THE HARTFORD FINANCIAL SERVICES GROUP, INC.
17,211,837 SHARES OF COMMON STOCK, PAR VALUE $.01 PER SHARE
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THE HARTFORD INCENTIVE STOCK PLAN
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PLAN INFORMATION
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THIS DOCUMENT CONSTITUTES PART OF A PROSPECTUS COVERING SECURITIES
THAT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933.
The prospectus covers such additional securities as may be issuable as a result
of anti-dilution provisions contained in the instruments pursuant to which
securities covered by the prospectus are issued.
________________________________________________________________________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
___________________________________________________________________________
AMENDED AND RESTATED AS OF OCTOBER 16, 2003
Additional information about The Hartford Incentive Stock Plan (the
"Plan") and its administration may be obtained without charge by written or oral
request to the Manager of Stock Option Plan Administration, The Hartford
Financial Services Group, Inc. ("the Company"), Hartford Plaza, Hartford, CT
06115, telephone number (000) 000-0000.
AVAILABLE INFORMATION
The Company will provide, without charge, upon the written or oral
request of any person to whom this Prospectus is delivered, a copy of any of the
following documents, all of which are incorporated by reference in this
Prospectus:
(a) The Company's latest Annual Report on Form 10-K filed with the
Securities and Exchange Commission (the "Commission") pursuant
to Section 13(a) or 15(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act");
(b) All other reports filed pursuant to Section 13(a) or 15(d) of
the Exchange Act since the end of the fiscal year covered by
the Form 10-K referred to in (a) above; and
(c) The description of the Company's common stock and the rights
associated with the Company's common stock contained in a
registration statement filed under the Exchange Act, including
any amendment or report filed for the purpose of updating such
description.
All documents subsequently filed with the Commission by the Company
pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act, after the
date hereof and prior to the filing of a post-effective amendment which
indicates that all securities offered have been sold or which deregisters all
securities then remaining unsold shall be deemed to be incorporated by reference
in the Prospectus and to be a part thereof from the date of filing such
documents.
In addition, the Company will provide, without charge, upon the written
or oral request of any person to whom this Prospectus is delivered, the
following documents:
(a) When updating information is furnished, a copy of all
documents previously delivered containing Plan information
that then constitute part of this Prospectus; and
(b) A copy of whichever of the following was previously
distributed pursuant to Rule 428(b)(2) under the Securities
Act of 1933, as amended (the "Securities Act"):
(i) The Company's annual report to stockholders
containing the information required by Rule 14a-3(b)
under the Exchange Act for its latest fiscal year;
(ii) The Company's annual report on Form 10-K for its
latest fiscal year; or
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(iii) The latest prospectus filed pursuant to Rule 424(b)
under the Securities Act that contains audited
financial statements for the Company's latest fiscal
year.
Any statement contained in a document incorporated or deemed to be
incorporated by reference in the Prospectus shall be deemed to be
modified or superseded for purposes of the Prospectus to the extent
that a statement contained in the Prospectus or in any other
subsequently filed document which also is or is deemed to be
incorporated by reference in the Prospectus modifies or supersedes such
statement. Any such statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of
the Prospectus. Any such document, as well as the Company's most recent
annual report to shareholders and any other report or communication
distributed to the Company's shareholders generally, may be obtained
without charge by written or oral request to the Manager of Stock
Option Plan Administration, The Hartford Financial Services Group,
Inc., Hartford Plaza, Hartford, CT 06115, telephone number: (860)
547-5000.
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TABLE OF CONTENTS
General Information...................................................... 4
The Hartford Incentive Stock Plan........................................ 5
Administration........................................................... 23
Federal Tax Treatment.................................................... 23
GENERAL INFORMATION
The Plan contains a limit on the aggregate number of shares which may
be awarded for the duration of the Plan. The maximum limit applicable to all
share awards for the duration of the Plan is eight percent (8%) of the total
outstanding shares of the Company's common stock as of the date of shareholder
approval of the Plan. In addition, no more than 20% of the total may be
available for awards of restricted stock or performance shares under the Plan.
The Plan limits the award of stock options to any one person in any year to no
more than 1,000,000 shares. The Plan limits the award of performance shares to
any one person in any year to no more than 200,000 shares.
The Plan permits the committee administering the Plan to award
performance shares and restricted stock, as well as non-qualified stock options
and incentive stock options, with or without stock appreciation rights.
Reference is made to the text of the Plan herein for a complete description of
awards permitted under the Plan and the relevant provisions and conditions
applicable thereto.
The prospectus does not cover resales of the Company's common stock
acquired pursuant to the provisions of the Plan. Resales may be subject to
restrictions or limitations imposed by the Securities Act of 1933 and the
Securities Exchange Act of 1934.
The Plan is not subject to any of the provisions of the Employee
Retirement Income Security Act of 1974. Furthermore, Section 401 of the Internal
Revenue Code relating to certain qualified pension, profit-sharing and stock
bonus plans does not apply to the Plan.
Plan participants receive information with respect to their
participation, including the date of grant, the exercise price, the amount
exercisable and the expiration date, as well as applicable information
concerning whatever performance shares or restricted stock may be relevant to
them.
Set forth below is the text of the Plan.
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THE HARTFORD INCENTIVE STOCK PLAN
1. PURPOSE
The purpose of the Plan is to motivate and reward superior
performance on the part of Key Employees of 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 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 DOCUMENT" means the written notice, agreement, or other
document 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: (a) a Person shall not be deemed the Beneficial Owner of
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any security as a result of an agreement, arrangement or understanding
to vote such security (i) 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 (ii) 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 (i) or (ii) 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 (b) a Person engaged in business
as an underwriter of securities shall not be deemed to be the
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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 the Plan 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 amended.
"COMMITTEE" means the Compensation and Personnel Committee of
the Board or such other committee as may be designated by the Board to
administer the Plan.
"COMPANY" means The Hartford Financial Services Group, Inc.
and its successors and assigns.
"DIRECTOR" means a member of the Board who is not an employee
of any Participating Company.
"ELIGIBLE EMPLOYEE" means an Employee as defined in the Plan;
provided, however, that except as the Board or the Committee, pursuant
to authority delegated by the Board, may otherwise provide on a basis
uniformly applicable to all persons similarly situated, "Eligible
Employee" shall not include any "Ineligible Person," which includes:
(a) a person who (i) holds a position with the Company's "HARTEMP"
Program, (ii) is hired to work for a Participating Company through a
temporary employment agency, or (iii) 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; (b) 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 (c)
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
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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.
"FORMULA PRICE" means the highest of: (a) the highest
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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
Section 9 of the 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 Stock at the time of such exercise.
"INCENTIVE STOCK OPTION" means a stock option qualified under
Section 422 of the Code.
"KEY EMPLOYEE" means an Eligible Employee (including any
officer or director who is also an Eligible Employee) 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: (a) the Company, any
subsidiary of the Company or any other Person controlled by the
Company, (b) any trustee or other fiduciary holding securities under
any employee benefit plan of the Company or of any subsidiary of the
Company, or (c) 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 Incentive Stock Plan, as the same
may be amended, administered or interpreted from time to time.
"PLAN YEAR" means the calendar year.
"POTENTIAL CHANGE OF CONTROL" means the occurrence of an event
defined in Section 9 of the Plan.
"RETIREMENT" means the following:
(a) KEY EMPLOYEES HIRED BEFORE 2001. Solely with respect to a
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Key Employee with an original hire date with a Participating Company
before January 1, 2001 who: (i) is covered in whole or in part under
the final average pay formula of the Retirement Plan, or (ii) is not
eligible for coverage under the Retirement Plan, "Retirement" means
satisfaction of the requirements for early or normal retirement under
the final average pay formula of the Retirement Plan (assuming such Key
Employee were covered under the final average pay formula of the
Retirement Plan), provided such event results in such Key Employee's
separation from employment with the Company, or
(b) KEY EMPLOYEES HIRED DURING 2001. Solely with respect to a
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Key Employee with an original hire date with a Participating Company on
or after January 1, 2001 but before January 1, 2002 who: (i) is covered
under the cash balance formula of the Retirement Plan, or (ii) is not
eligible for coverage under the Retirement Plan, "Retirement" means
satisfaction of the requirements for early or normal retirement under
the final average pay formula of the Retirement Plan (assuming such Key
Employee were covered under the final average pay formula of the
Retirement Plan), provided such event results in such Member's
separation from the employment of the Company.
"RETIREMENT PLAN" means The Hartford Retirement Plan for U.S.
Employees, as amended from time to time.
"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.
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"STOCK" means the common stock ($.01 par value) of The
Hartford.
"THE HARTFORD" means the Company and its subsidiaries, and
their successors and assigns.
"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.
Further, for any Plan Year: (a) no individual Key Employee may receive
an Award of Options for more than 1,000,000 shares, and (b) no
individual Key Employee may receive an Award of Performance Shares for
more than 200,000 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 equals the value of performance share Awards, in
each case determined as at the dates on which such Awards are granted.
If any Awards under the Plan are forfeited, terminated, expire
unexercised, are settled in cash in lieu of Stock or are exchanged for
other Awards, the shares of Stock which were theretofore subject to
such Awards shall again be available for Awards under the Plan to the
extent of such forfeiture, termination, expiration, cash settlement or
exchange of such Awards. Further, any shares of Stock that are
exchanged (either actually or constructively) by optionees as full or
partial payment to the Company of the purchase price of shares of Stock
being acquired through the exercise of an Option granted under the Plan
may be available for subsequent Awards.
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4. GRANT OF AWARDS AND AWARD DOCUMENTS
(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 Document. Such Award Document shall be subject to and
incorporate the express terms and conditions of each Award, if any,
required under the Plan or required by the Committee.
5. STOCK OPTIONS AND RIGHTS
(a) With respect to Options and Rights, the Committee shall:
(i) authorize the granting of Incentive Stock Options, non-qualified
stock options, or a combination of Incentive Stock Options and
non-qualified stock options; (ii) authorize the granting of Rights
which may be granted in connection with all or part of any Option
granted under this Plan, either concurrently with the grant of the
Option or at any time thereafter during the term of the Option; (iii)
determine the number of shares of Stock subject to each Option or the
number of shares of Stock that shall be used to determine the value of
a Right; and (iv) determine the time or times when and the manner in
which each Option or Right shall be exercisable and the duration of the
exercise period.
(b) Any option issued hereunder which is intended to qualify
as an Incentive Stock Option shall be subject to such limitations or
requirements as may be necessary for the purposes of Section 422 of the
Code or any regulations and rulings thereunder to the extent and in
such form as determined by the Committee in its discretion.
(c) The exercise period for a non-qualified stock option and
any related Right shall not exceed ten years and two days from the date
of grant, and the exercise period for an Incentive Stock Option and any
related Right shall not exceed ten years from the date of grant.
(d) The Option price per share shall be determined by the
Committee at the time any Option is granted and shall be not less than
the Fair Market Value of one share of Stock on the date the Option is
granted.
(e) No part of any Option or Right may be exercised until the
Key Employee who has been granted the Award shall have remained in the
employ of a Participating Company for such period after the date of
grant as the Committee may specify, if any, and the Committee may
further require exercisability in installments.
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(f) Except as provided in Section 9, the purchase price of the
shares of Stock as to which an Option is exercised shall be paid to the
Company at the time of exercise either in cash, Stock already owned by
the optionee, or a combination of the foregoing having a total Fair
Market Value 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 for such purpose as it deems appropriate.
(g) In case of a Key Employee's termination of employment with
all Participating Companies, the following provisions shall apply:
(i) 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: (A) the person or persons to whom the Key
Employee's rights under the Option pass by will, or if no such person
has such right, by his or her executors or administrators; (B) his or
her Transferee(s) (with respect to non-qualified Options); or (C) his
or her Beneficiary designated pursuant to the Plan, 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. Any such Options not
fully exercisable immediately prior to such optionee's death shall
become fully exercisable upon such death unless the Committee, in its
sole discretion, shall otherwise determine.
(ii) If the Key Employee's employment with all
Participating Companies terminates: (A) because of his or her Total
Disability, or (B) solely in the case of a Key Employee with an
original hire date with a Participating Company before January 1, 2002,
because of his or her voluntary termination of employment due to
Retirement; 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
Total Disability or Retirement shall become fully exercisable upon such
Total Disability or Retirement unless the Committee, in its sole
discretion, shall otherwise determine.
(iii) Except as provided in Section 5(g)(ii) and
Section 9, if the Key Employee shall voluntarily resign from employment
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.
(iv) 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
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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) or required by
applicable law, 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. Notwithstanding the foregoing, all or a
portion of a non-qualified Option may be transferred and assigned by
such persons designated by the Committee, to such persons or groups of
persons designated as permissible Transferees 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 (or
Beneficiary, in the event of death) 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 Document and/or any administrative
rules or other terms and conditions adopted by the Committee from time
to time applicable to such Option or Right granted to such Director.
(j) With respect to an Incentive Stock Option, the Committee
shall specify such terms and provisions as the Committee may determine
to be necessary or desirable in order to qualify such Option as an
"incentive stock option" within the meaning of Section 422 of the Code.
(k) With respect to the exercisability and settlement of
Rights:
(i) Upon exercise of a Right, a Key Employee or
Director shall be entitled, subject to such terms and conditions the
Committee may specify, to receive upon exercise thereof all or a
portion of the excess of (A) the Fair Market Value of a specified
number of shares of Stock at the time of exercise, as determined by the
Committee, over (B) a specified amount which shall not, subject to
Section 5(d), be less than the Fair Market Value of such specified
number of shares of Stock at the time the Right is granted. Upon
exercise of a Right, payment of such excess shall be made as the
Committee shall specify in cash, the issuance or transfer to the Key
Employee or Director of whole shares of Stock with a Fair Market Value
at such time equal to any excess, or a combination of cash and shares
of Stock with a combined Fair Market Value at such time equal to any
such excess, all as determined by the Committee. The Company will not
issue a fractional share of Stock and, if a fractional share would
otherwise be issuable, the Company shall pay cash equal to the Fair
Market Value of the fractional share of Stock at such time.
(ii) In the event of the exercise of such Right, the
Company's obligation in respect of any related Option or such portion
thereof will be discharged by payment of the Right so exercised.
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6. PERFORMANCE SHARES
(a) Subject to the provisions of the Plan, the Committee
shall: (i) determine and designate from time to time those Key
Employees or groups of Key Employees to whom Awards of Performance
Shares are to be made, (ii) determine the performance period (the
"Performance Period") and performance objectives (the "Performance
Objectives") applicable to such Awards, (iii) determine whether to
impose a restriction period (the "Restriction Period") following the
completion of the Performance Period applicable to any Key Employees or
groups of Key Employees, (iv) determine the form of settlement of a
Performance Share, and (v) 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 one 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 may impose a Restriction Period of any
duration determined appropriate in its sole discretion, which shall
apply immediately following the completion of the Performance Period to
which it relates.
(d) 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 ("EBITDA"), (O) pre-tax operating income, (P) productivity
improvements, or (iii) 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.
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(e) 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 following completion of the Performance Period or if later,
following any applicable Restriction Period, if the applicable
Performance Objectives are met in whole or in part.
(f) If a Key Employee terminates service with all
Participating Companies during a Performance Period or any applicable
Restriction Period: (i) because of death, (ii) because of Total
Disability, (iii) solely in the case of a Key Employee with an original
hire date with a Participating Company before January 1, 2002, because
of his or her voluntary termination of employment due to Retirement, or
(iv) 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 or if later, at the end of any applicable
Restriction Period, based upon the extent to which the Performance
Objectives were satisfied at the end of such Performance Period and
prorated for the portion of the Performance Period together with any
applicable Restriction Period during which the Key Employee was
actively 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 or any applicable Restriction Period for any other
reason, then such Key Employee shall not be entitled to any Award with
respect to that Performance Period and/or Restriction Period unless the
Committee shall otherwise determine.
(g) 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 or if later, at the end of
any applicable Restriction Period.
(h) Except as otherwise required by applicable law, no
Performance Share granted under the Plan shall be transferable other
than by will or by the laws of descent or distribution.
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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. Except as otherwise provided in the
Plan, certificates for shares of Restricted Stock shall be delivered to
a Key Employee as soon as administratively practicable following the
end of the applicable Restriction Period.
(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 or required
by applicable law, 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: (i) death, (ii) Total Disability, (iii)
solely in the case of a Key Employee with an original hire date with a
Participating Company before January 1, 2002, a voluntary termination
of employment due to Retirement, or (iv) 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, or later as provided in Section 14 hereof. The
Committee 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, and shall require, as a
condition of settlement of any Award of Stock, that the Key Employee
satisfy applicable tax withholding obligations as provided in Section
14 hereof.
(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.
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(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,
(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, and (iii) the satisfaction of
any tax withholding obligations as provided in Section 14 hereof.
(b) All certificates for shares of Stock delivered under the
Plan shall also be subject to such stop-transfer orders and other
restrictions as the Committee may deem advisable under the rules,
regulations, and other requirements of the Securities and Exchange
Commission, any stock exchange upon which the Stock is then listed and
any applicable federal or state securities laws, and the Committee may
cause a legend or legends to be placed on any such certificates to make
appropriate reference to such restrictions. In making such
determination, the Committee may rely upon an opinion of counsel for
the Company.
(c) Except for the restrictions on Restricted Stock under
Section 7, each Key Employee who receives Stock in settlement of an
Award of Stock, shall have all of the rights of a shareholder with
respect to such shares, including the right to vote the shares and
receive dividends and other distributions. No Key Employee awarded an
Option, a Right or a Performance Share, and no Director awarded an
Option or Right, shall have any right as a shareholder with respect to
any shares of Stock 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;
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(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) any merger, consolidation, recapitalization or
reorganization of the Company approved by the stockholders of the
Company shall be consummated, other than any such transaction
immediately following which the persons who were the Beneficial Owners
of the outstanding securities of the Company entitled to vote in the
election of directors of the Company immediately prior to such
transaction are the Beneficial Owners of at least 55% of the total
voting power represented by the securities of the entity surviving such
transaction entitled to vote in the election of directors of such
entity (or the ultimate parent of such entity) in substantially the
same relative proportions as their ownership of the securities of the
Company entitled to vote in the election of directors of the Company
immediately prior to such transaction; provided that, such continuity
of ownership (and preservation of relative voting power) shall be
deemed to be satisfied if the failure to meet such threshold (or to
preserve such relative voting power) is due solely to the acquisition
of voting securities by an employee benefit plan of the Company, such
surviving entity or any subsidiary of such surviving entity;
(iv) 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 approved by the
stockholders of the Company shall be consummated; or
(v) within any 24 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 (v), and
(B) was not designated by a Person who has entered into an agreement
with the Company to effect a transaction described in Section 9(a)(iii)
or Section 9(a)(iv) of the Plan.
(b) For purposes of this Plan, a Potential Change of Control
shall occur if:
(i) A Person shall commence a tender offer, which if
successfully consummated, would result in such Person being the
Beneficial Owner of at least 15% of the stock of the Company entitled
to vote in the election of directors of the Company;
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(ii) The Company enters into an agreement, the
consummation of which would constitute a Change of Control;
(iii) Solicitation of proxies for the election of
directors of the Company by anyone other than the Company, which, if
such directors were elected, would result in the occurrence of a Change
of Control as described in Section 9(a)(v); or
(iv) Any other event shall occur which is deemed to
be a Potential Change of Control by the Board, the Committee, or any
other appropriate committee of the Board in its sole discretion.
(c) Notwithstanding any provision in this Plan to the
contrary, upon the occurrence of a Change of Control:
(i) Each Option and related Right outstanding on the
date such Change of Control occurs, and which is not then fully vested
and exercisable, shall immediately vest and become exercisable to the
full extent of the original grant for the remainder of its term.
(ii) The surviving or resulting corporation may, in
its discretion, provide for the assumption or replacement of each
outstanding Option and related Right granted under the Plan on terms
which are no less favorable to the optionee than those applicable to
the Options and Rights immediately prior to the Change of Control. If
the surviving or resulting corporation offers to assume or replace the
Options and Rights, the optionee may elect to have his or her Options
and Rights assumed or replaced, in whole or in part, or to surrender on
the date the Change of Control occurs his or her Options and Rights, in
whole or in part, for cash equal to the excess of the Formula Price
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 over the exercise price.
(iv) 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.
- 18 -
(v) If a Change of Control occurs during the course
of a Performance Period or any Restriction 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 and to
have completed any applicable Restriction Period 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.
(d) Notwithstanding any provision in this Plan to the
contrary, in the event of a Change of Control as described in Section
9(b)(iii) or Section 9(b)(iv) of the Plan, in the case of an awardee
whose employment or service involuntarily terminates on or after the
date of a shareholder approval described in either of such Sections but
before the date of a consummation described in either of such Sections,
the date of termination of such an awardee's employment or service
shall be deemed for purposes of the Plan to be the day following the
date of the applicable consummation.
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 death of a Key Employee, Director or Transferee, as the case
may be, or if no designated Beneficiary survives the Key Employee,
Director or Transferee or if such designation conflicts with applicable
law, the estate of the Key Employee, Director or Transferee, 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.
- 19 -
11. ADMINISTRATION OF THE PLAN
(a) 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.
(b) 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.
(c) 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.
(d) The Committee may, in its sole discretion, delegate such
of its powers as it deems appropriate to the Company's Group Senior
Vice President, Human Resources (or other person holding a similar
position) or the Company's Chief Executive Officer, except that Awards
to executive officers shall be made, and matters related thereto shall
be determined, solely by the Committee or the Board or any other
appropriate committee of the Board.
12. AMENDMENT, EXTENSION OR TERMINATION
The Board or the Committee may, at any time, amend or modify 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: (i) 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, (ii) with respect to
all Options, allow the Committee to reprice the Options. The Board may
suspend or terminate the Plan at any time without the consent of such
person. Notwithstanding anything in this Plan to the contrary, the Plan
shall not be amended, modified, suspended or terminated during the
period in which a Change of Control is threatened. For purposes of the
preceding sentence, a Change of Control shall be deemed to be
threatened for the period beginning on the date of any Potential Change
of Control, and ending upon the earlier of: (I) the second anniversary
of the date of such Potential Change of Control, (II) the date a Change
of Control occurs, or (III) the date the Board or the Committee
determines in good faith that a Change of Control is no longer
threatened. Further, notwithstanding anything in this Plan to the
contrary, no amendment, modification, suspension or termination
following a Change of Control shall adversely impair or reduce the
rights of any person with respect to a prior Award without the consent
of such person.
- 20 -
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) 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 or any applicable Restriction Period has
not been completed or terminate any Award of Restricted Stock for which
the Restriction Period has not lapsed.
(b) Except as provided in Section 9, nothing in this Plan or
any Award granted hereunder shall confer upon any employee any right to
continue in the employ of any Participating Company or interfere in any
way with the right of any Participating Company to terminate his or her
employment at any time. No Award payable under the Plan shall be deemed
salary or compensation for the purpose of computing benefits under any
employee benefit plan or other arrangement of any Participating Company
for the benefit of its employees unless the Company shall determine
otherwise. No Key Employee shall have any claim to an Award until it is
actually granted under the Plan. To the extent that any person acquires
a right to receive payments from the Company under this Plan, such
right shall be no greater than the right of an unsecured general
creditor of the Company. All payments to be made hereunder shall be
paid from the general funds of the Company and no special or separate
fund shall be established and no segregation of assets shall be made to
assure payment of such amounts except as provided in Section 7(e) with
respect to Restricted Stock.
(c) The Committee shall have the right to make such provisions
as deemed appropriate in its sole discretion to satisfy any obligation
of the Company to withhold federal, state or local income or other
taxes incurred by reason of the operation of the Plan or an Award under
the Plan, including but not limited to at any time: (i) requiring a Key
Employee to submit payment to the Company for such taxes before making
settlement of any Award of Stock or other amount due under the Plan,
(ii) withholding such taxes from wages or other amounts due to the Key
Employee before making settlement of any Award of Stock or other amount
due under the Plan, (iii) making settlement of any Award of Stock or
other amount due under the Plan to a Key Employee
- 21 -
part in Stock and part in cash to facilitate satisfaction of such
withholding obligations, or (iv) receiving Stock already owned by, or
withholding Stock otherwise due to, the Key Employee in an amount
determined necessary to satisfy such withholding obligations; provided,
however, that, notwithstanding any language herein to the contrary, any
Key Employee who is an executive officer of the Company (within the
meaning of Section 16 of the Act) shall have the right to satisfy his
or her obligations to the Company pursuant to this Section 14(c) by
instructing the Company not to deliver to the Key Employee Stock
otherwise deliverable to the Key Employee in an amount sufficient to
satisfy such obligations to the Company.
(d) 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.
(e) The terms of the Plan shall be binding upon the Company
and its successors and assigns.
(f) 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 (as defined in Section 3 of the
Plan) is reached; provided, however, that the Plan will continue in
effect for existing Awards as long as any such Award is outstanding.
- 22 -
ADMINISTRATION
The Plan is administered by the Committee of the Board, 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 any
Participating Company.
FEDERAL TAX TREATMENT
The following is a brief summary of the current Federal income
tax rules generally applicable to Options, Rights, Performance Shares
and Restricted Stock. The following summary does not include any
discussion of state, local or foreign income tax consequences or the
effect of gift, estate or inheritance taxes, any of which may be
significant to a particular individual Award recipient. In addition,
this summary does not apply to every specific transaction that may
occur. Awardees should consult their own tax advisors for precise
advice pertaining to his or her particular circumstances regarding the
specific tax consequences applicable to them.
A. OPTIONS AND RIGHTS
Options granted under the Plan may be either non-qualified
options or Iincentive Stock Options qualifying under Section 422A of
the 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 exercise
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
Options under the Plan denominated as Incentive Stock Options
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 Incentive Stock Option. 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
- 23 -
treatment, an Incentive Stock Option 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 Incentive Stock Option 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 Company will not be entitled to a Federal tax deduction
with respect to the grant or exercise of the Incentive Stock Option.
If the optionee sells the shares acquired under an Incentive
Stock Option 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 exercise price for the
Option. (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 exercise 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 Incentive Stock Option
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.
Rights
Rights may have been awarded to officers and directors of The
Hartford subject to Section 16(b) of the Act with respect to both
Incentive Stock Options and non-qualified Options granted under the
Plan. An optionee is not taxed upon the grant ofRights. An optionee
exercising Rights 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 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
Company will be entitled to a Federal tax deduction for the value of
payment at the time of payment.
- 24 -
C. RESTRICTED STOCK
An awardee of Restricted Stock normally will not realize
taxable compensation income and the Company will not be entitled to a
deduction upon the grant of restricted stock. At the time the shares of
restricted stock are no longer subject to a substantial risk of
forfeiture (as defined in the Code) or become transferable, an awardee
will realize taxable ordinary compensation income (subject to tax
withholding) in an amount equal to the fair market value of such number
of shares of Stock which have become nonforfeitable or transferable and
the Company will be entitled to a deduction in the same amount,
provided the Company complies with applicable tax withholding
requirements. However, an awardee may make an income recognition
election under Section 83(b) of the Code (an "83(b) Election") and
recognize taxable ordinary compensation income (subject to tax
withholding) in the year the shares of restricted stock are awarded in
an amount equal to their fair market value at the time of the award,
determined without regard to the restrictions. In that event, the
Company will be entitled to a deduction in such year in the same
amount, provided the Company complies with applicable tax withholding
requirements, and any gain or loss realized by the employee upon the
subsequent disposition of Stock will be capital gain or loss and will
not result in any further deduction to the Company.
Any dividends with respect to the shares of restricted stock that are
paid or made available to an awardee who has not made an 83(b) Election
while the shares remain forfeitable are treated as additional
compensation taxable as ordinary compensation income (subject to
withholding) to the awardee and deductible by the Company when paid. If
an 83(b) Election has been made with respect to the restricted stock,
the dividends represent ordinary dividend income to the awardee and are
not deductible by the Company. If the awardee makes an 83(b) Election
and subsequently forfeits the shares of restricted stock, the awardee
is not entitled to a deduction as a consequence of such forfeiture for
taxes previously paid on the award of restricted shares, and the
Company must include as ordinary income the amount it previously
deducted in the year of grant with respect to such shares.
X. XXXXXX PARACHUTE TAX PENALTIES
Options, Rights, Performance Shares or Restricted Stock which
are granted, accelerated or enhanced upon the occurrence of 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.
- 25 -
RESALE RESTRICTIONS
Except for the restrictions on Restricted Stock under Section 7, the
Plan contains no restrictions on the resale of Stock issued in
settlement of an Award. However, affiliates of the Company, which may
include directors and certain officers of the Company, may not reoffer
or resell shares of Stock in a transaction which is not registered
under the Securities Act of 1933, as amended (the "Securities Act"),
except pursuant to Rule 144 under the Securities Act or another
exemption thereunder. Rule 144 requires, among other things, that (1)
any sales of Stock by an affiliate must be through a broker, and (2)
Securities and Exchange Commission Form 144 must be mailed to the
Securities and Exchange Commission prior to or concurrently with the
placing of a sell order with the broker if the amount sold during any
three month period exceeds 500 shares or has an aggregate sale price of
more than $10,000.
- 26 -
