THE HARTFORD FINANCIAL SERVICES GROUP, INC.
2000 INCENTIVE STOCK PLAN
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TABLE OF CONTENTS
The Hartford 2000 Incentive Stock Plan............................... 3
Administration....................................................... 20
Federal Tax Treatment................................................ 20
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THE HARTFORD 2000 INCENTIVE STOCK PLAN
1. PURPOSE
The purpose of The Hartford 2000 Incentive Stock Plan is to motivate and
reward superior performance on the part of Key Employees of The Hartford
Financial Services Group, Inc. and its subsidiaries ("The Hartford") and to
thereby attract and retain Key Employees of superior ability. In addition, the
Plan is intended to further opportunities for stock ownership by such Key
Employees and Directors (as defined below) in order to increase their
proprietary interest in The Hartford and, as a result, their interest in the
success of the Company. Awards will be made, in the discretion of the Committee,
to Key Employees (including officers and directors who are also Key Employees)
whose responsibilities and decisions directly affect the performance of any
Participating Company and its subsidiaries, and also to Directors. Such
incentive awards may consist of stock options and stock appreciation rights
payable in stock or cash for Key Employees or Directors, and performance shares,
restricted stock or any combination of the foregoing for Key Employees, as the
Committee may determine.
2. Definitions
When used herein, the following terms shall have the following meanings:
"Act" means the Securities Exchange Act of 1934, as amended.
"Award" means an award granted to any Key Employee or Director in
accordance with the provisions of the Plan in the form of Options, Rights,
Performance Shares or Restricted Stock, or any combination of the foregoing, as
applicable.
"Award Agreement" means the written agreement evidencing each Award
granted under the Plan.
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"Beneficial Owner" means any Person who, directly or indirectly, has the
right to vote or dispose of or has "beneficial ownership" (within the meaning of
Rule 13d-3 under the Act) of any securities of a company, including any such
right pursuant to any agreement, arrangement or understanding (whether or not in
writing), provided that: (i) a Person shall not be deemed the Beneficial Owner
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of any security as a result of an agreement, arrangement or understanding to
vote such security (A) arising solely from a revocable proxy or consent given in
response to a public proxy or consent solicitation made pursuant to, and in
accordance with, the Act and the applicable rules and regulations thereunder, or
(B) made in connection with, or to otherwise participate in, a proxy or consent
solicitation made, or to be made, pursuant to, and in accordance with, the
applicable provisions of the Act and the applicable rules and regulations
thereunder, in either case described in clause (A) or (B) above, whether or not
such agreement, arrangement or understanding is also then reportable by such
Person on Schedule 13D under the Act (or any comparable or successor report);
and (ii) a Person engaged in business as an underwriter of securities shall not
be deemed to be the Beneficial Owner of any security acquired through such
Person's participation in good faith in a firm commitment underwriting until the
expiration of forty days after the date of such acquisition.
"Beneficiary" means the beneficiary or beneficiaries designated pursuant
to Section 10 to receive the amount, if any, payable under the Plan upon the
death of an Award Recipient.
"Board" means the Board of Directors of the Company.
"Change of Control" means the occurrence of an event defined in Section
9 of the Plan.
"Code" means the Internal Revenue Code of 1986, as now in effect or as
hereafter amended. (All citations to sections of the Code are to such sections
as they may from time to time be amended or renumbered.)
"Committee" means the Compensation and Personnel Committee of the Board
or such other committee as may be designated by the Board to administer the
Plan.
"Company" means The Hartford and its successors and assigns.
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"Director" means a member of the Board of The Hartford Financial
Services Group, Inc. who is not an employee of any Participating Company.
"Eligible Employee" means an Employee employed by a Participating
Company; provided, however, that except as the Board of Directors or the
Committee, pursuant to authority delegated by the Board of Directors, may
otherwise provide on a basis uniformly applicable to all persons similarly
situated, "Eligible Employee" shall not include any "Ineligible Person," which
includes (i) a person who (A) holds a position with the Company's "HARTEMP"
Program, (B) is hired to work for a Participating Company through a temporary
employment agency, or (C) is hired to a position with a Participating Company
with notice on his or her date of hire that the position will terminate on a
certain date; (ii) a person who is a leased employee (within the meaning of Code
Section 414(n)(2)) of a Participating Company or is otherwise employed by or
through a temporary help firm, technical help firm, staffing firm, employee
leasing firm, or professional employer organization, regardless of whether such
person is an Employee of a Participating Company, and (iii) a person who
performs services for a Participating Company as an independent contractor or
under any other non-employee classification, or who is classified by a
Participating Company as, or determined by a Participating Company to be, an
independent contractor, regardless of whether such person is characterized or
ultimately determined by the Internal Revenue Service or any other Federal,
State or local governmental authority or regulatory body to be an employee of a
Participating Company or its affiliates for income or wage tax purposes or for
any other purpose.
Notwithstanding any provision in the Plan to the contrary, if any person
is an Ineligible Person, or otherwise does not qualify as an Eligible Employee,
or otherwise is ineligible to participate in the Plan, and such person is later
required by a court or governmental authority or regulatory body to be
classified as a person who is eligible to participate in the Plan, such person
shall not be eligible to participate in the Plan, notwithstanding such
classification, unless and until designated as an Eligible Employee by the
Committee, and if so designated, the participation of such person in the Plan
shall be prospective only.
"Employee" means any person regularly employed by a Participating
Company, but shall not include any person who performs services for a
Participating Company as an independent contractor or under any other
non-employee classification, or who is classified by a Participating Company as,
or determined by a Participating Company to be, an independent contractor.
"Fair Market Value", unless otherwise indicated in the provisions of
this Plan, means, as of any date, the composite closing price for one share of
Stock on the New York Stock Exchange or, if no sales of Stock have taken place
on such date, the composite closing price on the most recent date on which
selling prices were quoted, the determination to be made in the discretion of
the Committee.
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"Incentive Stock Option" means a stock option qualified under Section
422 of the Code.
"Key Employee" means an Employee (including any officer or director who
is also an Employee) of any Participating Company who is an Eligible Employee
and whose responsibilities and decisions, in the judgment of the Committee,
directly affect the performance of the Company and its subsidiaries.
"Option" means an option awarded under Section 5 of the Plan to purchase
Stock of the Company, which option may be an Incentive Stock Option or a
non-qualified stock option.
"Participating Company" means the Company or any subsidiary or other
affiliate of the Company; provided, however, for Incentive Stock Options only,
"Participating Company" means the Company or any corporation which at the time
such Option is granted qualifies as a "subsidiary" of the Company under Section
424(f) of the Code.
"Performance Share" means a performance share awarded under Section 6 of
the Plan.
"Person" has the meaning ascribed to such term in Section 3(a)(9) of the
Act, as supplemented by Section 13(d)(3) of the Act; provided, however, that
Person shall not include (i) the Company, any subsidiary of the Company or any
other Person controlled by the Company, (ii) any trustee or other fiduciary
holding securities under any employee benefit plan of the Company or of any
subsidiary of the Company, or (iii) a corporation owned, directly or indirectly,
by the stockholders of the Company in substantially the same proportions as
their ownership of securities of the Company.
"Plan" means The Hartford 2000 Incentive Stock Plan, as the same may be
amended, administered or interpreted from time to time.
"Plan Year" means the calendar year.
"Retirement" means eligibility to receive immediate retirement benefits
under a Participating Company pension plan.
"Restricted Stock" means Stock awarded under Section 7 of the Plan
subject to such restrictions as the Committee deems appropriate or desirable.
"Right" means a stock appreciation right awarded in connection with an
Option under Section 5 of the Plan.
"Stock" means the common stock ($.01 par value) of The Hartford.
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"Total Disability" means the complete and permanent inability of a Key
Employee to perform all of his or her duties under the terms of his or her
employment with any Participating Company, as determined by the Committee upon
the basis of such evidence, including independent medical reports and data, as
the Committee deems appropriate or necessary.
"Transferee" means any person or entity to whom or to which a
non-qualified stock option has been transferred and assigned in accordance with
Section 5(h) of the Plan.
3. SHARES SUBJECT TO THE PLAN
The aggregate number of shares of Stock which may be awarded under the
Plan shall be subject to a maximum limit applicable to all Awards for the
duration of the Plan (the "Maximum Limit"). The Maximum Limit shall be eight
percent (8%) of the total of the outstanding shares of Stock as of the date of
shareholder approval of the Plan.
In addition to the foregoing, in no event shall more than twenty percent
(20%) of the total number of shares on a cumulative basis be available for
Restricted Stock and Performance Share Awards. For any Plan Year, no individual
employee may receive an Award of Options for more than the lesser of (i) ten
percent (10%) of one and a half percent (1.5%) (i.e., .15%) of the Reported
Shares or (ii) 1,000,000 shares.
Subject to the above limitations, shares of Stock to be issued under the
Plan may be made available from the authorized but unissued shares, or shares
held by the Company in treasury or from shares purchased in the open market.
For the purpose of computing the total number of shares of Stock
available for Awards under the Plan, there shall be counted against the
foregoing limitations the number of shares of Stock subject to issuance upon
exercise or settlement of Awards and the number of shares of Stock which equal
the value of performance share Awards, in each case determined as at the dates
on which such Awards are granted. If any Awards under the Plan are forfeited,
terminated, expire unexercised, are settled in cash in lieu of Stock or are
exchanged for other Awards, the shares of Stock which were theretofore subject
to such Awards shall again be available for Awards under the Plan to the extent
of such forfeiture, termination, expiration, cash settlement or exchange of such
Awards. Further, any shares that are exchanged (either actually or
constructively) by optionees as full or partial payment to the Company of the
purchase price of shares being acquired through the exercise of a stock option
granted under the Plan may be available for subsequent Awards.
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4. GRANT OF AWARDS AND AWARD AGREEMENTS
(a) Subject to the provisions of the Plan, the Committee shall (i)
determine and designate from time to time those Key Employees or groups of Key
Employees to whom Awards are to be granted, and those Directors to whom Options
and Rights may be granted; (ii) determine the form or forms of Award to be
granted to any Key Employee and any Director; (iii) determine the amount or
number of shares of Stock subject to each Award; and (iv) determine the terms
and conditions of each Award.
(b) Each Award granted under the Plan shall be evidenced by a written
Award Agreement. Such Award Agreement shall be subject to and incorporate the
express terms and conditions, if any, required under the Plan or required by the
Committee.
5. STOCK OPTIONS AND RIGHTS
(a) With respect to Options and Rights, the Committee shall (i)
authorize the granting of Incentive Stock Options, non-qualified stock options,
or a combination of Incentive Stock Options and non-qualified stock options;
(ii) authorize the granting of Rights which may be granted in connection with
all or part of any Option granted under this Plan, either concurrently with the
grant of the Option or at any time thereafter during the term of the Option;
(iii) determine the number of shares of Stock subject to each Option or the
number of shares of Stock that shall be used to determine the value of a Right;
and (iv) determine the time or times when and the manner in which each Option or
Right shall be exercisable and the duration of the exercise period.
(b) Any option issued hereunder which is intended to qualify as an
Incentive Stock Option shall be subject to such limitations or requirements as
may be necessary for the purposes of Section 422 of the Code or any regulations
and rulings thereunder to the extent and in such form as determined by the
Committee in its discretion.
(c) The exercise period for a non-qualified stock option and any related
Right shall not exceed ten years and two days from the date of grant, and the
exercise period for an Incentive Stock Option and any related Right shall not
exceed ten years from the date of grant.
(d) The Option price per share shall be determined by the Committee at
the time any Option is granted and shall be not less than the Fair Market Value
of one share of Stock on the date the Option is granted.
(e) No part of any Option or Right may be exercised until the Key
Employee who has been granted the Award shall have remained in the employ of a
Participating Company for such period after the date of grant as the Committee
may specify, if any, and the Committee may further require exercisability in
installments.
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(f) Except as provided in Section 9, the purchase price of the shares as
to which an Option shall be exercised shall be paid to the Company at the time
of exercise either in cash or Stock already owned by the optionee having a total
Fair Market Value equal to the purchase price, or a combination of cash and
Stock having a total fair market value, as so determined, equal to the purchase
price. The Committee shall determine acceptable methods for tendering Stock as
payment upon exercise of an Option and may impose such limitations and
prohibitions on the use of Stock to exercise an Option as it deems appropriate.
(g) In case of a Key Employee's termination of employment, the following
provisions shall apply:
(A) If a Key Employee who has been granted an Option shall die before
such Option has expired, his or her Option may be exercised in full by (i) the
person or persons to whom the Key Employee's rights under the Option pass by
will, or if no such person has such right, by his or her executors or
administrators; (ii) his or her Transferee(s) (with respect to non-qualified
stock options); or (iii) his or her Beneficiary designated pursuant to Section
10, at any time, or from time to time, within five years after the date of the
Key Employee's death or within such other period, and subject to such terms and
conditions as the Committee may specify, but not later than the expiration date
specified in Section 5(c) above.
(B) If the Key Employee's employment by any Participating Company
terminates because of his or her Retirement or Total Disability, he or she may
exercise his or her Options in full at any time, or from time to time, within
five years after the date of the termination of his or her employment, or within
such other period, and subject to such terms and conditions as the Committee may
specify, but not later than the expiration date specified in Section 5(c) above.
Any such Options not fully exercisable immediately prior to such optionee's
retirement shall become fully exercisable upon such retirement unless the
Committee, in its sole discretion, shall otherwise determine.
(C) Except as provided in Section 9, if the Key Employee shall
voluntarily resign before eligibility for Retirement or he or she is terminated
for cause as determined by the Committee, the Options or Rights shall be
canceled coincident with the effective date of the termination of employment.
(D) Except as provided in Section 9, if a Key Employee's employment
terminates for any other reason, he or she may exercise his or her Options, to
the extent that he or she shall have been entitled to do so at the date of the
termination of his or her employment at any time, or from time to time, within
three months after the date of the termination of his or her employment, or
within such other period, and subject to such terms and conditions as the
Committee may specify, but not later than the expiration date specified in
Section 5(c) above.
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(h) Except as provided in this Section 5(h), no Option or Right granted
under the Plan shall be transferable other than by will or by the laws of
descent and distribution. During the lifetime of the optionee, an Option or
Right shall be exercisable only by the Key Employee or Director, to whom the
Option or Right is granted (or his or her estate or designated Beneficiary).
Notwithstanding the foregoing, all or a portion of a non-qualified stock option
may be transferred and assigned by such persons designated by the Committee, to
such persons designated by the Committee, and upon such terms and conditions as
the Committee may from time to time authorize and determine in its sole
discretion.
(i) Except as provided in Section 9, if a Director's service on the
Board terminates for any reason, including without limitation, termination due
to death, disability or retirement, such Director may exercise any Option or
Right granted to him or her only to the extent determined by the Committee as
set forth in such Director's Award Agreement and/or any administrative rules or
other terms and conditions adopted by the Committee from time to time applicable
to such Option or Right granted to such Director.
(j) With respect to an Incentive Stock Option, the Committee shall
specify such terms and provisions as the Committee may determine to be necessary
or desirable in order to qualify such Option as an "incentive stock option"
within the meaning of Section 422 of the Code.
(k) With respect to the exercisability and settlement of Rights:
(i) Upon exercise of a Right, a Key Employee or Director shall
be entitled, subject to such terms and conditions the Committee may specify, to
receive upon exercise thereof all or a portion of the excess of (A) the Fair
Market Value of a specified number of shares of Stock at the time of exercise,
as determined by the Committee, over (B) a specified amount which shall not,
subject to Section 5(d), be less than the Fair Market Value of such specified
number of shares of Stock at the time the Right is granted. Upon exercise of a
Right, payment of such excess shall be made as the Committee shall specify in
cash, the issuance or transfer to the Key Employee or Director of whole shares
of Stock with a Fair Market Value at such time equal to any excess, or a
combination of cash and shares of Stock with a combined Fair Market Value at
such time equal to any such excess, all as determined by the Committee. The
Company will not issue a fractional share of Stock and, if a fractional share
would otherwise be issuable, the Company shall pay cash equal to the Fair Market
Value of the fractional share of Stock at such time.
(ii) In the event of the exercise of such Right, the Company's
obligation in respect of any related Option or such portion thereof will be
discharged by payment of the Right so exercised.
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6. PERFORMANCE SHARES
(a) Subject to the provisions of the Plan, the Committee shall (i)
determine and designate from time to time those Key Employees or groups of Key
Employees to whom Awards of Performance Shares are to be made, (ii) determine
the Performance Period (the "Performance Period") and Performance Objectives
(the "Performance Objectives") applicable to such Awards, (iii) determine the
form of settlement of a Performance Share and (iv) generally determine the terms
and conditions of each such Award. At any date, each Performance Share shall
have a value equal to the Fair Market Value of a share of Stock at such date;
provided that the Committee may limit the aggregate amount payable upon the
settlement of any Award. The maximum award for any individual employee in any
given year shall be 200,000 Performance Shares.
(b) The Committee shall determine a Performance Period of not less than
two nor more than five years. Performance Periods may overlap and Key Employees
may participate simultaneously with respect to Performance Shares for which
different Performance Periods are prescribed.
(c) The Committee shall determine the Performance Objectives of Awards
of Performance Shares. Performance Objectives may vary from Key Employee to Key
Employee and between groups of Key Employees and shall be based upon one or more
of the following objective criteria, as the Committee deems appropriate, which
may be (i) determined solely by reference to the performance of the Company, any
subsidiary or affiliate of the Company or any division or unit of any of the
foregoing, or (ii) based on comparative performance of any one or more of the
following relative to other entities: (A) earnings per share, (B) return on
equity, (C) cash flow, (D) return on total capital, (E) return on assets, (F)
economic value added, (G) increase in surplus, (H) reductions in operating
expenses, (I) increases in operating margins, (J) earnings before income taxes
and depreciation, (K) total shareholder return, (L) return on invested capital,
(M) cost reductions and savings, (N) earnings before interest, taxes,
depreciation and amortization ("EDITDA"), (O) pre-tax operating income, (P)
productivity improvements, or (Q) a Key Employee's attainment of personal
objectives with respect to any of the foregoing criteria or other criteria such
as growth and profitability, customer satisfaction, leadership effectiveness,
business development, negotiating transactions and sales or developing long term
business goals. If during the course of a Performance Period there shall occur
significant events which the Committee expects to have a substantial effect on
the applicable Performance Objectives during such period, the Committee may
revise such Performance Objectives.
(d) At the beginning of a Performance Period, the Committee shall
determine for each Key Employee or group of Key Employees the number of
Performance Shares or the percentage of Performance Shares which shall be paid
to the Key Employee or member of the group of Key Employees if the applicable
Performance Objectives are met in whole or in part.
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(e) If a Key Employee terminates service with all Participating
Companies during a Performance Period because of death, Total Disability,
Retirement, or under other circumstances where the Committee in its sole
discretion finds that a waiver would be in the best interests of the Company,
that Key Employee may, as determined by the Committee, be entitled to payment in
settlement of such Performance Shares at the end of the Performance Period based
upon the extent to which the Performance Objectives were satisfied at the end of
such period and prorated for the portion of the Performance Period during which
the Key Employee was employed by any Participating Company; provided, however,
the Committee may provide for an earlier payment in settlement of such
Performance Shares in such amount and under such terms and conditions as the
Committee deems appropriate or desirable. If a Key Employee terminates service
with all Participating Companies during a Performance Period for any other
reason, then such Key Employee shall not be entitled to any Award with respect
to that Performance Period unless the Committee shall otherwise determine.
(f) Each Award of a Performance Share shall be paid in whole shares of
Stock, or cash, or a combination of Stock and cash either as a lump sum payment
or in annual installments, all as the Committee shall determine, with payment to
commence as soon as practicable after the end of the relevant Performance
Period.
7. RESTRICTED STOCK
(a) Except as provided in Section 9, Restricted Stock shall be subject
to a restriction period (after which restrictions will lapse) which shall mean a
period commencing on the date the Award is granted and ending on such date as
the Committee shall determine (the "Restriction Period"). The Committee may
provide for the lapse of restrictions in installments where deemed appropriate
and it may also require the achievement of predetermined performance objectives
in order for such shares to vest.
(b) Except when the Committee determines otherwise pursuant to Section
7(d), if a Key Employee terminates employment with all Participating Companies
for any reason before the expiration of the Restriction Period, all shares of
Restricted Stock still subject to restriction shall be forfeited by the Key
Employee and shall be reacquired by the Company.
(c) Except as otherwise provided in this Section 7, no shares of
Restricted Stock received by a Key Employee shall be sold, exchanged,
transferred, pledged, hypothecated or otherwise disposed of during the
Restriction Period.
(d) In cases of death, Total Disability or Retirement or in cases of
special circumstances, the Committee may, in its sole discretion when it finds
that a waiver would be in the best interests of the Company, elect to waive any
or all remaining restrictions with respect to such Key Employee's Restricted
Stock.
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(e) The Committee may require, under such terms and conditions as it
deems appropriate or desirable, that the certificates for Stock delivered under
the Plan may be held in custody by a bank or other institution, or that the
Company may itself hold such shares in custody until the Restriction Period
expires or until restrictions thereon otherwise lapse, and may require, as a
condition of any Award of Restricted Stock that the Key Employee shall have
delivered a stock power endorsed in blank relating to the Restricted Stock.
(f) Nothing in this Section 7 shall preclude a Key Employee from
exchanging any shares of Restricted Stock subject to the restrictions contained
herein for any other shares of Stock that are similarly restricted.
(g) Subject to Section 7(e) and Section 8, each Key Employee entitled to
receive Restricted Stock under the Plan shall be issued a certificate for the
shares of Stock. Such certificate shall be registered in the name of the Key
Employee, and shall bear an appropriate legend reciting the terms, conditions
and restrictions, if any, applicable to such Award and shall be subject to
appropriate stop-transfer orders.
8. CERTIFICATES FOR AWARDS OF STOCK
(a) The Company shall not be required to issue or deliver any
certificates for shares of Stock prior to (i) the listing of such shares on any
stock exchange on which the Stock may then be listed and (ii) the completion of
any registration or qualification of such shares under any federal or state law,
or any ruling or regulation of any government body which the Company shall, in
its sole discretion, determine to be necessary or advisable.
(b) All certificates for shares of Stock delivered under the Plan shall
also be subject to such stop-transfer orders and other restrictions as the
Committee may deem advisable under the rules, regulations, and other
requirements of the Securities and Exchange Commission, any stock exchange upon
which the Stock is then listed and any applicable federal or state securities
laws, and the Committee may cause a legend or legends to be placed on any such
certificates to make appropriate reference to such restrictions. In making such
determination, the Committee may rely upon an opinion of counsel for the
Company.
(c) Except for the restrictions on Restricted Stock under Section 7,
each Key Employee who receives Stock in settlement of an Award of Stock, shall
have all of the rights of a shareholder with respect to such shares, including
the right to vote the shares and receive dividends and other distributions. No
Key Employee awarded an Option, a Right or Performance Share, and no Director
awarded an Option or Right, shall have any right as a shareholder with respect
to any shares covered by his or her Option, Right or Performance Share prior to
the date of issuance to him or her of a certificate or certificates for such
shares.
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9. CHANGE OF CONTROL
(a) For purposes of this Plan, a Change of Control shall occur if:
(i) a report on Schedule 13D shall be filed with the Securities
and Exchange Commission pursuant to Section 13(d) of the Act disclosing that any
Person, other than the Company or a subsidiary of the Company or any employee
benefit plan sponsored by the Company or a subsidiary of the Company is the
Beneficial Owner of twenty percent or more of the outstanding stock of the
Company entitled to vote in the election of directors of the Company;
(ii) any Person other than the Company or a subsidiary of the
Company or any employee benefit plan sponsored by the Company or a subsidiary of
the Company shall purchase shares pursuant to a tender offer or exchange offer
to acquire any stock of the Company (or securities convertible into stock) for
cash, securities or any other consideration, provided that after consummation of
the offer, the Person in question is the Beneficial Owner of fifteen percent or
more of the outstanding stock of the Company entitled to vote in the election of
directors of the Company (calculated as provided in paragraph (d) of Rule 13d-3
under the Act in the case of rights to acquire stock);
(iii) the stockholders of the Company shall approve (A) any
consolidation or merger in which the Company is not the continuing or surviving
corporation or pursuant to which shares of stock of the Company entitled to vote
in the election of directors of the Company would be converted into cash,
securities or other property, other than a consolidation or merger of the
Company in which holders of such stock of the Company immediately prior to the
consolidation or merger have the same proportionate ownership of common stock of
the surviving corporation entitled to vote in the election of directors
immediately after the consolidation or merger as immediately before, or (B) any
sale, lease, exchange or other transfer (in one transaction or a series of
related transactions) of all or substantially all the assets of the Company; or
(iv) within any 12 month period, the persons who were directors
of the Company immediately before the beginning of such period (the "Incumbent
Directors") shall cease (for any reason other than death) to constitute at least
a majority of the Board or the board of directors of any successor to the
Company, provided that any director who was not a director at the beginning of
such period shall be deemed to be an Incumbent Director if such director (A) was
elected to the Board by, or on the recommendation of or with the approval of, at
least two-thirds of the directors who then qualified as Incumbent Directors
either actually or by prior operation of this clause (iv), and (B) was not
designated by a Person who has entered into an agreement with the Company to
effect a transaction described in the immediately preceding paragraph (iii).
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(b) Notwithstanding any provisions in this Plan to the contrary, upon
the occurrence of a Change of Control:
(i) Each Option and related Right outstanding on the date such
Change of Control occurs, and which is not then fully vested and exercisable,
shall immediately vest and become exercisable to the full extent of the original
grant for the remainder of its term.
(ii) The surviving or resulting corporation may, in its
discretion, provide for the assumption or replacement of each outstanding Option
and related Right granted under the Plan on terms which are no less favorable to
the optionee than those applicable to the Options and Rights immediately prior
to the Change of Control. If the surviving or resulting corporation offers to
assume or replace the Options and Rights, the optionee may elect to have his or
her Options and Rights assumed or replaced, in whole or in part, or to surrender
on the date the Change of Control occurs his or her Options and Rights, in whole
or in part, for cash equal to the excess of the Formula Price as defined in
Section 9(b)(v) hereof over the exercise price.
(iii) In the event the successor corporation does not offer to
assume or replace the outstanding Options and Rights as described in Section
9(b)(ii) hereof, each Option and Right will be exercised on the date such Change
of Control occurs for cash equal to the excess of the Formula Price as defined
in Section 9(b)(v) hereof over the exercise price.
(iv) If an employee elects to have his or her Options and Rights
assumed or replaced in accordance with clause (ii) above, and within the three
(3) year period following the date of the Change of Control either of the
following occurs: (A) the employment of such employee is involuntarily
terminated other than in a Termination For Just Cause (as defined below), or (B)
such employee voluntarily terminates employment in a Termination For Good Reason
(as defined below); then such employee's assumed or replaced Options and Rights
shall remain exercisable in whole or in part for seven (7) months after the date
of such termination (or until the expiration date for such Options and Rights,
if earlier). Such assumed or replaced Options and Rights may be exercised for
cash equal to the higher of (1) the excess of the Fair Market Value of the
successor corporation's common stock on the date of such termination over the
exercise price for such Options and Rights, or (2) the excess of the Formula
Price (as defined below) of the Company's Stock on the date the Change of
Control occurred over the exercise price for such Options and Rights.
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(v) The following definitions shall apply for purposes of this
Section 9 only:
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"Base Salary" means the amount an employee is entitled to receive as wages or
salary on an annualized basis, excluding all bonus, overtime, and incentive
compensation, payable by the Company or the successor corporation, as the case
may be, as consideration for the employee's services, and including earned but
deferred wages or salary.
"Formula Price" means the highest of (A) the highest composite daily closing
-------
price of the Stock during the period beginning on the 60th calendar day prior to
the Change of Control and ending on the date of such Change of Control, (B) the
highest gross price paid for the Stock during the same period of time, as
reported in a report on Schedule 13D filed with the Securities and Exchange
Commission, or (C) the highest gross price paid or to be paid for a share of
Stock (whether by way of exchange, conversion, distribution upon merger,
liquidation or otherwise) in any of the transactions set forth in this Section
as constituting a Change of Control; provided that in the case of the exercise
of any such Right related to an Incentive Stock Option, "Formula Price" shall
mean the Fair Market Value of the Stock at the time of such exercise.
"Required Base Salary" means with respect to any employee the higher of (a) the
employee's Base Salary as in effect immediately prior to the Change of Control,
or (b) the employee's highest Base Salary in effect at any time thereafter.
"Target Bonus" means the annual bonus of an employee determined as a percentage
of annual Base Salary based on the annual target bonus percentage established
for the employee under the Executive Bonus Program or the Performance Share
Program (or any other similar or successor plan, policy or program) for a
calendar year, or if no annual target bonus percentage has been established
under the applicable bonus plan, policy or program, based on the highest actual
bonus percentage awarded to the employee under the applicable bonus plan, policy
or program during the three preceding full calendar years.
"Termination For Good Reason" means a voluntary termination of employment by an
employee because of the occurrence of any of the following (A) a reduction in
the employee's Base Salary below the Required Base Salary; (B) a greater than
10% reduction in the level of the Total Compensation offered to the employee in
comparison to the Total Compensation enjoyed by the employee immediately prior
to the Change of Control; or (C) the successor corporation requiring the
employee to be based at any office or location more than 50 miles from the
location at which he or she performed services immediately prior to the Change
of Control, except for travel reasonably required in the performance of the
employee's job responsibilities.
"Termination For Just Cause" means a termination of employment based on fraud,
misappropriation or embezzlement on the part of the employee which results in a
final conviction of a felony.
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"Total Compensation" means the aggregate of an employee's Base Salary, Target
Bonus, and the value of any long-term incentive compensation award (including
any option award) made to the employee under this Plan or the 1997 Hartford
Life, Inc. Incentive Stock Plan (or any successor plan, policy or program), such
value to be determined as of the date such award was made.
(vi) The restrictions applicable to shares of Restricted Stock
held by Key Employees pursuant to Section 7 shall lapse upon the occurrence of a
Change of Control, and such Key Employees shall be entitled to elect, at any
time during the 60 calendar days following such Change of Control, to receive
immediately after the date the Key Employee makes such election either of the
following: (A) unrestricted certificates for all of such shares, or (B) a lump
sum cash amount equal to the number of such shares multiplied by the Formula
Price. If a Key Employee does not make any election during the foregoing 60 day
period, such Key Employee shall be deemed to have made the election described in
Section 9(b)(vi)(A) as of the 60th day of such period, and unrestricted
certificates shall be issued to such Key Employee immediately following such day
as described in Section 9(b)(vi)(A) hereof.
(vii) If a Change of Control occurs during the course of a
Performance Period applicable to an Award of Performance Shares pursuant to
Section 6, then a Key Employee shall be deemed to have satisfied the Performance
Objectives effective on the date of such occurrence. Such Key Employee shall be
paid, immediately following the occurrence of such Change of Control, a lump sum
cash amount equal to the number of outstanding Performance Shares awarded to
such Key Employee multiplied by the Formula Price.
(c) In the event of a Change of Control, no amendment, suspension or
termination of the Plan thereafter shall impair or reduce the rights of any
person with respect to any award made under the Plan.
10. BENEFICIARY
(a) Each Key Employee, Director and/or his or her Transferee may file
with the Company a written designation of one or more persons as the Beneficiary
who shall be entitled to receive the Award, if any, payable under the Plan upon
his or her death. A Key Employee, Director or Transferee may from time to time
revoke or change his or her Beneficiary designation without the consent of any
prior Beneficiary by filing a new designation with the Company. The last such
designation received by the Company shall be controlling; provided, however,
that no designation, or change or revocation thereof, shall be effective unless
received by the Company prior to the Key Employee's, Director's or Transferee's
death, as the case may be, and in no event shall it be effective as of a date
prior to such receipt.
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(b) If no such Beneficiary designation is in effect at the time of a Key
Employee's, Director's or Transferee's death, as the case may be, or if no
designated Beneficiary survives the Key Employee, Director or Transferee or if
such designation conflicts with law, the Key Employee's, Director's or
Transferee's estate, as the case may be, shall be entitled to receive the Award,
if any, payable under the Plan upon his or her death. If the Committee is in
doubt as to the right of any person to receive such Award, the Company may
retain such Award, without liability for any interest thereon, until the
Committee determines the rights thereto, or the Company may pay such Award into
any court of appropriate jurisdiction and such payment shall be a complete
discharge of the liability of the Company therefor.
11. ADMINISTRATION OF THE PLAN
(a) Each member of the Committee shall be both a member of the Board and
both a "non-employee director" within the meaning of Rule 16b-3 under the Act or
successor rule or regulation and an "outside director" for purposes of Section
162(m) of the Internal Revenue Code.
(b) All decisions, determinations or actions of the Committee made or
taken pursuant to grants of authority under the Plan shall be made or taken in
the sole discretion of the Committee and shall be final, conclusive and binding
on all persons for all purposes.
(c) The Committee shall have full power, discretion and authority to
interpret, construe and administer the Plan and any part thereof, and its
interpretations and constructions thereof and actions taken thereunder shall be,
except as otherwise determined by the Board, final, conclusive and binding on
all persons for all purposes.
(d) The Committee's decisions and determinations under the Plan need not
be uniform and may be made selectively among Key Employees, whether or not such
Key Employees are similarly situated.
(e) The Committee may, in its sole discretion, delegate such of its
powers as it deems appropriate to the chief executive officer or other members
of senior management, except that Awards to executive officers shall be made
solely by the Committee or the Board of Directors.
(f) If a Change of Control has not occurred and if the Committee
determines that a Key Employee has taken action inimical to the best interests
of any Participating Company, the Committee may, in its sole discretion,
terminate in whole or in part such portion of any Option (including any related
Right) as has not yet become exercisable at the time of termination, terminate
any Performance Share Award for which the Performance Period has not been
completed or terminate any Award of Restricted Stock for which the Restriction
Period has not lapsed.
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12. AMENDMENT, EXTENSION OR TERMINATION
The Board may, at any time, amend or terminate the Plan and,
specifically, may make such modifications to the Plan as it deems necessary to
avoid the application of Section 162(m) of the Code and the Treasury regulations
issued thereunder. However, (1) with respect only to Incentive Stock Options, no
amendment shall, without approval by a majority of the Company's stockholders,
(a) alter the group of persons eligible to participate in the Plan, or (b)
except as provided in Section 13 increase the maximum number of shares of Stock
which are available for Awards under the Plan; or, (2) with respect to all
Options, allow the Committee to reprice the Options. If a Change of Control has
occurred, no amendment or termination shall impair the rights of any person with
respect to a prior Award.
13. ADJUSTMENTS IN EVENT OF CHANGE IN COMMON STOCK
In the event of any reorganization, merger, recapitalization,
consolidation, liquidation, stock dividend, stock split, reclassification,
combination of shares, rights offering, split-up or extraordinary dividend
(including a spin-off) or divestiture, or any other change in the corporate
structure or shares, the Committee may make such adjustment in the Stock subject
to Awards, including Stock subject to purchase by an Option, or the terms,
conditions or restrictions on Stock or Awards, including the price payable upon
the exercise of such Option and the number of shares subject to restricted stock
awards, as the Committee deems equitable.
14. MISCELLANEOUS
(a) Except as provided in Section 9, nothing in this Plan or any Award
granted hereunder shall confer upon any employee any right to continue in the
employ of any Participating Company or interfere in any way with the right of
any Participating Company to terminate his or her employment at any time. No
Award payable under the Plan shall be deemed salary or compensation for the
purpose of computing benefits under any employee benefit plan or other
arrangement of any Participating Company for the benefit of its employees unless
the Company shall determine otherwise. No Key Employee shall have any claim to
an Award until it is actually granted under the Plan. To the extent that any
person acquires a right to receive payments from the Company under this Plan,
such right shall be no greater than the right of an unsecured general creditor
of the Company. All payments to be made hereunder shall be paid from the general
funds of the Company and no special or separate fund shall be established and no
segregation of assets shall be made to assure payment of such amounts except as
provided in Section 7(e) with respect to Restricted Stock.
(b) The Committee may cause to be made, as a condition precedent to the
payment of any Award, or otherwise, appropriate arrangements with the Key
Employee or his or her Beneficiary, for the withholding of any federal, state,
local or foreign taxes.
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(c) The Plan and the grant of Awards shall be subject to all applicable
federal and state laws, rules, and regulations and to such approvals by any
government or regulatory agency as may be required.
(d) The terms of the Plan shall be binding upon the Company and its
successors and assigns.
(e) Captions preceding the sections hereof are inserted solely as a
matter of convenience and in no way define or limit the scope or intent of any
provision hereof.
15. EFFECTIVE DATE, TERM OF PLAN AND SHAREHOLDER APPROVAL
The effective date of the Plan shall be May 18, 2000. No Award shall be
granted under this Plan after the Plan's termination date. The Plan's
termination date shall be the earlier of: (a) May 18, 2010, or (b) the date on
which the Maximum Limit is reached; provided, however, that the Plan will
continue in effect for existing Awards as long as any such Award is outstanding.
ADMINISTRATION
The Plan is administered by a Committee of the Board of Directors of The
Hartford, presently designated as the Compensation and Personnel Committee, the
members of which serve at the pleasure of the Board. The Committee is composed
of directors none of whom is an officer or employee of The Hartford.
FEDERAL TAX TREATMENT
The following is a brief summary of the current Federal income tax rules
generally applicable to options, SARs, performance shares and restricted stock.
Awardees should consult their own tax advisors as to the specific Federal, state
and local tax consequences applicable to them.
A. OPTIONS AND STOCK APPRECIATION RIGHTS
Options granted under the Plan may be either non-qualified options or
"incentive stock options" qualifying under Section 422A of the Internal Revenue
Code.
Non-qualified Options
An optionee is not subject to Federal income tax upon grant of a
non-qualified option. At the time of exercise, the optionee will realize
compensation income (subject to withholding) to the extent that the then fair
market value of the stock exceeds the option price. The amount of such income
will constitute an addition to the optionee's tax basis in
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the optioned stock. Sale of the shares will result in capital gain or loss
(long-term or short-term depending on the optionee's holding period). The
Hartford is entitled to a Federal tax deduction at the same time and to the same
extent that the optionee realizes compensation income.
Incentive Stock Options ("ISOs")
Options under the Plan denominated as ISOs are intended to constitute
incentive stock options under Section 422A of the Internal Revenue Code of 1986,
as amended. An optionee is not subject to Federal income tax upon either the
grant or exercise of an ISO. If the optionee holds the shares acquired upon
exercise for at least one year after issuance of the optioned shares and until
at least two years after grant of the option, then the difference between the
amount realized on a subsequent sale or other taxable disposition of the shares
and the option price will constitute long-term capital gain or loss. To obtain
favorable tax treatment, an ISO must be exercised within three months after
termination of employment (other than by retirement, disability, or death) with
The Hartford or a 50% subsidiary. To obtain favorable tax treatment, an ISO must
be exercised within three months of retirement or within one year of cessation
of employment for disability (with no limitation in the case of death),
notwithstanding any longer exercise period permitted under the terms of the
Plan. The Hartford will not be entitled to a Federal tax deduction with respect
to the grant or exercise of the ISO.
If the optionee sells the shares acquired under an ISO before the
requisite holding period, he or she will be deemed to have made a "disqualifying
disposition" of the shares and will realize compensation income in the year of
disposition equal to the lesser of the fair market value of the shares at
exercise or the amount realized on their disposition over the option price of
the shares. (However, if the disposition is by gift or by sale to a related
party, the compensation income must be measured by the value of the shares at
exercise over the option price.) Any gain recognized upon a disqualifying
disposition in excess of the ordinary income portion will constitute either
short-term or long-term capital gain. In the event of a disqualifying
disposition, The Hartford will be entitled to a Federal tax deduction in the
amount of the compensation income realized by the optionee.
The option spread on the exercise of an ISO is an adjustment in
computing alternative minimum taxable income. No adjustment is required,
however, if the optionee made a disqualifying disposition of the shares in the
same year as he or she is taxed on the exercise.
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Stock Appreciation Rights ("SARs")
SARs may have been awarded to officers and directors of The Hartford
subject to Section 16(b) of the Act with respect to both ISOs and non-qualified
options granted under the Plan. An optionee is not taxed upon the grant of SARs.
An optionee exercising SARs for cash will realize compensation income (subject
to withholding) in the amount of the cash received. The Hartford is entitled to
a tax deduction at the same time and to the same extent that the optionee
realizes compensation income.
B. PERFORMANCE SHARES
An awardee of Performance Shares will generally realize compensation
income (subject to withholding) when and to the extent that payment is made,
whether in the form of cash or shares of The Hartford Stock. To the extent that
payment is made in the form of Stock, income shall be measured by the then fair
market value of the shares, which shall constitute an addition to the awardee's
tax basis in such shares. The Hartford will be entitled to a Federal tax
deduction for the value of payment at the time of payment.
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C. RESTRICTED STOCK
An awardee of Restricted Stock will generally realize compensation
income (subject to withholding) when and to the extent that the restrictions on
the shares lapse, as measured by the value of the shares at the time of lapse.
The awardee's holding period for the shares will not commence until the date of
lapse, and dividends paid during the restriction period will be treated as
compensation. The income realized on lapse of the restrictions will constitute
an addition to the awardee's tax basis in the shares.
In lieu of deferred recognition of income, the awardee may formally
elect, within 30 days of award, to realize compensation income at the time of
award, as measured by the fair market value of the stock on the date of award
determined without regard to the restrictions. The income realized will
constitute an addition to the tax basis of the shares. In the case of such
election, any appreciation (or depreciation) on the shares during the
restriction period will give rise to capital gain (or capital loss). In the
event that the awardee terminates employment during the restriction period and
forfeits his or her shares, no deduction may be claimed and the taxes paid on
award of the shares shall be forfeited.
The Hartford will be entitled to a Federal tax deduction at the same
time and to the same extent that the awardee realizes compensation income.
However, if an awardee makes an election to realize compensation income at the
time of the award and subsequently forfeits the shares of Restricted Stock, The
Hartford must include as ordinary income the amount it previously deducted in
the year of grant with respect to such shares.
D. GOLDEN PARACHUTE TAX PENALTIES
Options, SARs, Performance Shares or Restricted Stock which are granted,
accelerated or enhanced upon the occurrence of a takeover (i.e., a Change of
Control as defined inSection 9 of the Plan) may give rise, in whole or in part,
to "excess parachute payments" within the meaning of Section 280G of the
Internal Revenue Code and, to such extent, will be nondeductible by The Hartford
and subject to a 20% excise tax to the awardee.
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