any other powers
necessary for the discharge of its duties to the extent not in
conflict with any provisions of the Employee Retirement Income
Security Act of 1974 that may be applicable.
9.10 Waiver by Human Resources Committee
The Human Resources Committee of the Board is authorized to waive any
provisions of this Agreement which would otherwise operate to deny,
reduce or delay any benefit payments under any provisions of this
Agreement.
9.11 Arbitration
Any dispute or controversy arising under this Agreement in connection
with any termination-related compensation or benefit and any such
dispute or controversy in connection with a claim for compensation or
benefits to which Article VIII applies (after application of the
provisions of said Article VIII) 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.
9.12 Notices
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, if to the Executive, to the address inserted below
the Executive's signature on the final page hereof and, if to the
Company, to the address set forth below, 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 actual receipt:
To the Company:
The Hartford Steam Boiler
Inspection and Insurance Company
One State Street
P.O. Box 5024
Hartford, CT 06102-5024
Attention: Corporate Secretary
9.13 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.
9.14 Counterparts
This Agreement may be executed in several counterparts, each of which
shall be deemed to be an original but all of which together will
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have hereunto set their hands, the
Company by its duly authorized officer, on the day and year first
written above.
/s/ William A. Kerr
Executive
THE HARTFORD STEAM BOILER
INSPECTION AND INSURANCE COMPANY
/s/ Gordon W. Kreh
Its: President
APPENDIX A
ATTAINED AGE PERCENTAGE OF
AT TERMINATION OF BENEFIT
EMPLOYMENT
65 100
64 97
63 94
62 91
61 88
60 85
59 82
58 79
57 76
56 73
55 70
Exhibit (10)(iii)(h)
PRE-RETIREMENT DEATH BENEFIT AND
SUPPLEMENTAL PENSION AGREEMENT
THIS AGREEMENT, made and entered into this 14th day of March, 1997
between The Hartford Steam Boiler Inspection and Insurance Company, (hereinafter
referred to as the "Company"), a corporation organized and existing under the
laws of the State of Connecticut and Robert C. Walker (hereinafter referred to
as the "Executive").
WHEREAS, the Company considers it essential to the best interests of
its shareholders to foster the continued employment of key management personnel;
and
WHEREAS, the Executive is willing to continue in the employ of the
Company if the Company will agree to pay him or his designees certain benefits
in accordance with the provisions and conditions hereinafter set forth;
NOW, THEREFORE, for value received and in consideration of the mutual
covenants contained herein, the parties covenant and agree as follows:
ARTICLE I - DEFINITIONS
For purposes of this Agreement, the following terms have the meanings set forth
below:
1.1 "Affiliate" shall have the meaning set forth in Rule 12b-2 promulgated
under Section 12 of the Exchange Act.
1.2 "Beneficial Owner" shall have the meaning set forth in Rule 13d-3 under the
Exchange Act.
1.3 "Beneficiary" shall mean the person or persons designated under Section 7.1
hereof to receive benefits payable under this Agreement upon the
Executive's death.
1.4 "Board" shall mean the Board of Directors of the Company.
1.5 "Cause" for termination by the Company of the Executive's employment
shall mean (i) the willful and continued failure by the Executive to
substantially perform the Executive's duties with the Company (other
than any such failure resulting from the Executive's incapacity due to
physical or mental illness or any such actual or anticipated failure
after the issuance of a Notice of Termination for Good Reason by the
Executive pursuant to Section 6.1 hereof) after a written demand for
substantial performance is delivered to the Executive by the Board,
which demand specifically (a) identifies the manner in which the Board
believes that the Executive has not substantially performed the
Executive's duties and (b) states a period of time within which the
Executive must correct such failure (which is reasonable based on the
specific circumstances of such failure), and the period of time
specified in the demand has expired; or (ii) the willful engaging by
the Executive in conduct which is demonstrably and materially injurious
to the Company or its subsidiaries, monetarily or otherwise. For
purposes of clauses (i) and (ii) of this definition, no act, or failure
to act, on the Executive's part shall be deemed "willful" unless done,
or omitted to be done, by the Executive not in good faith and without
reasonable belief that the Executive's act, or failure to act, was in
the best interest of the Company.
1.6 A "Change in Control" shall be deemed to have occurred if the event set
forth in any one of the following paragraphs shall have occurred:
(a) any Person is or becomes the Beneficial Owner, directly
or indirectly, of securities of the Company (not including in the
securities beneficially owned by such Person any securities acquired
directly from the Company or its affiliates) representing 25% or more
of the combined voting power of the Company's then outstanding
securities, excluding any Person who becomes such a Beneficial Owner in
connection with a transaction described in clause (i) of paragraph (c)
below; or
(b) the following individuals cease for any reason to constitute
a majority of the number of directors then serving: individuals who, on
the date hereof, constitute the Board and any new director (other than
a director whose initial assumption of office is in connection with an
actual or threatened election contest, including but not limited to a
consent solicitation, relating to the election of directors of the
Company) whose appointment or election by the Board or nomination for
election by the Company's shareholders was approved or recommended by a
vote of at least two-thirds (2/3) of the directors then still in office
who either were directors on the date hereof or whose appointment,
election or nomination for election was previously so approved or
recommended; or
(c) there is consummated a merger or consolidation of the
Company or any direct or indirect subsidiary of the Company with any
other corporation, other than (i) a merger or consolidation which would
result in the voting securities of the Company outstanding immediately
prior to such merger or consolidation continuing to represent (either
by remaining outstanding or by being converted into voting securities
of the surviving entity or any parent thereof), in combination with the
ownership of any trustee or other fiduciary holding securities under an
employee benefit plan of the Company or any subsidiary of the Company,
at least 60% of the combined voting power of the securities of the
Company or such surviving entity or any parent thereof outstanding
immediately after such merger or consolidation, or (ii) a merger or
consolidation effected to implement a recapitalization of the Company
(or similar transaction) in which no Person is or becomes the
Beneficial Owner, directly or indirectly, of securities of the Company
(not including in the securities Beneficially Owned by such Person any
securities acquired directly from the Company or its Affiliates)
representing 25% or more of the combined voting power of the Company's
then outstanding securities; or
(d) the shareholders of the Company approve a plan of complete
liquidation or dissolution of the Company or there is consummated an
agreement for the sale or disposition by the Company of all or
substantially all of the Company's assets, other than a sale or
disposition by the Company of all or substantially all of the Company's
assets to an entity, at least 60% of the combined voting power of the
voting securities of which are owned by shareholders of the Company in
substantially the same proportions as their ownership of the Company
immediately prior to such sale.
Notwithstanding the foregoing, a "Change in Control" shall not be
deemed to have occurred by virtue of the consummation of any
transaction or series of integrated transactions immediately following
which the record holders of the common stock of the Company immediately
prior to such transaction or series of transactions continue to have
substantially the same proportionate ownership in an entity which owns
all or substantially all of the assets of the Company immediately
following such transaction or series of transactions.
1.7 "Company" shall mean The Hartford Steam Boiler Inspection and Insurance
Company and, except in determining whether or not any Change in Control
of the Company has occurred, shall include any successor to its
business and/or assets which assumes and agrees to perform this
Agreement by operation of law, or otherwise.
1.8 "Disability" shall be deemed the reason for the Termination of
Employment of the Executive by the Company if, as a result of the
Executive's incapacity due to physical or mental illness, the Executive
shall have been absent from the full-time performance of the
Executive's duties with the Company for a period of six (6) consecutive
months, the Company shall have given the Executive a notice of
termination for Disability, and, within thirty (30) days after such
notice of termination is given, the Executive shall not have returned
to the full-time performance of the Executive's duties.
1.9 "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
1.10 "Executive" shall mean the individual named in the first paragraph of
this Agreement.
1.11 "Executive's Base Annual Salary" shall mean annual salary, exclusive of
bonuses, in effect at the date of Termination of Employment of the
Executive or, if higher, in effect (i) immediately prior to the Change
in Control or (ii) immediately prior to the first occurrence of an
event or circumstance constituting Good Reason in the event of a
termination for Good Reason.
1.12 "Good Reason" for Termination of Employment by the Executive shall mean
the occurrence (without the Executive's express written consent) after
any Change in Control, or prior to a Change in Control under the
circumstances described in clauses (i), (ii) and (iii) of the first
sentence of Section 4.2 hereof (treating all references in paragraphs
(a) through (g) below to a "Change in Control" as references to a
"Potential Change in Control"), of any one of the following acts by the
Company, or failures by the Company to act, unless, in the case of any
act or failure to act described in paragraph (a), (e), (f) or (g)
below, such act or failure to act is corrected prior to the date of
termination specified in the Notice of Termination given in respect
thereof:
(a) the assignment to the Executive of any duties inconsistent
with the Executive's status as a senior executive officer of the
Company or a substantial adverse alteration in the nature or status of
the Executive's responsibilities from those in effect immediately prior
to the Change in Control;
(b) a reduction by the Company in the Executive's annual base
salary as in effect on the date hereof or as the same may be increased
from time to time, except for across-the-board salary reductions
similarly affecting all senior executives of the Company and all senior
executives of any Person in control of the Company;
(c) the Company's requiring the Executive to be based more than
50 miles from the Executive's principal place of employment immediately
prior to the Change in Control, except for required travel on the
Company's business to an extent substantially consistent with the
Executive's present business travel obligations;
(d) the failure by the Company to pay to the Executive any
portion of the Executive's current compensation except pursuant to an
across-the-board compensation deferral similarly affecting all senior
executives of the Company and all senior executives of any Person in
control of the Company, or to pay to the Executive any portion of an
installment of deferred compensation under any deferred compensation
program of the Company, within seven (7) days of the date such
compensation is due;
(e) the failure by the Company to continue in effect any
compensation plan in which the Executive participates immediately prior
to the Change in Control which is material to the Executive's total
compensation, unless an equitable arrangement (embodied in an ongoing
substitute or alternative plan) has been made with respect to such
plan, or the failure by the Company to continue the Executive's
participation therein (or in such substitute or alternative plan) on a
basis not materially less favorable, both in terms of the amount or
timing of payment of benefits provided and the level of the Executive's
participation relative to other participants, as existed immediately
prior to the Change in Control;
(f) the failure by the Company to continue to provide the
Executive with benefits substantially similar to those enjoyed by the
Executive under any of the Company's pension, savings, life insurance,
medical, health and accident, or disability plans in which the
Executive was participating immediately prior to the Change in Control
(except for across the board changes similarly affecting all senior
executives of the Company and all senior executives of any Person in
control of the Company), the taking of any other action by the Company
which would directly or indirectly materially reduce any of such
benefits or deprive the Executive of any material fringe benefit
enjoyed by the Executive at the time of the Change in Control, or the
failure by the Company to provide the Executive with the number of paid
vacation days to which the Executive is entitled on the basis of years
of service with the Company in accordance with the Company's normal
vacation policy in effect at the time of the Change in Control; or
(g) any purported termination of the Executive's employment which
is not effected pursuant to a Notice of Termination satisfying the
requirements of Section 6.1 hereof; for purposes of this Agreement, no
such purported termination shall be effective.
The Executive's right to terminate the Executive's employment for Good
Reason shall not be affected by the Executive's incapacity due to
physical or mental illness. The Executive's continued employment shall
not constitute consent to, or a waiver of rights with respect to, any
act or failure to act constituting Good Reason hereunder.
1.13 "Notice of Termination" shall have the meaning set forth in Section
6.1 hereof.
1.14 "Person" shall have the meaning given in Section 3(a)(9) of the
Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof,
except that such term shall not include (i) the Company or any of its
subsidiaries, (ii) a trustee or other fiduciary holding securities
under an employee benefit plan of the Company or any of its Affiliates,
(iii) an underwriter temporarily holding securities pursuant to an
offering of such securities, or (iv) a corporation owned, directly or
indirectly, by the shareholders of the Company in substantially the
same proportions as their ownership of stock of the Company.
1.15 "Potential Change in Control" shall be deemed to have occurred if the
event set forth in any one of the following paragraphs shall have
occurred:
(a) the Company enters into an agreement, the consummation of
which would result in the occurrence of a Change in Control;
(b) the Company or any Person publicly announces an intention
to take or to consider taking actions which, if consummated,
would constitute a Change in Control;
(c) any Person becomes the Beneficial Owner, directly or
indirectly, of securities of the Company representing 10% or more of
either the then outstanding shares of common stock of the Company or
the combined voting power of the Company's then outstanding securities
(not including in the securities beneficially owned by such Person any
securities acquired directly from the Company or its affiliates); or
(d) the Board adopts a resolution to the effect that, for
purposes of this Agreement, a Potential Change in Control has occurred.
1.16 "Termination of Employment" means the cessation of the
Executive's full-time employment.
ARTICLE II - PRE-RETIREMENT DEATH BENEFIT
2.1 If the Termination of Employment of the Executive is on account of the
Executive's death, a death benefit equal to fifty percent (50%) of the
Executive's Base Annual Salary at the time of his death will be paid
subject to the limitations under Article VII. This death benefit will
be paid by the Company to the Beneficiary of the Executive each year
for fifteen years (15) years. The amount to be paid each year will be
paid in equal monthly installments beginning on the first day of the
month following the date of the Executive's death and on the first day
of each month thereafter. If Termination of Employment of the Executive
is on account of any event other than death, no benefit will be paid by
the Company under this Article II.
ARTICLE III - SUPPLEMENTAL PENSION BENEFIT
3.1 Eligibility for Supplemental Pension Benefit on Termination of
Employment on or after Age 65
If Termination of Employment occurs on or after the Executive has
attained age 65, the Executive will be entitled to receive an annual
supplemental pension benefit under this Agreement in an amount equal to
thirty-five percent (35%) of the Executive's Base Annual Salary. This
supplemental pension benefit will be paid by the Company to the
Executive each year for fifteen (15) years. The amount to be paid each
year will be paid in equal monthly installments, beginning on the first
day of the month following the date of Termination of Employment of the
Executive, and on the first day of each month thereafter.
3.2 Eligibility for Supplemental Pension Benefit on Termination of
Employment after Age 53 but prior to age 65
If Termination of Employment occurs after the Executive has attained
age 53 but prior to attaining age 65, the Executive will be entitled to
receive the annual supplemental pension benefit calculated under
Section 3.1 under this Agreement multiplied by the applicable
percentage set forth in Appendix A. This supplemental pension benefit
will be paid by the Company to the Executive each year for fifteen (15)
years. The amount to be paid each year will be paid in equal monthly
installments beginning on the first day of the month following the date
of the Termination of Employment of the Executive or the first day of
the month following the month within which the Executive attains age
55, whichever is later, and on the first day of each month thereafter.
3.3 Eligibility for Supplemental Pension Benefit on Disability
(a) If Termination of Employment of the Executive occurs on account of
Disability the Executive will be entitled to receive a supplemental
pension benefit under this Agreement in an amount equal to thirty-five
percent (35%) of the Executive's Base Annual Salary reduced by any
benefit to which the Executive may be entitled under Social Security,
the Company's Long-Term Disability Plan, Worker's Compensation awards,
or any combination thereof, on account of Disability. This
supplemental pension benefit, if any, will be paid by the Company to
the Executive each year for fifteen (15) years. The amount to be paid
each year will be paid in equal monthly installments, beginning on the
first day of the month following the date of Termination of the
Executive's Employment, and on the first day of each month thereafter.
(b) If, at any time during a period in which the Executive is entitled to
receive payments on account of Disability, the condition of Disability
no longer exists, the Company's obligation to make any further
payments on account of such Disability will terminate on the date on
which such Disability no longer exists.
ARTICLE IV - TERMINATION OF EXECUTIVE'S EMPLOYMENT FOLLOWING CHANGE IN CONTROL
4.1 In lieu of the benefit, if any, to which the Executive would be
entitled under the provisions of Article III hereof, if (i) Termination
of Employment of the Executive occurs within three years following a
Change in Control, other than (A) by the Company for Cause, (B) by
reason of death or Disability, or (C) by the Executive without Good
Reason, or (ii) the Executive voluntarily terminates his/her employment
for any reason during the one-month period commencing on the first
anniversary of the Change in Control, then, in either such case, the
Company shall pay the Executive the amounts determined in accordance
with Section 3.1 hereof as though the Executive had attained age 65
prior to such termination. This supplemental pension benefit will be
paid by the Company to the Executive each year for fifteen (15) years.
The amount to be paid each year will be paid in equal monthly
installments beginning on the first day of the month following the date
of the termination of the Executive and on the first day of each month
thereafter.
4.2 For purposes of this Agreement, the Executive's employment shall be
deemed to have been terminated following a Change in Control by the
Company without Cause or by the Executive with Good Reason, if (i) the
Executive's employment is terminated by the Company without Cause prior
to a Change in Control (whether or not a Change in Control thereafter
occurs) and such termination was at the request or direction of a
Person who has entered into an agreement with the Company the
consummation of which would constitute a Change in Control, (ii) the
Executive terminates his/her employment for Good Reason prior to a
Change in Control (whether or not a Change in Control thereafter
occurs) and the circumstance or event which constitutes Good Reason
occurs at the request or direction of such Person, or (iii) the
Executive's employment is terminated, after the occurrence of a
Potential Change in Control and prior to a Change in Control, by the
Company without Cause or by the Executive for Good Reason and such
termination or the circumstance or event which constitutes Good Reason
is otherwise in connection with or in anticipation of a Change in
Control which occurs within six months after the issuance of the Notice
of Termination in connection with such termination.
ARTICLE V -TERMINATION OF EMPLOYMENT
OF THE EXECUTIVE FOR CAUSE
5.1 If Termination of Employment of the Executive is for Cause,
notwithstanding any other provision of this Agreement, the Executive
will not be entitled to receive any benefits hereunder.
ARTICLE VI - NOTICE OF TERMINATION
6.1 Any purported termination of the Executive's employment (i) by the
Company or (ii) following a Change in Control, by the Executive for
Good Reason or in accordance with clause (ii) of Section 4.1 shall be
communicated by written Notice of Termination from one party hereto to
the other party hereto in accordance with Section 9.12 hereof. For
purposes of this Agreement, a "Notice of Termination" shall mean a
notice which shall indicate the specific termination provision in this
Agreement relied upon and shall set forth in reasonable detail the
facts and circumstances claimed to provide a basis for termination of
the Executive's employment under the provision so indicated. Further, a
Notice of Termination for Cause is required to include a copy of a
resolution duly adopted by the affirmative vote of not less than
three-quarters (3/4) of the entire membership of the Board at a meeting
of the Board which was called and held for the purpose of considering
such termination (after reasonable notice to the Executive and an
opportunity for the Executive, together with the Executive's counsel,
to be heard before the Board) finding that, in the good faith opinion
of the Board, the Executive was guilty of conduct set forth in clause
(i) or (ii) of the definition of Cause herein, and specifying the
particulars thereof in detail.
6.2 The effective date of Termination of Employment of Executive for
termination of employment requiring notice pursuant to Section 6.1
hereof shall be (i) if the Executive's employment is terminated for
Disability, thirty (30) days after Notice of Termination is given
(provided that the Executive shall not have returned to the full-time
performance of the Executive's duties during such thirty (30) day
period), and (ii) if the Executive's employment is terminated for any
other reason, the date specified in the Notice of Termination (which,
in the case of a termination by the Company, shall not be less than
thirty (30) days (except in the case of a termination for Cause) nor
more than sixty (60) days and, in the case of a termination by the
Executive, shall not be less than fifteen (15) days nor more than sixty
(60) days, respectively, from the date such Notice of Termination is
given).
ARTICLE VII- BENEFICIARY OF DEATH BENEFIT
OR SUPPLEMENTAL PENSION
7.1 In the event that the termination of the Executive's employment with
the Company is on account of the Executive's death or that the
Executive should die prior to receipt of any amounts(s) due or
remaining to be paid under Articles III or IV of this Agreement, the
death benefit payable under Article II or any amounts remaining payable
under Articles III or IV, shall be paid at the times and in the manner
specified under the terms of Article II or Articles III or IV, as
applicable, to such Beneficiary or Beneficiaries as the Executive may
have designated by filing with the Company a notice in writing in a
form acceptable to the Company. In the absence of any such designation,
such unpaid amounts shall be paid to the Executive's surviving spouse,
or if the Executive should die without a spouse surviving, to the
Executive's estate.
ARTICLE VIII - CLAIMS PROCEDURE
8.1 Filing Claims
Any insured, Beneficiary or other individual (hereinafter, "Claimant")
entitled to benefits under the Agreement shall file a claim request
with the Administrator.
8.2 Notification of Claimant
If a claim request is wholly or partially denied, the Administrator
will furnish to the Claimant a notice of the decision within 90 days in
writing and in a manner calculated to be understood by the Claimant,
which notice will contain the following information:
(a) The specific reason or reasons for the denial;
(b) Specific reference to pertinent provisions of the Agreement upon
which the denial is based;
(c) A description of any additional material or information necessary
for the Claimant to perfect the Claim and an explanation of why
such material or information is necessary; and
(d) An explanation of the claims review procedure under the Agreement
describing the steps to be taken by a Claimant who wishes to
submit his claim for review.
8.3 Review Procedure
Claimant or his authorized representative may with respect to any
denied claims:
(a) Request a review upon written application filed
within sixty (60) days after receipt by the Claimant
of written notice of the denial of his claim;
(b) Review pertinent documents; and
(c) Submit issues and comments in writing.
Any request or submission must be in writing and directed to the
Fiduciary, as defined under Section 9.9, (or its designee). The
Fiduciary (or its designee) will have the sole responsibility for the
review of any denied claim and will take all steps appropriate in the
light of its findings.
8.4 Decision on Review
(a) The Fiduciary (or its designee) will render a decision
following its review. If special circumstances (such as the
need to hold a hearing on any matter pertaining to the denied
claim) warrant additional time, the decision will be rendered
as soon as possible, but not later than 120 days after receipt
of the request for review. Written notice of any such
extension will be furnished to the Claimant prior to the
commencement of the extension.
(b) The decision on review will be in writing and will include
specific reasons for the decision, written in a manner
calculated to be understood by the Claimant, as well as
specific references to the pertinent provisions of the
Agreement on which the decision is based.
(c) If the decision on the review is not furnished to the Claimant
within the time limits prescribed above, the claim will be
deemed denied on review.
ARTICLE IX - MISCELLANEOUS PROVISIONS
9.1 Misrepresentation.
(a) The Company may deem it appropriate to insure its obligation
to provide all or any part of the benefits described in this
Agreement. If the Company does deem it appropriate to insure
all or any part of any such benefits, the Company will so
notify the Executive. The Executive agrees to take whatever
actions may be necessary to enable the Company to timely apply
for, acquire and maintain such insurance and to fulfill the
requirements of the insurance company relative to the issuance
thereof.
(b) If the Executive is required by the Company to submit
information to one or more insurers in order to secure
insurance as described herein, and if the Executive has made a
material misrepresentation in any application for such
insurance, the Executive's right to a benefit under this
Agreement will be reduced by the amount of the benefit that is
not paid by the insurer(s) because of such material
misrepresentation.
9.2 Satisfaction of Claims
The Executive agrees that his rights and interests, and rights and
interests of any persons taking under or through him, will be
completely satisfied upon compliance by the Company with the provisions
of this Agreement.
9.3 Amendment; Waiver; Superseding Agreement.
(a) 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 the Executive 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 of any lack of 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. This
Agreement supersedes any other agreements or representations,
oral or otherwise, express or implied, with respect to the
subject matter hereof which have been made by either party,
including, but not limited to, the Preretirement Death Benefit
and Supplemental Pension Agreement between the parties, dated
March 16, 1994.
(b) The Agreement may be altered, amended, or modified only by a
written instrument signed by the Company and the Executive. This
Agreement sets forth the entire understanding of the parties with
respect to the subject matter thereof.
9.4 Governing Law
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 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 and any additional
withholding to which the Executive has agreed.
9.5 Non-Assignable Rights
Neither the Executive nor his spouse, nor other Beneficiary, will have
any right to commute, sell, assign, transfer or otherwise convey the
right to receive any payments hereunder without the written consent of
the Company. Such payments and the right thereto are expressly declared
to be non-assignable and nontransferable.
9.6 Independence of Agreement
The benefits under this Agreement will be independent of, and in
addition to, any other agreement that may exist from time to time
between the parties hereto, or any other compensation payable by the
Company to the Executive, whether as salary, bonus or otherwise. This
Agreement will not be deemed to constitute a contract of employment
between the parties hereto, nor will any provision hereof restrict the
right of the Company to discharge the Executive, or restrict the right
of the Executive to terminate his employment.
9.7 Non-Secured Promise
The rights of the Executive under this Agreement and of any Beneficiary
of the Executive will be solely those of an unsecured creditor of the
Company. Any insurance policy or any other asset acquired or held by
the Company in connection with the liabilities assumed by it hereunder,
will not be deemed to be held under any trust for the benefit of the
Executive or his beneficiaries or to be security for the performance of
the obligations of the Company, but will be, and remain, a general,
unpledged, unrestricted asset of the Company and the Company will
retain all ownership rights in any such policy.
9.8 Successors; Binding Agreement
In addition to any obligations imposed by law upon any successor to the
Company, 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 which is in connection with a Change in Control shall be a
breach of this Agreement and shall entitle the Executive to
compensation from the Company in the same amount and on the same terms
as the Executive would be entitled to hereunder if the Executive were
to terminate the Executive's employment for Good Reason after a Change
in Control, except that, for purposes of implementing the foregoing,
the date on which any such succession becomes effective shall be deemed
the date of Termination of Employment of the Executive.
9.9 Fiduciary and Administrator
(a) The Human Resources Committee of the Board will be Fiduciary
and the Company will be Administrator of this Agreement. The
Company's Board of Directors may authorize a person or group
of persons to fulfill the responsibilities of the Company as
Administrator.
(b) The Fiduciary or the Administrator may employ others to render
advice with regard to its responsibilities under this
Agreement. The Fiduciary may also allocate fiduciary
responsibilities to others and may exercise any other powers
necessary for the discharge of its duties to the extent not in
conflict with any provisions of the Employee Retirement Income
Security Act of 1974 that may be applicable.
9.10 Waiver by Human Resources Committee
The Human Resources Committee of the Board is authorized to waive any
provisions of this Agreement which would otherwise operate to deny,
reduce or delay any benefit payments under any provisions of this
Agreement.
9.11 Arbitration
Any dispute or controversy arising under this Agreement in connection
with any termination-related compensation or benefit and any such
dispute or controversy in connection with a claim for compensation or
benefits to which Article VIII applies (after application of the
provisions of said Article VIII) 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.
9.12 Notices
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, if to the Executive, to the address inserted below
the Executive's signature on the final page hereof and, if to the
Company, to the address set forth below, 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 actual receipt:
To the Company:
The Hartford Steam Boiler
Inspection and Insurance Company
One State Street
P.O. Box 5024
Hartford, CT 06102-5024
Attention: Corporate Secretary
9.13 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.
9.14 Counterparts
This Agreement may be executed in several counterparts, each of which
shall be deemed to be an original but all of which together will
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have hereunto set their hands, the
Company by its duly authorized officer, on the day and year first
written above.
/s/ Robert C. Walker
Executive
Address
THE HARTFORD STEAM BOILER
INSPECTION AND INSURANCE COMPANY
/s/ Gordon W. Kreh
Its: President
APPENDIX A
ATTAINED AGE PERCENTAGE OF
AT TERMINATION OF BENEFIT
EMPLOYMENT
65 100
64 97
63 94
62 91
61 88
60 85
59 82
58 79
57 76
56 73
55 70
54 56
53 42
Exhibit 10(iii)(j)
THE HARTFORD STEAM BOILER INSPECTION AND INSURANCE COMPANY DIRECTORS STOCK AND
DEFERRED COMPENSATION PLAN
1. Purposes of the Plan.
The purposes of The Hartford Steam Boiler Inspection and Insurance Company
Directors Stock and Deferred Compensation Plan are: (a) to attract and retain
persons of ability as directors of the Company; (b) to more closely align
directors' interests with those of shareholders; and (c) to encourage the
highest level of contribution by directors to the financial success of the
Company by providing a significant portion of their compensation in the form of
equity in the Company.
2. Definitions.
"Board" shall mean the Board of Directors of the Company.
"Cash Compensation" shall mean the total of the annual cash retainer and fees
for attending and/or chairing any meeting of the Board or a committee of the
Board payable to a Director for any Plan Year.
"Change in Control" shall have occurred for purposes of this Plan 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 (25%)
or more of the Company's then outstanding securities;
(b) during any period within two (2) consecutive years there shall
cease to bea majority of the Board of Directors comprised as follows:
individuals who at the beginning of such period constitute the Board of
Directors and any new director(s) whose election by the Board of
Directors or nomination for election by the Company's shareholders was
approved by a vote of at least two-thirds (2/3) of the directors then
still in office who either were directors at the beginning of the
period or whose election or nomination for election was previously so
approved; or
(c) the shareholders of the Company approve a merger or consolidation
of the Company with any other corporation, other than (i) a merger or
consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting
securities of the surviving entity) more than 80% of the combined
voting power of voting securities after such merger or consolidation or
(ii) a merger orconsolidation effected to implement a recapitalization
of the Company (or similar transaction) in which no "person" (as
hereinabove defined) acquires more than 25% of the combined voting
power of the Company's then outstanding securities; or
(d) the shareholders of the Company approve (i) a plan of complete
liquidation of the Company or (ii) the sale or other disposition of
all or substantially all the Company assets.
"Committee" shall mean the Governance Committee of the Board or any future
committee of the Board performing similar functions.
"Company" shall mean The Hartford Steam Boiler Inspection and Insurance Company.
"Deferred Account" shall mean the account established and maintained for a
Director under the Plan pursuant to an election made pursuant to Section 7.
"Deferral Election" shall mean the election to defer receipt of Cash
Compensation in accordance with Section 7.
"Director" shall mean a non-employee director of the Company.
"Dividend Equivalent" shall mean an amount equal to the dividend that would have
been paid with respect to a Stock Equivalent Unit if such unit had constituted a
share of Stock, duly issued and outstanding on the date a dividend is payable on
the Stock.
"Effective Date" shall mean September 23, 1996.
"Fair Market Value" shall mean the average of the high and low prices per share
of the Company's Stock as reported by the New York Stock Exchange Composite
Transaction Reporting System (NYSE) on the date for which the Fair Market Value
is being determined, or if no quotations are available for the Company's Stock,
for the next preceding date for which such a quotation is available. If shares
of Company Stock are not then listed on the NYSE, Fair Market Value shall be
reasonably determined by the Committee in its sole discretion.
"Plan" shall mean The Hartford Steam Boiler Inspection and Insurance Company
Directors Stock and Deferred Compensation Plan.
"Plan Year" shall mean the calendar year. The first Plan Year shall begin
January 1, 1997.
"Restricted Stock" shall mean Restricted Stock issued under the 1989 Restricted
Stock Plan for Non-Employee Directors.
"Stock" shall mean the common stock of the Company.
"Stock Equivalent Unit" shall mean the right to receive the Fair Market Value of
a share of Stock in the form of cash or Stock as elected in accordance with
Section 9 hereof and subject to the conditions set forth in the Plan.
3. Administration of the Plan.
The Plan shall be administered by the Committee as defined herein. The Committee
is authorized to interpret the Plan and shall adopt guidelines for carrying out
the Plan as it may deem appropriate. Decisions of the Committee shall be final,
conclusive and binding upon all parties concerned, unless otherwise determined
by the Board of Directors.
4. Stock Subject to the Plan.
Subject to the provisions of Section 11 of the Plan, the maximum number of
shares of Stock which may be issued under the Plan shall be 100,000.
5. Annual Award of Stock Equivalent Units.
As of the last day of each Plan Year, each individual who served as a Director
at any point during such Plan Year shall be granted an award of Stock Equivalent
Units equal to 550 multiplied by a fraction where the numerator is the number of
full or partial months within such Plan Year that such individual served as a
Director and the denominator is 12. In the event that a Director's service on
the Board terminates for any reason prior to the end of the Plan Year, as soon
as practicable following such termination such Director will be credited with
the number of Stock Equivalent Units determined in accordance with the formula
in the preceding sentence but as of the date of such Director's termination.
6. Conversion of Benefits Payable under Other Plans.
(a) As of the Effective Date, participation by current Directors in the
Retirement Plan for Outside Directors is being terminated. In connection with
such termination, the Retirement Plan is being amended to provide that the
present value of benefits payable to individuals who are serving as Directors as
of the Effective Date shall be converted into Stock Equivalent Units based on
the average of the closing prices of shares of Stock on the Effective Date and
the four successive trading days thereafter as reported by the New York Stock
Exchange Composite Transaction Reporting System and such units will be credited
to such Directors' accounts hereunder.
(b) As of the Effective Date, the shares of Restricted Stock granted under the
1989 Restricted Stock Plan for Non-Employee Directors and listed on Exhibit A
hereto shall be canceled. Each Director who holds shares immediately prior to
the Effective Date which are listed on Exhibit A shall receive in consideration
for such cancellation an award of Stock Equivalent Units equal to the number of
shares of Restricted Stock so canceled and such units will be credited to such
Directors' accounts hereunder.
7. Election to Defer Receipt of Cash Compensation.
(a) Effective for the Plan Year beginning on January 1, 1997 and for ensuing
Plan Years, a Director shall have the right to make on an annual basis an
election to defer payment of all or a percentage of the total Cash Compensation
to be earned during the ensuing Plan Year (a "Deferral Election"). In order to
make a Deferral Election pursuant to this Section 7, a Director shall deliver to
the Corporate Secretary of the Company no later than the last business day prior
to the commencement of the first Plan Year to which such election relates a
written notice setting forth the percentage of Cash Compensation to be deferred
and whether such cash should be converted into Stock Equivalent Units in
accordance with subsection (b) below or credited as cash to a Deferred Account
maintained for such Director on the date such compensation would otherwise be
paid. Individuals who become Directors during a Plan Year shall have thirty days
following their election or appointment to make a Deferral Election for the
remainder of the Plan Year. Any Deferral Election made pursuant to this Section
7 shall remain in effect for subsequent Plan Years until a new election form is
delivered to the Corporate Secretary in accordance with this section.
(b) As soon as practicable following the end of a Plan Year, each Director who
made a Deferral Election in the form of Stock Equivalent Units will be credited
with the number of units, including fractional units, equal to the amount of the
Cash Compensation, the payment of which has been deferred, divided by the Fair
Market Value of shares of Stock on the date such compensation would otherwise
have been paid. In the event that a Director's service on the Board terminates
prior to the end of a Plan Year, the calculation referred to in the preceding
sentence shall be made as soon as practicable following such Director's date of
termination.
8. Dividend Equivalents Payable on Stock Equivalent Units and Interest Paid on
Deferred Accounts.
(a) Dividend Equivalents shall be credited on Stock Equivalent Units held by
Directors based upon dividends paid on shares of Stock between the date such
Stock Equivalent Units are credited to Directors and the date they are
ultimately paid out in accordance with the Plan. Dividend Equivalents shall be
paid in the form of cash as soon as practicable following the end of a Plan Year
based on the number of Stock Equivalent Units credited to a Director's account
as of the dividend record dates falling within such Plan Year multiplied by the
cash dividends (or the fair market value of any property other than cash paid as
a dividend) per share of Stock payable during such Plan Year.
(b) Dividend Equivalents will be payable on Stock Equivalents Units granted
under Section 5 for the Plan Year for which a grant is made in accordance with
subsection (a) above as though such Stock Equivalent Units had been granted as
of the first day of such Plan Year, provided however, such Dividend Equivalents
shall not be credited to a Director until the Stock Equivalent Units to which
they relate are credited to the Director in accordance with Section 5.
(c) Dividend Equivalents will be payable on Stock Equivalent Units credited
pursuant to a Deferral Election pursuant to Section 7 in accordance with
subsection (a) above as though such Stock Equivalent Units had been credited to
a Director on the date the Cash Compensation to which the Deferral Election
relates would otherwise have been paid, provided however, such Dividend
Equivalents shall not be credited to a Director's account until the Stock
Equivalent Units to which they relate are credited to the Director in accordance
with Section 7.
(d) At the end of each Plan Year, and at the time of payment of any amounts held
in a Deferred Account, interest at the rate of the average of the yields at
issuance of five-year Treasury Notes issued during the prior twelve-month period
plus 1% shall be credited to each Deferred Account on the average daily balance
held in such accounts for the preceding Plan Year or portion thereof.
9. Time and Form of Payment.
(a) Payment in settlement of Stock Equivalent Units and any amounts held in a
Deferred Account will commence as soon as practicable after the date the
Director ceases to be a member of the Board, unless, with respect to amounts
held in a Deferred Account, a Director has specified an alternate date in his or
her Deferral Election.
(b) Payment in settlement of Stock Equivalent Units and any amounts held in a
Deferred Account will be made in a lump sum or, if elected by a Director at
least one year prior to the date such Director ceases to be a member of the
Board, in a specified number (not to exceed ten) of annual installments. Such
election may be modified or revoked by the Director, provided that no such
modification or revocation will be given effect unless it is made prior to the
date specified in the preceding sentence.
(c) Amounts held in a Deferred Account shall be paid in cash and Stock
Equivalent Units held by a Director shall be paid in an equivalent number of
shares of Stock unless prior to the commencement of payment, a Director elects
to receive a cash payment in lieu of shares of Stock. Such cash payment shall be
equal to the Fair Market Value of the shares on the date such Director ceases to
be a member of the Board, or in the case of an installment election made
pursuant to subsection (b) above, on the anniversary date of such date with
respect to the installment then payable.
(d) Whenever a fractional share would otherwise be required to be issued in
accordance with the terms of this Section 9, the Fair Market Value of such
fractional share shall be paid in cash.
10. Payment in the Event of Death.
(a) In the event of a Director's death, payment of amounts credited to such
Director's Deferred Account shall be paid in cash and payment of Stock
Equivalent Units shall be made in the form previously elected by the Director,
provided that if no such election had been made prior to such Director's death,
payment shall be made in shares of Stock except for any fractional share the
Fair Market Value of which shall be paid in cash.
(b) Payment shall be made as soon as practicable following the death of the
Director in a single lump sum to the beneficiary designated in writing by the
Director, of if no designation was made, to the person legally entitled thereto,
as designated under the will of the Director, or to such heir or heirs as
determined under the laws of intestacy of the Director's domicile.
11. Adjustments in the Event of Change in Common Stock of the Company.
In the event that there is any change in the Stock by reason of any stock
dividend, stock split, combination of shares, exchange of shares, warrants or
rights offering to purchase Stock at a price below its fair market value,
reclassification, recapitalization, merger, consolidation, spin-off or other
change in capitalization, appropriate adjustment shall be made in the number and
kind of shares or other property subject to the Plan and the number and kind of
shares or other property credited to the Directors under the Plan, and any other
relevant provisions of the Plan by the Committee, whose determination shall be
binding and conclusive on all persons.
12. Change in Control.
In the event of a Change in Control, the following shall occur on the date
thereof (the "Change in Control Date"): (i) the last day of the then current
Plan Year shall be deemed to occur on the Change in Control Date; (ii) Directors
shall be credited with Stock Equivalent Units pursuant to Sections 5 and 7
above, as if for this purpose Directors' service as Directors ceased on the
Change in Control Date; (iii) Dividend Equivalents on Stock Equivalent Units,
including those credited under clause (ii), and interest on any Deferred
Accounts shall be credited in accordance with Section 8; and (iv) the Company
shall pay a lump sum cash payment in settlement of the amount of cash credited
to each Director's Deferred Account and the number of Stock Equivalent Units
then credited to such Director, including cash and shares credited pursuant to
clauses (ii) and (iii) above. For purposes of the preceding sentence, the amount
of cash delivered in payment of Stock Equivalent Units shall equal such units
multiplied by the greater of (i) the highest Fair Market Value per share of
Stock at any time during the 60-day period preceding the Change in Control and
(ii) if applicable, the price of a share of Stock which is paid or offered to be
paid, by any person or entity, in connection with the transaction constituting
the Change in Control.
13. Rights with respect to Stock Equivalent Units.
Except to the extent otherwise set forth in the Plan, Directors shall not have
any of the rights of a shareholder with respect to the Stock Equivalent Units
credited to them.
14. General Restrictions.
(a) No shares of Stock shall be issued under the Plan prior to compliance by the
Company, to the satisfaction of its counsel, with any applicable law. The
Company shall not be obligated to, but may in its discretion, take any action
under applicable federal or state law (including registration or qualification
of the Plan or the Stock) necessary for compliance therewith in order to permit
the issuance of shares hereunder.
(b) The Company may impose such restrictions on the sale or other disposition of
shares of Stock issued under the Plan as it deems necessary to comply with
applicable securities laws.
15. Withholding.
The Company may defer making payment or delivery of shares of Stock under the
Plan until satisfactory arrangements have been made for the payment of any
Federal, state or local income taxes required to be withheld with respect to
such payment or delivery, including without limitation by the withholding of
shares that would otherwise be so delivered, by withholding from any other
payment due to the Director, or by a cash payment to the Company by a Director.
16. No Right to Nomination for Reelection.
Nothing in the Plan shall be deemed to create any obligation on the part of the
Board to nominate any Director for reelection by the Company's shareholders or
to limit the rights of the shareholders to remove any Director.
17. Amendment and Termination of the Plan.
The Board may at any time amend or terminate the Plan, in whole or in part,
however, no amendment or termination shall without the written consent of a
Director, reduce the Director's rights with respect to awards previously granted
hereunder or any fees previously earned the payment of which has been deferred
pursuant to the terms of the Plan.
18. Governing Law.
The Plan and all actions taken thereunder shall be construed in accordance with
and governed by the laws of the State of Connecticut.
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 Ltd.) 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
Radian International L.L.C. Delaware
(40% Owned by Radian Corporation )
Ra-Hart Investment Company Texas
*This list omits certain subsidiaries which considered in the aggregate as a
single subsidiary, would not constitute a significant subsidiary.
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
The Hartford Steam Boiler Inspection anbd Insurance Company on Forms S-8 (File
Nos. 33-4397 and 33-36519) of our report dated January 27, 1997, on our audits
of the consolidated financial statements and financial statement schedules of
The Hartford Steam Boiler Inspection and Insurance company and its subsidiaries
as of December 31, 1996 and 1995, and for the three years in the period ended
December 31, 1996, which report is included in this Annual Report on Form 10-K.
/s/ Coopers & Lybrand
Hartford, Connecticut
March 31, 1997
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, 1996 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 President, Chief March 24, 1997
Gordon W. Kreh Executive Officer
and Director
/s/ Joel B. Alvord
Joel B. Alvord Director March 24, 1997
/s/ Richard H. Booth
Richard H. Booth Director March 24, 1997
/s/ Colin G. Campbell
Colin G. Campbell Director March 24, 1997
/s/ Richard G. Dooley
Richard G. Dooley Director March 24, 1997
<PAGE>
(Signature) (Title) (Date)
/s/ William B. Ellis
William B. Ellis Director March 24, 1997
/s/ E. James Ferland
E. James Ferland Director March 24, 1997
/s/ John A. Powers
John A. Powers Director March 24, 1997
/s/ Lois Dickson Rice
Lois Dickson Rice Director March 24, 1997
/s/ John M. Washburn, Jr.
John M. Washburn, Jr. Director March 24, 1997
/s/ Wilson Wilde
Wilson Wilde Director March 24, 1997
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS FILED HEREWITH AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<DEBT-HELD-FOR-SALE> 225
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 263
<MORTGAGE> 11
<REAL-ESTATE> 0
<TOTAL-INVEST> 596
<CASH> 5
<RECOVER-REINSURE> 163
<DEFERRED-ACQUISITION> 41
<TOTAL-ASSETS> 1116
<POLICY-LOSSES> 303
<UNEARNED-PREMIUMS> 271
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 28
0
20
<COMMON> 10
<OTHER-SE> 336
<TOTAL-LIABILITY-AND-EQUITY> 1116
449
<INVESTMENT-INCOME> 32
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<NET-INCOME> 53
<EPS-PRIMARY> 2.65
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<RESERVE-OPEN> 0
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<PROVISION-PRIOR> 0
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</TABLE>
