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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY
RULE 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-12
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
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(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
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The Hartford Financial Services Group, Inc.
2000 Notice of Annual Meeting
and Proxy Statement
[LOGO OF THE HARTFORD]
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Letter to Shareholders
[LOGO OF THE HARTFORD]
April 20, 2000
Dear Shareholder:
I am pleased to invite you to attend the 2000 meeting of shareholders of The
Hartford Financial Services Group, Inc. to be held at 9:00 a.m. on Thursday, May
18, 2000 at The Wadsworth Atheneum in Hartford, Connecticut. We hope that you
will participate in the annual meeting either by attending and voting in person
or by voting by proxy, by telephone or through the Internet as promptly as
possible. Your vote is important.
The accompanying notice of annual meeting and proxy statement provide
information about the matters to be acted upon by The Hartford's shareholders.
The proxy statement also contains information about the role and
responsibilities of the Board of Directors and the committees of the Board and
provides important information about each nominee for election as a director.
Sincerely yours,
/s/ Ramani Ayer
Ramani Ayer
Chairman, President and
Chief Executive Officer
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THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTICE OF 2000 ANNUAL MEETING OF SHAREHOLDERS
The annual meeting of the shareholders (the "Annual Meeting") of The
Hartford Financial Services Group, Inc. (the "Company") will be held on
Thursday, May 18, 2000 at 9:00 a.m. at The Wadsworth Atheneum, 600 Main
Street, Hartford, Connecticut, for the following purposes:
1. to elect a Board of Directors;
2. to ratify the appointment of Arthur Andersen LLP as independent
auditors of the Company for the fiscal year ending December 31,
2000;
3. to approve certain material terms of the Company's annual executive
bonus program;
4. to approve the Company's 2000 Incentive Stock Plan;
5. to consider and act on a shareholder proposal regarding investment
in tobacco equities; and
6. to act upon such other matters as may properly come before the
Annual Meeting.
Only shareholders of record at the close of business on March 20, 2000 are
entitled to notice of, and to vote at, the Annual Meeting.
Amy Gallent
/s/ AMY GALLENT
Vice President and Corporate Secretary
April 20, 2000
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THE HARTFORD FINANCIAL SERVICES GROUP, INC.
690 Asylum Avenue
Hartford, CT 06115
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PROXY STATEMENT
Annual Meeting of Shareholders
May 18, 2000
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GENERAL INFORMATION
The accompanying proxy is solicited by the Board of Directors of The
Hartford Financial Services Group, Inc. (the "Company" or "The Hartford") in
connection with the annual meeting of shareholders of the Company to be held
on Thursday, May 18, 2000 at 9:00 a.m. at The Wadsworth Atheneum, 600 Main
Street, Hartford, Connecticut and at any adjournment or postponement thereof
(the "Annual Meeting"). The mailing of this Proxy Statement and the
accompanying proxy card to shareholders will commence on or about April 20,
2000.
Voting Rights
Only shareholders of record on March 20, 2000 (the "Record Date") are
entitled to notice of, and to vote at, the Annual Meeting. As of February 29,
2000, there were 214,581,962 shares of the Company's common stock ("Common
Stock") outstanding. Each shareholder is entitled to one vote for each share
of Common Stock registered in that person's name as of the Record Date.
Voting By Proxy
In General. Subject to the limitations described below, shareholders may
vote by proxy by (i) using the accompanying proxy card, (ii) voting by
telephone, or (iii) voting electronically through the Internet. When voting
using any of these methods, as to the election of directors, you may (a) vote
for all of the director nominees as a group, (b) vote for all of the director
nominees as a group, except those nominees whose names you specify, or (c)
withhold your vote from all nominees as a group. As to each other item, you
may vote "for" or "against" the item or "abstain" from voting. If you properly
vote by proxy by any of these methods as described below but do not specify
any choices you will thereby confer authority upon the persons named as
proxies to vote your shares in their discretion. A proxy also confers
discretionary authority on these individuals to vote your shares of Common
Stock on (1) any matter that was not known on the date of this Proxy Statement
but is presented at the Annual Meeting, including voting on the nomination or
election of any person not identified in this Proxy Statement as a nominee for
election as a director; and (2) any shareholder proposal that has been omitted
from this Proxy Statement pursuant to the proxy regulations of the Securities
and Exchange Commission ("SEC") but is properly presented at the Annual
Meeting.
You may revoke your proxy at any time before it is exercised by giving
written notice thereof to the Secretary of the Company, by submitting a
subsequently dated and properly completed proxy, or by attending the Annual
Meeting and revoking the proxy. Your attendance at the Annual Meeting will not
by itself revoke your proxy.
Voting By Proxy Card. Any shareholder, including any employee who owns
Common Stock through Company stock plans, may vote by proxy by using the
accompanying proxy card. When you return a proxy card that is properly signed
and completed, the shares of Common Stock represented by the proxy will be
voted as you specify on the proxy card.
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Voting By Telephone Or Through The Internet. If you are a registered
shareholder (that is, you own Common Stock in your own name and not through a
broker, nominee or in some other "street name" capacity), or if you own Common
Stock through a Company stock plan, you may vote by proxy by using the
telephone or Internet method of voting (please see the accompanying proxy card
for instructions on how to access the telephone and Internet voting systems).
If you hold shares of Common Stock in "street name," your broker or other
nominee will advise you whether you may vote by telephone or through the
Internet.
Voting Shares Held In Company Stock Plans
Shares of Common Stock held in The Hartford Investment and Savings Plan
("ISP"), The Hartford Excess Savings Plan ("ESP") and in the Company's
Deferred Restricted Stock Unit Plan ("Stock Unit Plan") are held of record and
are voted by the trustees of the ISP, the ESP and the Stock Unit Plan,
respectively. Shares of Common Stock held in the Company's Employee Stock
Purchase Plan ("ESPP") are held of record by the ESPP's administrator, Dean
Witter Trust Company ("Dean Witter"), and are voted by Dean Witter.
Participants in the ISP, the ESP, the Stock Unit Plan and the ESPP may direct
the trustees and Dean Witter as to how to vote shares allocated to their ISP,
ESP, Stock Unit Plan and ESPP accounts by voting by proxy using any of the
three methods described above. The ISP, ESP and Stock Unit Plan trustees will
vote shares as to which they have not received direction in accordance with
the terms of the ISP, ESP and the Stock Unit Plan. To the extent that Dean
Witter does not receive voting directions from ESPP participants, it may vote
such shares in its capacity as a broker.
Your vote is important and the Board of Directors urges you to exercise your
right to vote. Whether or not you plan to attend the Annual Meeting, you can
assure that your shares are voted by properly voting by proxy or voting by
telephone or through the Internet.
OTHER EVENTS
On March 27, 2000, the Board of Directors of the Company presented an offer
to the board of directors of Hartford Life, Inc. ("Hartford Life") to acquire
all of the common shares of Hartford Life not already owned by the Company for
$44 per share in cash. The Company currently owns approximately 81.5% of the
outstanding common stock of Hartford Life. A special committee consisting of
Hartford Life directors not affiliated with the Company was appointed by the
Hartford Life board to consider the offer.
ITEM 1
ELECTION OF DIRECTORS
A Board of eleven directors is to be elected at the Annual Meeting to serve
until the next annual meeting and until their successors are elected and
qualified. There are currently thirteen directors serving on the Board, eleven
of whom have been nominated for reelection as directors at the Annual Meeting,
including Dina Dublon who was elected as a director by the Board of Directors
effective December 16, 1999. Robert A. Burnett and Frederic V. Salerno will
retire from the Board of Directors effective on the date of the Annual Meeting
and, therefore, neither of them will seek re-election.
Unless there is a contrary indication, shares of Common Stock represented by
valid proxies will be voted for the election of all nominees. The Board has no
reason to believe that any nominee will be unable to serve as a director. If
for any reason a nominee should become unable to serve, the shares represented
by valid proxies will be voted for the election of such other person as the
Board may recommend, or the Board may reduce the number of directors to
eliminate the vacancy.
Set forth below is certain information about each nominee for election as a
director, including information regarding his or her background for at least
the past five years.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL NOMINEES FOR
ELECTION AS DIRECTORS.
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Directors and Nominees
[PHOTO] BETTE B. ANDERSON
Mrs. Anderson, 71, has been a director since 1995. She joined
Kelly, Anderson & Associates, Inc., a Washington based management
firm, in 1990 and served as President effective January 1, 1991
until January 1996, when she became Vice Chairperson. She was
Undersecretary of the Treasury from 1977 to 1981. Mrs. Anderson
was affiliated for twenty-seven years with the Citizens and
Southern National Bank of Savannah, having served as a Vice
President until she assumed the Treasury post. Mrs. Anderson is a
director of United Payors & Providers and the Miller Foundation at
the University of Virginia. She attended Georgia Southern
University and Armstrong State College and is a graduate of the
Stonier Graduate School of Banking at Rutgers University.
[PHOTO] RAND V. ARASKOG
Mr. Araskog, 68, has been a director since 1985. He served as an
executive officer of ITT Corporation ("ITT") until ITT split into
three separate public companies in a spin-off transaction that
occurred effective December 19, 1995 (the "ITT Spin-Off"). He was
Chief Executive Officer of ITT since 1979, Chairman since 1980 and
President since March 1991. After the ITT Spin-Off, Mr. Araskog
became Chairman and Chief Executive of the new ITT Corporation,
formerly an ITT subsidiary called ITT Destinations, Inc., until
his retirement in February 1998. He is a director of ITT
Industries, Inc., Dow Jones & Company, Inc., Rayonier, Inc., Shell
Oil Company and ITT Educational Services, Inc. Mr. Araskog is a
graduate of the U.S. Military Academy at West Point and attended
the Harvard Graduate School of Arts and Sciences.
[PHOTO] RAMANI AYER
Mr. Ayer, 52, has been a director since 1991, and became
Chairman, President and Chief Executive Officer of the Company on
February 1, 1997. Prior to that, he served as an Executive Vice
President of the Company from the ITT Spin-Off in December 1995
until February 1997. Mr. Ayer has been President and Chief
Operating Officer of Hartford Fire Insurance Company ("Hartford
Fire"), the Company's principal property and casualty insurance
subsidiary, since 1991 and previously served as Executive Vice
President of Hartford Fire from 1990 to April 1991 and Senior Vice
President from 1989 to 1990. He is also Chairman of Hartford Life,
which operates the Company's life insurance, annuity and related
businesses. Mr. Ayer joined the Company in 1973 as a member of the
operations research department. During his career, he has been
Director of corporate reinsurance, Vice President of HartRe, the
Company's reinsurance subsidiary, and President of Hartford
Specialty Company. He is Vice Chairman of the American Insurance
Association, a member of the Listed Company Advisory Committee to
the New York Stock Exchange Board of Directors, and serves on the
Boards of the American Institute for CPCU/IIA, and the Insurance
Information Institute. Mr. Ayer is a director of Hartford
Hospital, the Greater Hartford Chamber of Commerce, and is a
trustee of the Mark Twain House in Hartford, Connecticut. He also
is a member of the Business Roundtable.
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[PHOTO] DINA DUBLON
Ms. Dublon, 46, was elected as a director effective December 16,
1999. Ms. Dublon has been Executive Vice President and Chief
Financial Officer of The Chase Manhattan Corporation since
December 1998. Prior to assuming this position, Ms. Dublon served
for seventeen years at Chase and Chemical Bank, prior to its
merger with Chase, in positions of increasing responsibility. She
joined Chemical's capital markets group as a management trainee on
the trading floor in 1981. She was promoted to positions in
investor relations, planning, head of asset liability management
and thereafter as senior vice president of corporate finance
responsible for corporate mergers and acquisitions. In 1994, she
was promoted to corporate treasurer. Ms. Dublon is a director of
govWorks.com. She is a graduate of Hebrew University in Jerusalem
and has a Master's degree from Carnegie Mellon University,
Graduate School of Industrial Administration.
[PHOTO] DONALD R. FRAHM
Mr. Frahm, 68, served as Chairman, President and Chief Executive
Officer of the Company from April 1988 until his retirement on
January 31, 1997 and has been a director since 1985. Mr. Frahm is
a director of Hartford Life, Hartford Hospital and the University
of Hartford. He also is a corporator of Connecticut Children's
Medical Center.
[PHOTO] PAUL G. KIRK, JR.
Mr. Kirk, 62, has served on the Board of Directors since 1995.
He became a partner in the law firm of Sullivan & Worcester in
1977 and is presently of counsel to the firm. Mr. Kirk served as
Chairman of the Democratic Party of the United States from 1985 to
1989 and as Treasurer from 1983 to 1985. Following his resignation
in 1989 as Chairman of the Democratic Party of the United States,
he returned to Sullivan & Worcester as a partner in general
corporate practice at the firm's Boston and Washington offices.
Mr. Kirk is a director of Hartford Life and Kirk & Associates,
Inc., of which he also is Chairman and Treasurer. He is a director
of Bradley Real Estate, Inc. and Rayonier, Inc. Mr. Kirk is Co-
chairman of the Commission on Presidential Debates, Chairman of
the John F. Kennedy Library Foundation Board of Directors,
Chairman of the Board of Directors of the National Democratic
Institute for International Affairs, and a trustee of St.
Sebastian's School. He is a graduate of Harvard College and
Harvard Law School.
[PHOTO] ROBERT W. SELANDER
Mr. Selander, 49, has served on the Board of Directors since
1998. He has been President and Chief Executive Officer of
MasterCard International since May 1997. For three years prior to
that, Mr. Selander was an Executive Vice President of MasterCard
International and President of MasterCard's Europe, Middle
East/Africa and Canada regions. Before joining MasterCard, he
served for over twenty years in positions of increasing
responsibility at Citicorp/Citibank, N.A, including having served
as director of Global Retail Strategy and director of the bank's
Diners Club International credit card business in the United
States, Canada, United Kingdom, Germany and Benelux. Mr. Selander
is a director of Hartford Life, Europay International and
MasterCard International. He is a graduate of Cornell University
and has a Master's degree in business from Harvard University.
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[PHOTO] LOWNDES A. SMITH
Mr. Smith, 60, has served as a director of the Company since
1991. He became Vice Chairman of the Company on February 1, 1997
and is President and Chief Executive Officer and a director of
Hartford Life. Effective December 1, 1998, Mr. Smith also became
responsible for the International Operations of the Company. He
served as an Executive Vice President of the Company since the ITT
Spin-Off in December 1995 until his appointment as Vice Chairman
and served as President and Chief Operating Officer of the
Company's life insurance companies since 1989. Prior to that time,
he served as Senior Vice President and Group Controller for all
companies owned or operated by the Company. Mr. Smith joined the
Company in 1968 as a member of the corporate accounting
department. In 1972 he was appointed the Secretary and Director of
corporate accounting. He was elected Assistant Vice President in
1974, and he was named Controller in 1977. Mr. Smith is a director
of the Connecticut Children's Medical Center, The American Council
of Life Insurers, and a Director Emeritus of the Connecticut
Business and Industry Association.
[PHOTO] H. PATRICK SWYGERT
Mr. Swygert, 57, was elected to the Board of Directors in 1996.
He has been President of Howard University, Washington, D.C.,
since August 1995. Prior to that, he was President of the
University at Albany, State University of New York, since 1990.
Mr. Swygert received his undergraduate and law degrees from Howard
University, has been a visiting professor and lecturer abroad and
is the author of numerous articles and publications on higher
education and the law. He is a member of the Board of Directors of
Hartford Life, The Victory Funds, Cleveland, Ohio, and Fannie Mae,
Washington, D.C. Mr. Swygert is the immediate past Chairman of the
Washington, D.C. Area Consortium of Colleges and Universities and
currently serves as Chairman of the Community-Business Partnership
of the Greater Washington Board of Trade.
[PHOTO] GORDON I. ULMER
Mr. Ulmer, 67, has been a director since 1995. He is former
Chairman and Chief Executive Officer of the former Connecticut
Bank and Trust Company ("CBT") and retired President of the former
Bank of New England Corporation, the former holding company of CBT
("BNEC"). He joined CBT in 1957 and held numerous positions before
being elected President and a director in 1980 and Chairman and
Chief Executive Officer in 1985. In 1988 he was elected President
of BNEC, and retired as President in December 1990. Mr. Ulmer also
serves as a director of Hartford Life, Rayonier, Inc., and the Old
State House Association. He is a graduate of Middlebury College,
the American Institute of Banking and Harvard Business School
Advanced Management Program. He attended New York University's
Graduate School of Engineering.
[PHOTO] DAVID K. ZWIENER
Mr. Zwiener, 45, has been Executive Vice President and Chief
Financial Officer of the Company since August 1995, and was
elected to the Board of Directors in 1997. He previously served as
Executive Vice President and Chief Financial Officer of ITT
Financial Corporation from March 1993 until February 1995. From
November 1987 to February 1993, Mr. Zwiener served as Senior Vice
President and Treasurer, and Executive Vice President--Capital
Markets Division of Heller International Corporation. He also is a
director of Hartford Life, Sheridan Healthcare, the Connecticut
Business and Industry Association, and is a trustee of The
Wadsworth Atheneum.
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THE BOARD OF DIRECTORS AND ITS COMMITTEES
The Board of Directors is responsible for establishing broad corporate
policies and for overseeing the overall performance of the Company. The Board
reviews significant developments affecting the Company and acts on matters
requiring Board approval. During 1999, the Board held seven meetings. The
standing committees of the Board are the Audit, Compensation and Personnel,
Finance, Legal and Public Affairs, and Nominating committees, each of which is
comprised solely of directors who are not officers of, or otherwise employed
by, the Company or any of its subsidiaries. Set forth below is a description
of the duties of each committee and its members.
The Audit Committee recommends the selection of independent auditors for the
Company, confirms the scope of audits to be performed by such auditors,
reviews audit results and internal accounting and control procedures and
policies, and reviews the fees paid to the Company's independent auditors. The
Committee reviews and recommends approval of the audited financial statements
of the Company and the annual report on Form 10-K that is filed with the SEC.
It also reviews the expense accounts of senior executives. The members of the
Audit Committee are Messrs. Frahm, Kirk (Chairman), Selander, and Ms. Dublon
(elected December 16, 1999). During 1999, the Committee held five meetings.
The Compensation and Personnel Committee evaluates senior management
performance and establishes executive compensation policies. During 1999, Mrs.
Anderson and Messrs. Burnett, Swygert and Ulmer (Chairman) were the members of
the Committee. The Committee held three meetings during 1999.
The Finance Committee is responsible for reviewing capital expenditures and
appropriations and maximizing the effective use of the Company's and its
subsidiaries' assets. This includes directing the investment allocation and
risk management policies of the Company. The members of the Committee during
1999 were Messrs. Araskog (Chairman), Salerno, Ulmer and Ms. Dublon (elected
December 16, 1999). During 1999, the Committee held two meetings.
The Legal and Public Affairs Committee reviews and considers major claims
and litigation, and legal, regulatory and related governmental policy matters
affecting the Company and its subsidiaries. The Committee reviews and approves
management policies and programs relating to compliance with legal and
regulatory requirements, business ethics and environmental matters. The
Committee also reviews and defines the Company's social responsibilities,
including issues of significance to the Company, its shareholders and
employees. During 1999, the members of the Committee were Mrs. Anderson and
Messrs. Salerno, Selander and Swygert (Chairman). The Committee held two
meetings during 1999.
The Nominating Committee makes recommendations concerning the organization,
size and composition of the Board and its committees, proposes nominees for
election to the Board and its committees and considers the qualifications,
compensation and retirement of directors. The Committee's members during 1999
were Messrs. Araskog, Burnett (Chairman), Frahm and Kirk. During 1999, the
Committee held three meetings. The Nominating Committee will consider
nominations of persons for election as directors that are submitted by
shareholders in writing in accordance with certain requirements set forth in
the Company's bylaws.
In 1999, each director attended at least seventy-five percent of all
meetings of the Board of Directors and of the committees of which he or she
was a member.
Directors' Compensation
Standard Fees. Members of the Board of Directors who are employees of the
Company or its subsidiaries are not compensated for service on the Board or
any of its committees. The current compensation for non-employee directors
consists of an annual retainer fee of $40,000 payable solely in restricted
shares of Common Stock pursuant to The Hartford 1996 Restricted Stock Plan for
Non-Employee Directors (the "Non-Employee Directors Plan") described below, a
$1,500 fee for each meeting of the Board attended, a $1,200 fee for each
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committee meeting attended, and an option to purchase Common Stock. In
addition, each committee chairperson receives an annual retainer of $2,500.
Directors also are reimbursed for travel and related expenses incurred on
behalf of the Company.
Restricted Stock Plan for Non-Employee Directors. Under the Non-Employee
Directors Plan, non-employee directors receive grants of shares of restricted
Common Stock as payment for their annual retainer fee. Restricted stock grants
are made automatically on the date of each annual meeting of shareholders to
each non-employee director elected at, or continuing in office following, the
annual meeting. The number of shares of restricted stock is determined by
dividing the annual retainer for the year of the award by the fair market
value of the Common Stock as reported on the New York Stock Exchange ("NYSE")
as of the date of the award.
Non-employee directors receiving restricted stock may not sell, assign or
otherwise dispose of the stock until the restriction period ends. The
restriction period ends upon the earliest of: (i) five years after the grant
date, (ii) retirement at age seventy-two, (iii) a "change of control" (as
defined in the plan) of the Company, (iv) death, (v) disability, or (vi)
resignation under certain circumstances, as set forth in the plan. If a non-
employee director resigns other than under such circumstances before the
restriction period ends, he or she will forfeit his or her restricted shares.
Stock Options. Each non-employee director elected at, or continuing in
office following, each annual meeting of shareholders is granted on the annual
meeting date an option to purchase 2,000 shares of Common Stock at an exercise
price equal to the closing price per share of the Common Stock on the NYSE as
of the date of grant. Each option may be exercised to purchase one-third of
the shares underlying the option after two years from the date of grant and
will become fully exercisable after three years from the date of grant. The
maximum term of each option is ten years and two days from the date of grant
and any unexercised portion will terminate within a certain period of time
after a director's termination of service on the Board, unless the termination
occurs under certain circumstances, as set forth under the plan.
Insurance. The Company provides each non-employee director with $100,000 of
group life insurance coverage and $750,000 of accidental death and
dismemberment and permanent total disability coverage while he or she is
serving on the Board. Non-employee directors may purchase additional benefits
under these policies.
AUDIT COMMITTEE CHARTER AND REPORT CONCERNING FINANCIAL MATTERS
Audit Committee Charter
The Audit Committee operates pursuant to a Charter approved by the Company's
Board of Directors. The Audit Committee reports to the Board of Directors and
is responsible for overseeing and monitoring financial accounting and
reporting, the system of internal controls established by management and the
audit process of the Company. The Audit Committee Charter sets out the
responsibilities, authority and specific duties of the Audit Committee. The
Charter specifies, among other things, the structure and membership
requirements of the Committee, as well as the relationship of the Audit
Committee to the independent accountants, the internal audit department, and
management of the Company. A copy of the Audit Committee Charter is attached
to this Proxy Statement as Appendix A.
Membership
The Audit Committee consists of four members, all of whom are "independent"
under the New York Stock Exchange listing standards as previously in effect
and as amended. The Committee members do not have any relationship to the
Company that may interfere with the exercise of their independence from
management and the Company. None of the Committee members are current officers
or employees of the Company or its affiliates.
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Report of the Audit Committee
The Audit Committee, in its oversight role over (1) the Company's financial
accounting and reporting process, (2) the Company's system of internal
controls established by management and (3) the internal and external audit
processes, has met with management, the independent auditors and the General
Auditor of the Company. Discussions about the Company's audited financial
statements included the independent auditor's judgments about the quality, not
just the acceptability, of the Company's accounting principles and underlying
estimates used in the Company's financial statements, as well as other
matters, as required by Statement on Auditing Standards No. 61, Communication
with Audit Committees ("SAS 61"), as amended by SAS No. 90, Audit Committee
Communications ("SAS 90"), and by the Audit Committee Charter. In conjunction
with the specific activities performed by the Committee in its oversight role,
it has issued the following report as of February 16, 2000:
(1) The Audit Committee has reviewed and discussed the audited financial
statements as of and for the year ended December 31, 1999 with
management of the Company.
(2) The Audit Committee has discussed with the independent auditors the
matters required to be discussed by SAS 61 and SAS 90.
(3) The Audit Committee has received from the independent accountants, as
required by Independence Standards Board Standard No. 1, Independence
Discussions with Audit Committee, (i) a written disclosure, indicating
all relationships, if any, between the independent auditor and its
related entities and the Company and its related entities which, in the
auditor's professional judgment, reasonably may be thought to bear on
the auditor's independence, and (ii) a letter from the independent
auditor confirming that, in its professional judgment, it is
independent of the Company; and the Audit Committee has discussed with
the auditor the auditor's independence from the Company.
Based on the review and discussions referred to in paragraphs (1) through
(3) above, the Audit Committee recommended to the Board of Directors that the
audited financial statements should be included in the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1999 for filing with the
SEC.
The Audit Committee:
Paul G. Kirk, Jr., Chairman
Dina Dublon
Donald R. Frahm
Robert W. Selander
REPORT OF THE COMPENSATION AND PERSONNEL COMMITTEE
ON EXECUTIVE COMPENSATION
This report sets forth the executive compensation policies of the
Compensation and Personnel Committee (the "Committee") of the Company's Board
of Directors and discusses the 1999 compensation of the Company's Chief
Executive Officer and certain other executive officers. Following this report
is a Summary Compensation Table that sets forth all 1999 compensation earned
by, and awarded or paid to, Ramani Ayer, who served as President and Chief
Executive Officer during 1999, and the other Named Executives (defined below)
included in that table. Other tables following this report provide information
on stock option and other long-term performance grants, and a performance
graph compares the cumulative total return on the Common Stock to the
cumulative total returns of the S&P 500 Index and an index consisting of peer
insurance companies.
Committee Role in Overseeing Executive Compensation Policy
A primary role of the Committee is to determine and oversee the
administration of compensation for the Company's executives, including its
senior executive officers ("Senior Executives"). In this capacity, the
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Committee is dedicated to ensuring that the Company's compensation policies
and practices are used effectively to support the achievement of the Company's
short-term and long-term business objectives.
There are several principles that guide the Committee in its decision-making
capacity. The Committee:
. Adheres to a pay-for-performance philosophy, ensuring that aggregate
compensation levels paid to Senior Executives reflect the extent to
which the Company's key operating goals are met.
. Reinforces the central importance of shareholder value creation by
relying heavily on compensation programs that deliver value to Senior
Executives only when shareholders realize corresponding gains.
. Encourages the acquisition of Common Stock by Senior Executives with the
objective of strengthening the common interests of management and
shareholders, thereby promoting the maximization of shareholder value.
. Establishes Senior Executive compensation levels in relation to the pay
rates that are offered at organizations with which the Company competes
for senior management talent.
. Maintains a total compensation perspective on Senior Executive pay in
judging the appropriateness of rewards for the Company's Senior
Executives.
Description of Executive Compensation Policies
The compensation program of the Company's Senior Executives is characterized
by base salary levels that are targeted somewhat below market rates, a heavy
emphasis on performance-based, variable compensation, which, when combined
with base salary, provides above market total compensation for successful
performance and a commitment to promote enhanced share ownership among Senior
Executives. Consistent with the shareholder value orientation of this program,
the Committee has authorized guidelines for Senior Executive share ownership
which should serve to further align the interests of management and investors.
The guidelines provide that, within a five-year period from the later of 1996
or year of hire, Senior Executives should attain an investment position in the
Common Stock that is equal to two or three times their base salary, depending
on the position of the Senior Executive. The Committee believes that this
compensation program will effectively catalyze Senior Executive activities in
achieving the Company's goals and appropriately recognize the contributions of
every Senior Executive.
It is the Company's policy to target Senior Executive compensation levels in
relation to pay rates that are typical at organizations with which the Company
competes for senior management talent. For corporate Senior Executives, the
competitive market generally includes other leading insurance and financial
services companies, although general industry practices are also considered
when reviewing pay for certain Senior Executives whose functional
responsibilities are not exclusively insurance or financial services related.
For line of business Senior Executives, pay is in line with practices that are
common at leading insurance carriers, as well as other financial institutions
that offer competing insurance and financial products.
Consistent with the Company's pay-for-performance orientation, Senior
Executive base salaries are targeted at levels that represent 90 percent of
prevailing market rates. Total compensation is designed to reach 120% of
market norms, but only when the Company's challenging performance goals are
fully achieved. Actual compensation levels may lead or lag these goals, but
the terms of the compensation program ensure such variances depend principally
on the Company's stock price appreciation and demonstrated operating success.
The principal elements of the compensation program are: a base salary tied
to individual value added; an annual incentive opportunity dependent on
operating results and promoting Senior Executive share ownership; and stock
options and long-term compensation tied to earnings growth and stock price
appreciation. Each of these elements is discussed below.
9
<PAGE>
1999 Compensation
1999 Base Salary
The Company's compensation policy is generally to pay base salaries for
Senior Executives at levels that represent 90% of the median salaries paid by
organizations with which the Company competes for senior executive talent.
Total compensation, comprised of base and variable pay, can achieve 120% of
the market norm when performance goals are fully met. In assessing a Senior
Executive's salary level each year, the Committee's principal consideration is
the Senior Executive's performance on the job, including his or her
demonstrated contributions to the Company's goal achievement. In considering
salary actions, the Committee also reviews internal compensation equity and
the Senior Executive's level of responsibility, experience, and expertise.
The Compensation Committee approved salary increases of $100,000, $150,000,
$100,000, $20,000 and $10,000 for Messrs. Ayer, Smith, Zwiener, Gareau and
Wilder, respectively, effective February 1, 1999. These increases reflected
competing pay practices at other peer corporations. In addition, Messrs. Ayer,
Smith and Zwiener have employment agreements with the Company that provide for
minimum base salaries as described below under the heading "Employment
Agreements and Severance Plan."
1999 Variable Compensation
Variable compensation reinforces the Company's pay-for-performance
philosophy and is a key element to the overall compensation program. Variable
compensation includes annual and long-term incentive compensation
opportunities. Annual incentive compensation is designed to deliver about 25%
of variable compensation, while long-term incentives are designed to deliver
the remaining 75%. All variable compensation programs also facilitate Senior
Executives' acquisition of the Company's stock, thereby promoting a
coordination of interest between management and shareholders.
Annual Incentives
Each year the Committee reviews management's suggestions for performance
goals, the achievement of which will enhance the Company's value. The
Committee also reviews and approves, with respect to each Senior Executive,
annual incentive payment levels payable in the event performance goals are
fully achieved. Actual annual incentive payments vary with performance
relative to such goals. Better performance generates larger awards; lesser
results yield smaller awards.
Ordinarily, corporate or staff Senior Executives earn annual incentives
based on corporate and individual performance. Incentives for line of business
Senior Executives may relate to corporate, line of business, and individual
performance. On occasion, the Committee may approve management's
recommendation for customized annual incentive arrangements where they are
appropriate to address competitive market requirements or business needs.
The amounts of annual incentive awards are based on financial performance
for the year compared to annual performance goals established by the Committee
at the beginning of the year. For 1999, performance was based on core earnings
and return on equity, each compared to budget, respectively, for Messrs. Ayer
and Zwiener. The performance goals for Mr. Smith were Hartford Life core
earnings growth and Hartford Life return on equity. The performance goals for
Mr. Gareau were Hartford Investment Management Company (the Company's
subsidiary that conducts the Company's investment activities) portfolio
performance compared to external benchmark measures, and corporate core
earnings and return on equity. The performance goals for Mr. Wilder were core
earnings and return on equity.
For 1999, based on these goals, the Committee awarded an annual incentive of
$834,750, $1,385,000, $437,250, $385,900, and $87,450 to Messrs. Ayer, Smith,
Zwiener, Gareau and Wilder, respectively.
Consistent with the Company's interest in promoting a strong alignment
between management and shareholder interests, Senior Executives may elect to
forego receiving up to half their annual incentives in
10
<PAGE>
exchange for the right to receive shares of Common Stock of the Company
("Stock Units"). Under The Hartford 1996 Deferred Restricted Stock Unit Plan,
receipt of actual shares of Common Stock is deferred during a three-year
restriction period applicable to the Stock Units. Senior Executives who elect
to convert a portion of their annual incentive payments to Stock Units are
rewarded with additional Stock Units equal to ten percent of the amount
converted ("Premium Stock Units"), and actual shares relating to these
incremental Premium Stock Units also will be deferred as to receipt and
restricted for a period of three years.
1999 Long-Term Incentives: Stock Options
For 1999, the Committee provided eligibility to executives and key employees
for grants of stock options under the terms of The Hartford 1995 Incentive
Stock Plan (the "Incentive Stock Plan"). Stock options provide executives with
the opportunity to acquire an equity interest in the Company and to
participate in the creation of shareholder value as reflected in growth in the
price of the Common Stock. The option exercise price equals 100% of the fair
market value of the Common Stock on the date of option grant, thereby ensuring
that plan participants will derive benefits only as shareholders realize
corresponding gains. To ensure a long-term perspective, options have a maximum
ten-year and two day term.
The Committee believes that the practice of anually granting stock options
reinforces the Company's policy of encouraging stock ownership by executives
in support of building shareholder value. Furthermore, options provide value
to Senior Executives only when shareholders realize positive returns on their
investment in the Company. In this way, stock option grants reward Senior
Executives in conjunction with value creation for shareholders.
On February 18, 1999, options to purchase an aggregate of 281,728 shares of
Common Stock were granted under the Incentive Stock Plan to Messrs. Ayer,
Smith, Zwiener, Gareau and Wilder at an exercise price of $51.00 per share
(the closing price of a share of the Common Stock on the NYSE on February 18,
1999). The option granted to Mr. Smith represented 40% of the target award
value determined appropriate by the Committee. Also on February 18, 1999, the
Compensation and Personnel Committee of Hartford Life (the "Hartford Life
Committee") granted to Mr. Smith an option to purchase 45,895 shares of Class
A Common Stock of Hartford Life under the 1997 Hartford Life, Inc. Incentive
Stock Plan (the "Hartford Life Incentive Stock Plan") at an exercise price of
$54.50 per share (the closing price of a share of Hartford Life Class A Common
Stock on the NYSE on that day). This option represented the remaining 60% of
the target award value determined appropriate for Mr. Smith.
To further align the interests of Senior Executives and shareholders, the
above options granted to Messrs. Ayer, Smith and Zwiener included a
performance-based provision that would allow the options to become exercisable
upon the earlier to occur of (i) the closing price of the underlying stock on
the NYSE equaling or exceeding 125% of the option exercise price for a period
of at least ten consecutive trading days, or (ii) seven years from the date of
option grant. All other options, including those granted to other executives,
become exercisable at the cumulative rate of one-third per year for the first
three years from the date of grant.
Further information regarding option grants for the named Senior Executives
during 1999 is included in the option tables following this report.
Long-Term Incentives Payable in 1999: 1997 Long-Term Performance Plan
Prior to 1999, Senior Executives and other executives received the
opportunity under the Company's former Long-Term Performance Plan to earn
shares of Common Stock contingent on the Company achieving certain performance
objectives over a three-year period. Under the terms of these contingent
awards, there were two equally weighted performance objectives measured over
the three-year period beginning with the year the award was made: (i) core
earnings per share and (ii) total shareholder return (stock price appreciation
and dividends reinvested) relative to the returns generated by an index of the
Company's competitors. Target level core earnings per share coupled with a
total shareholder return equal to the average of the peer group would result
in the
11
<PAGE>
awarding of a target number of shares. Better performance (up to a maximum of
150% of each of the performance measures) would yield a larger payout, up to a
maximum combined payout of 200%; poorer performance (to a minimum of 75% of
each of the performance measures) would result in proportionally smaller
payments. If the minimum threshold was not achieved, no shares would
ultimately be awarded.
Effective for Plan years beginning in 1999, the Long-Term Performance Plan
was discontinued. In 1999, all long-term incentives for Senior Executives and
other executives were granted in the form of stock options. It is expected
that long-term incentives in the future, if any, will be granted in the form
of stock options. Payouts under the Long-Term Performance Plans that applied
in previous years (1997 and 1998), if any, will be made in accordance with the
terms of those Plans.
On January 27, 2000, the Committee approved payouts under the 1997 Long-Term
Performance Plan based on performance over the 1997 through 1999 period. The
combined payout factor for core earnings per share and total shareholder
return was 151.4%. Based on this result, the Committee approved the
distribution of 33,644, 13,456, 14,580, 10,540 and 5,384 shares to Messrs.
Ayer, Smith, Zwiener, Gareau and Wilder, respectively. These performance
shares were payable 50% in Common Stock and 50% in cash. Senior Executives
were permitted to defer receipt of all or a portion of this payout under The
Hartford 1996 Deferred Restricted Stock Unit Plan described above.
Compliance with Section 162(m)
Section 162(m) of the Internal Revenue Code of 1986, as amended, generally
denies a publicly-traded company a Federal income tax deduction for
compensation in excess of $1 million paid to certain of its executive officers
unless the amount of such excess is payable based solely upon the attainment
of objective performance criteria. The Committee believes that tax
deductibility of compensation is an important factor, but not the sole factor,
to be considered in setting executive compensation policy. Accordingly, the
Committee generally intends to take such reasonable steps as are required to
avoid the loss of a tax deduction due to Section 162(m), but reserves the
right to pay amounts which are not deductible in appropriate circumstances.
Summary
The Committee is responsible for reviewing, monitoring, and approving all
compensation decisions affecting Senior Executives. The Committee expects that
all compensation paid to Senior Executives will be consistent with the
Company's interest in providing market competitive compensation opportunities,
within the context of a pay-for-performance environment, and in a manner that
is supportive of the Company's business mission. The Committee will continue
to actively monitor the effectiveness of the Company's Senior Executive
compensation plans and assess the appropriateness of Senior Executive pay
levels to assure prudent use of Company resources.
The Compensation and Personnel Committee:
Gordon I. Ulmer, Chairman
Bette B. Anderson
Robert A. Burnett
H. Patrick Swygert
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<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
The following table provides information regarding the cash and other
compensation of those persons who, during 1999 (i) served as the Company's
Chief Executive Officer and (ii) were the four other most highly compensated
executive officers (together with the Chief Executive Officer, the "Named
Executives"):
Summary Compensation Table
<TABLE>
<CAPTION>
Annual
Compensation Long-Term Compensation
------------------- ---------------------------------------
Awards Payouts
---------------------------- ---------
Name and Restricted Securities LTIP All Other
Principal Stock Underlying Payouts Compensation
Position Year Salary($) Bonus ($) Awards($)(2) Options(#)(2) ($) ($)(14)
--------- ---- --------- --------- ------------ ------------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Ramani Ayer............. 1999 941,667 834,750 28,305(3) 165,675 1,392,337(11) 37,005
Chairman, President and 1998 837,500 943,500 15,405(4) 226,161 1,423,369(12) 34,785
Chief Executive Officer 1997 685,417 513,500 3,557,500(5) 354,340 -- 30,397
1,467,500(6)
Lowndes A. Smith........ 1999 837,500 1,385,000 47,338(7) 35,822 534,939(11) 32,390
Vice Chairman; 45,895(10) 960,755(13)
President and Chief 1998 691,667 946,750 -- 88,574 1,423,369(12) 27,285
Executive Officer- 129,947(10)
Hartford Life 1997 593,750 418,400 889,375(5) 237,736 -- 24,505
733,750(6) 65,675(10)
745,461(8)
15,500(9)
David K. Zwiener........ 1999 591,667 437,250 22,200(3) 59,703 603,385(11) 23,216
Executive Vice 1998 493,750 444,000 14,120(4) 105,848 1,052,422(12) 19,219
President and Chief 1997 418,750 282,400 889,375(5) 240,880 -- 16,594
Financial Officer 1,100,625(6)
12,500(9)
Joseph H. Gareau........ 1999 338,333 385,900 -- 12,737 436,192(11) 11,842
Executive Vice 1998 320,000 339,200 5,135(4) 41,953 862,632(12) 16,672
President and Chief 1997 319,233 205,400 4,000(9) 89,560 -- 17,496
Investment Officer (1)
Michael S. Wilder....... 1999 259,167 87,450 999(3) 7,791 214,039(11) 12,148
Group Senior Vice 1998 249,583 99,900 1,644(4) 22,312 435,109(12) 11,812
President and General 1997 244,250 82,200 1,973(9) 15,094 -- 11,434
Counsel
</TABLE>
- --------
(1) Mr. Gareau retired from the Company effective January 1, 2000.
(2) Except as otherwise noted, the number of shares of Common Stock and the
related prices per share set forth in the table and in the footnotes
reflect a two-for-one stock split effected in the form of a 100% stock
dividend on July 15, 1998.
(3) The amounts identified represent the value of the Premium Stock Units
awarded on March 15, 1999 pursuant to The Hartford 1996 Deferred
Restricted Stock Unit Plan described in note (4) below with respect to
1998 bonus payments made in 1999. On March 15, 1999, the closing price of
the Common Stock on the NYSE was $56.8125 per share. On December 31, 1999,
the values of such Premium Stock Units (including those acquired by
dividend reinvestment) for Messrs. Ayer, Zwiener and Wilder were $23,835,
$18,694 and $841, respectively, based on the closing price of the Common
Stock on the NYSE of $47.375 per share on that date.
(4) Pursuant to The Hartford 1996 Deferred Restricted Stock Unit Plan, certain
executives of the Company elected to forego a certain percentage of 1997
bonus payments that were ultimately awarded in 1998 in exchange for the
right to receive Premium Stock Units. The number of Stock Units granted to
an executive
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<PAGE>
is equal to the amount of the bonus forgone divided by the closing price of
the Common Stock on the NYSE on the date of grant of the Stock Units. As an
incentive for foregoing the percentage of bonus, participating executives
are granted additional Premium Stock Units equal to 10% of the Stock Units.
Shares of Common Stock underlying Stock Units may not be received until
three years from the date of grant but are fully vested, except that shares
of Common Stock underlying Premium Stock Units may be forfeited if
employment with the Company is terminated under certain circumstances
before three years from the date of grant. Dividends are paid (and
automatically reinvested) on the shares underlying the Stock Units and
Premium Stock Units in the same amount and to the same extent as dividends
are paid on shares of Common Stock held by all shareholders. The amounts
identified in this column represent the value of the Premium Stock Units
awarded on March 13, 1998 when the closing price of the Common Stock on the
NYSE was $51.4375 per share. On December 31, 1999, the values of such
Premium Stock Units (including those acquired by dividend reinvestment) for
Messrs. Ayer, Zwiener, Gareau and Wilder were $14,558, $13,344, $4,853 and
$1,554, respectively, based on the closing price of the Common Stock on the
NYSE of $47.375 per share on that date.
(5) Represents the market value of 80,000 shares of restricted Common Stock
granted to Mr. Ayer and 20,000 shares of restricted Common Stock granted
to each of Messrs. Smith and Zwiener on December 17, 1997 based on the
closing price of the Common Stock on the NYSE of $44.4687 per share on
that date. The market value of such shares was $3,790,000, $947,500, and
$947,500 for Messrs. Ayer, Smith, and Zwiener, respectively, on December
31, 1999 based on the NYSE closing price of the Common Stock of $47.375
per share on that day. Each of the restricted stock grants is subject to
the following performance-based vesting: the restrictions on 50% of the
shares will lapse on March 1, 2001 only if the closing price of the Common
Stock on the NYSE is $61.50 per share or more for at least ten consecutive
trading days at any time prior to such date; the restrictions on an
additional 25% of such shares will lapse on March 1, 2001 only if the
closing price of the Common Stock on the NYSE is $63.00 per share or more
for at least ten consecutive trading days at any time prior to such date;
and the restrictions on the remaining 25% of such shares will lapse on
March 1, 2001 only if the closing price of the Common Stock on the NYSE is
$65.00 per share or more for at least ten consecutive trading days at any
time prior to such date. Any restricted shares not vested by March 1, 2001
shall be forfeited. Vested restricted Common Stock cannot be disposed of
until March 1, 2001. Dividends are paid on the shares of restricted Common
Stock in the same amount and to the same extent as dividends are paid on
shares of Common Stock held by all shareholders. In May 1999, the
Company's Common Stock traded at or above $63.00 per share for more than
ten consecutive trading days. As a result, 75% of the foregoing shares
became vested, such that the restrictions on these shares will lapse on
March 1, 2001.
(6) Represents the market value of 40,000, 20,000, and 30,000 shares of
restricted Common Stock granted to Messrs. Ayer, Smith and Zwiener,
respectively, on February 1, 1997 based on the closing price of the Common
Stock on the NYSE of $36.6875 per share on that date. Mr. Smith's shares
became fully vested on February 1, 2000. Mr. Ayer's grant vested to the
extent of 6,666 shares on February 1, 2000 and will vest as to 20,000
shares on February 1, 2001 and the remaining 12,334 on February 1, 2004.
Mr. Zwiener's grant vested to the extent of 6,667 shares on February 1,
2000 and will vest as to 10,000 shares on February 1, 2001 and the
remaining 13,333 on February 1, 2004. The market value of such shares was
$1,895,000, $947,500 and $1,421,250 for Messrs. Ayer, Smith and Zwiener,
respectively, on December 31, 1999 based on the NYSE closing price of the
Common Stock of $47.375 per share on that day. Dividends are paid on the
shares of restricted Common Stock in the same amount and to the same
extent as dividends are paid on shares of Common Stock held by all
shareholders.
(7) Pursuant to the 1997 Hartford Life Deferred Restricted Stock Unit Plan,
Mr. Smith elected to forego a certain percentage of his 1998 bonus payment
that was ultimately awarded in 1999 in exchange for the right to receive
shares of Hartford Life Class A Common Stock ("Class A Stock Units"). The
number of Class A Stock Units granted to an executive is equal to the
amount of bonus forgone divided by the closing price of the Hartford Life
Class A Common Stock on the NYSE on the date of grant of the Class A Stock
Units. As an incentive for foregoing the percentage of bonus,
participating executives are granted additional Class A Stock Units equal
to 10% of the Class A Stock Units ("Class A Premium Stock Units"). Shares
of Hartford Life Class A Common Stock underlying Class A Stock Units and
Class A Premium Stock Units
14
<PAGE>
may not be received until three years from the date of grant but are fully
vested, except that shares of Hartford Life Class A Common Stock underlying
Class A Premium Stock Units may be forfeited if employment with Hartford
Life is terminated under certain circumstances before three years from the
date of grant. Dividends are paid (and automatically reinvested) on the
shares underlying the Class A Stock Units and Class A Premium Stock Units
in the same amount and to the same extent as dividends are paid on shares
of Hartford Life Class A Common Stock held by all shareholders of Hartford
Life. The amounts identified in this column represent the value of the
Class A Premium Stock Units awarded on March 15, 1999 when the closing
price of the Hartford Life Class A Common Stock on the NYSE was $52.625 per
share. On December 31, 1999, the value of such Class A Premium Stock Units
(including those acquired by dividend reinvestment) for Mr. Smith was
$39,725, based on the closing price of Hartford Life Class A Common Stock
on the NYSE of $44.00 per share on that date.
(8) Mr. Smith was granted 20,000 shares (pre-split) of restricted Common
Stock on February 1, 1997. On May 22, 1997, after the initial public
offering of Hartford Life Class A Common Stock, 10,000 (pre-split) of
these shares were exchanged for 23,205 shares of restricted Hartford Life
Class A Common Stock based on a formula intended to maintain the economic
value of the shares of restricted Common Stock. These shares became fully
vested on February 1, 2000. The amount set forth in the table represents
the market value of the restricted shares of Hartford Life Class A Common
Stock based on the closing price of Hartford Life Class A Common Stock on
the NYSE of $32.125 per share on such date. The market value of these
shares was $1,021,020 on December 31, 1999 based on the NYSE closing
price of Hartford Life Class A Common Stock of $44.00 per share on that
day. Dividends are paid on the shares of restricted Hartford Life Class A
Common Stock in the same amount and to the same extent as dividends are
paid on shares of Hartford Life Class A Common Stock held by all
shareholders of Hartford Life.
(9) The amounts identified represent the value of the Premium Stock Units
awarded on March 10, 1997 pursuant to The Hartford 1996 Deferred
Restricted Stock Unit Plan described in note (4) above with respect to
1996 bonus payments made in 1997. On March 10, 1997, the closing price of
the Common Stock on the NYSE was $39.1875 per share. On December 31,
1999, the values of such Premium Stock Units (including those acquired by
dividend reinvestment) for Messrs. Smith, Zwiener, Gareau and Wilder were
$19,677, $15,867, $5,078 and $2,504, respectively, based on the closing
price of the Common Stock on the NYSE of $47.375 per share on that date.
(10) Represents the number of shares of Hartford Life Class A Common Stock
underlying options granted to Mr. Smith pursuant to the 1997 Hartford
Life Incentive Stock Plan.
(11) In 1997, each of the Named Executives was granted a certain number of
performance shares relating to the Common Stock. The grants were
contingent upon the Company achieving two general performance objectives
over a three-year period that ended on December 31, 1999. The amounts in
this column represent the value of payouts made by the Company on January
27, 2000 in respect of performance shares awarded in 1997.
(12) In 1996, some of the Named Executives were granted a certain number of
performance shares relating to the Common Stock. The grants were
contingent upon the Company achieving two general performance objectives
over a three-year period that ended on December 31, 1998. The amounts in
this column represent the value of payouts made by the Company on
February 15, 1999 in respect of performance shares awarded in 1996.
(13) In 1997, Mr. Smith was granted a certain number of performance shares
relating to Hartford Life Class A Common Stock. The grants were
contingent upon Hartford Life achieving two general performance
objectives over a three-year period that ended on December 31, 1999. The
amount in this column represents the value of the payout made by Hartford
Life on January 27, 2000 in respect of performance shares awarded in
1997.
(14) Amounts shown in this column represent Company contributions under the
Company's Investment and Savings Plan and the Excess Savings Plan, which
are defined contribution plans. Under these plans, the Company makes a
matching contribution in an amount equal to 50% of an employee's
contribution, such matching contribution not to exceed three percent (3%)
of such employee's salary. The Company also makes a non-matching
contribution equal to one-half of one percent ( 1/2 of 1%) of an
employee's salary. Company contributions under these plans for 1999 were
$32,958, $29,313, $20,708, $11,842 and $9,071 for Messrs. Ayer, Smith,
Zwiener, Gareau and Wilder, respectively. The Company's flexible benefit
programs allow for
15
<PAGE>
the sale back to the Company of up to one week of vacation time capped at a
1999 limit of $3,077. An amount of $3,077 is included in this column for
Messrs. Smith and Wilder. For federal tax purposes, income will be imputed
to an employee who purchases more than $50,000 of life insurance coverage
to the extent that the value of the coverage is greater than the premium
paid. For 1999, $4,047 and $2,508 of income was imputed to Messrs. Ayer and
Zwiener, respectively, and such amounts are included in this column.
Stock Options
Under the Incentive Stock Plan, the Compensation and Personnel Committee of
the Board of Directors selects key employees to receive various awards,
including stock options, with or without stock appreciation rights, shares of
restricted Common Stock and performance shares. The table below provides
information regarding grants of stock options to the Named Executives during
1999.
Option Grants In Fiscal Year 1999
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of
Stock Price
Appreciation for
Individual Grants Option Term ($)(6)
------------------------------------------------------ --------------------
Number of
Securities % of Total
Underlying Options Granted Exercise
Options to Employees in Price Expiration
Name Granted (#)(1) 1999(3) ($/Share)(5) Date 5% 10%
---- -------------- --------------- ------------ ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Ramani Ayer............. 165,675 15.59 51.00 02/20/09 5,313,197 13,466,064
Lowndes A. Smith........ 35,822 3.37 51.00 02/20/09 1,148,812 2,911,612
45,895(2) 7.40(4) 54.50 02/20/09 1,572,822 3,986,440
David K. Zwiener........ 59,703 5.62 51.00 02/20/09 1,914,675 4,852,660
Joseph H. Gareau........ 12,737 1.20 51.00 02/20/09 408,475 1,035,263
Michael S. Wilder....... 7,791 0.73 51.00 02/20/09 249,857 633,252
</TABLE>
- --------
(1) The options granted to Messrs. Ayer, Smith and Zwiener become exercisable
upon the earlier of: (i) seven years from the date of grant, or (ii) the
closing price of the Common Stock on the NYSE is 125% or more of the
option grant price for at least ten consecutive trading days. Mr. Gareau's
and Mr. Wilder's options are exercisable in three equal annual
installments commencing on the first anniversary of the date of the grant.
(2) Represents the number of shares of Hartford Life Class A Common Stock
underlying options granted to Mr. Smith by Hartford Life pursuant to the
1997 Hartford Life Incentive Stock Plan. The option becomes exercisable
upon the earlier of (i) seven years from the date of grant, or (ii) the
closing price of the Hartford Life Class A Common Stock on the NYSE is
125% or more of the option grant price for at least ten consecutive
trading days.
(3) Percentages are based on options to purchase a total of 1,062,658 shares
of Common Stock granted to 792 employees of the Company during 1999.
(4) Percentage is based on options to purchase a total of 620,351 shares of
Hartford Life Class A Common Stock granted to 364 employees of Hartford
Life during 1999.
(5) All options were granted at exercise prices that were 100% of the fair
market value of the Common Stock (and with respect to the option granted
to Mr. Smith described in note (2) above, the Class A Common Stock of
Hartford Life) on the date of grant.
(6) At the end of the term of the options granted on February 18, 1999, the
projected price of a share of the Common Stock would be $83.07 and $132.28
at assumed annual appreciation rates of 5% and 10%, respectively. At the
end of the term of the option to purchase shares of Hartford Life Class A
Common Stock granted to Mr. Smith on February 18, 1999 (see note (2)
above), the projected price of a share of Hartford Life Class A Common
Stock would be $88.77 and $141.36 at assumed annual appreciation rates of
5% and 10%, respectively.
16
<PAGE>
1999 Option Exercises and 1999 Year-End Option Values
The following table provides information on stock options that were
exercised and the value of unexercised stock options held at December 31, 1999
by the Named Executives:
<TABLE>
<CAPTION>
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year-End Option Values
------------------------------------------------
Number of Securities
Shares Underlying Unexercised Value of Unexercised
Acquired Options at Fiscal In-the-Money Options Held
on Value Year-End (#) at Fiscal Year-End ($)(3)
Exercise Realized -------------------------- ---------------------------
Name (#) ($)(1) Exercisable Unexercisable Exercisable Unexercisable
---- -------- --------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Ramani Ayer............. 50,000 2,195,626 633,605 425,675 9,689,871 755,300
Lowndes A. Smith........ 125,000 4,878,158 363,742 235,822 6,532,714 581,000
-- -- 195,622(2) 45,895(2) 1,065,448(4) 0
David K. Zwiener........ 50,000 1,673,287 187,488 259,703 1,493,848 581,000
Joseph H. Gareau........ 9,662 412,253 284,693 110,559 7,152,229 326,297
Michael S. Wilder....... 1,321 60,307 89,802 27,697 2,100,366 78,491
</TABLE>
- --------
(1) Value realized upon the exercise of an option represents the difference
between the fair market value of the Common Stock on the date of exercise
and the exercise price of the option.
(2) Represents shares of Hartford Life Class A Common Stock underlying options
granted to Mr. Smith by Hartford Life pursuant to the 1997 Hartford Life
Incentive Stock Plan.
(3) Values of "in-the-money" options are calculated by subtracting the
exercise price per share of the options from the per share NYSE closing
price of $47.375 of the Common Stock on December 31, 1999.
(4) The value of the options granted to Mr. Smith to purchase shares of
Hartford Life Class A Common Stock (see note 2 above) are calculated by
subtracting the exercise price per share of the option from the per share
NYSE closing price of $44.00 of Hartford Life Class A Common Stock on
December 31, 1999.
Retirement Program
The Hartford Fire Retirement Plan (the "Retirement Plan") is a defined
benefit plan that covers substantially all eligible U.S. salaried employees of
the Company and its subsidiaries, including Senior Executive officers and
other executives. An employee's annual pension will equal two percent of his
or her average final compensation for each of the first thirty years of
benefit service, reduced by one and two-thirds percent of the employee's
primary Social Security benefit for each year of benefit service to a maximum
of thirty years; provided that no more than one-half of an employee's primary
Social Security benefit is used for such reduction. An employee's average
final compensation is defined under the Retirement Plan as the total of (i) an
employee's average annual base salary for the five calendar years of the last
120 consecutive calendar months of eligibility service affording the highest
such average plus (ii) an employee's average annual compensation not including
base salary for the five calendar years of the employee's last 120 consecutive
calendar months of eligibility service affording the highest such average. The
Retirement Plan also provides for undiscounted early retirement pensions for
employees who retire at or after age sixty following completion of fifteen
years of eligibility service. An employee will be vested in benefits accrued
under the Retirement Plan upon completion of five years of eligibility
service.
Applicable Federal law limits the amount of benefits that can be paid and
compensation which may be recognized under a tax-qualified retirement plan.
Therefore, the Company has a non-qualified unfunded retirement plan (the
"Hartford Excess Benefit Plan") for payment of those benefits at retirement
that cannot be paid from the qualified Retirement Plan. The practical effect
of the Hartford Excess Benefit Plan is to continue calculation of retirement
benefits to all employees on a uniform basis. The Company also maintains an
excess plan trust under which excess benefits under the Hartford Excess
Benefit Plan for certain officers of the Company are funded. Any such employee
may indicate a preference, subject to certain conditions, to receive any
excess benefit in the form of a single discounted lump sum payment. Any
"excess" benefit accrued to any such
17
<PAGE>
employee will be immediately payable in the form of a single discounted lump
sum payment upon the occurrence of a change in corporate control (as defined
in the Hartford Excess Benefit Plan).
Based on various assumptions as to remuneration and years of service, before
Social Security reductions, the following table illustrates the estimated
annual benefits payable from the Retirement Plan and the Hartford Excess
Benefit Plan at retirement at age 65 that are paid for by the Company.
Pension Plan Table
<TABLE>
<CAPTION>
Average Years of Service
Final -----------------------------------------------------------
Compensation 5 10 15 20 25 30
- ------------ -------- -------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
$ 400,000 $ 40,000 $ 80,000 $120,000 $ 160,000 $ 200,000 $ 240,000
500,000 50,000 100,000 150,000 200,000 250,000 300,000
750,000 75,000 150,000 225,000 300,000 375,000 450,000
1,000,000 100,000 200,000 300,000 400,000 500,000 600,000
1,500,000 150,000 300,000 450,000 600,000 750,000 900,000
2,000,000 200,000 400,000 600,000 800,000 1,000,000 1,200,000
2,500,000 250,000 500,000 750,000 1,000,000 1,250,000 1,500,000
3,000,000 300,000 600,000 900,000 1,200,000 1,500,000 1,800,000
</TABLE>
The amounts shown under "Salary" and "Bonus" opposite the names of the Named
Executives in the Summary Compensation Table comprise the compensation that is
used for purposes of determining "average final compensation" under the
Retirement Plan and the Hartford Excess Benefit Plan. The years of service
with the Company of each of the Named Executives for eligibility and benefit
purposes as of December 31, 1999 were as follows: Ramani Ayer, 26.50 years;
Lowndes A. Smith, 30.00 years; David K. Zwiener, 6.75 years; Joseph H. Gareau,
26.42 years; and Michael S. Wilder, 30.00 years. Mr. Smith has 31.75 years of
service with the Company and Mr. Wilder has 32.42 years of service with the
Company; however, only a maximum of 30 years of service may be considered when
determining benefits under the Retirement Plan.
Employment Agreements and Severance Plan
Ramani Ayer, Lowndes A. Smith and David K. Zwiener have employment
agreements (the "Employment Agreements") with the Company pursuant to which
Mr. Ayer is employed as Chairman, President and Chief Executive Officer, Mr.
Smith is employed as Vice Chairman of the Company and President and Chief
Executive Officer of Hartford Life, and Mr. Zwiener is employed as Executive
Vice President and Chief Financial Officer. The initial term of each of the
Employment Agreements began on July 1, 1997 and continues for three years,
unless terminated earlier in accordance with the Employment Agreements.
However, when the original term of the Employment Agreements or any renewal
term ends, the Agreements are automatically extended for successive one-year
periods unless either party gives the other its written notice of its
intention not to renew the Agreement at least fifteen months prior to any
renewal date. In addition, upon the occurrence of a "change of control" (as
defined in the Employment Agreements) of the Company, the terms of the
Employment Agreements are automatically extended for three years after the
change of control occurs.
The Employment Agreements provide, among other things, for annual base
salaries for Messrs. Ayer, Smith and Zwiener, as determined from time to time
by the Board of Directors, and their participation in the Company's benefit
plans and awards under executive incentive bonus and other programs. The
current annual base salaries for Messrs. Ayer, Smith and Zwiener are $950,000,
$850,000 and $600,000, respectively. In addition, each executive is entitled
to certain payments and benefits if his employment terminates for certain
reasons, including a termination without "cause" (as defined in the Employment
Agreements). If a termination without cause occurs, the terminated executive
is entitled to a severance payment equal to two times (a) his base salary, and
(b) a target bonus amount, each for the year in which the termination occurs,
and the vesting of stock options and restricted stock awards. In addition, if
a change of control of the Company occurs and the executive's employment is
terminated for certain reasons within certain time periods (generally, within
three years after a
18
<PAGE>
change of control), then the executive is entitled to receive certain payments
and benefits. Specifically, if after a change of control, the executive's
employment is terminated without cause, or the executive voluntarily
terminates his employment for any reason within six months following a change
of control, or voluntarily terminates his employment for "good reason" (as
defined in the Employment Agreements) within the remaining two years and six
months following a change of control, then the executive is generally entitled
to receive (i) a severance payment equal to three times the sum of his base
salary then in effect and his target bonus for the year, and (ii) certain
other benefits, including those that would otherwise be payable under the
Company's various employee benefit plans. While the executive is employed, and
for one year after any voluntary termination of employment (other than after a
change of control), the executive is subject to a noncompetition agreement in
favor of the Company.
The Company has an amended and restated Senior Executive Severance Pay Plan
that became effective on October 15, 1998 (the "Severance Plan") that covers
executive employees at certain levels, including Joseph H. Gareau and Michael
S. Wilder. The Severance Plan provides generally for the payment of amounts to
such executives upon termination of their employment, unless such termination
is initiated by the executive, is due to certain misconduct or disciplinary
action, is in connection with certain other specified circumstances, or
results from the executive's retirement, death or disability. The Severance
Plan provides for payments of amounts up to a maximum of two years of the
qualifying executive's salary depending primarily on such executive's Years of
Service (as defined in the Severance Plan). While receiving periodic payments
pursuant to the Severance Plan, the executive is generally eligible to
continue participating in certain of the Company's employee benefit plans,
subject, however, to the specific provisions in the benefit plans.
In addition to being covered by the Severance Plan, Joseph H. Gareau and
Michael S. Wilder each have an agreement with the Company that entitles them
to certain benefits upon a change of control of the Company (as defined in
such agreement). The agreements, dated October 1, 1997, provide, among other
things, that the Company would employ Mr. Gareau or Mr. Wilder, respectively,
for three years (the "Employment Period") after a change of control of the
Company occurs, if he was employed on the date the change of control occurs.
During the Employment Period, Mr. Gareau and Mr. Wilder are each entitled to
(i) a base salary of not less than his respective base salary in effect prior
to a change of control or potential change of control, and such salary may be
increased from time to time; (ii) an opportunity to earn an annual bonus in
accordance with the Company's bonus policies; and (iii) participate in long-
term compensation programs and stock incentive plans, and to receive the
benefits under the Company's various benefit programs. If Mr. Gareau's or Mr.
Wilder's employment terminates during the Employment Period for certain
specified reasons, including termination for "cause," "without cause," for
"good reason," voluntarily or due to retirement, death or disability (all as
defined in such agreement), then Mr. Gareau or Mr. Wilder, as the case may be,
is entitled to certain payments and/or benefits, depending on the reason for
termination. Specifically, if either Mr. Gareau's or Mr. Wilder's employment
is terminated without cause, or he terminates his employment for good reason,
he is entitled to receive, among other things, (i) a lump sum severance
payment equal to two times his base salary and target bonus in effect in the
year in which his employment terminated, and (ii) certain other benefits,
including those that would otherwise be payable under the Company's various
employee benefit plans. Mr. Gareau retired from the Company effective January
1, 2000.
19
<PAGE>
PERFORMANCE OF THE COMPANY'S COMMON STOCK
The graph below compares the yearly percentage change in cumulative
shareholder return on the Common Stock for the four-year period of December
31, 1995 through December 31, 1999 with (i) the cumulative total return of the
Standard & Poor's 500 Index(R) and (ii) the Standard & Poor's Insurance
Composite Index(R). The figures presented below assume the reinvestment of all
dividends into shares of Common Stock on any given dividend payment date and
that $100 was invested in Common Stock and in the Standard & Poor's 500
Index(R) and in the Standard & Poor's Insurance Composite Index(R). Common
Stock performance information is provided only for the past four years, as the
Company became a separate public company following the ITT Spin-Off and
regular-way trading of the Common Stock on the NYSE did not begin until
December 20, 1995.
[GRAPH]
TOTAL SHAREHOLDER RETURN
Dec-95 Dec-96 Dec-97 Dec-98 Dec-99
The Hartford Financial
Services group, Inc. $100 $144 $203 $242 $213
S&P 500(R) $100 $123 $164 $211 $255
S&P Insurance Composite
Index(R) $100 $124 $181 $187 $194
20
<PAGE>
STOCK OWNERSHIP OF DIRECTORS, EXECUTIVE OFFICERS
AND CERTAIN SHAREHOLDERS
Directors and Executive Officers
The following table shows as of February 29, 2000 the number of shares of
Common Stock beneficially owned by each director and nominee for election as a
director, by each of the Named Executives, and by the directors and all
executive officers of the Company as a group:
<TABLE>
<CAPTION>
Amount and
Nature of
Name of Beneficial
Beneficial Owner Ownership(1)(2)
- ---------------- ---------------
<S> <C>
Bette B. Anderson.............................................. 6,039
Rand V. Araskog................................................ 754,078
Ramani Ayer.................................................... 827,879
Robert A. Burnett.............................................. 8,748
Dina Dublon.................................................... 311
Donald R. Frahm................................................ 442,010
Joseph H. Gareau............................................... 322,883
Paul G. Kirk, Jr............................................... 5,973
Frederic V. Salerno............................................ 4,980
Robert W. Selander............................................. 3,517
Lowndes A. Smith............................................... 439,211
H. Patrick Swygert............................................. 3,507
Gordon I. Ulmer................................................ 7,873
Michael S. Wilder.............................................. 125,859
David K. Zwiener............................................... 291,811
All directors and executive officers as a group (19 persons)... 3,392,479
</TABLE>
- --------
Notes:
(1) All shares of Common Stock are owned directly except as otherwise
indicated below. Pursuant to regulations of the SEC, shares (i) that may
be acquired by directors and executive officers upon the exercise of stock
options exercisable within sixty days after February 29, 2000, (ii)
allocated to the accounts of certain directors and executive officers
under the Company's Investment and Savings Plan and Excess Savings Plan
based on a valuation of plan accounts as of February 29, 2000, (iii)
acquired by directors and executive officers under the Company's Dividend
Reinvestment and Cash Payment Plan through February 29, 2000, (iv) owned
by a director's or executive officer's spouse or minor child, or (v) that
have been granted under the Company's Incentive Stock Plan or the Non-
Employee Directors Restricted Stock Plan and are restricted, but as to
which the directors or executive officers have the right to vote, are
deemed to be beneficially owned by such directors and executive officers
as of such date and are included in the number of shares listed in the
table above. Of the number of shares of Common Stock shown above, the
following represent shares that may be acquired upon exercise of stock
options that are exercisable as of February 29, 2000 or within sixty days
thereafter by: Mr. Ayer 633,605 shares; Mr. Frahm, 315,818 shares; Mr.
Smith, 363,742 shares; Mr. Zwiener, 187,488 shares; Mr. Gareau, 305,726
shares; Mr. Wilder, 101,116 shares; and all directors and executive
officers as a group, 2,015,316 shares.
(2) The shares of Common Stock beneficially owned by each person named above
do not exceed one percent of the outstanding shares of Common Stock. The
shares beneficially owned by the group of directors and executive officers
represent approximately 1.57% of the outstanding shares of Common Stock.
21
<PAGE>
Certain Shareholders
The following table shows those persons known to the Company as of February
29, 2000 to be the beneficial owners of more than five percent of the
Company's Common Stock. In furnishing the information below, the Company has
relied on information filed with the SEC by the beneficial owners.
<TABLE>
<CAPTION>
Name and Address Amount and Nature
of Beneficial of Beneficial Percent
Owner Ownership(1) of Class
---------------- ----------------- --------
<S> <C> <C>
FMR Corp........................................... 18,725,098 8.73%
82 Devonshire Street
Boston, MA 02109
</TABLE>
- --------
Notes:
(1) FMR Corp. ("FMR"), Edward C. Johnson, 3d and Abigail P. Johnson filed a
Schedule 13G with the SEC to report that they were the beneficial owners
of 18,725,098 shares of Common Stock as of December 31, 1999. FMR, Mr.
Johnson and Ms. Johnson had sole power to dispose of 18,725,098 of such
shares, but none of them had sole voting power as to such shares. FMR has
sole voting power with respect to 1,070,058 shares, and the voting power
for 17,430,240 shares resides with the Boards of Trustees of the various
Fidelity mutual funds. Neither FMR nor Mr. Johnson has the power to vote
224,800 shares which are owned by certain institutional accounts. FMR is
the parent to various subsidiaries that are beneficial owners of Common
Stock, including Fidelity Management & Research Company that serves as an
investment adviser to various investment companies, Fidelity Management
Trust Company, an institutional investment manager, and Strategic
Advisers, Inc., an investment adviser that provides investment advisory
services to individuals. Members of the Edward C. Johnson, 3d family own
approximately 49% of the voting stock of FMR. Mr. Johnson is Chairman of
FMR and Abigail Johnson is a director of FMR.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than ten percent of
a registered class of the Company's equity securities, to file with the SEC
and the NYSE initial reports of ownership and reports of changes in ownership
of Common Stock and other equity securities of the Company. Officers,
directors and greater than ten-percent shareholders are required by SEC
regulation to furnish the Company with copies of all Section 16(a) forms they
file.
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company and written representations that no other
reports were required during its most recent fiscal year, all Section 16(a)
filing requirements applicable to its officers and directors (the Company has
no greater than ten-percent beneficial owners) were complied with, except that
one report covering one transaction was filed late by Mr. Salerno.
22
<PAGE>
ITEM 2
RATIFICATION OF THE APPOINTMENT OF INDEPENDENT AUDITORS
In accordance with the recommendation of the Audit Committee, the Board of
Directors has appointed Arthur Andersen LLP as independent auditors of the
Company for the fiscal year ending December 31, 2000. Although shareholders'
ratification of this appointment is not required, the Board requests
ratification by the shareholders. If the shareholders do not ratify the
appointment of Arthur Andersen LLP, the selection of other independent
auditors will be considered by the Audit Committee and the Board of Directors.
Arthur Andersen LLP has served as independent auditors of the Company for
many years and Arthur Andersen LLP's long-term knowledge of the Company has
enabled Arthur Andersen LLP to carry out its audits with effectiveness and
efficiency. Representatives of Arthur Andersen LLP will attend the Annual
Meeting, will have the opportunity to make a statement if they desire to do
so, and will be available to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE
RATIFICATION OF THE APPOINTMENT OF ARTHUR ANDERSEN LLP AS INDEPENDENT AUDITORS
OF THE COMPANY.
ITEM 3
APPROVAL OF CERTAIN MATERIAL TERMS
OF THE COMPANY'S ANNUAL EXECUTIVE BONUS PROGRAM
The Company has an annual executive bonus program (the "Bonus Program") that
is intended to provide certain Company executives and key managers with
incentive compensation based upon the achievement of pre-established
performance goals and individual performance. The Bonus Program is intended to
provide an incentive for profitable growth and to motivate participating
executives and key managers toward even higher achievement and operating
results, to tie their goals and interests to those of the Company and its
shareholders and to enable the Company to attract and retain highly qualified
executives and key managers.
At the 1997 Annual Meeting of Shareholders, the shareholders approved four
designated material terms related to Section 162(m) so that the Bonus Program
would comply with the requirements of Section 162(m) for five years. By
approving at this Annual Meeting the material terms described below, the
Section 162(m) requirements will be met for the years 2000 through 2004,
whereas the 1997 approval by the shareholders only extended through 2001.
Under the Bonus Program, each participating executive and key manager is
assigned a target bonus opportunity based on his or her job grade and
position, expressed as a percentage of the executive's or key manager's year-
end base salary rate. At the end of each year, the aggregate amount of
individual target bonuses is adjusted in accordance with a pre-established
formula to create a bonus pool for the executives and key managers for the
year. The amount of the bonus pool for each year depends upon the Company's
achieving certain pre-established performance goals for the year, such as
achieving a certain net income and return on equity. Individual bonus awards
from the overall bonus pool are determined on a discretionary basis by taking
into account specific personal contributions during the year. The Compensation
and Personnel Committee of the Board of Directors (the "Committee")
administers the Bonus Program with respect to certain Senior Executives of the
Company. Each year the Committee reviews and approves management's suggestions
for performance goals of such Senior Executives and reviews and approves
annual bonus payment levels based on the achievement of goals by them.
Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code")
limits to $1,000,000 the tax deductibility by the Company of compensation paid
to its five most highly compensated executive officers. However, if the
shareholders approve four designated material terms of a compensation plan or
program and compensation paid pursuant to the plan or program otherwise
complies with Section 162(m) then such compensation is exempted from this
limitation and is fully deductible. The Committee has approved the following
four material terms of the Bonus Program as they relate to the five most
highly compensated executive officers of the Company. Shareholders are
requested to approve these terms in order to maintain the full deductibility
of compensation paid to the five most highly compensated executive officers.
23
<PAGE>
For purposes of Section 162(m), the four material terms of the Bonus Program
must apply to the five most highly compensated executive officers of the
Company for any given year, although the Company may apply the same or similar
performance criteria to other executives.
Set forth below is a description of the four material terms of the Bonus
Program related to Section 162(m) which shareholders are asked to approve:
1. Class of Eligible Executives. The five most highly compensated
executive officers of the Company and its subsidiaries for any given year.
2. Performance Criteria. Payment of bonuses pursuant to the Bonus Program
shall be based upon any one or more of the following criteria, which shall
be stated for the five most highly compensated executive officers in terms
of an objective formula or standard as required by Section 162(m), and
which may be (a) determined solely by reference to the Company's
performance, any subsidiary or affiliate of the Company or any division or
unit of any of the foregoing, or (b) based on comparative performance of
any one or more of the following relative to other entities: (i) earnings
per share, (ii) return on equity, (iii) cash flow, (iv) return on total
capital, (v) return on assets, (vi) economic value added, (vii) increase in
surplus,
(viii) reductions in operating expenses, (ix) increases in operating
margins, (x) earnings before income taxes and depreciation, (xi) total
shareholder return, (xii) return on invested capital, (xiii) cost
reductions and savings, (xiv) earnings before interest, taxes, depreciation
and amortization, (xv) pre-tax operating income, (xvi) productivity
improvements, or (xvii) an executive'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.
3. Maximum Payable to any Executive Each Year. The maximum bonus that may
be paid to any of the five most highly compensated executive officers in
any given year is the lesser of (a) 200% of such executive's annual base
salary in effect at the end of such year, or (b) $4,000,000.
4. Committee Certification of Performance Goal Achievement. At or after
the end of each calendar year, the Committee is required to certify in
writing whether the pre-established performance goals and objectives have
been satisfied in such year with respect to the five most highly
compensated executive officers. The actual bonus award for any participant
for such year shall then be determined based upon the pre-established
computation formula or methods. The Committee has no discretion to increase
the amount of any participant's bonus as so determined in order for the
bonus to be exempt from the Section 162(m) limitation but may reduce the
amount of or totally eliminate such bonus if the Committee determines, in
its absolute discretion, that such a reduction or elimination is
appropriate in order to reflect the participant's performance or
unanticipated factors.
Approved bonus awards under the Bonus Program are payable in cash as soon as
is practicable after the end of each calendar year and after the Committee has
certified in writing that the relevant performance goals were achieved. Each
participant will recognize ordinary taxable income upon receipt of payments
under the Bonus Program.
During 1999, 823 employees were eligible to participate in the Bonus
Program. The bonuses paid to the Company's Chief Executive Officer and the
other four most highly compensated executive officers for 1999 are included in
the Summary Compensation Table under the caption "COMPENSATION OF EXECUTIVE
OFFICERS" below. Aggregate 1999 bonus payments of $3,438,873 and $29,045,066
were paid to all current executive officers as a group, and all participating
executives and key managers who are not executive officers, respectively.
Since the Bonus Program requires performance goals to be set and participants
to be selected for each year, it is not determinable what benefits, if any,
will be paid to any participating executive or key manager in the future.
24
<PAGE>
Amendments can be made to the Bonus Program that can increase its cost to
the Company and can alter the allocation of benefits among participating
executive officers. In addition, the Committee generally intends to take
reasonable measures to avoid the loss of a Company tax deduction due to
Section 162(m). The Committee may in certain circumstances, however, approve
bonus or other payments outside of the Bonus Program that do not meet the
material terms of the Bonus Program described above and that may not be tax
deductible.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE TO APPROVE THE
DESIGNATED MATERIAL TERMS OF THE COMPANY'S ANNUAL EXECUTIVE BONUS PROGRAM.
ITEM 4
APPROVAL OF THE HARTFORD 2000
INCENTIVE STOCK PLAN
The Board of Directors of the Company has approved The Hartford 2000
Incentive Stock Plan (the "2000 Stock Plan") and recommended that the 2000
Stock Plan be submitted to shareholders for approval at the Annual Meeting.
The 2000 Stock Plan provides for the issuance of a maximum number of shares of
Common Stock in
connection with the grant of options and/or other stock-based or stock-
denominated awards. If approved by the shareholders, the 2000 Stock Plan will
become effective on May 18, 2000.
The 2000 Stock Plan and the allocation of shares thereunder is intended to
supersede and replace The Hartford 1995 Incentive Stock Plan (the "1995 Stock
Plan"). The terms of the 2000 Stock Plan are substantially similar to the
terms of the 1995 Stock Plan, except with respect to the amount of shares
available for award grants. Under the 1995 Stock Plan, the maximum limit
applicable to all share awards for the duration of the 1995 Stock Plan is 15%
of the issued and outstanding shares of Common Stock as of December 31, 1997.
The annual limit is 1.65% of the issued and outstanding shares of Common Stock
as of the end of the immediately preceding fiscal year. Under the 2000 Stock
Plan, the maximum limit over the duration of the 2000 Stock Plan has been
reduced to 8% of the outstanding shares as of the date the 2000 Stock Plan is
approved by shareholders. There is no applicable annual limit. Upon approval
and adoption of the 2000 Stock Plan, the 1995 Stock Plan will terminate and
the remaining allocation of shares thereunder will no longer be available for
grant. The terms of the 2000 Stock Plan will apply to the holders of
outstanding options previously granted under the 1995 Stock Plan.
The Company has a long-standing policy of encouraging employees at all
levels to become shareholders of the Company in order to share both the
perspective, and the rewards experienced by, non-employee owners of the
Company. This policy has been effected in part through employee participation
in the Company's ESPP and ISP. More recently, the Company has expanded this
policy to include the granting of stock awards to employees below the
executive level. The Company has been constrained in its ability to broaden
this policy because of the annual limit imposed by the 1995 Stock Plan. The
Company desires to preserve its flexible program of stock-based awards
designed to retain exceptional employees at all levels and to motivate their
efforts on behalf of the Company. The Company believes that adoption of the
2000 Stock Plan will enable the Company to continue providing an effective
source of incentives to reward the efforts of highly motivated employees,
including those below the executive level, and to attract new personnel in an
effort to meet the varying business needs of the Company and to compete
effectively in its markets.
An additional reason for adopting the 2000 Stock Plan at this time is that,
on March 27, 2000 the Board of Directors of the Company presented an offer,
referenced elsewhere herein, to the board of directors of Hartford Life to
acquire all of the common shares of Hartford Life not already owned by the
Company. Following consummation of that transaction, employees of Hartford
Life who previously had been granted awards with respect to Hartford Life
Class A Common Stock will be eligible to receive award grants of Common Stock,
thus necessitating an increase in available shares for annual grants.
25
<PAGE>
As of February 29, 2000, there were outstanding 3,981 employee stock options
to purchase 16,677,145 shares of Common Stock under the 1995 Stock Plan; 11
non-employee director stock options to purchase 40,000 shares of Common Stock
under the 1995 Stock Plan; 103,824 Performance Shares awarded under the 1995
Stock Plan; and 237,450 shares of Restricted Stock awarded under the 1995
Stock Plan.
In light of the Company's desire to grant stock awards to more employees and
in contemplation of the consummation of the transaction with Hartford Life
shareholders, the Board has determined that it is in the best interests of the
Company and its shareholders to adopt the 2000 Stock Plan.
Set forth below is a description of the material terms of the 2000 Stock
Plan. The following summary is qualified in its entirety by reference to the
specific provisions of the 2000 Stock Plan, the full text of which is set
forth as Appendix B. Capitalized terms used but not defined herein shall have
the meanings set forth in the 2000 Stock Plan.
. The Compensation and Personnel Committee of the Board of Directors (the
"Committee") will administer the 2000 Stock Plan.
. The 2000 Stock Plan provides for the grant of incentive stock options
(qualifying under Section 422 of the Internal Revenue Code) and non-
qualified stock options, (each of which may be granted either with or
without stock appreciation rights ("SARs")), restricted stock and
performance shares, or any combination of the foregoing, as the
Committee may determine.
. The 2000 Stock Plan will become effective on May 18, 2000 and will have
a ten-year term, subject to earlier termination by the Board of
Directors.
. All employees of the Company, its subsidiaries and affiliates whose
responsibilities and decisions, in the judgment of the Committee,
directly affect the performance of the Company, its subsidiaries and
affiliates ("key employees") shall be eligible for award grants under
the 2000 Stock Plan.
. The 2000 Stock Plan provides for the issuance during the term of the
2000 Stock Plan of an aggregate of eight percent (8%) of the Company's
outstanding shares of Common Stock as of the date of shareholder
approval of the 2000 Stock Plan.
. Awards may be granted by the Committee in its discretion and, therefore,
future benefits to be allocated to any individual or group of
individuals under the 2000 Stock Plan are not presently determinable.
DESCRIPTION OF THE HARTFORD 2000 INCENTIVE STOCK PLAN
Shares Subject to the Plan. The aggregate number of shares of Common Stock
that may be awarded under the 2000 Stock Plan is eight percent (8%) of the
total of the Company's outstanding shares of Common Stock as of the date of
shareholder approval of the 2000 Stock Plan. In addition, no more than twenty
percent (20%) of the total number of shares available for grant shall be
available for restricted stock and performance share awards. For any given
year, no individual employee may receive an award of options for more than
1,000,000 shares.
Shares of Common Stock to be issued under the 2000 Stock Plan may be made
available from the authorized but unissued Common Stock, treasury stock or
from shares purchased on the open market or any combination of the foregoing.
In the event of a reorganization, merger, stock dividend or other change in
the corporate structure of the Company or the Common Stock described in the
2000 Stock Plan, the number of shares subject to the 2000 Stock Plan, the
number of shares then subject to awards and the price per share payable on
exercise of options may be appropriately adjusted by the Committee.
For the purpose of computing the total number of shares of Common Stock
available for awards under the 2000 Stock Plan, there shall be counted against
the foregoing limitations the number of shares of Common Stock
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subject to issuance under the 2000 Stock Plan upon exercise or settlement of
awards and the number of shares of Common Stock that equal the value of awards
of performance shares, in each case determined as at the dates on which such
awards are granted. If any awards under the 2000 Stock Plan are forfeited,
terminated, expire unexercised, are settled in cash in lieu of Common Stock or
are exchanged for other awards, the shares of Common Stock which were
theretofore subject to such awards shall again be available for awards under
the 2000 Stock 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 2000 Stock Plan may be
available for subsequent awards.
Plan Administration. The Committee, each member of which is a "non-employee
director" within the meaning of Rule 16b-3 under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), and an "outside director" for
purposes of Section 162(m), will administer the 2000 Stock Plan. The Committee
will make determinations, including but not limited to, the designation of
those key employees or groups of key employees who shall receive awards, the
number of shares to be covered by options, SARs and restricted stock awards,
the exercise price of options (which may not be less than 100% of the fair
market value of Common Stock on the date of grant), other option terms and
conditions, and the number of performance shares to be granted and the
applicable performance objectives. The Committee cannot reprice options
without first obtaining approval of shareholders. The Committee may impose
such additional terms and conditions on an award as it deems advisable. The
Committee's decisions in the administration of the 2000 Stock Plan shall be
binding on all persons for all purposes.
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 of the Company, except that awards to executive officers shall be
made solely by the Committee or Board of Directors.
Stock Options and Related SARs. Incentive stock options and related SARs
under the 2000 Stock Plan must expire within ten years after grant; non-
qualified stock options and related SARs will expire not more than ten years
and two days after grant. The exercise price for options must be at least
equal to the fair market value of the Common Stock on the date of grant. The
closing price of the Common Stock on the NYSE on February 29, 1999 was $31.25
per share. The exercise price for options must be paid to the Company at the
time of exercise and, in the discretion of the Committee, may be paid in the
form of cash or already-owned shares of Common Stock or a combination thereof.
During the lifetime of a key employee, an option or SAR must be exercised only
by the key employee (or his or her estate or designated beneficiary) but no
later than three months after his or her termination of employment (or such
other period as determined by the Committee). If termination is a result of
retirement, total disability or death, an option or SAR may be exercised
within five years after such termination (or such other period as determined
by the Committee), but in no event later than the expiration of the original
term of the option. If a key employee voluntarily resigns or is terminated for
cause, the options and SARs are canceled immediately.
Performance Shares. Performance shares under the 2000 Stock Plan are
contingent rights to receive future payments of Common Stock, cash or a
combination thereof, based on the achievement of performance objectives as
prescribed by the Committee. Such performance objectives will be determined by
the Committee over a measurement period or periods of not less than two nor
more than five years and related to at least one of the performance criteria
described below. The maximum number of performance shares that may be granted
to any individual key employee in any given year is 200,000. The ultimate
payments are determined by the number of shares awarded and the extent that
performance objectives are achieved during the period. In the event a key
employee terminates employment during such a performance period, the key
employee will forfeit any right to payment unless the Committee determines
otherwise. However, in the case of retirement, total disability, death or
cases of special circumstances, the key employee may, in the discretion of the
Committee, be entitled to an award prorated for the portion of the performance
period during which he or she was employed by the Company.
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Restricted Shares. Restricted shares of Common Stock awarded under the 2000
Stock Plan will be issued subject to a restriction period set by the Committee
during which time the shares may not be sold, transferred, assigned or pledged
or otherwise disposed of. If an employee terminates employment during a
restriction period, all such shares still subject to restrictions will be
forfeited by the key employee and reacquired by the Company, except when the
Committee determines otherwise in special circumstances. The Committee may
provide for the lapse of restrictions where deemed appropriate and may also
require the achievement of pre-determined performance objectives in order for
such shares to vest. The recipient, as owner of the awarded shares, shall have
all other rights of a stockholder, including the right to vote the shares and
receive dividends and other distributions during the restriction period.
Compensation Upon Change of Control. The 2000 Stock Plan provides for the
automatic protection of intended economic benefits for key employees in the
event of a change of control of the Company.
"Change of Control" is generally defined in the 2000 Stock Plan as any of
the following events: (i) a report on Schedule 13D shall be filed with the SEC
pursuant to Section 13(d) of the Exchange Act disclosing that any person
(within the meaning of Section 13(d) of the Exchange Act), 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 (as such term is defined in Rule 13d-3 under
the Exchange Act) directly or indirectly of 20% or more of the outstanding
Common Stock (calculated as provided in paragraph (d) of Rule 13d-3 under the
Exchange Act in the case of rights to acquire Common Stock); (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 Common
Stock (or securities convertible into such Common Stock) for cash, securities
or any other consideration; provided that after consummation of the offer, the
person in question is the beneficial owner directly or indirectly of 15% or
more of the outstanding Common Stock; (iii) the shareholders of the Company
shall approve (A) any consolidation or merger of the Company in which the
Company is not the continuing or surviving corporation or pursuant to which
shares of Common Stock would be converted into cash, securities or other
property, other than a consolidation or merger of the Company in which holders
of Common Stock immediately prior to the consolidation or merger have the same
proportionate ownership of common stock of the surviving corporation
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) there shall have been a change in a majority of the members of the
Board of Directors within a twelve-month period unless the election or
nomination for election by the Company's shareholders of each new director
during such twelve-month period was approved by the vote of two-thirds of the
directors then still in office who were directors at the beginning of such
twelve-month period.
Under the terms of the 2000 Stock Plan and notwithstanding any provisions
thereunder to the contrary, upon the occurrence of a Change of Control:
(i) Each option and related right outstanding will generally 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 2000 Stock Plan. 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 below) over the
exercise price.
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(iii) In the event the successor corporation does not offer to assume or
replace the outstanding options and rights as described above, 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 below) 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.
(v) The following definitions shall apply only for purposes of this
discussion of Change of Control:
"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 Common 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 Common Stock during the same
period of time, as reported in a report on Schedule 13D filed with the SEC, or
(C) the highest gross price paid or to be paid for a share of Common Stock
(whether by way of exchange, conversion, distribution upon merger, liquidation
or otherwise) in any of the transactions set forth in Section 9 of the 2000
Stock Plan 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 Common 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 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 the 2000 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 the 2000 Stock Plan shall lapse upon the
occurrence of a Change of Control, and such 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, he or she shall be deemed to
have made the election, as of the 60th day of such period, for unrestricted
certificates for all of such shares.
(vii) If a Change of Control occurs during the course of a performance
period applicable to an award of performance shares, 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.
Amendment and Termination of the 2000 Stock Plan. The Board of Directors may
amend or discontinue the 2000 Stock Plan at any time and, specifically, may
make such modifications to the 2000 Stock Plan as it deems necessary to avoid
the application of Section 162(m) of the Code and the United States Treasury
regulations issued thereunder. However, shareholder approval is required for
any amendment which may, (a) with respect only to the grant of incentive stock
options (i) increase the number of shares reserved for awards (except as
provided in the 2000 Stock Plan with respect to stock splits or other similar
changes), or (ii) materially change the group of employees eligible for
awards; or (b) with respect to the grant of all options, allow the Committee
to reprice options.
The Committee has not specified all key employees who may receive awards
under the 2000 Stock Plan in the future. Information regarding the options,
performance shares and restricted stock granted to the Company's Chief
Executive Officer and the four other most highly compensated executive
officers during 1999 is set forth in the various compensation tables included
under the caption "COMPENSATION OF EXECUTIVE OFFICERS" below. During 1999, all
current executive officers of the Company as a group were granted: (i) options
to purchase 333,316 shares of Common Stock, and (ii) no restricted shares.
During 1999, all employees of the Company, excluding executive officers of the
Company, were granted: (i) options to purchase 1,062,658 shares of Common
Stock, and (ii) no restricted shares. The closing price of the Common Stock on
the NYSE on February 29, 2000 was $31.25 per share.
Registration of Shares. If the 2000 Stock Plan is approved by the
shareholders, the shares available for award grants thereunder will be
registered under the Securities Act of 1933, as amended, and a Subsequent
Listing Application will be filed with the NYSE to list the shares.
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 SARs
Options granted under the Incentive Stock Plan may be either non-qualified
options or "incentive stock options" qualifying under Section 422A of the
Code.
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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 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 Company 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 2000 Stock Plan denominated as ISOs are intended to
constitute incentive stock options under Section 422A of the Code. 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 Company
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 2000 Stock Plan. The Company 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 Company 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.
Stock Appreciation Rights ("SARs")
SARs may be awarded with respect to both ISOs and non-qualified options
granted under the 2000 Stock 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 Company 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 Common Stock. To the extent that payment is
made in the form of Common 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 Company will be entitled to a Federal
tax deduction for the value of payment at the time of payment.
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
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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 Company 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 Company
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) 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 Company and subject to a 20% excise tax
to the awardee.
MATERIAL TERMS RELATED TO SECTION 162(m)
At the 1997 Annual Meeting of Shareholders, the shareholders approved the
designated four material terms of the 1995 Stock Plan related to Section
162(m) so that compensation attributable to certain awards is exempt from the
Section 162(m) tax deduction limitation, as described in ITEM 3 above. By
approving all of the material terms of the 2000 Stock Plan described above at
this Annual Meeting, the Section 162(m) requirements will be met for the years
2000 through 2004, whereas the 1997 approval by the shareholders extended only
through 2001. Set forth below is a description of the four material terms of
the 2000 Stock Plan related to Section 162(m), all of which shareholders are
asked to approve.
1. Class of Executives. The five most highly compensated executive officers
of the Company, its subsidiaries and affiliates for any given year whose
responsibilities and decisions, in the judgment of the Committee, directly
affect the performance of the Company and its subsidiaries.
2. Performance Criteria. Awards (other than certain option grants described
below) may be based on any one or more of the following criteria, which shall
be stated for the five most highly compensated executive officers in terms of
an objective formula or standard as required by Section 162(m), and which may
be (a) determined solely by reference to the Company's performance, any
subsidiary or affiliate of the Company or any division or unit of any of the
foregoing, or (b) based on comparative performance of any one or more of the
following relative to other entities: (i) earnings per share, (ii) return on
equity, (iii) cash flow, (iv) return on total capital, (v) return on assets,
(vi) economic value added, (vii) increase in surplus, (viii) reductions in
operating expenses, (ix) increases in operating margins, (x) earnings before
income taxes and depreciation, (xi) total shareholder return, (xii) return on
invested capital, (xiii) cost reductions and savings, (xiv) earnings before
interest, taxes, depreciation and amortization, (xv) pre-tax operating income,
(xvi) productivity improvements, or (xvii) an executive'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.
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3. Limit on Awards to any Participant in any Year. A participant in the 2000
Stock Plan may be awarded stock options and SARs in any given year for no more
than 1,000,000 shares. In addition, a participant may be awarded no more than
200,000 shares of Common Stock in the form of performance shares in any given
year.
4. Committee Certification of Performance Goal Achievement. At or after the
end of each calendar year, the Committee is required to certify in writing
whether the pre-established performance goals and objectives have been
satisfied in such year with respect to awards to the five most highly
compensated executive officers that are intended to comply with Section
162(m).
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE TO APPROVE THE
HARTFORD 2000 INCENTIVE STOCK PLAN.
ITEM 5
SHAREHOLDER PROPOSAL RELATING TO TOBACCO INVESTMENTS
St. Joseph Health System of 440 South Batavia Street, Orange, California is
the beneficial owner of at least 200 shares of Common Stock and has advised
the Company that it intends to present the following proposal at the Annual
Meeting. The proposal is included in this Proxy Statement pursuant to the
applicable rules of the SEC. The Company is not responsible for the contents
or language of the proposal, which is set forth in italic type and between
quotation marks. The Board of Directors, for the reasons set forth below,
recommends a vote "AGAINST" the proposal.
"WHEREAS, a July 7-9, 1995 editorial in USA Today declared:
Here's a grubby little health-care news item: According to a commentary
in the upcoming edition of the British medical journal Lancet, major
U.S. health insurers are large investors in major U.S. tobacco
companies. In other words, the nation's merchants of care are partners
with the nation's merchants of death . . . These investments grate and
gall. Every year, tobacco use is fatal for thousands of Americans. For
insurers to provide health care for those suffering smokers on the one
hand while investing in the source of their misery on the other is
unconscionable. And hypocritical.
. As shareholders, we are concerned about the ethical implications of
investments in the tobacco industry by companies that sell life insurance,
especially when they are paying out hundreds of millions of dollars to
patients who are sick and dying as a result of tobacco use.
. In 1994 the Centers of Disease Control and Prevention released an article
entitled, "Medical-Care Expenditures Attributable to Cigarette Smoking,
United States--1993." The study found that smoking-related disease in the
U.S.A. has an enormous economic impact. In 1993, it is estimated that the
direct medical costs associated with smoking totaled $30 billion. Such
findings have led the State of Louisiana to add insurers to its Medicaid
reimbursement litigation against the tobacco industry.
. In 1996 the AMA called for mutual funds and health-conscious investors to
refuse to own stock in tobacco companies, and for those same investors to
divest from stocks and bonds in tobacco companies.
. We believe it is inconsistent for an insurance company that sells life
insurance to invest in tobacco equities and yet give preferential rates to
non-smokers. Therefore we believe that the company should seriously review
its stand related to these apparently contradictory positions on tobacco.
RESOLVED: that shareholders request the Board to initiate a policy mandating
no further purchases of tobacco equities in any of our portfolios unless it
can be proven that tobacco use does not cause the illnesses and deaths that
have been attributed to it, and that the company divest itself of all tobacco
stocks by January 1, 2001.
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Supporting Statement
Our Company exists to help people keep healthy. We support people not using
tobacco, yet have no policy against investing in companies producing its
products. Allstate, Chubb, UNUM, and other companies that sell life insurance
have policies and/or practices that have resulted in prohibitions or
limitations on their various investments in tobacco companies. Institutions
like Harvard and Johns Hopkins, as well as The Maryland Retirement and Pension
Systems have divested from all tobacco stocks. As the editorial noted above
concludes: "Insurers have a responsibility to maximize returns. But they have
a responsibility to hold down costs too. Investing in tobacco while charging
premiums based in part on the cost of treating tobacco-related illness mocks
that obligation." If you agree that our Company should not contribute to
peoples' illness and death by investing in tobacco, please vote YES for this
resolution."
The Board Of Directors' Response To Shareholder Proposal
The Board of Directors believes that, as a matter of principle, the
investment policy decisions of the Company should be made with the best
interests of all shareholders in mind under the guidance of the Board and its
Finance Committee. The Board has a fiduciary duty to maximize shareholder
value which it believes is best accomplished through maintenance of a well
diversified portfolio. A diversified portfolio structure provides maximum
returns with the lowest possible risk. To exclude an entire industry group,
such as tobacco, could impede the Company's ability to achieve these results.
To this end, the Board has developed a comprehensive investment policy which
it continually and carefully monitors. The Board believes that adoption of the
shareholder proposal would inhibit its ability to fulfill this fiduciary
responsibility.
In addition, the Company's investment activities include, among other
things, acting as investment manager for institutions and individuals through
its separate accounts. All of the economic interest in investment assets held
in equity separate accounts is vested in the customer, not the Company. A
portion of the equity securities held in these separate accounts is managed on
an indexed basis, which means that the investment returns track as closely as
possible a specified market index. The decision as to what stocks are
contained in a specified index is made by those who maintain the index, not
the Company.
Investing in tobacco equities may raise social issues compelling to some of
the Company's shareholders. However, the Board's duty is to represent all of
the Company's shareholders who, by virtue of sheer numbers, have diverse
social and political agendas. In any publicly traded company, shareholders are
likely to have differing opinions and strong personal views concerning the
propriety of certain business operations or investments of that company.
Despite that fact, any corporation, including the Company, would be brought to
a standstill if it was required to comply with the personal and political
concerns of each and every shareholder. Your Board believes it is of
fundamental importance that investment policy decisions continue to be made
and managed independently without attempting to monitor portfolios for
investments which may not find favor with individual shareholders.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE
"AGAINST" THE SHAREHOLDER PROPOSAL RELATING TO TOBACCO INVESTMENTS.
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REQUIRED VOTES OF SHAREHOLDERS
The presence in person or by proxy of shareholders entitled to cast a
majority of shares of Common Stock will constitute a quorum for the
transaction of business at the Annual Meeting. The nominees for election as
directors receiving the greatest number of votes, up to the number of
directors to be elected, shall be elected directors. To be approved, Item 2,
the ratification of the appointment of Arthur Andersen LLP, Items 3 and 4,
certain material terms of the Company's Bonus Program and The Hartford 2000
Incentive Stock Plan, and Item 5, the shareholder proposal, will require the
affirmative vote of the holders of a majority of shares of Common Stock
present in person or represented by proxy. Abstentions will be included in the
number of shares that are present for purposes of determining the presence of
a quorum but will not be counted as votes cast on items submitted for a vote
of shareholders. Accordingly, abstentions will have the same effect as a
negative vote. If shares are held in "street name" through a broker or other
nominee, the broker or nominee may not be permitted to exercise voting
discretion on certain matters. Thus, if a broker or nominee is not given
specific instructions on those matters, those shares may not be voted on those
matters, will not be counted in determining the number of shares necessary for
approval, and will have no effect on the outcome of the vote. Shares
represented by such "broker non-votes" will, however, be counted in
determining whether there is a quorum.
One or more persons will be appointed to act as the inspector of election at
the Annual Meeting. The bylaws of the Company provide that shareholders shall
be accorded privacy in voting and that the integrity of the balloting process
shall be assured. Among other duties, the inspector of election will certify
as to compliance with such confidentiality provisions.
PROPOSALS OF SHAREHOLDERS
Proposals submitted by shareholders for inclusion in next year's Proxy
Statement must be received by the Company no later than the close of business
on November 30, 2000. Any proposal received after that date will not be
included in the Company's proxy materials. In addition, all proposals for
inclusion in the Proxy Statement must comply with all of the requirements of
SEC Rule 14a-8 under the Securities Exchange Act of 1934. No proposal may be
presented at the 2001 Annual Meeting unless the Company receives notice of the
proposal by no later than February 16, 2001. Address your proposals to Amy
Gallent, Vice President and Corporate Secretary, The Hartford Financial
Services Group, Inc., 690 Asylum Avenue, Hartford, CT 06115. All proposals
must comply with certain requirements set forth in the Company's bylaws, a
copy of which may be obtained from the Secretary of the Company.
OTHER INFORMATION
As of the date of this Proxy Statement, the Board of Directors has no
knowledge of any business that will be presented for consideration at the
Annual Meeting other than that described above. As to other business, if any,
that may properly come before the Annual Meeting, the proxies will vote in
accordance with their judgment.
Present and former officers, directors and other employees of the Company
may solicit proxies by telephone, telegram or mail, or by meetings with
shareholders or their representatives. The Company will reimburse brokers,
banks or other custodians, nominees and fiduciaries for their charges and
expenses in forwarding proxy material to beneficial owners. The Company has
engaged Georgeson Shareholder Communications Inc. to solicit proxies for the
Annual Meeting for a fee of $12,500, plus the payment of its out-of-pocket
expenses. All expenses of solicitation of proxies will be borne by the
Company.
A copy of the Company's Annual Report to Shareholders for 1999 was sent
previously. If, upon receiving this Proxy Statement, you have not received the
Annual Report to Shareholders, please write to the Corporate Secretary at the
address below to request a copy. In addition, a copy of the Company's annual
report on Form 10-K (without exhibits) for the fiscal year ended December 31,
1999, as filed with the SEC, is available without
35
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charge upon request to the Company's Investor Relations Department, 690 Asylum
Avenue, Hartford, CT 06115, or by calling (888) 322-8444.
By Order of the Board of Directors.
/s/ AMY GALLENT
Amy Gallent
Vice President and Corporate
Secretary
Dated: April 20, 2000
SHAREHOLDERS ARE URGED TO VOTE BY PROXY WHETHER OR NOT THEY EXPECT TO ATTEND
THE MEETING. A SHAREHOLDER MAY NEVERTHELESS REVOKE HIS OR HER PROXY AND VOTE
IN PERSON IF HE OR SHE DOES ATTEND THE MEETING.
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APPENDIX A
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
AUDIT COMMITTEE CHARTER
Responsibilities and Authority
The Audit Committee reports to the Board of Directors. Its primary function
is to assist the Board in fulfilling its responsibility to shareholders
related to financial accounting and reporting, the system of internal controls
established by management and the adequacy of auditing relative to these
activities. The Committee is granted the authority to investigate any activity
of the company and it is empowered to retain persons having special competence
as necessary to assist the Committee in fulfilling its responsibilities. In
addition, the Committee will perform such other functions as assigned by law,
the company's bylaws or the Board of Directors.
Membership
The Committee shall be composed of not less than three members, appointed
annually by the Board. The Committee shall be composed of directors who are
independent of the management of the corporation and are free of any
relationship that, in the opinion of the Board of Directors, would interfere
with their exercise of independent judgement as a Committee member.
Meetings
The Committee shall meet at least four times a year. The agenda of each
meeting will generally be prepared by the General Auditor, with input from the
Committee Chairman and Committee members, and circulated to each member of the
Committee prior to the meeting date. The Committee may ask members of
management or others to attend meetings and provide pertinent information as
necessary.
Specific Duties
Relationship with Independent Accountant
. The outside auditor is accountable to the Board of Directors. The audit
committee shall provide for an open avenue of communications between the
independent accountant and the Board and, at least once annually, meet
with the independent accountants in private session.
. As shareholder representatives the Board of Directors shall exercise the
ultimate authority and responsibility to select, evaluate and where
appropriate replace the independent accountant upon the recommendation
of the Audit Committee. In connection with this duty the Committee shall
receive on an annual basis a written statement from the independent
accountant detailing all relationships between the independent
accountant and the company consistent with requirements of the
Independence Standards Board. The Committee shall review services
performed by the independent accountants including the type and extent
of non-audit services performed and the impact that these services may
have on the public accountant's independence.
. Review with the independent accountants (1) the proposed scope of their
examination with emphasis on accounting and financial areas where the
Committee, the accountants or management believe special attention
should be directed, (2) results of their audit, including their opinion
on the financial statements and the independent accountant's judgement
on the quality, not just the acceptability, of the company's accounting
principles as applied in the financial statements, (3) their evaluation
of the adequacy of the system of internal controls, (4) significant
disputes, if any, with management and (5) cooperation received from
management in the conduct of the audit.
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Relationship with the Internal Audit Department
. The General Auditor is accountable to the Chairman of the Committee. The
Audit Committee shall provide for an open avenue of communication
between the Internal Audit Department and the Board and, at least once
annually, meet with the General Auditor in private session.
. Review and concur in the appointment, replacement, reassignment or
dismissal of the General Auditor and review his/her independence from
management.
. Review the Internal Audit Department's mission, objectives and resources
and its annual plan including its coordination with the independent
accountants.
. Review the results of Internal Audit activities and its evaluation of
the system of internal controls and discuss with the General Auditor any
difficulties encountered in the course of audits including any
restrictions on the scope of work or access to required information.
Relationship with Management
. Before publication, review the quarterly and annual financial statements
and related footnotes with both management and the independent
accountant.
. Review any significant changes in accounting principles.
. Review significant accounting, reporting, regulatory or industry
developments affecting the company.
Other
. Periodically review, with management and the General Auditor, programs
established to monitor compliance with the company's Code of Conduct
including the Foreign Corrupt Practice Act.
. Discuss with management, the independent accountant and the General
Auditor, any issues regarding significant risks or exposures and assess
the steps management has taken to minimize such risk.
. Review policies and procedures with respect to officers' expense
accounts and perquisites, including their use of corporate assets, and
consider the results of any review of these areas by the independent
accountant or Internal Audit.
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APPENDIX B
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
2000 INCENTIVE STOCK PLAN
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TABLE OF CONTENTS
<TABLE>
<S> <C>
The Hartford 2000 Incentive Stock Plan..................................... B-3
Administration............................................................. B-14
Federal Tax Treatment...................................................... B-14
</TABLE>
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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.
"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 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.
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"Company" means The Hartford and its successors and assigns.
"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.
"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.
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"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.
"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 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.
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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.
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.
(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
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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.
(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
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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.
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.
(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.
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(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.
(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.
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(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.
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).
(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
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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.
(v) The following definitions shall apply for purposes of this Section 9
only:
"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
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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.
"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.
(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.
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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.
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
B-13
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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.
(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 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.
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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.
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.
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
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<PAGE>
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 in Section 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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[LOGO OF HARTFORD]
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
2000 ANNUAL MEETING OF SHAREHOLDERS
MAY 18, 2000 at 9:00 A.M.
THE Wadsworth Atheneum
600 Main Street
Hartford, Connecticut
- --------------------------------------------------------------------------------
PROXY
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoints Amy Gallent, Michael O' Halloran and
Michael S. Wilder, and each of them, as proxies of the undersigned, each with
power to appoint his or her substitute, and hereby authorizes each or any of
them to vote, as designated on the reverse side of this proxy, all shares of
common stock of The Hartford Financial Services Group, Inc. (the "Company"),
including all shares held in the Company's Dividend Reinvestment and Cash
Payment Plan, the Company's Investment and Savings Plan, the Company's Excess
Savings Plan, the Company's Deferred Restricted Stock Unit Plan and the
Company's Employee Stock Purchase Plan, which the undersigned is entitled to
vote if personally present at the Annual Meeting of Shareholders of the Company
to be held at 9:00 A.M. on May 18, 2000 at The Wadsworth Atheneum, 600 Main
Street, Hartford, Connecticut, and at any adjournments or postponements
thereof, and confers discretionary authority upon each such proxy to vote upon
any other matter properly brought before the meeting.
Please specify your choices by marking the appropriate boxes on the reverse
side of this Proxy. The shares represented by this Proxy will be voted as you
designate on the reverse side. If no designation is made, the shares will be
voted for the election as directors of the nominees named in Item 1, for Items
2, 3 and 4, and against Item 5. The shares of common stock represented by this
Proxy cannot be voted unless you sign, date and return this Proxy, or vote by
telephone or through the Internet.
(Continued, and to be signed and dated, on the reverse side.)
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
P.O. BOX 11159
NEW YORK, N.Y. 10203-0159
<PAGE>
VOTE BY TELEPHONE OR INTERNET
24 HOURS A DAY, 7 DAYS A WEEK
<TABLE>
<CAPTION>
TELEPHONE INTERNET MAIL
1-800-520-9271 http://proxy.shareholder.com/hig
<S> <C> <C>
Use any touch-tone telephone to vote Use the Internet to vote your proxy. Mark, sign and date your proxy card
your proxy. Have your proxy card in Have your proxy card in hand when and return it in the postage-paid
hand when you call. You will be you access the website. You will be envelope we have provided.
prompted to enter your control number, prompted to enter your control number,
located in the box below, and then located in the box below, to create an
follow the simple directions. electronic ballot.
Your telephone or Internet vote authorizes the named ----------------------------------------------------------
proxies to vote your shares in the same manner as if you If you have submitted your proxy by telephone or the
marked, signed and returned the proxy card. Internet there is no need for you to mail back your proxy.
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CALL TOLL-FREE TO VOTE . IT'S FAST AND CONVENIENT ------------------------------------------------
- ------------------------------------------------- CONTROL NUMBER FOR
1-800-520-9271 TELEPHONE OR INTERNET VOTING
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DETACH PROXY CARD HERE IF YOU ARE NOT
VOTING BY TELEPHONE OR INTERNET
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ITEM 1. Election of Directors FOR all nominees WITHHOLD AUTHORITY to vote *EXCEPTIONS
listed below [_] for all nominees listed below [_] [_]
Director Nominees: 01 - Bette B. Anderson, 02 - Rand V. Araskog, 03 - Ramani Ayer, 04 - Dina Dublon, 05 - Donald R. Frahm,
06 - Paul G. Kirk, Jr., 07 - Robert W. Selander, 08 - Lowndes A. Smith, 09 - H. Patrick Swygert,
10 - Gordon I. Ulmer and 11 - David K. Zwiener.
(INSTRUCTIONS: To withhold authority to vote for any individual nominee, mark the "Exceptions" box and write that nominee's name in
the space provided below.)
*For all nominees except ___________________________________________________________________________________________________________
ITEM 2. Ratification of the appointment of Arthur Andersen LLP as independent Item 4. Approval of the Company's 2000 Incentive
auditors of the Company for the fiscal year ending December 31, 2000. Stock Plan.
FOR [_] AGAINST [_] ABSTAIN [_] FOR [_] AGAINST [_] ABSTAIN [_]
ITEM 3. Approval of certain material terms of the Company's annual executive Item 5. Shareholder proposal relating to tobacco
bonus program. investments.
FOR [_] AGAINST [_] ABSTAIN [_] FOR [_] AGAINST [_] ABSTAIN [_]
Mark this box if you plan Address Change and/or
to attend the Annual Meeting [_] Comments Mark Here [_]
Note: Please add your title if you are
signing for a corporation or other business
entity, or as attorney, administrator,
executor, guardian, trustee or in any other
representative capacity.
Dated: ______________________________, 2000
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Signature
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| Signature
|
__________| -------------------------------------------
Title
Votes MUST be indicated [X]
(Unless you are voting by telephone or Internet, please sign, date and return (x) in black or blue ink.
this proxy card in the enclosed envelope.)
Please Detach Here
You Must Detach This Portion of the Proxy Card
\/ Before Returning it in the Enclosed Envelope \/
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