-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Rf1iJMuovY+7YRIMfGIJOUicHelUreETeqai/kznUgXCCQ7j2qnU+3nPIrHu5S2H m4zEnxb9eEYluQCDL4moEQ== 0000948572-97-000055.txt : 19990902 0000948572-97-000055.hdr.sgml : 19990902 ACCESSION NUMBER: 0000948572-97-000055 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971114 DATE AS OF CHANGE: 19990901 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HARTFORD FINANCIAL SERVICES GROUP INC/DE CENTRAL INDEX KEY: 0000874766 STANDARD INDUSTRIAL CLASSIFICATION: 6411 IRS NUMBER: 133317783 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-13958 FILM NUMBER: 97718382 BUSINESS ADDRESS: STREET 1: HARTFORD PLZ CITY: HARTFORD STATE: CT ZIP: 06115 BUSINESS PHONE: 8605475000 MAIL ADDRESS: STREET 1: HARTFORD PLAZA T-15 CITY: HARTFORD STATE: CT ZIP: 06115 FORMER COMPANY: FORMER CONFORMED NAME: ITT HARTFORD GROUP INC /DE DATE OF NAME CHANGE: 19930328 10-Q 1 THE HARTFORD FINANCIAL SERVICES GROUP, INC. ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------------- FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For The Quarterly Period Ended September 30, 1997 OR [ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to ______________ Commission file number 0-19277 THE HARTFORD FINANCIAL SERVICES GROUP, INC. (Exact name of registrant as specified in its charter) Delaware 13-3317783 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) Hartford Plaza, Hartford, Connecticut 06115-1900 (Address of principal executive offices) (860) 547-5000 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No[ ] As of October 31, 1997, there were outstanding 118,052,857 shares of Common Stock, $0.01 par value per share, of the registrant. INDEX PART I. FINANCIAL INFORMATION - - ----------------------------- Item 1. Financial Statements Page Consolidated Statements of Income - Third Quarter and Nine Months Ended September 30, 1997 and 1996 3 Consolidated Balance Sheets - September 30, 1997 and December 31, 1996 4 Consolidated Statements of Cash Flows - Nine Months Ended September 30, 1997 and 1996 5 Notes to Consolidated Financial Statements 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 8 PART II. OTHER INFORMATION - - --------------------------- Item 1. Legal Proceedings 17 Item 6. Exhibits and Reports on Form 8-K 17 Signature 18 - 2 - PART I. FINANCIAL INFORMATION Item 1. Financial Statements
THE HARTFORD FINANCIAL SERVICES GROUP, INC. Consolidated Statements of Income Third Quarter Ended Nine Months Ended September 30, September 30, -------------------------------------------- (In millions, except for per share data) 1997 1996 1997 1996 - - ---------------------------------------------------------------------------------------------------- (Unaudited) (Unaudited) REVENUES Earned premiums $ 2,485 $ 2,388 $ 7,405 $ 7,447 Net investment income 642 631 1,909 1,835 Net realized capital gains (losses) 179 (183) 252 (142) - - ---------------------------------------------------------------------------------------------------- TOTAL REVENUES 3,306 2,836 9,566 9,140 ------------------------------------------------------------------------------------------------- Benefits, claims and expenses Benefits, claims and claim adjustment expenses 1,929 2,878 5,815 6,961 Amortization of deferred policy acquisition costs 463 406 1,394 1,267 Other expenses 469 417 1,363 1,484 - - ---------------------------------------------------------------------------------------------------- TOTAL BENEFITS, CLAIMS AND EXPENSES 2,861 3,701 8,572 9,712 ------------------------------------------------------------------------------------------------- OPERATING INCOME (LOSS) 445 (865) 994 (572) Equity gain on HLI initial public offering -- -- 368 -- - - ---------------------------------------------------------------------------------------------------- INCOME (LOSS) BEFORE INCOME TAXES AND MINORITY INTEREST 445 (865) 1,362 (572) Income tax expense (benefit) 130 (322) 264 (268) - - ---------------------------------------------------------------------------------------------------- INCOME (LOSS) BEFORE MINORITY INTEREST 315 (543) 1,098 (304) Minority interest in consolidated subsidiary (16) -- (21) -- - - ---------------------------------------------------------------------------------------------------- NET INCOME (LOSS) $ 299 $ (543) $ 1,077 $ (304) ------------------------------------------------------------------------------------------------- EARNINGS (LOSS) PER SHARE $ 2.53 $ (4.63) $ 9.13 $ (2.59) CASH DIVIDENDS DECLARED PER SHARE $ 0.40 $ 0.40 $ 1.20 $ 1.20 WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 118.2 117.2 118.0 117.2 - - ---------------------------------------------------------------------------------------------------- See Notes to Consolidated Financial Statements.
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THE HARTFORD FINANCIAL SERVICES GROUP, INC. Consolidated Balance Sheets September 30, December 31, (In millions, except for share data) 1997 1996 - - ----------------------------------------------------------------------------------------------------------------------------- (Unaudited) Assets Investments Fixed maturities, available for sale, at fair value (amortized cost of $33,821 and $31,178) $ 34,576 $ 31,449 Equity securities, available for sale, at fair value (cost of $1,432 and $1,581) 1,908 1,865 Policy loans, at outstanding balance 3,750 3,839 Other investments, at cost 459 486 - - ----------------------------------------------------------------------------------------------------------------------------- Total investments 40,693 37,639 Cash 178 112 Premiums receivable and agents' balances 2,026 1,797 Reinsurance recoverables 11,041 11,229 Deferred policy acquisition costs 4,001 3,535 Deferred income tax 1,115 1,480 Other assets 2,739 2,596 Separate account assets 65,038 50,452 - - ----------------------------------------------------------------------------------------------------------------------------- Total assets $ 126,831 $ 108,840 ------------------------------------------------------------------------------------------------------------------------- Liabilities Future policy benefits, unpaid claims and claim adjustment expenses Property and casualty $ 18,478 $ 18,303 Life 4,951 4,371 Other policy claims and benefits payable 21,272 22,220 Unearned premiums 2,941 2,797 Short-term debt 82 500 Long-term debt 1,677 1,032 Company obligated mandatorily redeemable preferred securities of subsidiary trusts holding solely parent junior subordinated debentures 1,000 1,000 Other liabilities 5,211 3,645 Separate account liabilities 65,038 50,452 - - ----------------------------------------------------------------------------------------------------------------------------- 120,650 104,320 Minority Interest in Consolidated Subsidiary 373 -- Stockholders' Equity Common stock - authorized 200,000,000, issued 119,920,267 and 119,194,412 shares, par value $0.01 1 1 Capital surplus 1,667 1,642 Retained earnings 3,450 2,515 Treasury stock - 1,812,297 and 1,638,000 shares (45) (30) Cumulative translation adjustments (32) 40 Unrealized gain on securities, net of tax 767 352 - - ----------------------------------------------------------------------------------------------------------------------------- Total stockholders' equity 5,808 4,520 ------------------------------------------------------------------------------------------------------------------------ Total liabilities and stockholders' equity $ 126,831 $ 108,840 ------------------------------------------------------------------------------------------------------------------- See Notes to Consolidated Financial Statements.
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THE HARTFORD FINANCIAL SERVICES GROUP, INC. Consolidated Statements of Cash Flows Nine Months Ended September 30, ---------------------------------- (In millions) 1997 1996 - - ----------------------------------------------------------------------------------------------------------------------------- (Unaudited) Operating Activities Net income (loss) $ 1,077 $ (304) Adjustments to net income (loss) Depreciation and amortization 59 48 Net realized capital (gains) losses (252) 142 Equity gain on HLI initial public offering (368) -- Change in receivables, payables and accruals (201) (196) Accrued and deferred taxes 282 (502) Increase in liabilities for future policy benefits, unpaid claims and claim adjustment expenses and unearned premiums 899 1,135 Increase in deferred policy acquisition costs (487) (432) (Increase) decrease in reinsurance recoverables and other related assets (37) 280 Minority interest in consolidated subsidiary 21 -- Other, net 296 379 - - ----------------------------------------------------------------------------------------------------------------------------- Cash provided by operating activities 1,289 550 - - ----------------------------------------------------------------------------------------------------------------------------- Investing Activities Purchase of investments (33,619) (27,038) Sale of investments 20,923 14,243 Maturity of investments 11,060 12,571 Additions to plant, property and equipment (62) (39) - - ----------------------------------------------------------------------------------------------------------------------------- Cash used for investing activities (1,698) (263) - - ----------------------------------------------------------------------------------------------------------------------------- Financing Activities Short-term debt, net (418) (386) Long-term debt, net 650 -- Net proceeds from issuance of company obligated mandatorily redeemable preferred securities of subsidiary trusts holding solely parent junior subordinated debentures -- 485 Dividends paid (142) (94) Net disbursements for investment and universal life-type contracts charged from policyholder accounts (308) (236) Net proceeds from sale of minority interest in subsidiary 687 -- Acquisition of treasury stock (16) -- Proceeds from common stock issued 26 6 - - ----------------------------------------------------------------------------------------------------------------------------- Cash provided by (used for) financing activities 479 (225) - - ----------------------------------------------------------------------------------------------------------------------------- Foreign exchange rate effect on cash (4) 3 - - ----------------------------------------------------------------------------------------------------------------------------- Increase in cash 66 65 Cash - beginning of period 112 95 - - ----------------------------------------------------------------------------------------------------------------------------- Cash - end of period $ 178 $ 160 - - ----------------------------------------------------------------------------------------------------------------------------- Supplemental Disclosure of Cash Flow Information: - - ------------------------------------------------ Net cash paid (refunds received) during the period for: Income taxes $ (45) $ 190 Interest $ 141 $ 107 See Notes to Consolidated Financial Statements.
- 5 - THE HARTFORD FINANCIAL SERVICES GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollar amounts in millions except for share data unless otherwise stated) (Unaudited) Note 1. Significant Accounting Policies (a) Basis of Presentation The accompanying unaudited consolidated financial statements of The Hartford Financial Services Group, Inc. ("The Hartford" or the "Company", formerly ITT Hartford Group, Inc.) have been prepared in accordance with generally accepted accounting principles for interim periods. Less than majority-owned entities in which The Hartford has at least a 20% interest are reported on an equity basis. In the opinion of management, these statements include all normal recurring adjustments necessary to present fairly the financial position, results of operations and cash flows for the periods presented. For a description of accounting policies, see Note 1 of Notes to Consolidated Financial Statements included in The Hartford's 1996 Form 10-K Annual Report. Certain reclassifications have been made to prior year financial information to conform to current year presentation. (b) Changes in Accounting Principles In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share". This statement establishes standards for computing and presenting earnings per share ("EPS") and applies to entities with publicly held common stock or potential common stock. This statement simplifies the standards for computing earnings per share previously found in Accounting Principles Board Opinion No. 15, "Earnings per Share", and makes them comparable to international EPS standards. It replaces the presentation of primary EPS with the presentation of basic EPS. It also requires dual presentation of basic and diluted EPS on the face of the income statement for all entities with complex capital structures and requires a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. This statement is effective for financial statements for both interim and annual periods ending after December 15, 1997. Adoption of SFAS No. 128 is not expected to have a material effect on the Company's earnings per share calculation. Note 2. The Offering On February 10, 1997, Hartford Life, Inc. ("HLI"), the holding company parent of The Hartford's significant life insurance subsidiaries, filed a registration statement with the Securities and Exchange Commission, as amended, relating to the initial public offering of HLI class A common stock (the "Offering"). Pursuant to the Offering on May 22, 1997, HLI sold to the public 26 million shares at $28.25 per share and received proceeds, net of offering expenses, of $687. The 26 million shares sold in the Offering represented approximately 18.6% of the equity ownership in HLI and approximately 4.4% of the combined voting power of HLI's class A and class B common stock. The Hartford owns all of the 114 million outstanding shares of class B common stock of HLI, representing approximately 81.4% of the equity ownership in HLI and approximately 95.6% of the combined voting power of HLI's class A and class B common stock. Holders of class A common stock generally have identical rights to the holders of class B common stock except that the holders of class A common stock are entitled to one vote per share while holders of class B common stock are entitled to five votes per share on all matters submitted to a vote of HLI's stockholders. As of September 30, 1997, The Hartford continues to maintain 81.4% equity ownership in HLI. In connection with the Offering, The Hartford reported a $368 gain related to the increased value of its equity ownership in HLI. Management used or will use the proceeds from the Offering to reduce certain debt outstanding, to fund growth initiatives, and for other general corporate purposes. The Hartford's current intent is to continue to beneficially own at least 80% of HLI, but it is under no contractual obligation to do so. Note 3. Debt On February 14, 1997, HLI filed a shelf registration statement for the issuance and sale of up to $1.0 billion in the aggregate of senior debt securities, subordinated debt securities and preferred stock of HLI. On June 17, 1997, HLI issued and sold $650 of unsecured redeemable long-term debt in the form of notes and debentures. Of this amount, $200 was in the form of 6.90% notes due June 15, 2004, $200 of 7.10% notes due June 15, 2007, and $250 of 7.65% debentures due June 15, 2027. Interest on each of the notes and debentures is payable semi-annually on June 15 and December 15, of each year, commencing December 15, 1997. HLI also issued $50 of short-term debt in the form of commercial paper. HLI used the proceeds from these issuances for the repayment of short-term debt and for other general corporate purposes. In the first quarter of 1997, HLI borrowed $1.1 billion against a $1.3 billion unsecured short-term credit facility with four banks. During the second quarter of 1997, HLI retired the borrowing with proceeds from the Offering and the new debt issuances as discussed above, and subsequently reduced the capacity of its unsecured short-term credit facility from $1.3 billion to $250. - 6 - Note 4. Contingencies (a) Litigation The Hartford is involved in various legal actions, some of which involve claims for substantial amounts. In the opinion of management, the ultimate liability with respect to such lawsuits is not expected to be material to the consolidated financial position, results of operations or cash flows of The Hartford. (b) Environmental and Asbestos Claims Information regarding environmental and asbestos claims may be found in the Environmental and Asbestos Claims section of the Management's Discussion and Analysis of Financial Condition and Results of Operations. Note 5. Subsequent Event On October 16, 1997, The Hartford entered into a definitive agreement to acquire all outstanding shares of common stock of Omni Insurance Group, Inc. ("Omni"), subject to various conditions including obtaining the approval of Omni shareholders and regulatory authorities. The Hartford agreed to pay cash of $31.75 per share for a total of $187. Omni is a non-standard auto insurer licensed in 25 states and the District of Columbia. - 7 - Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Dollar amounts in millions except per share data unless otherwise stated) Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") addresses the financial condition of The Hartford as of September 30, 1997, compared with December 31, 1996, and its results of operations for the third quarter and nine months ended September 30, 1997 compared with the equivalent 1996 periods. This discussion should be read in conjunction with the MD&A included in The Hartford's 1996 Form 10-K Annual Report. Certain of the statements contained herein (other than statements of historical fact) are forward-looking statements. Such forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The forward-looking statements are made based upon management's expectations and beliefs concerning future developments and their potential effect upon The Hartford. There can be no assurance that future developments will be in accordance with management's expectations or that the effect of future developments on The Hartford will be those anticipated by management. Actual results could differ materially from those expected by The Hartford, depending on the outcome of certain factors, including those described with the forward-looking statements herein. Certain reclassifications have been made to prior year financial information to conform to the current year presentation. INDEX Consolidated Results of Operations: Operating Summary 8 North American Property & Casualty 9 Life 10 International 11 Other Operations and Minority Interest 11 Environmental and Asbestos Claims 12 Investments 13 Capital Resources and Liquidity 16 CONSOLIDATED RESULTS OF OPERATIONS: OPERATING SUMMARY
Operating Summary Third Quarter Ended Nine Months Ended September 30, September 30, ----------------------------------------------------------- 1997 1996 1997 1996 ----------------------------------------------------------- Total revenues $ 3,306 $ 2,836 $ 9,566 $ 9,140 - - ------------------------------------------------------------------------------------------------------------------------------- Net income (loss) $ 299 $ (543) $ 1,077 $ (304) Less: Net realized capital gains, after-tax [1] 116 18 165 46 Other items -- (693) 368 (693) - - ------------------------------------------------------------------------------------------------------------------------------- Core earnings $ 183 $ 132 $ 544 $ 343 - - ------------------------------------------------------------------------------------------------------------------------------- [1] 1996 excludes the Closed Book GRC (see below) net realized capital loss of $137, after-tax. This amount is included in other items.
Revenues for the third quarter and nine months ended September 30, 1997 increased $470, or 17%, and $426, or 5%, respectively, from the comparable prior periods. Excluding corporate-owned life insurance ("COLI") premiums, which decreased as a result of the Health Insurance Portability and Accountability Act of 1996 ("HIPA Act of 1996"), which phases out the deductibility of interest on policy loans under leveraged COLI by 1998, revenues increased $543, or 21%, and $929, or 11%, respectively, for the third quarter and nine months ended September 30, 1997 from the comparable prior periods. The increase for both periods was due primarily to higher fees earned on growth in individual variable annuity account values, an increase in premiums and other considerations resulting from strong group disability sales and growth in reinsurance operations and small commercial accounts. Higher net investment income and net realized capital gains also contributed to the increase. (For an analysis of net investment income and net realized capital gains, see the Investments section.) The Hartford defines "core earnings" as after-tax operational results excluding, as applicable, net realized capital gains or losses, the cumulative effect of accounting changes, allocated Distribution items (as defined in The Hartford's 1996 Form 10-K Annual Report) and certain other items. Included in other items are a $368 equity gain in 1997 resulting from the Offering of 18.6% of Hartford Life, Inc., ("HLI") (for additional information, see Capital Resources and Liquidity section under "The Offering") and other charges of $(693) in 1996 as discussed below. Core earnings is an internal performance measure used by the Company in the management of its operations. Management believes that this performance measure delineates the results of operations of the Company's ongoing lines of business in a manner that allows for a better understanding of the underlying trends in the Company's current business. However, core earnings should only be analyzed in conjunction with, and not in lieu of, net income and may not be comparable to other performance measures used by the Company's competitors. Core earnings were $183 and $544 for the third quarter and nine months of 1997, respectively, compared with $132 and $343 for the comparable prior year periods. The increase in core earnings of $51, or 39%, for the third quarter and $201, or 59%, for the first nine months of 1997 was partially due to significantly lower - 8 - catastrophe and severe winter storm losses which totaled $16 and $35, after-tax, for the third quarter and nine months ended September 30, 1997, respectively, compared to $49 and $156, after-tax, for the same periods in 1996. Excluding the impact of these losses, core earnings for the third quarter increased $18, or 10%, to $199 and for the first nine months of 1997 increased $80, or 16%, to $579 over the comparable prior year periods. This improvement was driven by premium growth in reinsurance operations and small commercial accounts, increased net investment income, growth in earnings on Life annuities, the reduction of incurred environmental and asbestos losses and the reduction of losses in the Guaranteed Investment Contract division. Net income for 1996 includes other charges related to environmental and asbestos reserve increases, net of taxes, of $(429) in the North American Property & Casualty segment and $(81) in Other Operations (as discussed in the Environmental and Asbestos Claims section), recognition of losses in the closed book of guaranteed rate contract business ("Closed Book GRC") of $(169) (as discussed in the Life section) and other, primarily foreign tax-related items, of $(2) in each of the North American Property & Casualty and Life segments and $(10) in Other Operations. The effective tax rates for the third quarter and nine months ended September 30, 1997, excluding the equity gain in HLI, were 29% and 27%, respectively, compared to 23% and 22% for the comparable periods in 1996, excluding the impact of other charges. The increase in the effective tax rates was due to a reduction in the proportionate share of tax-exempt net investment income to total net income for the 1997 periods compared to 1996. Tax-exempt interest earned on invested assets was a principal cause of effective tax rates lower than the 35% U.S. statutory rate. Segment Results The Hartford's reporting segments consist of North American Property & Casualty, Life, International and Other Operations and Minority Interest. Below is a summary of core earnings by segment.
Third Quarter Ended Nine Months Ended September 30, September 30, -------------- -------------- -------------- -------------- 1997 1996 1997 1996 -------------- -------------- -------------- -------------- North American Property & Casualty $ 109 $ 61 $ 313 $ 152 Life 83 53 219 136 International 8 20 35 61 Other Operations and Minority Interest (17) (2) (23) (6) - - --------------------------------------------------------------------------------------------------------------------------------- Core earnings $ 183 $ 132 $ 544 $ 343 - - ---------------------------------------------------------------------------------------------------------------------------------
The sections that follow analyze each segment's results. Specific topics such as environmental and asbestos reserves and investment results are discussed separately following the segment overviews. NORTH AMERICAN PROPERTY & CASUALTY
Operating Summary Third Quarter Ended Nine Months Ended September 30, September 30, -------------- -------------- -------------- -------------- 1997 1996 1997 1996 -------------- -------------- -------------- -------------- Total revenues $ 1,788 $ 1,594 $ 5,049 $ 4,756 - - --------------------------------------------------------------------------------------------------------------------------------- Net income (loss) $ 214 $ (371) $ 429 $ (277) Less: Net realized capital gains (losses), after-tax 105 (1) 116 2 Other items -- (431) -- (431) - - --------------------------------------------------------------------------------------------------------------------------------- Core earnings $ 109 $ 61 $ 313 $ 152 - - ---------------------------------------------------------------------------------------------------------------------------------
Revenues increased 12% and 6% for the third quarter and nine months ended September 30, 1997, respectively. These increases were primarily due to higher net realized capital gains and net investment income (see the Investments section). Core earnings for the North American Property & Casualty segment were $109 for the third quarter and $313 for the nine months ended September 30, 1997, an increase of $48, or 79%, and $161, or 106%, respectively, from the comparable periods in 1996. The increase for both periods was primarily due to improved underwriting results and increased net investment income, partially offset by higher debt service costs. (For an analysis of net investment income, see the Investments section.) Significantly lower catastrophe and weather-related losses for both the third quarter and nine months of 1997 as compared to 1996 were the primary driver of the improved underwriting results, as discussed in "Underwriting Results" below. Other items consist primarily of an increase in environmental and asbestos reserves as discussed in the Environmental and Asbestos Claims section. Underwriting Results Underwriting results represent premiums earned less incurred claims, claim adjustment expenses and underwriting expenses. The following table summarizes written premiums, underwriting results and combined ratios for The Hartford's North American Property & Casualty segment: - 9 -
Third Quarter Ended Nine Months Ended September 30, September 30, ------------------------------------------------------------ 1997 1996 1997 1996 ------------------------------------------------------------ Written premiums $ 1,449 $ 1,472 $ 4,376 $ 4,364 Underwriting results, before-tax [1] $ (32) $ (84) $ (92) $ (304) Combined ratio [1] [2] 102.4 105.8 101.9 106.5 - - --------------------------------------------------------------------------------------------------------------------------------- [1] 1996 excludes the impact of $660, before-tax, environmental and asbestos charge. [2] "Combined ratio" is a common industry measurement of property and casualty underwriting profitability. This ratio is the sum of the ratio of incurred claims and claim adjustment expenses to premiums earned and the ratio of underwriting expenses incurred to premiums written.
11 The North American Property & Casualty segment's written premiums were down 2% for the third quarter and up slightly for the nine months ended September 30, 1997 compared to the equivalent prior year periods. A decrease in commercial lines written premiums for the quarter which resulted from declining worker's compensation rates and intense competition for large commercial accounts was partially offset by strong premium growth in two key target markets, reinsurance and small commercial accounts. Agency personal lines written premium also declined as the Company continued to focus on improving profitability during intensely competitive market conditions. Underwriting results, before-tax, for the third quarter ended September 30, 1997 improved $52 over the comparable prior year period, resulting in a 3.4 point improvement in the combined ratio primarily due to significantly lower property catastrophe losses. For the nine months ended September 30, 1997 underwriting results improved by $212, primarily driven by a $186 (4.3 points of combined ratio) improvement in property catastrophe and other weather-related loss experience. Improvement in both 1997 periods also reflected continued favorable loss cost development trends, particularly in personal lines, and the reduction of incurred environmental and asbestos losses as a result of the charge taken in the third quarter of 1996 upon completion of the Company's environmental and asbestos database study (for further discussion see Environmental and Asbestos Claims section). LIFE
Operating Summary [1] Third Quarter Ended Nine Months Ended September 30, September 30, ------------------------------------------------------------ 1997 1996 1997 1996 ------------------------------------------------------------ Total revenues $ 1,058 $ 819 $ 3,155 $ 3,109 - - --------------------------------------------------------------------------------------------------------------------------------- Net income (loss) $ 83 $ (113) $ 219 $ (31) Less: Net realized capital gains, after-tax [2] -- 5 -- 4 Other items -- (171) -- (171) - - --------------------------------------------------------------------------------------------------------------------------------- Core earnings $ 83 $ 53 $ 219 $ 136 - - --------------------------------------------------------------------------------------------------------------------------------- [1] Life results are presented before the effect of the 18.6% minority interest in HLI, which is reflected in the Other Operations and Minority Interest section. [2] 1996 excludes the Closed Book GRC net realized capital loss of $137, after-tax, which is included in other items.
The Life segment operates in three principal divisions: Annuity, Individual Life Insurance and Employee Benefits. The Life segment also maintains a Guaranteed Investment Contracts division, which is primarily comprised of business written prior to 1995 and a Corporate Operation through which it reports items that are not directly allocable to any of its business divisions. On May 22, 1997, HLI, the holding company parent of The Hartford's significant life subsidiaries, completed the Offering of 18.6% of its common stock. (For additional information, see Capital Resources and Liquidity section under "The Offering".) The Annuity division focuses on the savings and retirement needs of the growing number of individuals who are preparing for retirement or have already retired. The variety of products sold within this segment reflects the diverse nature of the market. These include individual variable annuities, fixed market value adjusted (MVA) annuities, deferred compensation and retirement plan services for municipal governments and corporations, structured settlement contracts and other special purpose annuity contracts, investment management contracts and mutual funds. The Individual Life Insurance division, which focuses on the high end estate and business planning markets, sells a variety of life insurance products, including variable life and universal life. The Employee Benefits division sells group insurance products, including group life and group disability insurance, COLI and engages in certain international operations. The Guaranteed Investment Contracts division consists of guaranteed rate contract ("GRC") business that is supported by assets held in either the Company's general account or a guaranteed separate account and includes Closed Book GRC. The Company decided in 1995, after a thorough review of its GRC business, that it would significantly de-emphasize general account GRC, choosing to focus its distribution efforts on other products sold through other divisions. Management expects no material income or loss from the Guaranteed Investment Contracts division in the future. Revenues for the third quarter ended September 30, 1997 increased $239, or 29%, from the third quarter of 1996 and $46, or 1%, for the first nine months of 1997 compared to the same prior year period. Excluding COLI premiums, which decreased as a result of the HIPA Act of 1996 (which phases out the deductibility of interest on policy loans under leveraged COLI by - 10 - 1998), and the September 1996 net realized capital losses associated with Closed Book GRC, revenues increased $102, or 13%, and $339, or 14%, for the third quarter and nine months ended September 30, 1997, respectively. The increase in premiums and other considerations for both periods resulted from higher fees earned on growth in individual variable annuity account values as well as strong growth in group life and group disability premiums. Contributing to annuity asset growth were new individual annuity sales of $2.6 billion and $7.6 billion for the third quarter and nine months ended September 30, 1997, respectively, as compared to sales of $2.4 billion and $7.4 billion, respectively, for the same periods of 1996. Core earnings increased $30, or 57%, and $83, or 61%, in the third quarter of 1997 and nine months ended September 30, 1997, respectively, compared to the prior year periods. This increase was primarily driven by earnings growth in the Annuity, Individual Life Insurance and Employee Benefits divisions of 39%, 36% and 5%, respectively, for the third quarter and 36%, 27%, and 12%, respectively, for the nine months. Also contributing to the increase was the reduction of operating losses in the Guaranteed Investment Contracts division as a result of actions taken in the third quarter of 1996 which resulted in recognition of losses in Closed Book GRC. Partially offsetting the growth in earnings was higher interest expense in the Corporate Operation as a result of increased indebtedness in conjunction with the Offering. (For additional information, see Capital Resources and Liquidity section under "The Offering" and "Debt".) Other items primarily consist of a third quarter 1996 charge in Closed Book GRC as discussed in The Hartford's 1996 Form 10-K Annual Report in the Runoff section of the MD&A. INTERNATIONAL
Operating Summary Third Quarter Ended Nine Months Ended September 30, September 30, -------------- -------------- -------------- -------------- 1997 1996 1997 1996 -------------- -------------- -------------- -------------- Total revenues $ 419 $ 384 $ 1,243 $ 1,155 - - --------------------------------------------------------------------------------------------------------------------------------- Net income $ 19 $ 34 $ 84 $ 99 Less: Net realized capital gains, after-tax 11 14 49 38 - - --------------------------------------------------------------------------------------------------------------------------------- Core earnings $ 8 $ 20 $ 35 $ 61 - - ---------------------------------------------------------------------------------------------------------------------------------
Revenues for the third quarter and nine months ended September 30, 1997 increased $35, or 9%, and $88, or 8%, respectively, over the comparable periods in 1996. Revenues increased for both periods primarily due to new business attributable to an agreement entered into at the end of 1996 with Nationwide Building Society at ITT London & Edinburgh, in the United Kingdom, to exclusively underwrite the homeowners business of Nationwide's customers. An increase in net realized capital gains also contributed to the nine month revenue growth. (For a discussion of net realized capital gains, see the Investments section.) Foreign exchange impacts on revenues for the third quarter and nine months ended September 30, 1997 were negligible. Core earnings for the third quarter and nine months ended September 30, 1997 decreased $12, or 60%, and $26, or 43%, respectively, compared to the same periods in 1996. The primary reason for the decline in core earnings was a third quarter decrease of $11, or 92%, and a nine month decrease of $26, or 67%, in core earnings at ITT London & Edinburgh, due primarily to soft market conditions in the motor line. Foreign exchange had a negligible impact on core earnings for the third quarter and nine months ended September 30, 1997. OTHER OPERATIONS AND MINORITY INTEREST
Operating Summary Third Quarter Ended Nine Months Ended September 30, September 30, -------------- -------------- -------------- -------------- 1997 1996 1997 1996 -------------- -------------- -------------- -------------- Total revenues $ 41 $ 39 $ 119 $ 120 - - --------------------------------------------------------------------------------------------------------------------------------- Net income (loss) $ (17) $ (93) $ 345 $ (95) Less: Net realized capital gains, after-tax -- -- -- 2 Other items -- (91) 368 (91) - - --------------------------------------------------------------------------------------------------------------------------------- Core earnings $ (17) $ (2) $ (23) $ (6) - - ---------------------------------------------------------------------------------------------------------------------------------
Other Operations consist of property and casualty operations of The Hartford which have discontinued writing new and renewal business. These operations primarily include First State Insurance Company and its subsidiaries ("First State") as well as Fencourt Reinsurance Company, Ltd. and Excess Insurance Company Limited, which has been reclassified from ITT London & Edinburgh in the International segment for all periods presented. The primary focus of these operations is the proper disposition of claims, resolving disputes and collecting reinsurance proceeds related largely to business underwritten and reinsured prior to 1985. Other items for 1997 consist of a non-taxable realized gain following the sale of 18.6% of The Hartford's principal Life subsidiary, HLI. (For additional information, see Note 2 in Notes to Consolidated Financial Statements and Capital Resources and - 11 - Liquidity section under "The Offering".) Other items in 1996 primarily consist of an increase in environmental and asbestos results at First State as discussed in the Environmental and Asbestos Claims section. Core earnings includes the 18.6% minority interest in HLI's operating results of $(16) and $(21) for the third quarter and nine months ended September 30, 1997, respectively. (For additional information regarding HLI's results, see the Life section.) ENVIRONMENTAL AND ASBESTOS CLAIMS The Hartford continues to receive claims asserting damages from environmental exposures and for injuries from asbestos and asbestos-related products, both of which affect the North American Property & Casualty, International and Other Operations segments. Environmental claims relate primarily to pollution and related clean-up costs. With regard to these claims, uncertainty exists which impacts the ability of insurers and reinsurers to estimate the ultimate reserves for unpaid losses and related settlement expenses. The Hartford finds that conventional reserving techniques cannot estimate the ultimate cost of these claims because of inadequate development patterns and inconsistent emerging legal doctrine. For the majority of environmental claims and many types of asbestos claims, unlike any other type of contractual claim, there is almost no agreement or consistent precedent to determine what, if any, coverage exists or which, if any, policy years and insurers or reinsurers may be liable. Further uncertainty arises with environmental claims since claims are often made under policies, the existence of which may be in dispute, the terms of which may have changed over many years, which may or may not provide for legal defense costs, and which may or may not contain environmental exclusion clauses that may be absolute or allow for fortuitous events. Courts in different jurisdictions have reached disparate conclusions on similar issues and in certain situations have broadened the interpretation of policy coverage and liability issues. In light of the extensive claim settlement process for environmental and asbestos claims, involving comprehensive fact gathering, subject matter expertise and intensive litigation, The Hartford established an environmental claims facility in 1992 to defend itself aggressively against unwarranted claims and to minimize costs. Within the property and casualty insurance industry, progress has been made in developing sophisticated, alternative methodologies utilizing company experience and supplemental databases to assess environmental and asbestos liabilities. Consistent with The Hartford's practice of using the best developed techniques to estimate the Company's environmental and asbestos exposures, a study was conducted in 1996 utilizing internal staff supplemented by outside legal and actuarial consultants. Use of these new methodologies resulted in The Hartford adjusting its environmental and asbestos liabilities in the third quarter of 1996. (For additional information, see The Hartford's 1996 Form 10-K Annual Report.) Reserve activity for both reported and unreported environmental and asbestos claims, including reserves for legal defense costs, for the nine months ended September 30, 1997 and the year ended December 31, 1996, was as follows (net of reinsurance):
Environmental and Asbestos Claims and Claim Adjustment Expenses Nine Months Ended Year Ended September 30, 1997 December 31, 1996 ---------------- ----------- ----------- ---------------- ----------- ---------- Environmental Asbestos Total Environmental Asbestos Total ---------------- ----------- ----------- ---------------- ----------- ---------- Beginning liability $ 1,439 $ 717 $ 2,156 $ 926 $ 410 $ 1,336 Claims and claim adjustment expenses incurred -- -- -- 603 322 925 Claims and claim adjustment expenses paid (81) (25) (106) (124) (35) (159) Other [1] -- -- -- 34 20 54 - - -------------------------------------------------------------------------------------------------------------------------------- Ending liability [2] $ 1,358 $ 692 $ 2,050 $ 1,439 $ 717 $ 2,156 - - -------------------------------------------------------------------------------------------------------------------------------- [1] Other represents reclassifications of reserves that were not previously identified as environmental and asbestos. [2] The ending liabilities are net of reinsurance on reported and unreported claims of $1,875 and $1,972 for September 30, 1997 and December 31, 1996, respectively. Gross of reinsurance, as of September 30, 1997 and December 31, 1996 reserves for environmental and asbestos were $2,211 and $1,714 and $2,342 and $1,786, respectively.
The Hartford believes that the environmental and asbestos reserves reported at September 30, 1997 are a reasonable estimate of the ultimate remaining liability for these claims based upon known facts, current assumptions and The Hartford's methodologies. Future social, economic, legal or legislative developments may alter the original intent of policies and the scope of coverage. The Hartford will continue to evaluate new developments and methodologies as they become available for use in supplementing the Company's ongoing analysis and review of its environmental and asbestos exposures. These future reviews may result in a change in reserves, impacting The Hartford's results of operations in the period in which the reserve estimates are changed. While the effects of future changes in facts, legal and other issues could have a material effect on future results of operations, The Hartford does not expect such changes would have a material effect on its liquidity or financial condition. - 12 - INVESTMENTS An important element of the financial results of The Hartford is return on invested assets. The Hartford's investment activities are divided between the reportable segments of North American Property & Casualty, Life, International, and Other Operations. The investment portfolios for these segments are managed based on the underlying characteristics and nature of their respective liabilities. The ratings referenced in the fixed maturities by credit quality tables are based on the ratings of a nationally recognized rating organization or, if not rated, assigned based on the Company's internal analysis of such securities. Please refer to The Hartford's 1996 Form 10-K Annual Report for a description of the Company's investment objectives and policies. North American Property & Casualty Total invested assets were $15.1 billion at September 30, 1997 and were comprised of fixed maturities of $13.6 billion and other investments of $1.5 billion, primarily equity securities. Fixed Maturities by Type - - ----------------------------------------------------------------- September 30, 1997 December 31, 1996 - - ------------------------- ---------- -------- ---------- -------- Fair Fair Type Value Percent Value Percent - - ------------------------- ---------- -------- ---------- -------- Municipal - tax-exempt $7,374 54.4% $7,123 63.2% Corporate 2,633 19.4% 2,160 19.1% ABS 741 5.5% 206 1.8% Commercial MBS 644 4.7% 107 0.9% Short-term 630 4.6% 419 3.7% MBS - agency 544 4.0% 213 1.9% CMO 470 3.5% 655 5.8% Gov't/Gov't agencies - 360 2.7% 279 2.5% For. Municipal - taxable 63 0.5% 68 0.6% Redeemable pref'd stock 55 0.4% 47 0.4% Gov't/Gov't agencies - 36 0.3% 15 0.1% U.S. - - ------------------------- ---------- -------- ---------- -------- Total fixed maturities $13,550 100.0% $11,292 100.0% - - ------------------------- ---------- -------- ---------- -------- This segment maintains a high quality fixed maturity portfolio. At September 30, 1997, approximately 95% of the fixed maturity portfolio was invested in investment-grade securities. Fixed Maturities by Credit Quality - - ----------------------------------------------------------------- September 30, December 31, 1996 1997 - - -------------------------- --------- -------- ---------- -------- Fair Fair Credit Quality Value Percent Value Percent - - -------------------------- --------- -------- ---------- -------- U.S. Gov't/Gov't agencies $892 6.6% $ 720 6.4% AAA 5,073 37.4% 4,296 38.0% AA 2,745 20.3% 2,714 24.0% A 2,325 17.2% 1,731 15.3% BBB 1,211 8.9% 830 7.4% BB & below 674 5.0% 582 5.2% Short-term 630 4.6% 419 3.7% - - -------------------------- --------- -------- ---------- -------- Total fixed maturities $13,550 100.0% $11,292 100.0% - - -------------------------- --------- -------- ---------- -------- The taxable equivalent duration of the September 30, 1997 fixed maturity portfolio was 4.6 years compared to 5.0 years at December 31, 1996. Duration is defined as the market price sensitivity of the portfolio to parallel shifts in the yield curve. The North American Property & Casualty segment uses a nominal amount of derivatives in managing its investments. The notional amount of derivatives was $125 and $1 as of September 30, 1997 and December 31, 1996, respectively. Investment Results The table below summarizes the North American Property & Casualty segment's results. Third Quarter Nine Months Ended Ended September 30, September 30, -------------------- ------------------- 1997 1996 1997 1996 - - ------------------------- ---------- --------- --------- --------- Net investment income, before-tax $198 $162 $568 $489 Net investment income, after-tax [1] $157 $133 $454 $392 Yield on average invested assets, 5.6% 5.5% 5.7% 5.6% before-tax [2] Yield on average invested assets, 4.5% 4.5% 4.5% 4.5% after-tax [1] [2] Net realized capital gains (losses), $162 $(2) $179 $2 before tax - - ------------------------------------------------------------------ [1] Due to the significant holdings in tax-exempt investments an after-tax net investment income and after-tax yield are also included. [2] Represents annualized nine months net investment income (excluding net realized capital gains (losses)) divided by average invested assets at cost (fixed maturities at amortized cost). For the third quarter ended September 30, 1997, before-tax net investment income was $198 compared to $162 in 1996, an increase of 22%, while after-tax net investment income increased 18%. For the nine months ended September 30, 1997, before-tax net investment income was $568 compared to $489 in 1996, an increase of 16%, while after-tax net investment income also increased 16%. The increase in net investment income for both periods was primarily due to an increase in invested assets as a result of increased operating cash flow, investment of the proceeds from the 1996 sale of Quarterly Income Preferred Securities and 1997 repayment of allocated advances from HLI, partially offset by the 1997 repayment of short-term debt. For the third quarter and nine months ended September 30, 1997 before and after-tax yields were relatively flat as compared to the prior periods. The increase in net realized capital gains resulted primarily from opportunities in a strong equity market, partially offset by real estate writedowns for both 1997 periods presented. Life Invested assets, excluding separate accounts, totaled $20.7 billion at September 30, 1997 and were comprised of $16.6 billion of fixed maturities, $3.8 billion of policy loans, and other investments of $337. Policy loans, which carry a weighted-average interest rate of 9.47% as of September 30, 1997 are secured by the cash value of the policy. These loans do not mature in a conventional sense, but expire in conjunction with the related policy liabilities. - 13 - Fixed Maturities by Type - - ----------------------------------------------------------------- September 30, December 31, 1996 1997 - - -------------------------- ------------------ ------------------- Fair Fair Type Value Percent Value Percent - - -------------------------- --------- -------- ---------- -------- Corporate $7,850 47.4% $7,587 48.3% ABS 3,471 20.9% 2,693 17.1% Commercial MBS 1,537 9.3% 1,098 7.0% Short-term 1,204 7.3% 765 4.9% CMO 1,073 6.5% 2,150 13.7% MBS - agency 545 3.3% 402 2.6% Gov't/Gov't agencies - 442 2.7% 395 2.5% For. Municipal-taxable 253 1.5% 266 1.7% Gov't/Gov't agencies - 187 1.1% 355 2.2% U.S. Municipal- tax -exempt 1 -- -- -- - - -------------------------- --------- -------- ---------- -------- Total fixed maturities $16,563 100.0% $15,711 100.0% - - -------------------------- --------- -------- ---------- -------- During the first nine months of 1997, the Company reduced its CMO exposure by 50% with the proceeds re-deployed primarily into the asset-backed sector. This change is consistent with the Company's objective of managing exposure to securities that "underperform" in a falling interest rate environment. The Life segment continued to maintain a high quality fixed maturities portfolio. As of September 30, 1997, approximately 99% of the fixed maturities portfolio was invested in investment-grade securities. Fixed Maturities by Credit Quality - - ---------------------------------------------------------------- September 30, 1997 December 31, 1996 - - ------------------------- ------------------- ------------------ Fair Fair Credit Quality Value Percent Value Percent - - ------------------------- --------- --------- --------- -------- U.S. Gov't/Gov't agencies $1,583 9.6% $ 353 2.2% AAA 3,010 18.2% 4,695 29.9% AA 1,886 11.4% 1,902 12.1% A 5,756 34.7% 5,366 34.2% BBB 3,053 18.4% 2,581 16.4% BB & below 71 0.4% 49 0.3% Short-term 1,204 7.3% 765 4.9% - - ------------------------- --------- --------- --------- -------- Total fixed maturities $16,563 100.0% $15,711 100.0% - - ------------------------- --------- --------- --------- -------- Investment Results The table below summarizes the Life segment's results. Third Quarter Ended Nine Months September 30, Ended September 30, --------------------- ------------------ 1997 1996 1997 1996 - - ------------------------ ---------- ---------- --------- --------- Net investment income, before-tax $360 $388 $1,097 $1,105 Yield on average invested assets, 7.1% 7.9% 7.3% 7.4% before-tax [1] Net realized capital losses, before-tax $1 $(202) -- $(203) - - ----------------------------------------------------------------- [1] Represents annualized nine months net investment income (excluding net realized capital gains (losses)) divided by average invested assets at cost (fixed maturities at amortized cost). For the third quarter ended September 30, 1997, net investment income totaled $360 compared to $388 in 1996, a decrease of 7%. For the nine months ended September 30, 1997, net investment income was $1,097 compared to $1,105 in 1996, a decrease of less than one percent. For the third quarter ended September 30, 1997, before-tax yields decreased to 7.1% from 7.9% in 1996; and for the nine months ended September 30, 1997, before-tax yields decreased to 7.3% from 7.4% in 1996. The decrease in net investment income and yields was primarily attributable to a decrease in policy loan yields and declining market interest rates. Net realized capital gains were $1 for the third quarter ended September 30, 1997 up from net realized capital losses of $(202) in 1996; and, for the nine months ended September 30, 1997, there were no net realized capital gains up from $(203) in 1996. The 1996 capital losses were primarily attributable to the writedown and sale of certain securities within the Closed Book GRC. Asset and Liability Management Strategies The Life segment employs several risk management tools to quantify and manage interest rate risk arising from its investments and fixed rate liabilities. Management monitors the changes in present value between assets and liabilities resulting from various interest rate scenarios using integrated asset/liability measurement systems and a proprietary system that simulates the impacts of parallel and non-parallel yield curve shifts. Based on this current and prospective information, management implements risk reducing techniques to improve the match between assets and liabilities. Derivatives play an important role in facilitating the management of interest rate risk, creating opportunities to fund obligations to policyholders and contractholders, hedging against risks that affect the value of certain liabilities and adjust broad investment risk characteristics as a result of any significant changes in market risks. As an end user of derivatives, the segment employs a variety of derivative financial instruments, including swaps, caps, floors, forwards, options and exchange-traded financial futures in order to hedge exposure to price, foreign currency and/or interest rate risk on anticipated investment purchases or existing assets and liabilities. The notional amounts of derivative contracts represent the basis upon which pay and receive amounts are calculated and are not reflective of credit risk for derivative contracts. Credit risk for derivative contracts is limited to the amounts calculated to be due to the Company on such contracts. The Company believes it maintains prudent policies regarding the financial stability and credit standing of its major counterparties and typically requires credit enhancement provisions to further limit its credit risk. Many of these derivative contracts are bilateral agreements that are not assignable without the consent of the relevant counterparty. Notional amounts pertaining to derivative financial instruments totaled $9.3 billion at September 30, 1997 ($7.0 billion related to life insurance investments and $2.3 billion related to life insurance liabilities) and $10.9 billion at December 31, 1996 ($8.3 billion related to life insurance investments and $2.6 billion related to life insurance liabilities). The decrease in notional amounts pertaining to derivative financial instruments was primarily due to continued liquidation of the Closed Book GRC asset portfolio. Management believes that the use of derivatives allows the Company to sell more innovative products, capitalize on market opportunities and execute a more flexible investment strategy for its general account portfolio. - 14 - International Invested assets, excluding separate accounts, totaled $2.6 billion at September 30, 1997 and were comprised of fixed maturities of $2.1 billion and other investments of $449, primarily equity securities. Fixed Maturities by Type - - ----------------------------------------------------------------- September 30, December 31, 1996 1997 -------------------------- ------------------ ------------------- Fair Fair Type Value Percent Value Percent - - -------------------------- --------- -------- ---------- -------- Gov't/Gov't agencies - For. $864 40.3% $1,384 63.1% Short-term 668 31.2% 379 17.3% Corporate 569 26.6% 401 18.3% Gov't/Gov't agencies - U.S. 41 1.9% 29 1.3% - - -------------------------- --------- -------- ---------- -------- Total fixed maturities $2,142 100.0% $2,193 100.0% - - -------------------------- --------- -------- ---------- -------- As of September 30, 1997, the fixed maturities portfolio consisted of 100% investment grade securities with no security rated lower than "A". Fixed Maturities by Credit Quality - - ----------------------------------------------------------------- September 30, 1997 December 31, 1996 - - -------------------------- ------------------- ------------------ Fair Fair Credit Quality Value Percent Value Percent - - -------------------------- --------- --------- --------- -------- AAA $1,250 58.4% $1,750 79.8% AA 221 10.3% 60 2.7% A 3 0.1% 4 0.2% Short-term 668 31.2% 379 17.3% - - -------------------------- --------- --------- --------- -------- Total fixed maturities $2,142 100.0% $2,193 100.0% - - -------------------------- --------- --------- --------- -------- Minimal use is made of derivatives which, when purchased, are used for hedging market and foreign exchange risk. Investment Results The table below summarizes the International segment's results. Third Quarter Nine Months Ended Ended September 30, September 30, -------------------- --------- ---------- 1997 1996 1997 1996 ------------------------ --------- ---------- --------- ---------- Net investment income, before-tax $44 $42 $128 $128 Yield on average invested assets, 6.9% 6.7% 6.8% 7.0% before-tax [1] Net realized capital gains, before-tax $16 $21 $73 $57 ------------------------------------------------------------------ [1] Represents annualized nine months net investment income (excluding net realized capital gains (losses)) divided by average invested assets at cost (fixed maturities at amortized cost). For the third quarter and nine months ended September 30, 1997, both net investment income and yields were relatively flat as compared to the prior periods. Net realized capital gains were $16 for the third quarter ended September 30, 1997, and $73 for the nine months ended September 30, 1997, primarily the result of opportunities in a strong equity market. Other Operations Invested assets were $2.3 billion at September 30, 1997 and were primarily comprised of fixed maturities. Fixed Maturities by Type - - ----------------------------------------------------------------- September 30, December 31, 1996 1997 - - -------------------------- ------------------ ------------------- Fair Fair Type Value Percent Value Percent - - -------------------------- --------- -------- ---------- -------- Corporate $1,490 64.2% $1,458 64.7% Short-term 237 10.2% 248 11.0% Commercial MBS 148 6.4% 88 3.9% ABS 140 6.0% 148 6.6% Gov't/Gov't agencies - U.S. 92 4.0% 141 6.2% Gov't/Gov't agencies - For. 79 3.4% 72 3.2% MBS - agency 58 2.5% 36 1.6% Municipal - taxable 39 1.7% 22 1.0% CMO 29 1.2% 40 1.8% Redeemable preferred 9 0.4% -- -- stock - - -------------------------- --------- -------- ---------- -------- Total fixed maturities $2,321 100.0% $2,253 100.0% - - -------------------------- --------- -------- ---------- -------- Other Operations maintains a 100% investment grade fixed maturity portfolio. Fixed Maturities by Credit Quality - - ----------------------------------------------------------------- September 30, December 31, 1996 1997 - - -------------------------- ------------------ ------------------- Fair Fair Credit Quality Value Percent Value Percent - - -------------------------- --------- -------- ---------- -------- U.S. Gov't/Gov't agencies $203 8.8% $216 9.6% AAA 330 14.2% 253 11.2% AA 233 10.0% 365 16.2% A 1,163 50.1% 1,093 48.5% BBB 155 6.7% 78 3.5% Short-term 237 10.2% 248 11.0% - - -------------------------- --------- -------- ---------- -------- Total fixed maturities $2,321 100.0% $2,253 100.0% - - -------------------------- --------- -------- ---------- -------- Investment Results The table below summarizes the Other Operations segment's results. Third Quarter Ended Nine Months Ended September 30, September 30, ---------- ---------- --------- ---------- 1997 1996 1997 1996 ------------------------ ---------- ---------- --------- ---------- Net investment income, before-tax $40 $39 $116 $113 Yield on average invested assets, 7.0% 6.8% 6.8% 6.4% before-tax [1] Net realized capital gains, before-tax -- -- -- $2 - - ------------------------------------------------------------------ [1] Represents annualized nine months net investment income (excluding net realized capital gains (losses)) divided by average invested assets at cost (fixed maturities at amortized cost). For the third quarter and nine months ended September 30, 1997, before-tax yields increased from 1996 primarily due to portfolio re-balancing from lower yielding short-term securities to higher yielding long-term securities. - 15 - CAPITAL RESOURCES AND LIQUIDITY Capital resources and liquidity represent the overall financial strength of The Hartford and its ability to generate strong cash flows from each of the business segments and borrow funds at competitive rates to meet operating and growth needs. The capital structure of The Hartford consists of debt, minority interest and equity, summarized as follows:
September 30, 1997 December 31, 1996 - - ------------------------------------------------------------------------------------------------------------------------------- Short-term debt $ 82 $ 500 Long-term debt 1,677 1,032 Company obligated mandatorily redeemable preferred securities of subsidiary trusts holding solely parent junior subordinated debentures (QUIPS) 1,000 1,000 - - ------------------------------------------------------------------------------------------------------------------------------- Total debt $ 2,759 $ 2,532 ------------------------------------------------------------------------------------------------------------------------ Minority interest in consolidated subsidiary [1] $ 338 $ -- ------------------------------------------------------------------------------------------------------------------------ Equity excluding unrealized gain on securities, net of tax $ 5,041 $ 4,168 Unrealized gain on securities, net of tax 767 352 - - ------------------------------------------------------------------------------------------------------------------------------- Total stockholders' equity $ 5,808 $ 4,520 ------------------------------------------------------------------------------------------------------------------------ Total capitalization [2] $ 8,138 $ 6,700 ------------------------------------------------------------------------------------------------------------------------ Debt to equity [2] 55% 61% Debt to capitalization [2] 34% 38% - - ------------------------------------------------------------------------------------------------------------------------------- [1] Excludes unrealized gain on securities, net of tax, of $35. [2] Excludes unrealized gain on securities, net of tax.
Capitalization The Hartford's total capitalization, excluding unrealized gain on securities, net of tax, increased by $1,438 as of September 30, 1997 compared to December 31, 1996. This change primarily was the result of earnings, the effects of the Offering (see below) and additional net borrowings, partially offset by dividends declared on The Hartford common stock. The Company's debt to equity and debt to capitalization ratios (both excluding unrealized gain on securities, net of tax) improved at September 30, 1997 as compared to December 31, 1996 primarily as a result of earnings and the impact of the Offering, partially offset by increased debt. In addition, during the third quarter of 1997, to make shares available to employees pursuant to certain stock-based benefit plans, The Hartford repurchased 200,000 shares of its common stock in the open market at a total cost of $16. The Hartford currently intends to purchase shares of its common stock to make shares available for its various employee stock-based benefit plans. The Offering On February 10, 1997, HLI, the holding company parent of The Hartford's significant life insurance subsidiaries, filed a registration statement with the Securities and Exchange Commission, as amended, relating to the initial public offering of HLI class A common stock (the "Offering"). Pursuant to the Offering on May 22, 1997, HLI sold to the public 26 million shares at $28.25 per share and received proceeds, net of offering expenses, of $687. The 26 million shares sold in the Offering represent approximately 18.6% of the equity ownership in HLI and approximately 4.4% of the combined voting power of HLI's class A and class B common stock. The Hartford owns all of the 114 million outstanding shares of class B common stock of HLI, representing approximately 81.4% of the equity ownership in HLI and approximately 95.6% of the combined voting power of HLI's class A and class B common stock. Holders of class A common stock generally have identical rights to the holders of class B common stock except that the holders of class A common stock are entitled to one vote per share while holders of class B common stock are entitled to five votes per share on all matters submitted to a vote of HLI's stockholders. As of September 30, 1997, The Hartford continues to maintain 81.4% equity ownership in HLI. In connection with the Offering, The Hartford reported a $368 gain related to the increased value of its equity ownership in HLI. Management used or will use the proceeds from the Offering to reduce certain debt outstanding, to fund growth initiatives, and for other general corporate purposes. The Hartford's current intent is to continue to beneficially own at least 80% of HLI, but it is under no contractual obligation to do so. Debt On February 14, 1997, HLI filed a shelf registration statement for the issuance and sale of up to $1.0 billion in the aggregate of senior debt securities, subordinated debt securities and preferred stock of HLI. On June 17, 1997, HLI issued and sold $650 of unsecured redeemable long-term debt in the form of notes and debentures. Of this amount, $200 was in the form of 6.90% notes due June 15, 2004, $200 of 7.10% notes due June 15, 2007, and $250 of 7.65% debentures due June 15, 2027. Interest on each of the notes and debentures is payable semi-annually on June 15 and December 15, of each year, commencing December 15, 1997. HLI also issued $50 of short-term debt in the form of commercial paper. HLI used the proceeds from these issuances for the repayment of short-term debt and for other general corporate purposes. In the first quarter of 1997, HLI borrowed $1.1 billion against a $1.3 billion unsecured short-term credit facility with four banks. - 16 - During the second quarter of 1997, HLI retired the borrowing with proceeds from the Offering and the new debt issuances (discussed above), and subsequently reduced the capacity of its unsecured short-term credit facility from $1.3 billion to $250. Dividends On July 17, 1997, The Hartford declared a dividend on its common stock of $0.40 per share payable on October 1, 1997 to all shareholders of record as of September 2, 1997. Cash Flows Nine Months Ended September 30, -------------------------- 1997 1996 - - ------------------------------------------------------------------ Cash provided by operating activities $ 1,289 $ 550 Cash used for investing activities $ (1,698) $ (263) Cash provided by (used for) financing activities $ 479 $ (225) Cash - end of period $ 178 $ 160 - - ------------------------------------------------------------------ The change in cash provided by or used for financing activities between periods was due primarily to the proceeds of $687 from the Offering, partially offset by declines in investment-type contracts written in the Life segment, coupled with increases in investment-type contract maturities in 1997. The increase in cash used for investing activities reflects the investment of the additional cash from operating and financing activities. Operating cash flows in both periods have been more than adequate to meet liquidity requirements. Subsequent Event On October 16, 1997, The Hartford entered into a definitive agreement to acquire all outstanding shares of common stock of Omni Insurance Group, Inc. ("Omni"), subject to various conditions including obtaining the approval of Omni shareholders and regulatory authorities. The Hartford agreed to pay cash of $31.75 per share for a total of $187. Omni is a non-standard auto insurer licensed in 25 states and the District of Columbia. Part II. OTHER INFORMATION Item 1. Legal Proceedings The Hartford is a defendant in various lawsuits arising out of its business. In the opinion of management, the ultimate liability with respect to such lawsuits is not expected to be material to the consolidated financial position, results of operations or cash flow of The Hartford. The Hartford is involved in claim litigation arising in the ordinary course of business and accounts for such activity through the establishment of policy reserves. As further discussed in the MD&A under the Environmental and Asbestos Claims section, The Hartford continues to receive environmental and asbestos claims which involve significant uncertainty regarding policy coverage issues. Regarding these claims, The Hartford continually reviews its overall reserve levels, reserving methodologies and reinsurance coverages. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits - See Exhibits Index. (b) Reports on Form 8-K - None. - 17 - SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. The Hartford Financial Services Group, Inc. (Registrant) /s/ James J. Westervelt -------------------------------------------- James J. Westervelt Senior Vice President and Group Controller (Chief Accounting Officer) November 13, 1997 - 18 - THE HARTFORD FINANCIAL SERVICES GROUP, INC. FORM 10-Q EXHBITS INDEX Exhibit # 10.01 Employment Agreement dated July 1, 1997 between The Hartford Financial Services Group, Inc. ("The Hartford") and Ramani Ayer is filed herewith. 10.02 Employment Agreement dated July 1, 1997 between Hartford Life, Inc., The Hartford and Lowndes A. Smith is filed herewith. 10.03 Employment Agreement dated July 1, 1997 between The Hartford and David K. Zwiener is filed herewith. 11.01 Computation of Earnings Per Share is filed herewith. 27 Financial Data Schedule is filed herewith. - 19 -
EXHIBIT 11.01 THE HARTFORD FINANCIAL SERVICES GROUP, INC. COMPUTATION OF EARNINGS PER SHARE (In millions, except per share data) Third Quarter Ended Nine Month Ended September 30, September 30, -------------------------------------------------------------- 1997 1996 1997 1996 - - --------------------------------------------------------------- --------------- --------------- -------------- --------------- (Unaudited) (Unaudited) Net income (loss) $ 299 $ (543) $ 1,077 $ (304) Weighted average common shares outstanding 118.2 117.2 118.0 117.2 Earnings (loss) per share $ 2.53 $ (4.63) $ 9.13 $ (2.59) - - --------------------------------------------------------------- -- ------------ -- ------------ -- ----------- --- -----------
- 20 - EX-10 2 EXHIBIT 10.01 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT -------------------- EMPLOYMENT AGREEMENT, dated as of July 1, 1997, by and between The Hartford Financial Services Group, Inc., a Delaware corporation (the "Company"), and Ramani Ayer ("Executive"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, the Company wishes to recognize the substantial services that Executive has provided to the Company; and WHEREAS, the Company desires that Executive continue to perform such services and to enter into an agreement embodying the terms of such employment (the "Agreement"); and WHEREAS, Executive desires to continue such employment and enter into such Agreement; NOW, THEREFORE, in consideration of the mutual covenants herein contained, the Company and Executive hereby agree as follows: 1. EMPLOYMENT. ---------- (A) AGREEMENT TO EMPLOY. Upon the terms and subject to the conditions of ------------------- this Agreement, the Company hereby agrees to continue to employ Executive and Executive hereby agrees to continue his employment by the Company. (B) TERM OF EMPLOYMENT. Except as otherwise provided below, the Company ------------------ shall employ Executive for the period commencing on July 1, 1997 (the "Commencement Date") and ending on the third anniversary of the Commencement Date. At the expiration of the original term or any extended term (each a "Renewal Date"), Executive's employment hereunder shall be extended automatically, upon the same terms and conditions, for successive one-year periods, unless either party shall give written notice to the other of its intention not to renew such employment at least fifteen months prior to such Renewal Date. Without limiting the generality of the foregoing, upon the occurrence of a Change of Control (as defined below), the term of this Agreement shall be extended automatically without any action by either party until the third anniversary of such Change of Control. Notwithstanding the foregoing, if not previously terminated pursuant to Sections 1(b), 5(a) or 6(a), the term of this Agreement shall terminate on the last day of the month in which Executive attains age 65, and such a termination upon Executive reaching age 65 shall be deemed to be a Termination Due to Retirement for purposes of this Agreement. The period during which Executive is employed pursuant to this Agreement, including any extension thereof in accordance with this Section 1(b), shall be referred to as the "Employment Period." 2. POSITION AND DUTIES. ------------------- During the Employment Period, Executive shall serve as Chairman, President and Chief Executive Officer of the Company, and/or in such other position or positions with the Company or its affiliates commensurate with his position and experience as the Board of Directors of the Company (the "Board") shall from time to time specify. During the Employment Period, Executive shall have the duties, responsibilities and obligations customarily assigned to individuals serving in the position or positions in which Executive serves hereunder and such other duties, responsibilities and obligations as the Board shall from time to time specify. Executive shall devote his full time to the services required of him hereunder, except for vacation time and reasonable periods of absence due to sickness, personal injury or other disability, and shall use his best efforts, judgement, skill and energy to perform such services in a manner consonant with the duties of his position and to improve and advance the business and interests of the Company and its affiliates. During the Employment Period, Executive shall comply with the Code of Conduct of the Company. Unless and to the extent inconsistent with the terms of any published Company policy or code of conduct as in effect on the date hereof and as hereafter amended, nothing contained herein shall preclude Executive from (a) serving on the board of directors of any business corporation with the consent of the Board, (b) serving on the board of, or working for, any charitable or community organization, or (c) pursuing his personal financial and legal affairs, so long as the foregoing activities, individually or collectively, do not interfere with the performance of Executive's duties hereunder or violate any of the provisions of Section 9 hereof. 3. COMPENSATION. ------------ (A) BASE SALARY. During the Employment Period, the Company shall pay Execu ----------- tive a base salary at the annual rate as in effect on the date hereof. The annual base - 2 - salary payable under this paragraph shall be reduced, however, to the extent that Executive elects to defer such salary under the terms of any deferred compensation or savings plan or arrangement maintained or established by the Company or its affiliates. The Board or the appropriate committee of the Board may in its discretion periodically review Executive's base salary in light of competitive practices, the base salaries paid to other executive officers of the Company and the performance of Executive and the Company and its applicable affiliates, and may, in its discretion, increase such base salary by an amount it determines to be appropriate. Any such increase shall not reduce or limit any other obligation of the Company hereunder. Executive's base salary (as set forth above or as may be increased from time to time) shall not be reduced following any Change of Control, but may be reduced prior to a Change of Control solely pursuant to a cost-saving plan or structural realignment of total compensation elements that includes all senior executives and only to the extent that such reduction is proportionate to the reductions applicable to other senior executives. Executive's annual base salary payable hereunder, as it may be increased or reduced from time to time as provided herein and without reduction for any amounts deferred as described above, shall be referred to herein as "Base Salary." The Company shall pay Executive the portion of his Base Salary not deferred not less frequently than in equal monthly installments. (B) ANNUAL BONUS. For each calendar year ending during the Employment ------------- Period, Executive shall have the opportunity to earn and receive an annual bonus, based on the achievement of target levels of performance, equal to the percentage of his Base Salary used to calculate such annual bonus as of the date hereof. Executive's annual bonus opportunity may be increased above such percentage from time to time by the Board or the appropriate committee thereof. Executive's annual bonus opportunity shall not be reduced following any Change of Control, but may be reduced prior to a Change of Control solely pursuant to a cost-saving plan or structural realignment of total compensation elements that includes all senior executives and only to the extent that such reduction is proportionate to the reductions applicable to other senior executives. Executive's annual bonus opportunity, as it may be increased or reduced from time to time as provided herein, shall be referred to herein as "Target Bonus." The actual bonus, if any, payable for any such year shall be determined in accordance with the terms of the Company's Annual Executive Bonus Program or any successor annual incentive plan (the "Annual Plan") based upon the performance of the Company and/or its applicable affiliates and/or Executive against target objectives established under such Annual Plan. Subject to Executive's election to defer all or a portion of any annual bonus payable hereunder pursuant to the terms of any deferred compensation or savings plan or arrangement maintained or established by the - 3 - Company or its affiliates, any annual bonus payable under this Section 3(b) shall be paid to Executive in accordance with the terms of the Annual Plan. (C) LONG-TERM INCENTIVE COMPENSATION. During the Employment Period, ---------------------------------- Executive shall participate in all of the Company's existing and future long-term incentive compensation programs for key executives at a level commensurate with his position with the Company and consistent with the Company's then current policies and practices, as determined in good faith by the Board or the appropriate committee of the Board. 4. BENEFITS, PERQUISITES AND EXPENSES. ---------------------------------- (A) BENEFITS. During the Employment Period, Executive (and, to the extent -------- applicable, his dependents) shall be eligible to participate in or be covered under (i) each welfare benefit plan or program maintained or as hereafter amended or established by the Company or its applicable affiliates, including, without limitation, each group life, hospitalization, medical, dental, health, accident or disability insurance or similar plan or program of thereof, and (ii) each pension, retirement, savings, deferred compensation, stock purchase or other similar plan or program maintained or as hereafter amended or established by the Company or its applicable affiliates, in each case to the extent that Executive is eligible to participate in any such plan or program under the generally applicable provisions thereof. Nothing in this Section 4(a) shall limit the Company's right to amend or terminate any such plan or program in accordance with the procedures set forth therein or as permitted by applicable law. (B) PERQUISITES. For each calendar year during the Employment Period, ----------- Executive shall be entitled to at least the number of paid vacation days per year that Executive is entitled to as of the date hereof, and shall also be entitled to receive such other perquisites as are generally provided to him as of the date hereof or are hereafter provided to other similarly situated senior executives of the Company in accordance with the then current policies and practices of the Company. (C) BUSINESS EXPENSES. During the Employment Period, the Company shall pay ----------------- or reimburse Executive for all reasonable business expenses incurred or paid by Executive in the performance of Executive's duties hereunder, upon presentation of expense statements or vouchers and such other information as the Company may require and in accordance with the generally applicable policies and procedures of the Company. - 4 - (D) OFFICE AND SUPPORT STAFF. During the Employment Period, Executive shall ------------------------ be entitled to an office with furnishings and other material appointments, and to secretarial and other assistance, at a level that is at least commensurate with the foregoing provided to him as of the date hereof or is hereafter provided to other similarly situated senior executives of the Company. (E) INDEMNIFICATION. The Company shall indemnify Executive and hold --------------- Executive harmless from and against any claim, loss or cause of action, regardless whether asserted during or after the Employment Period, arising from or out of Executive's performance as an officer, director or employee of the Company or any of its affiliates or in any other capacity, including any fiduciary capacity in which Executive serves at the request of the Company, to the maximum extent permitted by applicable law and under the Certificate of Incorporation and By-Laws of the Company, as may be amended from time to time (the "Governing Documents"), provided that in no event ------------- shall the protection afforded to Executive be less than that afforded under the Governing Documents as in effect on the Commencement Date. 5. TERMINATION OF EMPLOYMENT. ------------------------- The provisions of this Section 5 shall apply prior to the occurrence of a Change of Control and, if Executive is still in the Company's employ, shall again become applicable upon the third anniversary of such Change of Control. (A) EARLY TERMINATION OF THE EMPLOYMENT PERIOD. Notwithstanding Section -------------------------------------------- 1(b) hereof, the Employment Period shall end upon the earliest to occur of (i) a Termination For Cause, (ii) a Termination Without Cause, (iii) a Voluntary Termination, (iv) a Termination Due to Retirement, (v) a Termination Due to Disability, or (vi) a Termination Due to Death. (B) NOTICE OF TERMINATION. Communication of termination under this Section --------------------- 5 shall be made to the other party by Notice of Termination in the case of (i) a Termination For Cause, (ii) a Termination Without Cause, or (iii) a Voluntary Termination. (C) BENEFITS PAYABLE UPON TERMINATION; RULES FOR DETERMINING REASON FOR ------------------------------------------------------------------- TERMINATION. ----------- (I) BENEFITS PAYABLE UPON TERMINATION. Following the end of the ----------------------------------- Employment Period pursuant to Section 5(a), Executive (or, in the event of his death, his surviving spouse, if any, or if none, his estate) shall be paid the type or types of - 5 - compensation determined to be payable in accordance with the following table, such payment to be made in the form specified in such table and at the time established pursuant to Section 7 hereof. Capitalized terms used in such table shall have the meanings set forth in Section 5(d) hereof. (II) RULES FOR DETERMINING REASON FOR TERMINATION. -------------------------------------------- (A) If a Voluntary Termination occurs on a date that Executive is eligible for Retirement as defined in The Hartford Investment and Savings Plan, as may be amended from time to time, or any successor plan thereof (the "Savings Plan"), such Voluntary Termination shall instead be treated as a Termination Due to Retirement solely for purposes of this Section 5. (B) No Termination Without Cause shall be treated as a Termination Due to Retirement or a Termination Due to Disability for purposes of any Pro Rata Target Bonus, Severance Payment, Equity Awards or Vested Benefits Enhancement under this Section 5, notwithstanding the fact that, either on, before or after the date of termination of the Employment Period with respect thereto, (I) Executive was eligible for Retirement as defined in the Savings Plan, (II) Executive requested to be treated as a retiree for purposes of the Savings Plan or any other plan or program of the Company or its affiliates, or (III) Executive or the Company could have terminated Executive's employment in a Termination Due to Disability hereunder. - 6 -
BENEFITS PAYABLE : NON-CHANGE OF CONTROL BENEFIT: Accrued Pro Rata Target Severance Equity Awards Salary Bonus Payment ======================== ============== ========================= ================ ================================== FORM OF PAYMENT: Lump Sum Lump Sum Lump Sum Determined Under the Applicable Plan Termination For Payable Not Payable Not Payable Not Payable Cause Termination Payable Payable Payable Options / Restricted Stock: Without Cause -------------------------- Payable Other Equity Awards: ------------------- Determined Under the Applicable Plan Voluntary Payable Determined Under Not Determined Under the Termination the Applicable Plan Payable Applicable Plan Termination Due Payable Determined Under Not Determined Under the to Retirement the Applicable Plan Payable Applicable Plan Termination Due Payable Payable Not Determined Under the to Disability Payable Applicable Plan Termination Due Payable Payable Not Determined Under the to Death Payable Applicable Plan
BENEFITS PAYABLE : NON-CHANGE OF CONTROL (Continued) BENEFIT: Vested Benefits Vested Benefits Welfare Enhancement Benefits Continuation ======================== ============================== ======================== ================= FORM OF Determined Under the Lump Sum Determined PAYMENT: Applicable Plan Under the Applicable Plan Termination For Determined Under the Not Payable Not Cause Applicable Plan Available Termination Determined Under the Payable Available Without Cause Applicable Plan Voluntary Determined Under the Not Payable Not Termination Applicable Plan Available Termination Due Determined Under the Not Payable Available to Retirement Applicable Plan Termination Due Determined Under the Not Payable Available to Disability Applicable Plan Termination Due Determined Under the Not Payable Not to Death Applicable Plan Available
- 7 - (D) DEFINITIONS. ----------- "ACCRUED SALARY" means any Base Salary earned, but unpaid, for services rendered to the Company on or prior to the date on which the Employment Period ends pursuant to Section 5(a) (other than Base Salary deferred pursuant to Executive's election, as contemplated by Section 3(a) hereof), plus any vacation pay accrued by Executive as of such date. "AVAILABLE" means that the particular benefit shall be made available to Executive to the extent specifically provided herein or required by applicable law. "DETERMINED UNDER THE APPLICABLE PLAN" means that the determination of whether a particular benefit, shall or shall not be paid to Executive, and, where specifically required by this Agreement, the timing or form of any benefit payment, shall be made solely by application of the terms of the plan or program providing such benefit, except to the extent that the terms of such plan or program are expressly superseded or modified by this Agreement. "EQUITY AWARDS" means the outstanding stock option, restricted stock, performance share and other equity or long-term incentive compensation awards, if any, held by Executive as of the date of his termination. "ERPs" means any excess retirement plans maintained or as hereafter amended or established by the Company or its applicable affiliates. "ESPs" means any excess investment and savings plans maintained or as hereafter amended or established by the Company or its applicable affiliates. "LUMP SUM" means a single lump sum cash payment. "NOT AVAILABLE" means that the particular benefit shall be not be made available to Executive, except to the extent required by applicable law. "NOTICE OF TERMINATION" means (i) in the case of a Termination For Cause, a written notice given by the Company to Executive within 30 calendar days of the Company's having actual knowledge of the events giving rise to such Termination For Cause, (ii) in the case of a Termination Without Cause, a written notice given by the Company to Executive at least 30 calendar days before the effective date of such Termination Without Cause, and (iii) in the - 8 - case of a Voluntary Termination, a written notice given by Executive to the Company indicating the effective date of Executive's termination of the Employment Period in such Voluntary Termination, such effective date to be no earlier than 30 days following the date such notice is received by the Company from Executive. "NOT PAYABLE" means (i) with respect to benefits other than Equity Awards, such benefits shall not be paid or otherwise provided to Executive, and (ii) with respect to Equity Awards, such Equity Awards, to the extent unvested, unexercisable, or subject to restrictions that have not yet lapsed, shall be forfeited and/or canceled as of the date of termination of the Employment Period, unless otherwise determined by the Board or the appropriate committee of the Board in its discretion. "PAYABLE" means (i) with respect to benefits other than those described in clause (ii) of this paragraph, such benefits shall be paid to Executive in the amount, at the time, and in the form specified herein, and (ii) with respect to benefits described in this clause (ii), the following shall apply solely in the event of a Termination Without Cause, notwithstanding anything in the applicable plan or program to the contrary: (A) with respect to any outstanding stock options not yet expired as of the date of termination of the Employment Period, Executive shall be treated as though he remained in the employ of the Company for the two year period following such date, and except to the extent that any such options first expire during such period under the applicable plan or program, (I) any such options that would have become vested over such two year period solely by reason of Executive remaining in the employ of the Company during such period shall become immediately vested and nonforfeitable, (II) with respect to any options that by their terms would vest if the stock of the Company or an affiliate were to reach a specified market price, such options shall become vested and nonforfeitable if and when such stock reaches such price during such two year period, and (III) Executive shall have an additional two years to exercise any vested options (beyond the time to exercise such options permitted under the applicable plan or program), and (B) with respect to any restricted stock subject to restrictions that have not yet lapsed as of the date of termination of the Employment Period, such restrictions shall be deemed to have lapsed and such restricted stock shall become immediately vested and nonforfeitable as of such date. "PRO-RATA TARGET BONUS" means an amount equal to the product of: (i) an amount equal to the Target Bonus Executive would have been entitled to receive under Section 3(b) for the calendar year in which the Employment Period terminates, and (ii) a fraction (the "Service Fraction"), the numerator of which is equal to the number of rounded months in such calendar year which have elapsed as of the date of such termination, and the denominator - 9 - of which is 12; provided that, if the Employment Period terminates ------------- in the last quarter of any calendar year, the Pro-Rata Target Bonus shall be the amount determined under the above formula or, if greater, the product of: (A) the bonus that would have been paid to Executive based on actual performance for such calendar year, and (B) the Service Fraction. "SEVERANCE PAYMENT" means an amount equal to two times the sum of: (i) Executive's Base Salary, and (ii) Executive's Target Bonus amount under Section 3(b) hereof for the calendar year in which the Employment Period terminates. "TERMINATION DUE TO DEATH" means a termination of Executive's employment due to the death of Executive. "TERMINATION DUE TO DISABILITY" means (i) a termination of Executive's employment by the Company as a result of a determination by the Board or the appropriate committee thereof that Executive has been incapable of substantially fulfilling the positions, duties, responsibilities and obligations set forth in this Agreement on account of physical, mental or emotional incapacity resulting from injury, sickness or disease for a period of (A) at least four consecutive months, or (B) more than six months in any twelve month period, or (ii) Executive's termination of employment on account of Disability as defined in The Hartford Investment and Savings Plan, as may be amended from time to time. "TERMINATION DUE TO RETIREMENT" means Executive's termination of employment on account of Executive's Retirement as defined in The Hartford Investment and Savings Plan, as may be amended from time to time. "TERMINATION FOR CAUSE" means a termination of Executive's employment by the Company for any of the following reasons: (i) Executive is convicted of or enters a plea of guilty or nolo ---- contendere to a felony, a crime of moral turpitude, dishonesty, ---------- breach of trust or unethical business conduct, or any crime involving the business of the Company or its affiliates; (ii) in the performance of his duties hereunder or otherwise to the detriment of the Company or its affiliates, Executive engages in (A) willful misconduct, (B) willful or gross neglect, (C) fraud, (D) misappropriation, (E) embezzlement, or (F) theft; (iii) Executive willfully fails to adhere to the policies and practices of the Company or devote substantially all of his business time and effort to the affairs thereof, or disobeys the directions of the Board to do either of the foregoing; (iv) Executive breaches this Agreement in any material respect; (v) Executive is adjudicated in any civil suit to have committeed, or acknowledges in writing or in any agreement or stipulation his commission, of any theft, embezzlement, fraud or other - 10 - intentional act of dishonesty involving any other person; or (vi) Executive violates the Code of Conduct of the Company. Executive shall be permitted to respond and defend himself before the Board within 30 days after delivery to Executive of written notification of any proposed Termination For Cause that specifies in detail the reasons for such termination. If the majority of the members of the Board (excluding Executive) do not confirm that the Company had grounds for a Termination For Cause within 30 days after Executive has had his hearing before the Board, Executive shall have the option of treating his employment as not having terminated or as having been terminated in a Termination Without Cause. "TERMINATION WITHOUT CAUSE" means any involuntary termination of Executive's employment by the Company other than a Termination For Cause, a Termination Due to Disability or a Termination Due to Death. "VESTED BENEFITS" means amounts that are vested or that Executive is otherwise entitled to receive, without the performance by Executive of further services or the resolution of a contingency, under the terms of or in accordance with any investment and savings plan or retirement plan of the Company or its affiliates, and any ERPs or ESPs related thereto, and any deferred compensation or employee stock purchase plan or similar plan or program of the Company or its affiliates. "VESTED BENEFITS ENHANCEMENT" means (i) a cash amount equal to the present value, calculated using a discount rate equal to the then prevailing applicable Federal rate as determined under Section 1274(d) of the Internal Revenue Code of 1986, as amended (the "Code"), of the additional retirement benefits that would have been payable or available to Executive under any ERPs, based on (A) the age and service Executive would have attained or completed had Executive continued in the Company's employ until the second anniversary of the date of termination of the Employment Period, and (B) where compensation is a relevant factor, his pensionable compensation as of such date, such compensation to include, on the same terms as apply to other executives, any Severance Payment made to Executive, and (ii) solely for purposes vesting in any benefits under any ESPs, Executive shall be treated as having continued in the Company's employ until the second anniversary of the date of termination of the Employment Period. "VOLUNTARY TERMINATION" means any voluntary termination of Executive's Employment by Executive pursuant to this Section 5, other than a Termination Due to Retirement or a Termination Due to Disability by Executive. - 11 - "WELFARE BENEFITS CONTINUATION" means that until the second anniversary of the date of termination of the Employment Period, Executive and, if applicable, his dependents shall be entitled to continue participation in the life and health insurance benefit plans of the Company or its affiliates in which Executive and/or such dependents were participating as of the date of termination of the Employment Period, and such other welfare benefit plans thereof in which the Company is required by law to permit the participation of Executive and/or his dependents, (collectively, the "Welfare Benefit Plans"). Such participation shall be on the same terms and conditions (including the requirement that Executive pay any premiums generally paid by an employee) as would apply if Executive were still in the employ of the Company; provided that the continued participation of Executive and/or his ------------- dependents in such Welfare Benefit Plans shall cease on such earlier date as Executive may become eligible for comparable welfare benefits provided by a subsequent employer. To the extent that Welfare Benefits Continuation cannot be provided under the terms of the applicable plan, policy or program, the Company shall provide a comparable benefit under another plan or from the Company's general assets. 6. TERMINATION FOLLOWING A CHANGE OF CONTROL OR POTENTIAL CHANGE OF CONTROL. ------------------------------------------------------------------------ This Section 6 shall apply (instead of Section 5) during the period commencing upon a Change of Control and continuing until the third anniversary thereof; provided that, in the event that Executive's employment is terminated by the - - -------------- Company in a Termination Without Cause after the occurrence of a Potential Change of Control and a Change of Control occurs within one year following the date of such termination, then solely for purposes of this Agreement, Executive shall be deemed to have remained in the Company's employ until the occurrence of the Change of Control and thereafter to have then been terminated by the Company in a Termination Without Cause. As a result, Executive shall be entitled to receive the excess of (i) the benefits payable in the event of a Termination Without Cause under this Section 6, over (ii) the amount of any benefits payable to Executive under Section 5. (A) EARLY TERMINATION OF THE EMPLOYMENT PERIOD. Notwithstanding Section -------------------------------------------- 1(b) hereof, the Employment Period shall end upon the earliest to occur of (i) a Termination For Cause, (ii) a Termination Without Cause, (iii) a Voluntary Termination Within 180 Days, (iv) a Voluntary Termination After 180 Days, (v) a Termination For Good Reason, (vi) a Termination Due to Retirement, (vii) a Termination Due to Disability, or (viii) a Termination Due to Death. - 12 - (B) NOTICE OF TERMINATION. Communication of termination under this Section --------------------- 6 shall be made to the other party by Notice of Termination in the case of (i) a Termination For Cause, (ii) a Termination Without Cause, (iii) a Voluntary Termination Within 180 Days, (iv) a Voluntary Termination After 180 Days, or (v) a Termination For Good Reason. (C) BENEFITS PAYABLE UPON TERMINATION; RULES FOR DETERMINING REASON FOR ----------------------------------------------------------------------- TERMINATION. ----------- (I) BENEFITS PAYABLE UPON TERMINATION. Following the end of the ----------------------------------- Employment Period, Executive (or, in the event of his death, his surviving spouse, if any, or if none, his estate) shall be paid the type or types of compensation determined to be payable in accordance with the following table, such payment to be made in the form specified in such table and at the time established pursuant to Section 7 hereof. Capitalized terms used in such table (and otherwise in this Section 6) that are defined in Section 5, and not specifically defined in Section 6(d) hereof, shall have the meanings ascribed thereto under Section 5. Where such a capitalized term is defined solely in Section 6(d), or in both Section 5 and Section 6(d), such term shall have the meaning ascribed to it in Section 6(d). (II) RULES FOR DETERMINING REASON FOR TERMINATION. -------------------------------------------- (A) No Termination Without Cause, Voluntary Termination Within 180 Days or Termination For Good Reason shall be treated as a Termination Due to Retirement or a Termination Due to Disability for purposes of any Pro Rata Target Bonus, Severance Payment, Equity Awards or Vested Benefits Enhancement under this Section 6, notwithstanding the fact that, either on, before or after the Date of Termination with respect thereto, (I) Executive was eligible for Retirement as defined in the Savings Plan, (II) Executive requested to be treated as a retiree for purposes of the Savings Plan or any other plan or program of the Company or its affiliates, or (III) Executive or the Company could have terminated Executive's employment in a Termination Due to Disability hereunder. (B) No Termination Due to Retirement shall be treated as a Voluntary Termination After 180 Days for purposes of this Section 6, notwithstanding the fact that the Date of Termination for such Termination Due to Retirement may occur within 180 days following a Change of Control. - 13 -
BENEFITS PAYABLE: CHANGE OF CONTROL BENEFIT Accrued Pro Rata Target Severance Equity Awards Salary Bonus Payment ======================== ============== ===================== =============== ========================= FORM OF Lump Sum Lump Sum Lump Sum Determined Under the PAYMENT Applicable Plan ======================== ============== ===================== =============== ========================= Termination For Payable Not Payable Not Payable Determined Under the Cause Applicable Plan Termination Payable Payable Payable Determined Under the Without Cause Applicable Plan Voluntary Payable Payable Payable Determined Under the Termination Within Applicable Plan 180 Days Voluntary Payable Not Payable Not Payable Determined Under the Termination Applicable Plan After 180 Days Termination For Payable Payable Payable Determined Under the Good Reason Applicable Plan Termination Due to Payable Determined Under the Not Payable Determined Under the Retirement Applicable Plan Applicable Plan Termination Due to Payable Payable Not Payable Determined Under the Disability Applicable Plan Termination Due to Payable Payable Not Payable Determined Under the Death Applicable Plan - - ------------------------ -------------- --------------------- --------------- -------------------------
BENEFITS PAYABLE: CHANGE OF CONTROL (Continued) BENEFIT Vested Benefits Vested Benefits Welfare Enhancement Benefits Continuation ======================== ========================= ============================= ================================ FORM OF Determined Under the Lump Sum Determined Under the PAYMENT Applicable Plan Applicable Plan ======================== ========================= ============================= ================================ Termination For Determined Under the Not Payable Not Available Cause Applicable Plan Termination Determined Under the Payable Available Without Cause Applicable Plan Voluntary Determined Under the Payable Available Termination Within Applicable Plan 180 Days Voluntary Determined Under the Not Payable Not Available Termination Applicable Plan After 180 Days Termination For Determined Under the Payable Available Good Reason Applicable Plan Termination Due to Determined Under the Not Payable Available Retirement Applicable Plan Termination Due to Determined Under the Not Payable Available Disability Applicable Plan Termination Due to Determined Under the Not Payable Not Available Death Applicable Plan - - ------------------------ ------------------------- ----------------------------- --------------------------------
- 14 - (D) DEFINITIONS. ----------- "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 Securities and Exchange Act of 1934, as amended (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 Exchange 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 Exchange 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 Exchange 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. "CHANGE OF CONTROL" means: (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 (within the meaning of Section 13(d) of the Act), other than the Company or a subsidiary of 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; (II) any person (within the meaning of Section 13(d) of the 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 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 (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 would be - 15 - converted into cash, securities or other property, other than a merger of the Company in which holders of stock of the Company immediately prior to the merger have the same proportionate ownership of common stock of the surviving corporation immediately after the 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). "DATE OF TERMINATION" means (i) in the case of a termination of the Employment Period for which a Notice of Termination is required, the date of receipt of such Notice of Termination or, if later, the date specified therein, as the case may be, or (ii) in all other cases, the actual date on which Executive's employment terminates during the Employment Period. "NOT PAYABLE" means that a particular benefit shall not be paid or otherwise provided to Executive. "NOTICE OF TERMINATION" means (i) in the case of a Termination For Cause, a written notice given by the Company to Executive, within 30 calendar days of the Company's having actual knowledge of the events giving rise to such termination, (ii) in the case of a Termination Without Cause, a written notice given by the Company to Executive at least 30 calendar days before the effective date of such Termination Without Cause, (iii) in the case of a Voluntary Termination Within 180 Days or a Voluntary Termination After 180 Days, a written notice given by Executive to the Company at least 30 calendar days before the effective date of such termination, and (iv) in the case of a Termination For Good Reason, a written notice given by Executive to the Company within 180 days of Executive's having actual knowledge of the events giving rise to such Termination For Good Reason, and which (A) indicates the specific termination provision in this Agreement relied upon, (B) sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated, and (C) if the termination date is other than the date of receipt of such - 16 - notice, specifies the termination date of this Agreement (which date shall be not more than 15 days after the giving of such notice). The failure by Executive to set forth in such Notice of Termination any fact or circumstance that contributes to a showing of Good Reason shall not waive any right of Executive hereunder or preclude Executive from asserting such fact or circumstance in enforcing his rights hereunder. "PAYABLE" means that a particular benefit shall be paid to Executive in the amount, at the time, and in the form specified herein. "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. "POTENTIAL CHANGE OF CONTROL" means: (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 voting securities of the Company; (II) the Company shall enter into an agreement the consummation of which shall constitute a Change of Control of the Company; (III) proxies for the election of directors of the Company shall be solicited by anyone other than the Company; or (IV) any other event shall occur which is deemed to be a Potential Change of Control by the Board or the appropriate Committee thereof. "SEVERANCE PAYMENT" means a cash amount equal to three times the sum of (i) Executive's Base Salary at the rate in effect as of the date on which the Employment Period terminates, and (ii) Executive's Target Bonus for such year. "TERMINATION FOR CAUSE" means the Company's termination of Executive's employment due to (i) Executive's conviction of a felony; (ii) an act or acts of extreme dishonesty or gross misconduct on Executive's part which result or are intended to result in material damage to the Company's business or reputation; or (iii) repeated material violations by Executive of his obligations under Section 2 of this Agreement, which violations are demonstrably willful and deliberate on Executive's part and which result in material damage to the Company's business or - 17 - reputation. Executive shall be permitted to respond and defend himself before the Board within 30 days after delivery to Executive of written notification of any proposed Termination for Cause which specifies in detail the reasons for such termination. If the majority of the members of the Board (excluding Executive) do not confirm that the Company had grounds for a Termination For Cause within 30 days after Executive has had his hearing before the Board, Executive shall have the option of treating his employment as not having terminated or as having been terminated pursuant to a Termination Without Cause. "TERMINATION FOR GOOD REASON" means the occurrence of any of the following after the occurrence of a Potential Change of Control or a Change of Control: (I) (A) the assignment to Executive of any duties inconsistent in any material adverse respect with Executive's position, duties, authority or responsibilities as contemplated by Section 2 of this Agreement, or (B) any other material adverse change in such position, including titles, authority or responsibilities; (II) any failure by the Company to comply with any of the provisions of Sections 3 and 4 of this Agreement at a level of least equal to that in effect immediately preceding the Change of Control or a Potential Change of Control, other than an insubstantial or inadvertent failure remedied by the Company promptly after receipt of notice thereof given by Executive; (III) the Company's requiring Executive to be based at any office or location more than 25 miles from the location at which he performed his services specified under Section 2 hereof immediately prior to the Change of Control or a Potential Change of Control, except for travel reasonably required in the performance of Executive's responsibilities; (IV) any failure by the Company to obtain the assumption and agreement to perform this Agreement by a successor as contemplated by Section 10(d) hereof; or (V) any attempt by the Company to terminate the Executive's employment in a Termination For Cause that is determined by the Board pursuant to Section 5(c) herof, or in a proceeding pursuant to Section 9 or Section 10 hereof, not to constitute a Termination For Cause. Notwithstanding the foregoing, a termination of Executive's employment shall not be treated as a Termination For Good Reason (I) if Executive shall have consented in writing to the occurrence of the event giving rise to the claim of Termination For - 18 - Good Reason, or (II) if Executive shall have delivered a Notice of Termination to the Company, and the facts and circumstances specified therein as providing a basis for such Termination For Good Reason are cured by the Company within 10 days of its receipt of such Notice of Termination. "VESTED BENEFITS ENHANCEMENT" means (i) a cash amount equal to the present value, calculated using a discount rate equal to the then prevailing applicable Federal rate as determined under Section 1274(d) of the Internal Revenue Code of 1986, as amended (the "Code"), of the additional retirement benefits that would have been payable or available to Executive under any ERPs, based on (A) the age and service Executive would have attained or completed had Executive continued in the Company's employ until the third anniversary of the occurrence of the Change of Control, and (B) where compensation is a relevant factor, his pensionable compensation as of the Date of Termination, such compensation to include, on the same terms as apply to other executives, any Severance Payment made to Executive, and (ii) solely for purposes of vesting in any benefits under any ESPs, Executive shall be treated as having continued in the Company's employ until the third anniversary of the occurrence of such Change of Control. "VOLUNTARY TERMINATION WITHIN 180 DAYS" means a termination of employment by Executive for any reason within the first 180 days following a Change of Control, and "VOLUNTARY TERMINATION AFTER 180 DAYS" means a termination of employment by Executive other than a Termination For Good Reason, a Termination Due to Disability by Executive, or a Termination Due to Death within the remaining 2 years and 6 months following a Change of Control. "WELFARE BENEFITS CONTINUATION" shall have the same meaning as that described in Section 5 hereof, except that the entitlement of Executive and/or his dependents to participation in the Welfare Benefit Plans shall continue until the third anniversary of the Date of Termination. (D) OUT-PLACEMENT SERVICES. If the Employment Period terminates because of a ----------------------- Termination Without Cause or a Termination For Good Reason, Executive shall be entitled to out-placement services, provided by the Company or its designee at the Company's expense, for 12 months following the Date of Termination, or such lesser period as the Executive may require such services. (E) CERTAIN FURTHER PAYMENTS BY COMPANY. ----------------------------------- (I) TAX REIMBURSEMENT PAYMENT. In the event that any amount or benefit paid ------------------------- or distributed to Executive pursuant to this Agreement, taken together with any amounts or benefits otherwise paid or distributed to Executive by the Company or any affiliate (collectively, the "Covered Payments"), are or become subject to the tax (the "Excise Tax") imposed under Section 4999 of the Internal Revenue Code of 1986, as amended, or any similar tax that may hereafter be imposed, the - 19 - Company shall pay to the Executive at the time specified in this Section an additional amount (the "Tax Reimbursement Payment") such that the net amount retained by the Executive with respect to such Covered Payments, after deduction of any Excise Tax on the Covered Payments and any Federal, state and local income tax and other tax on the Tax Reimbursement Payment provided for by this Section, but before deduction for any Federal, state or local income or employment tax withholding on such Covered Payments, shall be equal to the amount of the Covered Payments. (II) APPLICABLE RULES. For purposes of determining whether any of the ----------------- Covered Payments will be subject to the Excise Tax and the amount of such Excise Tax, (A) such Covered Payments will be treated as "parachute payments" within the meaning of Section 280G of the Code, and all "parachute payments" in excess of the "base amount" (as defined under Section 280G(b)(3) of the Code) shall be treated as subject to the Excise Tax, unless, and except to the extent that, in the good faith judgment of the Company's independent certified public accountants appointed prior to the Effective Date or tax counsel selected by such accountants (the "Accountants"), the Company has a reasonable basis to conclude that such Covered Payments (in whole or in part) either do not constitute "parachute payments" or represent reasonable compensation for personal services actually rendered (within the meaning of Section 280G(b)(4)(B) of the Code) in excess of the "base amount," or such "parachute payments" are otherwise not subject to such Excise Tax, and (B) the value of any non-cash benefits or any deferred payment or benefit shall be determined by the Accountants in accordance with the principles of Section 280G of the Code. (III) ADDITIONAL RULES. For purposes of determining the amount of the Tax ----------------- Reimbursement Payment, the Executive shall be deemed to pay: (A) Federal income taxes at the highest applicable marginal rate of Federal income taxation for the calendar year in which the Tax Reimbursement Payment is to be made, and (B) any applicable state and local income and other taxes at the highest applicable marginal rate of taxation for the calendar year in which the Tax Reimbursement Payment is to be made, net of the maximum reduction in Federal incomes taxes which could be obtained from the deduction of such state or local taxes if paid in such year. (IV) REPAYMENT OR ADDITIONAL PAYMENT IN CERTAIN CIRCUMSTANCES. -------------------------------------------------------- (A) REPAYMENT. In the event that the Excise Tax is subsequently --------- determined by the Accountants or pursuant to any proceeding or negotiations with the Internal Revenue Service to be less than the amount taken into account hereunder in calculating the Tax Reimbursement Payment - 20 - made, Executive shall repay to the Company, at the time that the amount of such reduction in the Excise Tax is finally determined, the portion of such prior Tax Reimbursement Payment that would not have been paid if such lesser Excise Tax had been applied in initially calculating such Tax Reim bursement Payment, plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. Notwithstanding the foregoing, in the event any portion of the Tax Reimbursement Payment to be repaid to the Company has been paid to any Federal, state or local tax authority, repayment thereof shall not be required until actual refund or credit of such portion has been made to Executive by the applicable tax authority, and interest payable to the Company shall not exceed interest received or credited to the Executive by such tax authority for the period it held such portion. Executive and the Company shall mutually agree upon the course of action to be pursued (and the method of allocating the expenses thereof) if Executive's good faith claim for refund or credit is denied. (B) ADDITIONAL TAX REIMBURSEMENT PAYMENT. In the event that the -------------------------------------- Excise Tax is later determined by the Accountants or pursuant to any proceeding or negotiations with the Internal Revenue Service to exceed the amount taken into account hereunder at the time the Tax Reimbursement Payment is made (including, but not limited to, by reason of any payment the existence or amount of which cannot be determined at the time of the Tax Reimbursement Payment), the Company shall make an additional Tax Reimbursement Payment in respect of such excess (plus any interest or penalty payable with respect to such excess) at the time that the amount of such excess is finally determined. (V) TIMING FOR TAX REIMBURSEMENT PAYMENT. The Tax Reimbursement Payment (or ------------------------------------ portion thereof) provided for in this Section 6 shall be paid to Executive not later than 10 business days following the payment of the Covered Payments; provided, however, that if the amount of such Tax Reimbursement Payment (or portion thereof) cannot be finally determined on or before the date on which payment is due, the Company shall pay to Executive by such date an amount estimated in good faith by the Accountants to be the minimum amount of such Tax Reimbursement Payment and shall pay the remainder of such Tax Reimbursement Payment (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined, but in no event later than 45 calendar days after payment of the related Covered Payment. In the event that the amount of the estimated Tax Reimbursement Payment exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Company to Executive, payable on the fifth business day after written demand by the Company for payment (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code). - 21 - 7. TIMING OF PAYMENTS. ------------------ Accrued Salary, Severance Payments and Vested Benefits Enhancements shall be paid no later than 10 days following the termination of the Employment Period. Pro-Rata Target Bonus shall be paid no later than the same time as similar awards are paid to other executives participating in the plans or programs under which the awards are paid. Vested Benefits and Equity Awards shall be paid no later than the time for payment Determined Under the Applicable Plan except as otherwise expressly superseded or modified by this Agreement. Tax Reimbursement Payments shall be paid at the time specified in Section 6 hereof. Notwithstanding the foregoing, solely for purposes of amounts payable pursuant to Section 5 hereof, if any amount payable to Executive pursuant to Section 5 would be nondeductible by the Company under Section 162(m) of the Code if paid in the year of Executive's termination, the Company shall have the option of paying such nondeductible amount, with interest at the one-year treasury bill rate as in effect on the date of such termination as reported in the Wall Street Journal, on the first day of the second calendar quarter in the year following such termination. 8. FULL DISCHARGE OF COMPANY OBLIGATIONS. ------------------------------------- Except as expressly provided in the last sentence of this Section 8, the amounts payable to Executive pursuant to either Section 5 or Section 6 following termination of his employment (including amounts payable with respect to Vested Benefits) shall be in full and complete satisfaction of Executive's rights under this Agreement and any other claims he may have in respect of his employment by the Company or any of its affiliates. Such amounts shall constitute liquidated damages with respect to any and all such rights and claims and, upon Executive's receipt of such amounts, the Company shall be released and discharged from any and all liability to Executive in connection with this Agreement or otherwise in connection with Executive's employment with the Company and its affiliates. Nothing in this Section 8 shall be construed to release the Company from its obligation to indemnify Executive as provided in Section 4(e) hereof. 9. NONCOMPETITION, CONFIDENTIALITY AND OTHER COVENANTS. --------------------------------------------------- By and in consideration of the compensation and benefits to be provided by the Company hereunder, including the severance arrangements set forth herein, Executive agrees to the following: (A) NONCOMPETITION. During the Employment Period and during the one year -------------- period (the "Restriction Period") following any Voluntary Termination of the Employment Period by Executive pursuant to Section 5 hereof, Executive shall not become associated with any entity, whether as a principal, partner, employee, - 22 - agent, consultant, shareholder (other than as a holder, or a member of a group which is a holder, of not in excess of 1% of the outstanding voting shares of any publicly traded company) or in any other relationship or capacity, paid or unpaid, that is actively engaged in any geographic area in any business which is in competition with the business of the Company. (B) CONFIDENTIALITY. Without the prior written consent of the Company, --------------- except to the extent required by an order of a court having competent jurisdiction or under subpoena from an appropriate government agency, Executive shall not disclose to any third person, or permit the use of for the benefit of any person or any entity other than The Company or its affiliates, any trade secrets, customer lists, information regarding product development, marketing plans, sales plans, management organization information (including data and other information relating to members of the Board and management), operating policies or manuals, business plans, financial records, or other financial, organizational, commercial, business, sales, marketing, technical, product or employee information relating to the Company or its affiliates or information designated as confidential, proprietary, and/or a trade secret, or any other information relating to the Company or its affiliates that Executive knows from the circumstances, in good faith and good conscience, should be treated as confidential, or any information that the Company or its affiliates may receive belonging to customers, agents or others who do business with the Company or its affiliates, except to the extent that any such information previously has been disclosed to the public by the Company or is in the public domain (other than by reason of Executive's violation of this Section 9(b)). (C) NON-SOLICITATION OF EMPLOYEES. During the Employment Period and the two ----------------------------- year period following any termination of the Employment Period pursuant to Section 5 hereof, Executive shall not directly or indirectly solicit, encourage or induce any employee of the Company or its affiliates to terminate employment with such entity, and shall not directly or indirectly, either individually or as owner, agent, employee, consultant or otherwise, employ or offer employment to any person who is or was employed by the Company or an affiliate thereof unless such person shall have ceased to be employed by such entity for a period of at least six months. (D) COMPANY PROPERTY. Except as expressly provided herein, promptly ----------------- following any termination of the Employment Period, Executive shall return to the Company all property of the Company, and all copies thereof in Executive's possession or under his control. (E) INJUNCTIVE RELIEF AND OTHER REMEDIES WITH RESPECT TO COVENANTS. --------------------------------------------------------------------- Executive acknowledges and agrees that the covenants and obligations of Executive with respect to noncompetition, confidentiality, nonsolicitation, and Company property relate to special, unique and extraordinary matters and that a violation of any of the terms of such covenants and obligations will cause the Company - 23 - irreparable injury for which adequate remedies are not available at law. Therefore, Executive agrees that the Company (i) shall be entitled to an injunction, restraining order or such other equitable relief (without the requirement to post bond) restraining Executive from committing any violation of the covenants and obligations contained in this Section 9, and (ii) shall have no further obligation to make any payments to Executive hereunder following any material violation of the covenants and obligations contained in this Section 9. These remedies are cumulative and are in addition to any other rights and remedies the Company may have at law or in equity. In connection with the foregoing provisions of this Section 9, Executive represents that his economic means and circumstances are such that such provisions will not prevent him from providing for himself and his family on a basis satisfactory to him. Notwithstanding the foregoing, in no event shall an asserted violation of the provisions of this Section constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement following a Change of Control. 10. MISCELLANEOUS. ------------- (A) SURVIVAL. All of the provisions of Sections 5 (relating to termination -------- of the Employment Period prior to a Change of Control), 6 (relating to termination of the Employment Period following a Change of Control or a Potential Change of Control), 9 (relating to noncompetition, confidentiality, nonsolicitation and Company property), 10(b) (relating to arbitration), 10(c) (relating to legal fees) and 10(n) (relating to governing law) of this Agreement shall survive the termination of this Agreement. (B) ARBITRATION. Except as provided in Section 9, any dispute or ----------- controversy arising under or in connection with this Agreement shall be resolved by binding arbitration. Such arbitration shall be held in the city of Hartford, Connecticut and except to the extent inconsistent with this Agreement, shall be conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association in effect at the time of the arbitration, and otherwise in accordance with the principles that would be applied by a court of law or equity. The arbitrator shall be acceptable to both the Company and Executive. If the parties cannot agree on an acceptable arbitrator, the dispute or controversey shall be heard by a panel of three arbitrators; one appointed by each of the parties and the third appointed by the other two arbitrators. The Company and Executive further agree that they will abide by and perform any award or awards rendered by the arbitrators and that a judgment may be entered on any award or awards rendered by any state or federal court having jurisdiction over the Company or Executive or any of their respective property. (C) LEGAL FEES AND EXPENSES. In any contest (whether initiated by Executive ----------------------- or by the Company) as to the validity, enforceability or interpretation of any provision - 24 - of this Agreement, the Company shall pay Executive's legal expenses (or cause such expenses to be paid) including, without limitation, his reasonable attorney's fees, on a quarterly basis, upon presentation of proof of such expenses in a form acceptable to the Company, provided that ------------- Executive shall reimburse the Company for such amounts, plus simple interest thereon at the 90-day United States Treasury Bill rate as in effect from time to time, compounded annually, if Executive shall not prevail, in whole or in part, as to any material issue as to the validity, enforceability or interpretation of any provision of this Agreement. (D) SUCCESSORS; BINDING EFFECT. This Agreement shall inure to the benefit --------------------------- of and be binding upon the Company and its successors. The Company shall require any successor to all or substantially all of the business and/or assets of the Company, whether direct or indirect, by purchase, merger, consolidation, acquisition of stock, or otherwise, by an agreement in form and substance satisfactory to Executive, expressly to assume and agree to perform this Agreement in the same manner and to the same extent as the Company would be required to perform the Agreement if no such succession had taken place. This Agreement is personal to the Executive and, without the prior written consent of the Company, shall not be assignable by Executive otherwise than by will or the law of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by Executive's legal representatives. (E) ASSIGNMENT. Except as provided in Section 10(d), neither this Agreement ---------- nor any of the rights or obligations hereunder shall be assigned or delegated by any party hereto without the prior written consent of the other party. (F) ENTIRE AGREEMENT. This Agreement constitutes the entire agreement ----------------- between the parties hereto with respect to the matters referred to herein. This Agreement supersedes and replaces any prior employment or severance agreement or arrangement between the Company and Executive. No other agreement relating to the terms of Executive's employment by the Company, oral or otherwise, shall be binding between the parties unless it is in writing and signed by the party against whom enforcement is sought. There are no promises, representations, inducements or statements between the parties other than those that are expressly contained herein. Executive acknowledges that he is entering into this Agreement of his own free will and accord, and with no duress, and that he has read this Agreement and that he understands it and its legal consequences. (G) SEVERABILITY; REFORMATION. In the event that one or more of the -------------------------- provisions of this Agreement shall become invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not be affected thereby. In the event of a determination that any of the provisions of Section 9(a), Section 9(b) or Section 9(c) are not enforceable in accordance with their terms, Executive and the Company agree that such Section - 25 - shall be reformed to make such Section enforceable in a manner that provides the Company the maximum rights permitted at law. (H) WAIVER. Waiver by any party hereto of any breach or default by the ------ other party of any of the terms of this Agreement shall not operate as a waiver of any other breach or default, whether similar to or different from the breach or default waived. No waiver of any provision of this Agreement shall be implied from any course of dealing between the parties hereto or from any failure by either party hereto to assert its or his rights hereunder on any occasion or series of occasions. (I) NOTICES. Any notice required or desired to be delivered under this ------- Agreement shall be in writing and shall be delivered personally, by courier service, by registered mail, return receipt requested, or by telecopy and shall be effective upon actual receipt by the party to which such notice shall be directed, and shall be addressed as follows (or to such other address as the party entitled to notice shall hereafter designate in accordance with the terms hereof): If to the Company: The Hartford Financial Services Group, Inc. Law Department, HO-1-09 Hartford Plaza Hartford, CT 06115 Attention: Corporate Secretary with a copy to: Debevoise & Plimpton 875 Third Avenue New York, NY 10022 Attn: Lawrence K. Cagney, Esq. If to Executive: The home address of Executive shown on the records of the Company (J) AMENDMENTS. This Agreement may not be altered, modified or amended ---------- except by a written instrument signed by each of the parties hereto. (K) HEADINGS. Headings to provisions of this Agreement are for the -------- convenience of the parties only and are not intended to be part of or to affect the meaning or interpretation hereof. (L) COUNTERPARTS. This Agreement may be executed in counterparts, each of ------------ which shall be deemed an original but all of which together shall constitute one and the same instrument. (M) WITHHOLDING. Any payments provided for herein shall be reduced by any ----------- amounts required to be withheld by the Company from time to time under - 26 - applicable Federal, State or local income or employment tax laws or similar statutes or other provisions of law then in effect. (N) GOVERNING LAW. This Agreement shall be governed by the laws of the -------------- State of Connecticut, without reference to principles of conflicts or choice of law under which the law of any other jurisdiction would apply. IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its duly authorized officer, and Executive has hereunto set his hand, as of the day and year first above written. THE HARTFORD FINANCIAL SERVICES GROUP, INC. WITNESSED: /s/ Helen G. Goodman --------------------------------------------- By: Helen G. Goodman Title: Senior Vice President, Human Resources - - ---------------------------- EXECUTIVE: WITNESSED: /s/ Ramani Ayer --------------------------------------------- Ramani Ayer - - ---------------------------- - 27 - EX-10 3 EXHIBIT 10.02 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT -------------------- EMPLOYMENT AGREEMENT, dated as of July 1, 1997, by and between Hartford Life, Inc. ("Hartford Life") and The Hartford Financial Services Group, Inc. ("The Hartford") (collectively, the "Company"), both Delaware corporations, and Lowndes A. Smith ("Executive"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, the Company wishes to recognize the substantial services that Executive has provided to the Company; and WHEREAS, the Company desires that Executive continue to perform such services and to enter into an agreement embodying the terms of such employment (the "Agreement"); and WHEREAS, Executive desires to continue such employment and enter into such Agreement; NOW, THEREFORE, in consideration of the mutual covenants herein contained, the Company and Executive hereby agree as follows: 1. EMPLOYMENT. ---------- (A) AGREEMENT TO EMPLOY. Upon the terms and subject to the conditions of ------------------- this Agreement, the Company hereby agrees to continue to employ Executive and Executive hereby agrees to continue his employment by the Company. (B) TERM OF EMPLOYMENT. Except as otherwise provided below, the Company ------------------ shall employ Executive for the period commencing on July 1, 1997 (the "Commencement Date") and ending on the third anniversary of the Commencement Date. At the expiration of the original term or any extended term (each a "Renewal Date"), Executive's employment hereunder shall be extended automatically, upon the same terms and conditions, for successive one-year periods, unless either party shall give written notice to the other of its intention not to renew such employment at least fifteen months prior to such Renewal Date. Without limiting the generality of the foregoing, upon the occurrence of a Change of Control (as defined below), the term of this Agreement shall be extended automatically without any action by either party until the third anniversary of such Change of Control. Notwithstanding the foregoing, if not previously terminated pursuant to Sections 1(b), 5(a) or 6(a), the term of this Agreement shall terminate on the last day of the month in which Executive attains age 65, and such a termination upon Executive reaching age 65 shall be deemed to be a Termination Due to Retirement for purposes of this Agreement. The period during which Executive is employed pursuant to this Agreement, including any extension thereof in accordance with this Section 1(b), shall be referred to as the "Employment Period." 2. POSITION AND DUTIES. ------------------- During the Employment Period, Executive shall serve as Vice-Chairman of The Hartford and President and Chief Executive Officer of Hartford Life, and/or in such other position or positions with the Company or its affiliates commensurate with his position and experience as the relevant Board of Directors of the Company (the "Board") or the Chairman of the Company (the "Chairman") shall from time to time specify. During the Employment Period, Executive shall have the duties, responsibilities and obligations customarily assigned to individuals serving in the position or positions in which Executive serves hereunder and such other duties, responsibilities and obligations as the relevant Board or the Chairman shall from time to time specify. Executive shall devote his full time to the services required of him hereunder, except for vacation time and reasonable periods of absence due to sickness, personal injury or other disability, and shall use his best efforts, judgement, skill and energy to perform such services in a manner consonant with the duties of his position and to improve and advance the business and interests of the Company and its affiliates. During the Employment Period, Executive shall comply with the Code of Conduct of the Company. Unless and to the extent inconsistent with the terms of any published Company policy or code of conduct as in effect on the date hereof and as hereafter amended, nothing contained herein shall preclude Executive from (a) serving on the board of directors of any business corporation with the consent of the relevant Board or the Chairman, (b) serving on the board of, or working for, any charitable or community organization, or (c) pursuing his personal financial and legal affairs, so long as the foregoing activities, individually or collectively, do not interfere with the performance of Executive's duties hereunder or violate any of the provisions of Section 9 hereof. 3. COMPENSATION. ------------ (A) BASE SALARY. During the Employment Period, the Company shall pay Execu ----------- tive a base salary at the annual rate as in effect on the date hereof. The annual base salary payable under this paragraph shall be reduced, however, to the extent that Executive elects to defer such salary under the terms of any deferred compensation or savings plan or arrangement maintained or established by the Company or its - 2 - affiliates. The relevant Board or the appropriate committee of the Board may in its discretion periodically review Executive's base salary in light of competitive practices, the base salaries paid to other executive officers of the Company and the performance of Executive and the Company and its applicable affiliates, and may, in its discretion, increase such base salary by an amount it determines to be appropriate. Any such increase shall not reduce or limit any other obligation of the Company hereunder. Executive's base salary (as set forth above or as may be increased from time to time) shall not be reduced following any Change of Control, but may be reduced prior to a Change of Control solely pursuant to a cost-saving plan or structural realignment of total compensation elements that includes all senior executives and only to the extent that such reduction is proportionate to the reductions applicable to other senior executives. Executive's annual base salary payable hereunder, as it may be increased or reduced from time to time as provided herein and without reduction for any amounts deferred as described above, shall be referred to herein as "Base Salary." The Company shall pay Executive the portion of his Base Salary not deferred not less frequently than in equal monthly installments. (B) ANNUAL BONUS. For each calendar year ending during the Employment ------------- Period, Executive shall have the opportunity to earn and receive an annual bonus, based on the achievement of target levels of performance, equal to the percentage of his Base Salary used to calculate such annual bonus as of the date hereof. Executive's annual bonus opportunity may be increased above such percentage from time to time by the relevant Board or the appropriate committee thereof. Executive's annual bonus opportunity shall not be reduced following any Change of Control, but may be reduced prior to a Change of Control solely pursuant to a cost-saving plan or structural realignment of total compensation elements that includes all senior executives and only to the extent that such reduction is proportionate to the reductions applicable to other senior executives. Executive's annual bonus opportunity, as it may be increased or reduced from time to time as provided herein, shall be referred to herein as "Target Bonus." The actual bonus, if any, payable for any such year shall be determined in accordance with the terms of the Company's Annual Executive Bonus Program or any successor annual incentive plan (the "Annual Plan") based upon the performance of the Company and/or its applicable affiliates and/or Executive against target objectives established under such Annual Plan. Subject to Executive's election to defer all or a portion of any annual bonus payable hereunder pursuant to the terms of any deferred compensation or savings plan or arrangement maintained or established by the Company or its affiliates, any annual bonus payable under this Section 3(b) shall be paid to Executive in accordance with the terms of the Annual Plan. - 3 - (C) LONG-TERM INCENTIVE COMPENSATION. During the Employment Period, ---------------------------------- Executive shall participate in all of the Company's existing and future long-term incentive compensation programs for key executives at a level commensurate with his position with the Company and consistent with the Company's then current policies and practices, as determined in good faith by the relevant Board or the appropriate committee of the Board. 4. BENEFITS, PERQUISITES AND EXPENSES. ---------------------------------- (A) BENEFITS. During the Employment Period, Executive (and, to the extent -------- applicable, his dependents) shall be eligible to participate in or be covered under (i) each welfare benefit plan or program maintained or as hereafter amended or established by the Company or its applicable affiliates, including, without limitation, each group life, hospitalization, medical, dental, health, accident or disability insurance or similar plan or program of thereof, and (ii) each pension, retirement, savings, deferred compensation, stock purchase or other similar plan or program maintained or as hereafter amended or established by the Company or its applicable affiliates, in each case to the extent that Executive is eligible to participate in any such plan or program under the generally applicable provisions thereof. Nothing in this Section 4(a) shall limit the Company's right to amend or terminate any such plan or program in accordance with the procedures set forth therein or as permitted by applicable law. (B) PERQUISITES. For each calendar year during the Employment Period, ----------- Executive shall be entitled to at least the number of paid vacation days per year that Executive is entitled to as of the date hereof, and shall also be entitled to receive such other perquisites as are generally provided to him as of the date hereof or are hereafter provided to other similarly situated senior executives of the Company in accordance with the then current policies and practices of the Company. (C) BUSINESS EXPENSES. During the Employment Period, the Company shall pay ----------------- or reimburse Executive for all reasonable business expenses incurred or paid by Executive in the performance of Executive's duties hereunder, upon presentation of expense statements or vouchers and such other information as the Company may require and in accordance with the generally applicable policies and procedures of the Company. (D) OFFICE AND SUPPORT STAFF. During the Employment Period, Executive shall ------------------------ be entitled to an office with furnishings and other material appointments, and to secretarial and other assistance, at a level that is at least commensurate with the foregoing provided to him as of the date hereof or is hereafter provided to other similarly situated senior executives of the Company. (E) INDEMNIFICATION. The Company shall indemnify Executive and hold --------------- Executive harmless from and against any claim, loss or cause of action, regardless whether asserted during or after the Employment Period, arising from or out of Executive's performance as an officer, director or employee of the Company or any of its affiliates or in any other capacity, including any fiduciary capacity in which Executive serves at the request of the Company, to the maximum extent permitted by applicable law and under the Certificate of Incorporation and By-Laws of the Company, as may be amended from time to time (the "Governing Documents"), provided that in no event ------------- shall the protection afforded to Executive be less than that afforded under the Governing Documents as in effect on the Commencement Date. - 4 - 5. TERMINATION OF EMPLOYMENT. ------------------------- The provisions of this Section 5 shall apply prior to the occurrence of a Change of Control and, if Executive is still in the Company's employ, shall again become applicable upon the third anniversary of such Change of Control. (A) EARLY TERMINATION OF THE EMPLOYMENT PERIOD. Notwithstanding Section -------------------------------------------- 1(b) hereof, the Employment Period shall end upon the earliest to occur of (i) a Termination For Cause, (ii) a Termination Without Cause, (iii) a Voluntary Termination, (iv) a Termination Due to Retirement, (v) a Termination Due to Disability, or (vi) a Termination Due to Death. (B) NOTICE OF TERMINATION. Communication of termination under this Section --------------------- 5 shall be made to the other party by Notice of Termination in the case of (i) a Termination For Cause, (ii) a Termination Without Cause, or (iii) a Voluntary Termination. (C) BENEFITS PAYABLE UPON TERMINATION; RULES FOR DETERMINING REASON FOR ------------------------------------------------------------------- TERMINATION. ----------- (I) BENEFITS PAYABLE UPON TERMINATION. Following the end of the ----------------------------------- Employment Period pursuant to Section 5(a), Executive (or, in the event of his death, his surviving spouse, if any, or if none, his estate) shall be paid the type or types of compensation determined to be payable in accordance with the following table, such payment to be made in the form specified in such table and at the time established pursuant to Section 7 hereof. Capitalized terms used in such table shall have the meanings set forth in Section 5(d) hereof. (II) RULES FOR DETERMINING REASON FOR TERMINATION. -------------------------------------------- (A) If a Voluntary Termination occurs on a date that Executive is eligible for Retirement as defined in The Hartford Investment and Savings Plan, as may be amended from time to time, or any successor plan thereof (the "Savings Plan"), such Voluntary Termination shall instead be treated as a Termination Due to Retirement solely for purposes of this Section 5. (B) No Termination Without Cause shall be treated as a Termination Due to Retirement or a Termination Due to Disability for purposes of any Pro Rata Target Bonus, Severance Payment, Equity Awards or Vested Benefits Enhancement under this Section 5, notwithstanding the fact that, either on, before or after the date of termination of the Employment Period with respect thereto, (I) Executive was eligible for Retirement as defined in the Savings Plan, (II) Executive requested to be treated as a retiree for purposes of the Savings Plan or any other plan or program of the Company or its affiliates, or (III) Executive or the Company could have terminated Executive's employment in a Termination Due to Disability hereunder. - 5 -
BENEFITS PAYABLE : NON-CHANGE OF CONTROL BENEFIT: Accrued Pro Rata Target Severance Equity Awards Salary Bonus Payment ======================== ============== ========================= ================ ================================== FORM OF PAYMENT: Lump Sum Lump Sum Lump Sum Determined Under the Applicable Plan Termination For Payable Not Payable Not Payable Not Payable Cause Termination Payable Payable Payable Options / Restricted Stock: Without Cause -------------------------- Payable Other Equity Awards: ------------------- Determined Under the Applicable Plan Voluntary Payable Determined Under Not Determined Under the Termination the Applicable Plan Payable Applicable Plan Termination Due Payable Determined Under Not Determined Under the to Retirement the Applicable Plan Payable Applicable Plan Termination Due Payable Payable Not Determined Under the to Disability Payable Applicable Plan Termination Due Payable Payable Not Determined Under the to Death Payable Applicable Plan
BENEFITS PAYABLE : NON-CHANGE OF CONTROL (Continued) BENEFIT: Vested Benefits Vested Benefits Welfare Enhancement Benefits Continuation ======================== ============================== ======================== ================= FORM OF Determined Under the Lump Sum Determined PAYMENT: Applicable Plan Under the Applicable Plan Termination For Determined Under the Not Payable Not Cause Applicable Plan Available Termination Determined Under the Payable Available Without Cause Applicable Plan Voluntary Determined Under the Not Payable Not Termination Applicable Plan Available Termination Due Determined Under the Not Payable Available to Retirement Applicable Plan Termination Due Determined Under the Not Payable Available to Disability Applicable Plan Termination Due Determined Under the Not Payable Not to Death Applicable Plan Available
- 6 - (D) DEFINITIONS. ----------- "ACCRUED SALARY" means any Base Salary earned, but unpaid, for services rendered to the Company on or prior to the date on which the Employment Period ends pursuant to Section 5(a) (other than Base Salary deferred pursuant to Executive's election, as contemplated by Section 3(a) hereof), plus any vacation pay accrued by Executive as of such date. "AVAILABLE" means that the particular benefit shall be made available to Executive to the extent specifically provided herein or required by applicable law. "DETERMINED UNDER THE APPLICABLE PLAN" means that the determination of whether a particular benefit, shall or shall not be paid to Executive, and, where specifically required by this Agreement, the timing or form of any benefit payment, shall be made solely by application of the terms of the plan or program providing such benefit, except to the extent that the terms of such plan or program are expressly superseded or modified by this Agreement. "EQUITY AWARDS" means the outstanding stock option, restricted stock, performance share and other equity or long-term incentive compensation awards, if any, held by Executive as of the date of his termination. "ERPs" means any excess retirement plans maintained or as hereafter amended or established by the Company or its applicable affiliates. "ESPs" means any excess investment and savings plans maintained or as hereafter amended or established by the Company or its applicable affiliates. "LUMP SUM" means a single lump sum cash payment. "NOT AVAILABLE" means that the particular benefit shall be not be made available to Executive, except to the extent required by applicable law. "NOT PAYABLE" means (i) with respect to benefits other than Equity Awards, such benefits shall not be paid or otherwise provided to Executive, and (ii) with respect to Equity Awards, such Equity Awards, to the extent unvested, unexercisable, or subject to restrictions that have not yet lapsed, shall be forfeited and/or canceled as of the date of termination of the Employment Period, unless otherwise determined by the relevant Board or the appropriate committee of the Board in its discretion. - 7 - "NOTICE OF TERMINATION" means (i) in the case of a Termination For Cause, a written notice given by the Company to Executive within 30 calendar days of the Company's having actual knowledge of the events giving rise to such Termination For Cause, (ii) in the case of a Termination Without Cause, a written notice given by the Company to Executive at least 30 days before the effective date of such Termination Without Cause, and (iii) in the case of a Voluntary Termination, a written notice given by Executive to the Company indicating the effective date of Executive's termination of the Employment Period in such Voluntary Termination, such effective date to be no earlier than 30 days following the date such notice is received by the Company from Executive. "PAYABLE" means (i) with respect to benefits other than those described in clause (ii) of this paragraph, such benefits shall be paid to Executive in the amount, at the time, and in the form specified herein, and (ii) with respect to benefits described in this clause (ii), the following shall apply solely in the event of a Termination Without Cause, notwithstanding anything in the applicable plan or program to the contrary: (A) with respect to any outstanding stock options not yet expired as of the date of termination of the Employment Period, Executive shall be treated as though he remained in the employ of the Company for the two year period following such date, and except to the extent that any such options first expire during such period under the applicable plan or program, (I) any such options that would have become vested over such two year period solely by reason of Executive remaining in the employ of the Company during such period shall become immediately vested and nonforfeitable, (II) with respect to any options that by their terms would vest if the stock of the Company or an affiliate were to reach a specified market price, such options shall become vested and nonforfeitable if and when such stock reaches such price during such two year period, and (III) Executive shall have an additional two years to exercise any vested options (beyond the time to exercise such options permitted under the applicable plan or program), and (B) with respect to any restricted stock subject to restrictions that have not yet lapsed as of the date of termination of the Employment Period, such restrictions shall be deemed to have lapsed and such restricted stock shall become immediately vested and nonforfeitable as of such date. "PRO-RATA TARGET BONUS" means an amount equal to the product of: (i) an amount equal to the Target Bonus Executive would have been entitled to receive under Section 3(b) for the calendar year in which the Employment Period terminates, and (ii) a fraction (the "Service Fraction"), the numerator - 8 - of which is equal to the number of rounded months in such calendar year which have elapsed as of the date of such termination, and the denominator of which is 12; provided that, if the Employment ------------- Period terminates in the last quarter of any calendar year, the Pro-Rata Target Bonus shall be the amount determined under the above formula or, if greater, the product of: (A) the bonus that would have been paid to Executive based on actual performance for such calendar year, and (B) the Service Fraction. "SEVERANCE PAYMENT" means an amount equal to two times the sum of: (i) Executive's Base Salary at the rate in effect as of the date of termination of the Employment Period, and (ii) Executive's Target Bonus amount under Section 3(b) hereof for the calendar year in which the Employment Period terminates. "TERMINATION DUE TO DEATH" means a termination of Executive's employment due to the death of Executive. "TERMINATION DUE TO DISABILITY" means (i) a termination of Executive's employment by the Company as a result of a determination by the Board or the appropriate committee thereof that Executive has been incapable of substantially fulfilling the positions, duties, responsibilities and obligations set forth in this Agreement on account of physical, mental or emotional incapacity resulting from injury, sickness or disease for a period of (A) at least four consecutive months, or (B) more than six months in any twelve month period, or (ii) Executive's termination of employment on account of Disability as defined in The Hartford Investment and Savings Plan, as may be amended from time to time. "TERMINATION DUE TO RETIREMENT" means Executive's termination of employment on account of Executive's Retirement as defined in The Hartford Investment and Savings Plan, as may be amended from time to time. "TERMINATION FOR CAUSE" means a termination of Executive's employment by the Company for any of the following reasons: (i) Executive is convicted of or enters a plea of guilty or nolo ---- contendere to a felony, a crime of moral turpitude, dishonesty, ---------- breach of trust or unethical business conduct, or any crime involving the business of the Company or its affiliates; (ii) in the performance of his duties hereunder or otherwise to the detriment of the Company or its affiliates, Executive engages in (A) willful misconduct, (B) willful or gross neglect, (C) fraud, (D) misappropriation, (E) embezzlement, or (F) theft; (iii) Executive willfully fails to adhere to the - 9 - policies and practices of the Company or devote substantially all of his business time and effort to the affairs thereof, or disobeys the directions of the Board to do either of the foregoing; (iv) Executive breaches this Agreement in any material respect; (v) Executive is adjudicated in any civil suit to have committeed, or acknowledges in writing or in any agreement or stipulation his commission, of any theft, embezzlement, fraud or other intentional act of dishonesty involving any other person; or (vi) Executive violates the Code of Conduct of the Company. "TERMINATION WITHOUT CAUSE" means any involuntary termination of Executive's employment by the Company other than a Termination For Cause, a Termination Due to Disability or a Termination Due to Death. "VESTED BENEFITS" means amounts that are vested or that Executive is otherwise entitled to receive, without the performance by Executive of further services or the resolution of a contingency, under the terms of or in accordance with any investment and savings plan or retirement plan of the Company or its affiliates, and any ERPs or ESPs related thereto, and any deferred compensation or employee stock purchase plan or similar plan or program of the Company or its affiliates. "VESTED BENEFITS ENHANCEMENT" means (i) a cash amount equal to the present value, calculated using a discount rate equal to the then prevailing applicable Federal rate as determined under Section 1274(d) of the Internal Revenue Code of 1986, as amended (the "Code"), of the additional retirement benefits that would have been payable or available to Executive under any ERPs, based on (A) the age and service Executive would have attained or completed had Executive continued in the Company's employ until the second anniversary of the date of termination of the Employment Period, and (B) where compensation is a relevant factor, his pensionable compensation as of such date, such compensation to include, on the same terms as apply to other executives, any Severance Payment made to Executive, and (ii) solely for purposes vesting in any benefits under any ESPs, Executive shall be treated as having continued in the Company's employ until the second anniversary of the date of termination of the Employment Period. "VOLUNTARY TERMINATION" means any voluntary termination of Executive's Employment by Executive pursuant to this Section 5, other than a Termination Due to Retirement or a Termination Due to Disability by Executive. - 10 - "WELFARE BENEFITS CONTINUATION" means that until the second anniversary of the date of termination of the Employment Period, Executive and, if applicable, his dependents shall be entitled to continue participation in the life and health insurance benefit plans of the Company or its affiliates in which Executive and/or such dependents were participating as of the date of termination of the Employment Period, and such other welfare benefit plans thereof in which the Company is required by law to permit the participation of Executive and/or his dependents, (collectively, the "Welfare Benefit Plans"). Such participation shall be on the same terms and conditions (including the requirement that Executive pay any premiums generally paid by an employee) as would apply if Executive were still in the employ of the Company; provided that the continued participation of Executive and/or his ------------- dependents in such Welfare Benefit Plans shall cease on such earlier date as Executive may become eligible for comparable welfare benefits provided by a subsequent employer. To the extent that Welfare Benefits Continuation cannot be provided under the terms of the applicable plan, policy or program, the Company shall provide a comparable benefit under another plan or from the Company's general assets. 6. TERMINATION FOLLOWING A CHANGE OF CONTROL OR POTENTIAL CHANGE OF CONTROL. ------------------------------------------------------------------------ This Section 6 shall apply (instead of Section 5) during the period commencing upon a Change of Control and continuing until the third anniversary thereof; provided that, in the event that Executive's employment is terminated by the - - -------------- Company in a Termination Without Cause after the occurrence of a Potential Change of Control and a Change of Control occurs within one year following the date of such termination, then solely for purposes of this Agreement, Executive shall be deemed to have remained in the Company's employ until the occurrence of the Change of Control and thereafter to have then been terminated by the Company in a Termination Without Cause. As a result, Executive shall be entitled to receive the excess of (i) the benefits payable in the event of a Termination Without Cause under this Section 6, over (ii) the amount of any benefits payable to Executive under Section 5. (A) EARLY TERMINATION OF THE EMPLOYMENT PERIOD. Notwithstanding Section -------------------------------------------- 1(b) hereof, the Employment Period shall end upon the earliest to occur of (i) a Termination For Cause, (ii) a Termination Without Cause, (iii) a Voluntary Termination Within 180 Days, (iv) a Voluntary Termination After 180 Days, (v) a Termination For Good Reason, (vi) a Termination Due to Retirement, (vii) a Termination Due to Disability, or (viii) a Termination Due to Death. - 11 - (B) NOTICE OF TERMINATION. Communication of termination under this Section --------------------- 6 shall be made to the other party by Notice of Termination in the case of (i) a Termination For Cause, (ii) a Termination Without Cause, (iii) a Voluntary Termination Within 180 Days, (iv) a Voluntary Termination After 180 Days, or (v) a Termination For Good Reason. (C) BENEFITS PAYABLE UPON TERMINATION; RULES FOR DETERMINING REASON FOR -------------------------------------------------------------------- TERMINATION. ----------- (I) BENEFITS PAYABLE UPON TERMINATION. Following the end of the ----------------------------------- Employment Period, Executive (or, in the event of his death, his surviving spouse, if any, or if none, his estate) shall be paid the type or types of compensation determined to be payable in accordance with the following table, such payment to be made in the form specified in such table and at the time established pursuant to Section 7 hereof. Capitalized terms used in such table (and otherwise in this Section 6) that are defined in Section 5, and not specifically defined in Section 6(d) hereof, shall have the meanings ascribed thereto under Section 5. Where such a capitalized term is defined solely in Section 6(d), or in both Section 5 and Section 6(d), such term shall have the meaning ascribed to it in Section 6(d). (II) RULES FOR DETERMINING REASON FOR TERMINATION. -------------------------------------------- (A) No Termination Without Cause, Voluntary Termination Within 180 Days or Termination For Good Reason shall be treated as a Termination Due to Retirement or a Termination Due to Disability for purposes of any Pro Rata Target Bonus, Severance Payment, Equity Awards or Vested Benefits Enhancement under this Section 6, notwithstanding the fact that, either on, before or after the Date of Termination with respect thereto, (I) Executive was eligible for Retirement as defined in the Savings Plan, (II) Executive requested to be treated as a retiree for purposes of the Savings Plan or any other plan or program of the Company or its affiliates, or (III) Executive or the Company could have terminated Executive's employment in a Termination Due to Disability hereunder. (B) No Termination Due to Retirement shall be treated as a Voluntary Termination After 180 Days for purposes of this Section 6, notwithstanding the fact that the Date of Termination for such Termination Due to Retirement may occur within 180 days following a Change of Control. - 12 -
BENEFITS PAYABLE: CHANGE OF CONTROL BENEFIT Accrued Pro Rata Target Severance Equity Awards Salary Bonus Payment ======================== ============== ===================== =============== ========================= FORM OF Lump Sum Lump Sum Lump Sum Determined Under the PAYMENT Applicable Plan ======================== ============== ===================== =============== ========================= Termination For Payable Not Payable Not Payable Determined Under the Cause Applicable Plan Termination Payable Payable Payable Determined Under the Without Cause Applicable Plan Voluntary Payable Payable Payable Determined Under the Termination Within Applicable Plan 180 Days Voluntary Payable Not Payable Not Payable Determined Under the Termination Applicable Plan After 180 Days Termination For Payable Payable Payable Determined Under the Good Reason Applicable Plan Termination Due to Payable Determined Under the Not Payable Determined Under the Retirement Applicable Plan Applicable Plan Termination Due to Payable Payable Not Payable Determined Under the Disability Applicable Plan Termination Due to Payable Payable Not Payable Determined Under the Death Applicable Plan - - ------------------------ -------------- --------------------- --------------- -------------------------
BENEFITS PAYABLE: CHANGE OF CONTROL (Continued) BENEFIT Vested Benefits Vested Benefits Welfare Enhancement Benefits Continuation ======================== ========================= ============================= ================================ FORM OF Determined Under the Lump Sum Determined Under the PAYMENT Applicable Plan Applicable Plan ======================== ========================= ============================= ================================ Termination For Determined Under the Not Payable Not Available Cause Applicable Plan Termination Determined Under the Payable Available Without Cause Applicable Plan Voluntary Determined Under the Payable Available Termination Within Applicable Plan 180 Days Voluntary Determined Under the Not Payable Not Available Termination Applicable Plan After 180 Days Termination For Determined Under the Payable Available Good Reason Applicable Plan Termination Due to Determined Under the Not Payable Available Retirement Applicable Plan Termination Due to Determined Under the Not Payable Available Disability Applicable Plan Termination Due to Determined Under the Not Payable Not Available Death Applicable Plan - - ------------------------ ------------------------- ----------------------------- --------------------------------
- 13 - (D) DEFINITIONS. ----------- "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 Securities and Exchange Act of 1934, as amended (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 Exchange 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 Exchange 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 Exchange 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. "CHANGE OF CONTROL" means: (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 (within the meaning of Section 13(d) of the Act), other than Hartford Life or The Hartford or a subsidiary of either of the foregoing or any employee benefit plan sponsored by Hartford Life or The Hartford or a subsidiary of either of the foregoing, is the Beneficial Owner of the greater of (A) the percentage of the outstanding stock of Hartford Life owned at such time by The Hartford, or (B) twenty percent or more of the outstanding stock of the Hartford Life; (II) any person (within the meaning of Section 13(d) of the Act), other than Hartford Life or The Hartford or a subsidiary of either of the foregoing or any employee benefit plan sponsored by Hartford Life or The Hartford or a subsidiary of either of the foregoing, shall purchase shares pursuant to a tender offer or exchange offer to acquire any stock of the Hartford Life (or securities convertible into stock) for cash, securities or any other - 14 - consideration, provided that after consummation of the offer, the person in question is the Beneficial Owner, directly or indirectly, of the greater of (A) the percentage of the outstanding stock of the Hartford Life owned at such time by The Hartford, or (B) fifteen percent or more of the outstanding stock of Hartford Life (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 Hartford Life shall approve (A) any consolidation or merger of Hartford Life in which Hartford Life is not the continuing or surviving corporation or pursuant to which shares of stock of Hartford Life would be converted into cash, securities or other property, other than a merger of Hartford Life in which holders of stock of Hartford Life immediately prior to the merger have the same proportionate ownership of common stock of the surviving corporation immediately after the 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 Hartford Life; or (IV) within any 12 month period, the persons who were directors of Hartford Life 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 of Hartford Life or the board of directors of any successor to Hartford Life, 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 of Hartford Life 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 Hartford Life to effect a transaction described in the immediately preceding clause (iii); or (V) a Change of Control as defined in any of the foregoing clauses (i), (ii), (iii) or (iv) occurs with respect to The Hartford at a time when The Hartford directly or indirectly owns more than 50% of the combined voting power and the value of the capital stock of Hartford Life, provided that a sale of all of the interest of The ------------- Hartford in Hartford Life shall not be considered a Change of Control hereunder. "DATE OF TERMINATION" means (i) in the case of a termination of the Employment Period for which a Notice of Termination is required, the date of receipt of such Notice of Termination or, if later, the date specified therein, as the case may be, or (ii) in all other cases, the actual date on which Executive's employment terminates during the Employment Period. - 15 - "NOT PAYABLE" means that a particular benefit shall not be paid or otherwise provided to Executive. "NOTICE OF TERMINATION" means (i) in the case of a Termination For Cause, a written notice given by the Company to Executive, within 30 calendar days of the Company's having actual knowledge of the events giving rise to such termination, (ii) in the case of a Termination Without Cause, a written notice given by the Company to Executive at least 30 calendar days before the effective date of such Termination Without Cause, (iii) in the case of a Voluntary Termination Within 180 Days or a Voluntary Termination After 180 Days, a written notice given by Executive to the Company at least 30 calendar days before the effective date of such termination, and (iv) in the case of a Termination For Good Reason, a written notice given by Executive to the Company within 180 days of Executive's having actual knowledge of the events giving rise to such Termination For Good Reason, and which (A) indicates the specific termination provision in this Agreement relied upon, (B) sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated, and (C) if the termination date is other than the date of receipt of such notice, specifies the termination date of this Agreement (which date shall be not more than 15 days after the giving of such notice). The failure by Executive to set forth in such Notice of Termination any fact or circumstance that contributes to a showing of Good Reason shall not waive any right of Executive hereunder or preclude Executive from asserting such fact or circumstance in enforcing his rights hereunder. "PAYABLE" means that a particular benefit shall be paid to Executive in the amount, at the time, and in the form specified herein. "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. - 16 - "POTENTIAL CHANGE OF CONTROL" means: (I) a Person shall commence a tender offer, which if successfully consummated, would result in such Person being the Beneficial Owner of the greater of: (A) the percentage of outstanding stock of Hartford Life owned by The Hartford at the time of such commencement, or (B) 15% or more of the voting securities of Hartford Life; (II) Hartford Life shall enter into an agreement the consummation of which shall constitute a Change of Control; (III) proxies for the election of directors of Hartford Life shall be solicited by anyone other than Hartford Life; (IV) a Potential Change of Control as defined in any of the foregoing clauses (i), (ii) or (iii) occurs with respect to The Hartford at a time when The Hartford owns more than 50% of the combined voting power and the value of the capital stock of Hartford Life; or (V) any other event shall occur which is deemed to be a Potential Change of Control by the relevant Board or the appropriate Committee thereof. "SEVERANCE PAYMENT" means a cash amount equal to three times the sum of (i) Executive's Base Salary at the rate in effect as of the Date of Termination, and (ii) Executive's Target Bonus for such year. "TERMINATION FOR CAUSE" means the Company's termination of Executive's employment due to (i) Executive's conviction of a felony; (ii) an act or acts of extreme dishonesty or gross misconduct on Executive's part which result or are intended to result in material damage to the Company's business or reputation; or (iii) repeated material violations by Executive of his obligations under Section 2 of this Agreement, which violations are demonstrably willful and deliberate on Executive's part and which result in material damage to the Company's business or reputation. - 17 - "TERMINATION FOR GOOD REASON" means the occurrence of any of the following after the occurrence of a Potential Change of Control or a Change of Control: (I) (A) the assignment to Executive of any duties inconsistent in any material adverse respect with Executive's position, duties, authority or responsibilities as contemplated by Section 2 of this Agreement, or (B) any other material adverse change in such position, including titles, authority or responsibilities; (II) any failure by the Company to comply with any of the provisions of Sections 3 and 4 of this Agreement at a level of least equal to that in effect immediately preceding the Change of Control or a Potential Change of Control, other than an insubstantial or inadvertent failure remedied by the Company promptly after receipt of notice thereof given by Executive; (III) the Company's requiring Executive to be based at any office or location more than 25 miles from the location at which he performed his services specified under Section 2 hereof immediately prior to the Change of Control or a Potential Change of Control, except for travel reasonably required in the performance of Executive's responsibilities; (IV) any failure by the Company to obtain the assumption and agreement to perform this Agreement by a successor as contemplated by Section 10(d) hereof; or (V) any attempt by the Company to terminate the Executive's employment in a Termination For Cause that is determined in a proceeding pursuant to Section 9 or Section 10 hereof not to constitute a Termination For Cause. Notwithstanding the foregoing, a termination of Executive's employment shall not be treated as a Termination For Good Reason (I) if Executive shall have consented in writing to the occurrence of the event giving rise to the claim of Termination For Good Reason, or (II) if Executive shall have delivered a Notice of Termination to the Company, and the facts and circumstances specified therein as providing a basis for such Termination For Good Reason are cured by the Company within 10 days of its receipt of such Notice of Termination. "VESTED BENEFITS ENHANCEMENT" means (i) a cash amount equal to the present value, calculated using a discount rate equal to the then prevailing applicable Federal rate as determined under Section 1274(d) of the Internal Revenue Code of 1986, as amended (the "Code"), of the additional retirement benefits that would have been payable or available to Executive under any ERPs, based on (A) the age - 18 - and service Executive would have attained or completed had Executive continued in the Company's employ until the third anniversary of the occurrence of the Change of Control, and (B) where compensation is a relevant factor, his pensionable compensation as of the Date of Termination, such compensation to include, on the same terms as apply to other executives, any Severance Payment made to Executive, and (ii) solely for purposes of vesting in any benefits under any ESPs, Executive shall be treated as having continued in the Company's employ until the third anniversary of the occurrence of such Change of Control. "VOLUNTARY TERMINATION WITHIN 180 DAYS" means a termination of employment by Executive for any reason within the first 180 days following a Change of Control, and "VOLUNTARY TERMINATION AFTER 180 DAYS" means a termination of employment by Executive other than a Termination For Good Reason, a Termination Due to Disability by Executive, or a Termination Due to Death within the remaining 2 years and 6 months following a Change of Control. "WELFARE BENEFITS CONTINUATION" shall have the same meaning as that described in Section 5 hereof, except that the entitlement of Executive and/or his dependents to participation in the Welfare Benefit Plans shall continue until the third anniversary of the Date of Termination. (D) OUT-PLACEMENT SERVICES. If the Employment Period terminates because of a ----------------------- Termination Without Cause or a Termination For Good Reason, Executive shall be entitled to out-placement services, provided by the Company or its designee at the Company's expense, for 12 months following the Date of Termination, or such lesser period as the Executive may require such services. (E) CERTAIN FURTHER PAYMENTS BY COMPANY. ----------------------------------- (I) TAX REIMBURSEMENT PAYMENT. In the event that any amount or benefit paid ------------------------- or distributed to Executive pursuant to this Agreement, taken together with any amounts or benefits otherwise paid or distributed to Executive by the Company or any affiliate (collectively, the "Covered Payments"), are or become subject to the tax (the "Excise Tax") imposed under Section 4999 of the Internal Revenue Code of 1986, as amended, or any similar tax that may hereafter be imposed, the Company shall pay to the Executive at the time specified in this Section an additional amount (the "Tax Reimbursement Payment") such that the net amount retained by the Executive with respect to such Covered Payments, after deduction of any Excise Tax on the Covered Payments and any Federal, state and local income tax and other tax on the Tax Reimbursement Payment provided for by this Section, but before deduction for any Federal, state or local income or employment - 19 - tax withholding on such Covered Payments, shall be equal to the amount of the Covered Payments. (II) APPLICABLE RULES. For purposes of determining whether any of the ----------------- Covered Payments will be subject to the Excise Tax and the amount of such Excise Tax, (A) such Covered Payments will be treated as "parachute payments" within the meaning of Section 280G of the Code, and all "parachute payments" in excess of the "base amount" (as defined under Section 280G(b)(3) of the Code) shall be treated as subject to the Excise Tax, unless, and except to the extent that, in the good faith judgment of the Company's independent certified public accountants appointed prior to the Effective Date or tax counsel selected by such accountants (the "Accountants"), the Company has a reasonable basis to conclude that such Covered Payments (in whole or in part) either do not constitute "parachute payments" or represent reasonable compensation for personal services actually rendered (within the meaning of Section 280G(b)(4)(B) of the Code) in excess of the "base amount," or such "parachute payments" are otherwise not subject to such Excise Tax, and (B) the value of any non-cash benefits or any deferred payment or benefit shall be determined by the Accountants in accordance with the principles of Section 280G of the Code. (III) ADDITIONAL RULES. For purposes of determining the amount of the Tax ----------------- Reimbursement Payment, the Executive shall be deemed to pay: (A) Federal income taxes at the highest applicable marginal rate of Federal income taxation for the calendar year in which the Tax Reimbursement Payment is to be made, and (B) any applicable state and local income and other taxes at the highest applicable marginal rate of taxation for the calendar year in which the Tax Reimbursement Payment is to be made, net of the maximum reduction in Federal incomes taxes which could be obtained from the deduction of such state or local taxes if paid in such year. (IV) REPAYMENT OR ADDITIONAL PAYMENT IN CERTAIN CIRCUMSTANCES. -------------------------------------------------------- (A) REPAYMENT. In the event that the Excise Tax is subsequently --------- determined by the Accountants or pursuant to any proceeding or negotiations with the Internal Revenue Service to be less than the amount taken into account hereunder in calculating the Tax Reimbursement Payment made, Executive shall repay to the Company, at the time that the amount of such reduction in the Excise Tax is finally determined, the portion of such prior Tax Reimbursement Payment that would not have been paid if such - 20 - lesser Excise Tax had been applied in initially calculating such Tax Reimbursement Payment, plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. Notwithstanding the foregoing, in the event any portion of the Tax Reimbursement Payment to be repaid to the Company has been paid to any Federal, state or local tax authority, repayment thereof shall not be required until actual refund or credit of such portion has been made to Executive by the applicable tax authority, and interest payable to the Company shall not exceed interest received or credited to the Executive by such tax authority for the period it held such portion. Executive and the Company shall mutually agree upon the course of action to be pursued (and the method of allocating the expenses thereof) if Executive's good faith claim for refund or credit is denied. (B) ADDITIONAL TAX REIMBURSEMENT PAYMENT. In the event that the -------------------------------------- Excise Tax is later determined by the Accountants or pursuant to any proceeding or negotiations with the Internal Revenue Service to exceed the amount taken into account hereunder at the time the Tax Reimbursement Payment is made (including, but not limited to, by reason of any payment the existence or amount of which cannot be determined at the time of the Tax Reimbursement Payment), the Company shall make an additional Tax Reimbursement Payment in respect of such excess (plus any interest or penalty payable with respect to such excess) at the time that the amount of such excess is finally determined. (V) TIMING FOR TAX REIMBURSEMENT PAYMENT. The Tax Reimbursement Payment (or ------------------------------------ portion thereof) provided for in this Section 6 shall be paid to Executive not later than 10 business days following the payment of the Covered Payments; provided, however, that if the amount of such Tax Reimbursement Payment (or portion thereof) cannot be finally determined on or before the date on which payment is due, the Company shall pay to Executive by such date an amount estimated in good faith by the Accountants to be the minimum amount of such Tax Reimbursement Payment and shall pay the remainder of such Tax Reimbursement Payment (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined, but in no event later than 45 calendar days after payment of the related Covered Payment. In the event that the amount of the estimated Tax Reimbursement Payment exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Company to Executive, payable on the fifth business day after written demand by the Company for payment (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code). - 21 - 7. TIMING OF PAYMENTS. ------------------ Accrued Salary, Severance Payments and Vested Benefits Enhancements shall be paid no later than 10 days following the termination of the Employment Period. Pro-Rata Target Bonus shall be paid no later than the same time as similar awards are paid to other executives participating in the plans or programs under which the awards are paid. Vested Benefits and Equity Awards shall be paid no later than the time for payment Determined Under the Applicable Plan except as otherwise expressly superseded or modified by this Agreement. Tax Reimbursement Payments shall be paid at the time specified in Section 6 hereof. Notwithstanding the foregoing, solely for purposes of amounts payable pursuant to Section 5 hereof, if any amount payable to Executive pursuant to Section 5 would be nondeductible by the Company under Section 162(m) of the Code if paid in the year of Executive's termination, the Company shall have the option of paying such nondeductible amount, with interest at the one-year treasury bill rate as in effect on the date of such termination as reported in the Wall Street Journal, on the first day of the second calendar quarter in the year following such termination. 8. FULL DISCHARGE OF COMPANY OBLIGATIONS. ------------------------------------- Except as expressly provided in the last sentence of this Section 8, the amounts payable to Executive pursuant to either Section 5 or Section 6 following termination of his employment (including amounts payable with respect to Vested Benefits) shall be in full and complete satisfaction of Executive's rights under this Agreement and any other claims he may have in respect of his employment by the Company or any of its affiliates. Such amounts shall constitute liquidated damages with respect to any and all such rights and claims and, upon Executive's receipt of such amounts, the Company shall be released and discharged from any and all liability to Executive in connection with this Agreement or otherwise in connection with Executive's employment with the Company and its affiliates. Nothing in this Section 8 shall be construed to release the Company from its obligation to indemnify Executive as provided in Section 4(e) hereof. 9. NONCOMPETITION, CONFIDENTIALITY AND OTHER COVENANTS. --------------------------------------------------- By and in consideration of the compensation and benefits to be provided by the Company hereunder, including the severance arrangements set forth herein, Executive agrees to the following: (A) NONCOMPETITION. During the Employment Period and during the one year -------------- period (the "Restriction Period") following any Voluntary Termination of the Employment Period by Executive pursuant to Section 5 hereof, Executive shall not - 22 - become associated with any entity, whether as a principal, partner, employee, agent, consultant, shareholder (other than as a holder, or a member of a group which is a holder, of not in excess of 1% of the outstanding voting shares of any publicly traded company) or in any other relationship or capacity, paid or unpaid, that is actively engaged in any geographic area in any business which is in competition with the business of the Company. (B) CONFIDENTIALITY. Without the prior written consent of the Company, --------------- except to the extent required by an order of a court having competent jurisdiction or under subpoena from an appropriate government agency, Executive shall not disclose to any third person, or permit the use of for the benefit of any person or any entity other than The Company or its affiliates, any trade secrets, customer lists, information regarding product development, marketing plans, sales plans, management organization information (including data and other information relating to members of the Board and management), operating policies or manuals, business plans, financial records, or other financial, organizational, commercial, business, sales, marketing, technical, product or employee information relating to the Company or its affiliates or information designated as confidential, proprietary, and/or a trade secret, or any other information relating to the Company or its affiliates that Executive knows from the circumstances, in good faith and good conscience, should be treated as confidential, or any information that the Company or its affiliates may receive belonging to customers, agents or others who do business with the Company or its affiliates, except to the extent that any such information previously has been disclosed to the public by the Company or is in the public domain (other than by reason of Executive's violation of this Section 9(b)). (C) NON-SOLICITATION OF EMPLOYEES. During the Employment Period and the two ----------------------------- year period following any termination of the Employment Period pursuant to Section 5 hereof, Executive shall not directly or indirectly solicit, encourage or induce any employee of the Company or its affiliates to terminate employment with such entity, and shall not directly or indirectly, either individually or as owner, agent, employee, consultant or otherwise, employ or offer employment to any person who is or was employed by the Company or an affiliate thereof unless such person shall have ceased to be employed by such entity for a period of at least six months. (D) COMPANY PROPERTY. Except as expressly provided herein, promptly ----------------- following any termination of the Employment Period, Executive shall return to the Company all property of the Company, and all copies thereof in Executive's possession or under his control. - 23 - (E) INJUNCTIVE RELIEF AND OTHER REMEDIES WITH RESPECT TO COVENANTS. --------------------------------------------------------------------- Executive acknowledges and agrees that the covenants and obligations of Executive with respect to noncompetition, confidentiality, nonsolicitation, and Company property relate to special, unique and extraordinary matters and that a violation of any of the terms of such covenants and obligations will cause the Company irreparable injury for which adequate remedies are not available at law. Therefore, Executive agrees that the Company (i) shall be entitled to an injunction, restraining order or such other equitable relief (without the requirement to post bond) restraining Executive from committing any violation of the covenants and obligations contained in this Section 9, and (ii) shall have no further obligation to make any payments to Executive hereunder following any material violation of the covenants and obligations contained in this Section 9. These remedies are cumulative and are in addition to any other rights and remedies the Company may have at law or in equity. In connection with the foregoing provisions of this Section 9, Executive represents that his economic means and circumstances are such that such provisions will not prevent him from providing for himself and his family on a basis satisfactory to him. Notwithstanding the foregoing, in no event shall an asserted violation of the provisions of this Section constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement following a Change of Control. 10. MISCELLANEOUS. ------------- (A) SURVIVAL. All of the provisions of Sections 5 (relating to termination -------- of the Employment Period prior to a Change of Control), 6 (relating to termination of the Employment Period following a Change of Control or a Potential Change of Control), 9 (relating to noncompetition, confidentiality, nonsolicitation and Company property), 10(b) (relating to arbitration), 10(c) (relating to legal fees) and 10(n) (relating to governing law) of this Agreement shall survive the termination of this Agreement. (B) ARBITRATION. Except as provided in Section 9, any dispute or ----------- controversy arising under or in connection with this Agreement shall be resolved by binding arbitration. Such arbitration shall be held in the city of Hartford, Connecticut and except to the extent inconsistent with this Agreement, shall be conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association in effect at the time of the arbitration, and otherwise in accordance with the principles that would be applied by a court of law or equity. The arbitrator shall be acceptable to both the Company and Executive. If the parties cannot agree on an acceptable arbitrator, the dispute or controversey shall be heard by a panel of three arbitrators; one appointed by each of the parties and the third appointed by the other two arbitrators. The Company and Executive further agree - 24 - that they will abide by and perform any award or awards rendered by the arbitrators and that a judgment may be entered on any award or awards rendered by any state or federal court having jurisdiction over the Company or Executive or any of their respective property. (C) LEGAL FEES AND EXPENSES. In any contest (whether initiated by Executive ----------------------- or by the Company) as to the validity, enforceability or interpretation of any provision of this Agreement, the Company shall pay Executive's legal expenses (or cause such expenses to be paid) including, without limitation, his reasonable attorney's fees, on a quarterly basis, upon presentation of proof of such expenses in a form acceptable to the Company, provided that ------------- Executive shall reimburse the Company for such amounts, plus simple interest thereon at the 90-day United States Treasury Bill rate as in effect from time to time, compounded annually, if Executive shall not prevail, in whole or in part, as to any material issue as to the validity, enforceability or interpretation of any provision of this Agreement. (D) SUCCESSORS; BINDING EFFECT. This Agreement shall inure to the benefit --------------------------- of and be binding upon the Company and its successors. The Company shall require any successor to all or substantially all of the business and/or assets of the Company, whether direct or indirect, by purchase, merger, consolidation, acquisition of stock, or otherwise, by an agreement in form and substance satisfactory to Executive, expressly to assume and agree to perform this Agreement in the same manner and to the same extent as the Company would be required to perform the Agreement if no such succession had taken place. This Agreement is personal to the Executive and, without the prior written consent of the Company, shall not be assignable by Executive otherwise than by will or the law of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by Executive's legal representatives. (E) ASSIGNMENT. Except as provided in Section 10(d), neither this Agreement ---------- nor any of the rights or obligations hereunder shall be assigned or delegated by any party hereto without the prior written consent of the other party. (F) ENTIRE AGREEMENT. This Agreement constitutes the entire agreement ----------------- between the parties hereto with respect to the matters referred to herein. This Agreement supersedes and replaces any prior employment or severance agreement or arrangement between the Company and Executive. No other agreement relating to the terms of Executive's employment by the Company, oral or otherwise, shall be binding between the parties unless it is in writing and signed by the party against whom enforcement is sought. There are no promises, representations, inducements or statements between the parties other than those that are expressly contained - 25 - herein. Executive acknowledges that he is entering into this Agreement of his own free will and accord, and with no duress, and that he has read this Agreement and that he understands it and its legal consequences. (G) SEVERABILITY; REFORMATION. In the event that one or more of the -------------------------- provisions of this Agreement shall become invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not be affected thereby. In the event of a determination that any of the provisions of Section 9(a), Section 9(b) or Section 9(c) are not enforceable in accordance with their terms, Executive and the Company agree that such Section shall be reformed to make such Section enforceable in a manner that provides the Company the maximum rights permitted at law. (H) WAIVER. Waiver by any party hereto of any breach or default by the ------ other party of any of the terms of this Agreement shall not operate as a waiver of any other breach or default, whether similar to or different from the breach or default waived. No waiver of any provision of this Agreement shall be implied from any course of dealing between the parties hereto or from any failure by either party hereto to assert its or his rights hereunder on any occasion or series of occasions. (I) NOTICES. Any notice required or desired to be delivered under this ------- Agreement shall be in writing and shall be delivered personally, by courier service, by registered mail, return receipt requested, or by telecopy and shall be effective upon actual receipt by the party to which such notice shall be directed, and shall be addressed as follows (or to such other address as the party entitled to notice shall hereafter designate in accordance with the terms hereof): - 26 - If to the Company: The Hartford Financial Services Group, Inc. Law Department, HO-1-09 Hartford Plaza Hartford, CT 06115 Attention: Corporate Secretary And: Hartford Life, Inc. Law Department 200 Hopmeadow Street Simsbury, CT 06089 Attention: General Counsel With a copy to: Debevoise & Plimpton 875 Third Avenue New York, NY 10022 Attn: Lawrence K. Cagney, Esq. If to Executive: The home address of Executive shown on the records of the Company (J) AMENDMENTS. This Agreement may not be altered, modified or amended ---------- except by a written instrument signed by each of the parties hereto. (K) HEADINGS. Headings to provisions of this Agreement are for the -------- convenience of the parties only and are not intended to be part of or to affect the meaning or interpretation hereof. (L) COUNTERPARTS. This Agreement may be executed in counterparts, each of ------------ which shall be deemed an original but all of which together shall constitute one and the same instrument. (M) WITHHOLDING. Any payments provided for herein shall be reduced by any ----------- amounts required to be withheld by the Company from time to time under applicable Federal, State or local income or employment tax laws or similar statutes or other provisions of law then in effect. - 27 - (N) GOVERNING LAW. This Agreement shall be governed by the laws of the -------------- State of Connecticut, without reference to principles of conflicts or choice of law under which the law of any other jurisdiction would apply. IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its duly authorized officer, and Executive has hereunto set his hand, as of the day and year first above written. THE HARTFORD FINANCIAL SERVICES GROUP, INC. WITNESSED: /s/ Ramani Ayer ------------------------------- By: Ramani Ayer Title: Chairman - - ---------------------------- HARTFORD LIFE, INC. WITNESSED: /s/ Ramani Ayer ------------------------------- By: Ramani Ayer Title: Chairman - - ---------------------------- EXECUTIVE: WITNESSED: /s/ Lowndes A. Smith ------------------------------- Lowndes A. Smith - - ---------------------------- - 28 - EX-10 4 EXHIBIT 10.03 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT -------------------- EMPLOYMENT AGREEMENT, dated as of July 1, 1997, by and between The Hartford Financial Services Group, Inc., a Delaware corporation (the "Company"), and David K. Zwiener ("Executive"). W I T N E S S E T H: ------------------- WHEREAS, the Company wishes to recognize the substantial services that Executive has provided to the Company; and WHEREAS, the Company desires that Executive continue to perform such services and to enter into an agreement embodying the terms of such employment (the "Agreement"); and WHEREAS, Executive desires to continue such employment and enter into such Agreement; NOW, THEREFORE, in consideration of the mutual covenants herein contained, the Company and Executive hereby agree as follows: 1. EMPLOYMENT. ---------- (A) AGREEMENT TO EMPLOY. Upon the terms and subject to the conditions of ------------------- this Agreement, the Company hereby agrees to continue to employ Executive and Executive hereby agrees to continue his employment by the Company. (B) TERM OF EMPLOYMENT. Except as otherwise provided below, the Company ------------------ shall employ Executive for the period commencing on July 1, 1997 (the "Commencement Date") and ending on the third anniversary of the Commencement Date. At the expiration of the original term or any extended term (each a "Renewal Date"), Executive's employment hereunder shall be extended automatically, upon the same terms and conditions, for successive one-year periods, unless either party shall give written notice to the other of its intention not to renew such employment at least fifteen months prior to such Renewal Date. Without limiting the generality of the foregoing, upon the occurrence of a Change of Control (as defined below), the term of this Agreement shall be extended automatically without any action by either party until the third anniversary of such Change of Control. Notwithstanding the foregoing, if not previously terminated pursuant to Sections 1(b), 5(a) or 6(a), the term of this Agreement shall terminate on the last day of the month in which Executive attains age 65, and such a termination upon Executive reaching age 65 shall be deemed to be a Termination Due to Retirement for purposes of this Agreement. The period during which Executive is employed pursuant to this Agreement, including any extension thereof in accordance with this Section 1(b), shall be referred to as the "Employment Period." 2. POSITION AND DUTIES. ------------------- During the Employment Period, Executive shall serve as Executive Vice President and Chief Financial Officer of the Company, and/or in such other position or positions with the Company or its affiliates commensurate with his position and experience as the Board of Directors of the Company (the "Board") or the Chairman of the Company (the "Chairman") shall from time to time specify. During the Employment Period, Executive shall have the duties, responsibilities and obligations customarily assigned to individuals serving in the position or positions in which Executive serves hereunder and such other duties, responsibilities and obligations as the Board or the Chairman shall from time to time specify. Executive shall devote his full time to the services required of him hereunder, except for vacation time and reasonable periods of absence due to sickness, personal injury or other disability, and shall use his best efforts, judgement, skill and energy to perform such services in a manner consonant with the duties of his position and to improve and advance the business and interests of the Company and its affiliates. During the Employment Period, Executive shall comply with the Code of Conduct of the Company. Unless and to the extent inconsistent with the terms of any published Company policy or code of conduct as in effect on the date hereof and as hereafter amended, nothing contained herein shall preclude Executive from (a) serving on the board of directors of any business corporation with the consent of the Board or the Chairman, (b) serving on the board of, or working for, any charitable or community organization, or (c) pursuing his personal financial and legal affairs, so long as the foregoing activities, individually or collectively, do not interfere with the performance of Executive's duties hereunder or violate any of the provisions of Section 9 hereof. 3. COMPENSATION. ------------ (A) BASE SALARY. During the Employment Period, the Company shall pay ------------ Executive a base salary at the annual rate as in effect on the date hereof. The annual base salary payable under this paragraph shall be reduced, however, to the extent that Executive elects to defer such salary under the terms of any deferred compensation or savings plan or arrangement maintained or established by the Company or its affiliates. The Board or the appropriate committee of the Board may in its discretion periodically review Executive's base salary in light of competitive - 2 - practices, the base salaries paid to other executive officers of the Company and the performance of Executive and the Company and its applicable affiliates, and may, in its discretion, increase such base salary by an amount it determines to be appropriate. Any such increase shall not reduce or limit any other obligation of the Company hereunder. Executive's base salary (as set forth above or as may be increased from time to time) shall not be reduced following any Change of Control, but may be reduced prior to a Change of Control solely pursuant to a cost-saving plan or structural realignment of total compensation elements that includes all senior executives and only to the extent that such reduction is proportionate to the reductions applicable to other senior executives. Executive's annual base salary payable hereunder, as it may be increased or reduced from time to time as provided herein and without reduction for any amounts deferred as described above, shall be referred to herein as "Base Salary." The Company shall pay Executive the portion of his Base Salary not deferred not less frequently than in equal monthly installments. (B) ANNUAL BONUS. For each calendar year ending during the Employment ------------- Period, Executive shall have the opportunity to earn and receive an annual bonus, based on the achievement of target levels of performance, equal to the percentage of his Base Salary used to calculate such annual bonus as of the date hereof. Executive's annual bonus opportunity may be increased above such percentage from time to time by the Board or the appropriate committee thereof. Executive's annual bonus opportunity shall not be reduced following any Change of Control, but may be reduced prior to a Change of Control solely pursuant to a cost-saving plan or structural realignment of total compensation elements that includes all senior executives and only to the extent that such reduction is proportionate to the reductions applicable to other senior executives. Executive's annual bonus opportunity, as it may be increased or reduced from time to time as provided herein, shall be referred to herein as "Target Bonus." The actual bonus, if any, payable for any such year shall be determined in accordance with the terms of the Company's Annual Executive Bonus Program or any successor annual incentive plan (the "Annual Plan") based upon the performance of the Company and/or its applicable affiliates and/or Executive against target objectives established under such Annual Plan. Subject to Executive's election to defer all or a portion of any annual bonus payable hereunder pursuant to the terms of any deferred compensation or savings plan or arrangement maintained or established by the Company or its affiliates, any annual bonus payable under this Section 3(b) shall be paid to Executive in accordance with the terms of the Annual Plan. - 3 - (C) LONG-TERM INCENTIVE COMPENSATION. During the Employment Period, ---------------------------------- Executive shall participate in all of the Company's existing and future long-term incentive compensation programs for key executives at a level commensurate with his position with the Company and consistent with the Company's then current policies and practices, as determined in good faith by the Board or the appropriate committee of the Board. 4. BENEFITS, PERQUISITES AND EXPENSES. ---------------------------------- (A) BENEFITS. During the Employment Period, Executive (and, to the extent -------- applicable, his dependents) shall be eligible to participate in or be covered under (i) each welfare benefit plan or program maintained or as hereafter amended or established by the Company or its applicable affiliates, including, without limitation, each group life, hospitalization, medical, dental, health, accident or disability insurance or similar plan or program of thereof, and (ii) each pension, retirement, savings, deferred compensation, stock purchase or other similar plan or program maintained or as hereafter amended or established by the Company or its applicable affiliates, in each case to the extent that Executive is eligible to participate in any such plan or program under the generally applicable provisions thereof. Nothing in this Section 4(a) shall limit the Company's right to amend or terminate any such plan or program in accordance with the procedures set forth therein or as permitted by applicable law. (B) PERQUISITES. For each calendar year during the Employment Period, ----------- Executive shall be entitled to at least the number of paid vacation days per year that Executive is entitled to as of the date hereof, and shall also be entitled to receive such other perquisites as are generally provided to him as of the date hereof or are hereafter provided to other similarly situated senior executives of the Company in accordance with the then current policies and practices of the Company. (C) BUSINESS EXPENSES. During the Employment Period, the Company shall pay ----------------- or reimburse Executive for all reasonable business expenses incurred or paid by Executive in the performance of Executive's duties hereunder, upon presentation of expense statements or vouchers and such other information as the Company may require and in accordance with the generally applicable policies and procedures of the Company. (D) OFFICE AND SUPPORT STAFF. During the Employment Period, Executive shall ------------------------ be entitled to an office with furnishings and other material appointments, and to secretarial and other assistance, at a level that is at least commensurate with the foregoing provided to him as of the date hereof or is hereafter provided to other similarly situated senior executives of the Company. (E) INDEMNIFICATION. The Company shall indemnify Executive and hold --------------- Executive harmless from and against any claim, loss or cause of action, regardless whether asserted during or after the Employment Period, arising from or out of Executive's performance as an officer, director or employee of the Company or any of its affiliates or in any other capacity, including any fiduciary capacity in which Executive serves at the request of the Company, to the maximum extent permitted by applicable law and under the Certificate of Incorporation and By-Laws of the Company, as may be amended from time to time (the "Governing Documents"), provided that in no event ------------- shall the protection afforded to Executive be less than that afforded under the Governing Documents as in effect on the Commencement Date. - 4 - 5. TERMINATION OF EMPLOYMENT. ------------------------- The provisions of this Section 5 shall apply prior to the occurrence of a Change of Control and, if Executive is still in the Company's employ, shall again become applicable upon the third anniversary of such Change of Control. (A) EARLY TERMINATION OF THE EMPLOYMENT PERIOD. Notwithstanding Section -------------------------------------------- 1(b) hereof, the Employment Period shall end upon the earliest to occur of (i) a Termination For Cause, (ii) a Termination Without Cause, (iii) a Voluntary Termination, (iv) a Termination Due to Retirement, (v) a Termination Due to Disability, or (vi) a Termination Due to Death. (B) NOTICE OF TERMINATION. Communication of termination under this Section --------------------- 5 shall be made to the other party by Notice of Termination in the case of (i) a Termination For Cause, (ii) a Termination Without Cause, or (iii) a Voluntary Termination. (C) BENEFITS PAYABLE UPON TERMINATION; RULES FOR DETERMINING REASON FOR ------------------------------------------------------------------- TERMINATION. ----------- (I) BENEFITS PAYABLE UPON TERMINATION. Following the end of the ----------------------------------- Employment Period pursuant to Section 5(a), Executive (or, in the event of his death, his surviving spouse, if any, or if none, his estate) shall be paid the type or types of compensation determined to be payable in accordance with the following table, such payment to be made in the form specified in such table and at the time established pursuant to Section 7 hereof. Capitalized terms used in such table shall have the meanings set forth in Section 5(d) hereof. (II) RULES FOR DETERMINING REASON FOR TERMINATION. -------------------------------------------- (A) If a Voluntary Termination occurs on a date that Executive is eligible for Retirement as defined in The Hartford Investment and Savings Plan, as may be amended from time to time, or any successor plan thereof (the "Savings Plan"), such Voluntary Termination shall instead be treated as a Termination Due to Retirement solely for purposes of this Section 5. (B) No Termination Without Cause shall be treated as a Termination Due to Retirement or a Termination Due to Disability for purposes of any Pro Rata Target Bonus, Severance Payment, Equity Awards or Vested Benefits Enhancement under this Section 5, notwithstanding the fact that, either on, before or after the date of termination of the Employment Period with respect thereto, (I) Executive was eligible for Retirement as defined in the Savings Plan, (II) Executive requested to be treated as a retiree for purposes of the Savings Plan or any other plan or program of the Company or its affiliates, or (III) Executive or the Company could have terminated Executive's employment in a Termination Due to Disability hereunder. - 5 -
BENEFITS PAYABLE : NON-CHANGE OF CONTROL BENEFIT: Accrued Pro Rata Target Severance Equity Awards Salary Bonus Payment ======================== ============== ========================= ================ ================================== FORM OF PAYMENT: Lump Sum Lump Sum Lump Sum Determined Under the Applicable Plan Termination For Payable Not Payable Not Payable Not Payable Cause Termination Payable Payable Payable Options / Restricted Stock: Without Cause -------------------------- Payable Other Equity Awards: ------------------- Determined Under the Applicable Plan Voluntary Payable Determined Under Not Determined Under the Termination the Applicable Plan Payable Applicable Plan Termination Due Payable Determined Under Not Determined Under the to Retirement the Applicable Plan Payable Applicable Plan Termination Due Payable Payable Not Determined Under the to Disability Payable Applicable Plan Termination Due Payable Payable Not Determined Under the to Death Payable Applicable Plan
BENEFITS PAYABLE : NON-CHANGE OF CONTROL (Continued) BENEFIT: Vested Benefits Vested Benefits Welfare Enhancement Benefits Continuation ======================== ============================== ======================== ================= FORM OF Determined Under the Lump Sum Determined PAYMENT: Applicable Plan Under the Applicable Plan Termination For Determined Under the Not Payable Not Cause Applicable Plan Available Termination Determined Under the Payable Available Without Cause Applicable Plan Voluntary Determined Under the Not Payable Not Termination Applicable Plan Available Termination Due Determined Under the Not Payable Available to Retirement Applicable Plan Termination Due Determined Under the Not Payable Available to Disability Applicable Plan Termination Due Determined Under the Not Payable Not to Death Applicable Plan Available
- 6 - (D) DEFINITIONS. ----------- "ACCRUED SALARY" means any Base Salary earned, but unpaid, for services rendered to the Company on or prior to the date on which the Employment Period ends pursuant to Section 5(a) (other than Base Salary deferred pursuant to Executive's election, as contemplated by Section 3(a) hereof), plus any vacation pay accrued by Executive as of such date. "AVAILABLE" means that the particular benefit shall be made available to Executive to the extent specifically provided herein or required by applicable law. "DETERMINED UNDER THE APPLICABLE PLAN" means that the determination of whether a particular benefit, shall or shall not be paid to Executive, and, where specifically required by this Agreement, the timing or form of any benefit payment, shall be made solely by application of the terms of the plan or program providing such benefit, except to the extent that the terms of such plan or program are expressly superseded or modified by this Agreement. "EQUITY AWARDS" means the outstanding stock option, restricted stock, performance share and other equity or long-term incentive compensation awards, if any, held by Executive as of the date of his termination. "ERPs" means any excess retirement plans maintained or as hereafter amended or established by the Company or its applicable affiliates. "ESPs" means any excess investment and savings plans maintained or as hereafter amended or established by the Company or its applicable affiliates. "LUMP SUM" means a single lump sum cash payment. "NOT AVAILABLE" means that the particular benefit shall be not be made available to Executive, except to the extent required by applicable law. "NOTICE OF TERMINATION" means (i) in the case of a Termination For Cause, a written notice given by the Company to Executive within 30 calendar days of the Company's having actual knowledge of the events giving rise to such Termination For Cause, (ii) in the case of a Termination Without Cause, a written notice given by the Company to Executive at least 30 days before the effective date of such Termination Without Cause, and (iii) in the case of a Voluntary Termination, a written notice given by Executive to the - 7 - Company indicating the effective date of Executive's termination of the Employment Period in such Voluntary Termination, such effective date to be no earlier than 30 days following the date such notice is received by the Company from Executive. "NOT PAYABLE" means (i) with respect to benefits other than Equity Awards, such benefits shall not be paid or otherwise provided to Executive, and (ii) with respect to Equity Awards, such Equity Awards, to the extent unvested, unexercisable, or subject to restrictions that have not yet lapsed, shall be forfeited and/or canceled as of the date of termination of the Employment Period, unless otherwise determined by the Board or the appropriate committee of the Board in its discretion. "PAYABLE" means (i) with respect to benefits other than those described in clause (ii) of this paragraph, such benefits shall be paid to Executive in the amount, at the time, and in the form specified herein, and (ii) with respect to benefits described in this clause (ii), the following shall apply solely in the event of a Termination Without Cause, notwithstanding anything in the applicable plan or program to the contrary: (A) with respect to any outstanding stock options not yet expired as of the date of termination of the Employment Period, Executive shall be treated as though he remained in the employ of the Company for the two year period following such date, and except to the extent that any such options first expire during such period under the applicable plan or program, (I) any such options that would have become vested over such two year period solely by reason of Executive remaining in the employ of the Company during such period shall become immediately vested and nonforfeitable, (II) with respect to any options that by their terms would vest if the stock of the Company or an affiliate were to reach a specified market price, such options shall become vested and nonforfeitable if and when such stock reaches such price during such two year period, and (III) Executive shall have an additional two years to exercise any vested options (beyond the time to exercise such options permitted under the applicable plan or program), and (B) with respect to any restricted stock subject to restrictions that have not yet lapsed as of the date of termination of the Employment Period, such restrictions shall be deemed to have lapsed and such restricted stock shall become immediately vested and nonforfeitable as of such date. "PRO-RATA TARGET BONUS" means an amount equal to the product of: (i) an amount equal to the Target Bonus Executive would have been entitled to receive under Section 3(b) for the calendar year in which the Employment Period terminates, and (ii) a fraction (the "Service Fraction"), the numerator - 8 - of which is equal to the number of rounded months in such calendar year which have elapsed as of the date of such termination, and the denominator of which is 12; provided that, if the Employment ------------- Period terminates in the last quarter of any calendar year, the Pro-Rata Target Bonus shall be the amount determined under the above formula or, if greater, the product of: (A) the bonus that would have been paid to Executive based on actual performance for such calendar year, and (B) the Service Fraction. "SEVERANCE PAYMENT" means an amount equal to two times the sum of: (i) Executive's Base Salary at the rate in effect as of the date of termination of the Employment Period, and (ii) Executive's Target Bonus amount under Section 3(b) hereof for the calendar year in which the Employment Period terminates. "TERMINATION DUE TO DEATH" means a termination of Executive's employment due to the death of Executive. "TERMINATION DUE TO DISABILITY" means (i) a termination of Executive's employment by the Company as a result of a determination by the Board or the appropriate committee thereof that Executive has been incapable of substantially fulfilling the positions, duties, responsibilities and obligations set forth in this Agreement on account of physical, mental or emotional incapacity resulting from injury, sickness or disease for a period of (A) at least four consecutive months, or (B) more than six months in any twelve month period, or (ii) Executive's termination of employment on account of Disability as defined in The Hartford Investment and Savings Plan, as may be amended from time to time. "TERMINATION DUE TO RETIREMENT" means Executive's termination of employment on account of Executive's Retirement as defined in The Hartford Investment and Savings Plan, as may be amended from time to time. "TERMINATION FOR CAUSE" means a termination of Executive's employment by the Company for any of the following reasons: (i) Executive is convicted of or enters a plea of guilty or nolo ---- contendere to a felony, a crime of moral turpitude, dishonesty, ---------- breach of trust or unethical business conduct, or any crime involving the business of the Company or its affiliates; (ii) in the performance of his duties hereunder or otherwise to the detriment of the Company or its affiliates, Executive engages in (A) willful misconduct, (B) willful or gross neglect, (C) fraud, (D) misappropriation, (E) embezzlement, or (F) theft; (iii) Executive willfully fails to adhere to the - 9 - policies and practices of the Company or devote substantially all of his business time and effort to the affairs thereof, or disobeys the directions of the Board to do either of the foregoing; (iv) Executive breaches this Agreement in any material respect; (v) Executive is adjudicated in any civil suit to have committeed, or acknowledges in writing or in any agreement or stipulation his commission, of any theft, embezzlement, fraud or other intentional act of dishonesty involving any other person; or (vi) Executive violates the Code of Conduct of the Company. "TERMINATION WITHOUT CAUSE" means any involuntary termination of Executive's employment by the Company other than a Termination For Cause, a Termination Due to Disability or a Termination Due to Death. "VESTED BENEFITS" means amounts that are vested or that Executive is otherwise entitled to receive, without the performance by Executive of further services or the resolution of a contingency, under the terms of or in accordance with any investment and savings plan or retirement plan of the Company or its affiliates, and any ERPs or ESPs related thereto, and any deferred compensation or employee stock purchase plan or similar plan or program of the Company or its affiliates. "VESTED BENEFITS ENHANCEMENT" means (i) a cash amount equal to the present value, calculated using a discount rate equal to the then prevailing applicable Federal rate as determined under Section 1274(d) of the Internal Revenue Code of 1986, as amended (the "Code"), of the additional retirement benefits that would have been payable or available to Executive under any ERPs, based on (A) the age and service Executive would have attained or completed had Executive continued in the Company's employ until the second anniversary of the date of termination of the Employment Period, and (B) where compensation is a relevant factor, his pensionable compensation as of such date, such compensation to include, on the same terms as apply to other executives, any Severance Payment made to Executive, and (ii) solely for purposes vesting in any benefits under any ESPs, Executive shall be treated as having continued in the Company's employ until the second anniversary of the date of termination of the Employment Period. "VOLUNTARY TERMINATION" means any voluntary termination of Executive's Employment by Executive pursuant to this Section 5, other than a Termination Due to Retirement or a Termination Due to Disability by Executive. - 10 - "WELFARE BENEFITS CONTINUATION" means that until the second anniversary of the date of termination of the Employment Period, Executive and, if applicable, his dependents shall be entitled to continue participation in the life and health insurance benefit plans of the Company or its affiliates in which Executive and/or such dependents were participating as of the date of termination of the Employment Period, and such other welfare benefit plans thereof in which the Company is required by law to permit the participation of Executive and/or his dependents, (collectively, the "Welfare Benefit Plans"). Such participation shall be on the same terms and conditions (including the requirement that Executive pay any premiums generally paid by an employee) as would apply if Executive were still in the employ of the Company; provided that the continued participation of Executive and/or his ------------- dependents in such Welfare Benefit Plans shall cease on such earlier date as Executive may become eligible for comparable welfare benefits provided by a subsequent employer. To the extent that Welfare Benefits Continuation cannot be provided under the terms of the applicable plan, policy or program, the Company shall provide a comparable benefit under another plan or from the Company's general assets. 6. TERMINATION FOLLOWING A CHANGE OF CONTROL OR POTENTIAL CHANGE OF CONTROL. ------------------------------------------------------------------------ This Section 6 shall apply (instead of Section 5) during the period commencing upon a Change of Control and continuing until the third anniversary thereof; provided that, in the event that Executive's employment is terminated by the - - -------------- Company in a Termination Without Cause after the occurrence of a Potential Change of Control and a Change of Control occurs within one year following the date of such termination, then solely for purposes of this Agreement, Executive shall be deemed to have remained in the Company's employ until the occurrence of the Change of Control and thereafter to have then been terminated by the Company in a Termination Without Cause. As a result, Executive shall be entitled to receive the excess of (i) the benefits payable in the event of a Termination Without Cause under this Section 6, over (ii) the amount of any benefits payable to Executive under Section 5. (A) EARLY TERMINATION OF THE EMPLOYMENT PERIOD. Notwithstanding Section -------------------------------------------- 1(b) hereof, the Employment Period shall end upon the earliest to occur of (i) a Termination For Cause, (ii) a Termination Without Cause, (iii) a Voluntary Termination Within 180 Days, (iv) a Voluntary Termination After 180 Days, (v) a Termination For Good Reason, (vi) a Termination Due to Retirement, (vii) a Termination Due to Disability, or (viii) a Termination Due to Death. - 11 - (B) NOTICE OF TERMINATION. Communication of termination under this Section --------------------- 6 shall be made to the other party by Notice of Termination in the case of (i) a Termination For Cause, (ii) a Termination Without Cause, (iii) a Voluntary Termination Within 180 Days, (iv) a Voluntary Termination After 180 Days, or (v) a Termination For Good Reason. (C) BENEFITS PAYABLE UPON TERMINATION; RULES FOR DETERMINING REASON FOR ----------------------------------------------------------------------- TERMINATION. ----------- (I) BENEFITS PAYABLE UPON TERMINATION. Following the end of the ----------------------------------- Employment Period, Executive (or, in the event of his death, his surviving spouse, if any, or if none, his estate) shall be paid the type or types of compensation determined to be payable in accordance with the following table, such payment to be made in the form specified in such table and at the time established pursuant to Section 7 hereof. Capitalized terms used in such table (and otherwise in this Section 6) that are defined in Section 5, and not specifically defined in Section 6(d) hereof, shall have the meanings ascribed thereto under Section 5. Where such a capitalized term is defined solely in Section 6(d), or in both Section 5 and Section 6(d), such term shall have the meaning ascribed to it in Section 6(d). (II) RULES FOR DETERMINING REASON FOR TERMINATION. -------------------------------------------- (A) No Termination Without Cause, Voluntary Termination Within 180 Days or Termination For Good Reason shall be treated as a Termination Due to Retirement or a Termination Due to Disability for purposes of any Pro Rata Target Bonus, Severance Payment, Equity Awards or Vested Benefits Enhancement under this Section 6, notwithstanding the fact that, either on, before or after the Date of Termination with respect thereto, (I) Executive was eligible for Retirement as defined in the Savings Plan, (II) Executive requested to be treated as a retiree for purposes of the Savings Plan or any other plan or program of the Company or its affiliates, or (III) Executive or the Company could have terminated Executive's employment in a Termination Due to Disability hereunder. (B) No Termination Due to Retirement shall be treated as a Voluntary Termination After 180 Days for purposes of this Section 6, notwithstanding the fact that the Date of Termination for such Termination Due to Retirement may occur within 180 days following a Change of Control. - 12 -
BENEFITS PAYABLE: CHANGE OF CONTROL BENEFIT Accrued Pro Rata Target Severance Equity Awards Salary Bonus Payment ======================== ============== ===================== =============== ========================= FORM OF Lump Sum Lump Sum Lump Sum Determined Under the PAYMENT Applicable Plan ======================== ============== ===================== =============== ========================= Termination For Payable Not Payable Not Payable Determined Under the Cause Applicable Plan Termination Payable Payable Payable Determined Under the Without Cause Applicable Plan Voluntary Payable Payable Payable Determined Under the Termination Within Applicable Plan 180 Days Voluntary Payable Not Payable Not Payable Determined Under the Termination Applicable Plan After 180 Days Termination For Payable Payable Payable Determined Under the Good Reason Applicable Plan Termination Due to Payable Determined Under the Not Payable Determined Under the Retirement Applicable Plan Applicable Plan Termination Due to Payable Payable Not Payable Determined Under the Disability Applicable Plan Termination Due to Payable Payable Not Payable Determined Under the Death Applicable Plan - - ------------------------ -------------- --------------------- --------------- -------------------------
BENEFITS PAYABLE: CHANGE OF CONTROL (Continued) BENEFIT Vested Benefits Vested Benefits Welfare Enhancement Benefits Continuation ======================== ========================= ============================= ================================ FORM OF Determined Under the Lump Sum Determined Under the PAYMENT Applicable Plan Applicable Plan ======================== ========================= ============================= ================================ Termination For Determined Under the Not Payable Not Available Cause Applicable Plan Termination Determined Under the Payable Available Without Cause Applicable Plan Voluntary Determined Under the Payable Available Termination Within Applicable Plan 180 Days Voluntary Determined Under the Not Payable Not Available Termination Applicable Plan After 180 Days Termination For Determined Under the Payable Available Good Reason Applicable Plan Termination Due to Determined Under the Not Payable Available Retirement Applicable Plan Termination Due to Determined Under the Not Payable Available Disability Applicable Plan Termination Due to Determined Under the Not Payable Not Available Death Applicable Plan - - ------------------------ ------------------------- ----------------------------- --------------------------------
- 13 - (D) DEFINITIONS. ----------- "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 Securities and Exchange Act of 1934, as amended (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, arrngement 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 Exchange 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 Exchange 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 Exchange 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. "CHANGE OF CONTROL" means: (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 (within the meaning of Section 13(d) of the Act), other than the Company or a subsidiary of 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; (II) any person (within the meaning of Section 13(d) of the 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 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 (calculated as provided in paragraph (d) of Rule 13d-3 under the Act in the case of rights to acquire stock); - 14 - (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 would be converted into cash, securities or other property, other than a merger of the Company in which holders of stock of the Company immediately prior to the merger have the same proportionate ownership of common stock of the surviving corporation immediately after the 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). "DATE OF TERMINATION" means (i) in the case of a termination of the Employment Period for which a Notice of Termination is required, the date of receipt of such Notice of Termination or, if later, the date specified therein, as the case may be, or (ii) in all other cases, the actual date on which Executive's employment terminates during the Employment Period. "NOT PAYABLE" means that a particular benefit shall not be paid or otherwise provided to Executive. "NOTICE OF TERMINATION" means (i) in the case of a Termination For Cause, a written notice given by the Company to Executive, within 30 calendar days of the Company's having actual knowledge of the events giving rise to such termination, (ii) in the case of a Termination Without Cause, a written notice given by the Company to Executive at least 30 calendar days before the effective date of such Termination Without Cause, (iii) in the case of a Voluntary Termination Within 180 Days or a Voluntary Termination After 180 Days, a written notice given by Executive to the Company at least 30 calendar days before the effective date of such termination, and (iv) in the case of a Termination For Good Reason, a written notice given by Executive to the Company within 180 days of Executive's having - 15 - actual knowledge of the events giving rise to such Termination For Good Reason, and which (A) indicates the specific termination provision in this Agreement relied upon, (B) sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated, and (C) if the termination date is other than the date of receipt of such notice, specifies the termination date of this Agreement (which date shall be not more than 15 days after the giving of such notice). The failure by Executive to set forth in such Notice of Termination any fact or circumstance that contributes to a showing of Good Reason shall not waive any right of Executive hereunder or preclude Executive from asserting such fact or circumstance in enforcing his rights hereunder. "PAYABLE" means that a particular benefit shall be paid to Executive in the amount, at the time, and in the form specified herein. "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. "POTENTIAL CHANGE OF CONTROL" means: (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 voting securities of the Company; (II) the Company shall enter into an agreement the consummation of which shall constitute a Change of Control; (III) proxies for the election of directors of the Company shall be solicited by anyone other than the Company; or (IV) any other event shall occur which is deemed to be a Potential Change of Control by the Board or the appropriate Committee thereof. "SEVERANCE PAYMENT" means a cash amount equal to three times the sum of (i) Executive's Base Salary at the rate in effect as of the Date of Termination, and (ii) Executive's Target Bonus for such year. - 16 - "TERMINATION FOR CAUSE" means the Company's termination of Executive's employment due to (i) Executive's conviction of a felony; (ii) an act or acts of extreme dishonesty or gross misconduct on Executive's part which result or are intended to result in material damage to the Company's business or reputation; or (iii) repeated material violations by Executive of his obligations under Section 2 of this Agreement, which violations are demonstrably willful and deliberate on Executive's part and which result in material damage to the Company's business or reputation. "TERMINATION FOR GOOD REASON" means the occurrence of any of the following after the occurrence of a Potential Change of Control or a Change of Control: (I) (A) the assignment to Executive of any duties inconsistent in any material adverse respect with Executive's position, duties, authority or responsibilities as contemplated by Section 2 of this Agreement, or (B) any other material adverse change in such position, including titles, authority or responsibilities; (II) any failure by the Company to comply with any of the provisions of Sections 3 and 4 of this Agreement at a level of least equal to that in effect immediately preceding the Change of Control or a Potential Change of Control, other than an insubstantial or inadvertent failure remedied by the Company promptly after receipt of notice thereof given by Executive; (III) the Company's requiring Executive to be based at any office or location more than 25 miles from the location at which he performed his services specified under Section 2 hereof immediately prior to the Change of Control or a Potential Change of Control, except for travel reasonably required in the performance of Executive's responsibilities; (IV) any failure by the Company to obtain the assumption and agreement to perform this Agreement by a successor as contemplated by Section 10(d) hereof; or (V) any attempt by the Company to terminate the Executive's employment in a Termination For Cause that is determined in a proceeding pursuant to Section 9 or Section 10 hereof not to constitute a Termination For Cause. Notwithstanding the foregoing, a termination of Executive's employment shall not be treated as a Termination For Good Reason (I) if Executive shall have consented in writing to the occurrence of the event giving rise to the claim of Termination For Good Reason, or (II) if Executive shall have delivered a Notice of Termination - 17 - to the Company, and the facts and circumstances specified therein as providing a basis for such Termination For Good Reason are cured by the Company within 10 days of its receipt of such Notice of Termination. "VESTED BENEFITS ENHANCEMENT" means (i) a cash amount equal to the present value, calculated using a discount rate equal to the then prevailing applicable Federal rate as determined under Section 1274(d) of the Internal Revenue Code of 1986, as amended (the "Code"), of the additional retirement benefits that would have been payable or available to Executive under any ERPs, based on (A) the age and service Executive would have attained or completed had Executive continued in the Company's employ until the third anniversary of the occurrence of the Change of Control, and (B) where compensation is a relevant factor, his pensionable compensation as of the Date of Termination, such compensation to include, on the same terms as apply to other executives, any Severance Payment made to Executive, and (ii) solely for purposes of vesting in any benefits under any ESPs, Executive shall be treated as having continued in the Company's employ until the third anniversary of the occurrence of such Change of Control. "VOLUNTARY TERMINATION WITHIN 180 DAYS" means a termination of employment by Executive for any reason within the first 180 days following a Change of Control, and "VOLUNTARY TERMINATION AFTER 180 DAYS" means a termination of employment by Executive other than a Termination For Good Reason, a Termination Due to Disability by Executive, or a Termination Due to Death within the remaining 2 years and 6 months following a Change of Control. "WELFARE BENEFITS CONTINUATION" shall have the same meaning as that described in Section 5 hereof, except that the entitlement of Executive and/or his dependents to participation in the Welfare Benefit Plans shall continue until the third anniversary of the Date of Termination. (D) OUT-PLACEMENT SERVICES. If the Employment Period terminates because of a ----------------------- Termination Without Cause or a Termination For Good Reason, Executive shall be entitled to out-placement services, provided by the Company or its designee at the Company's expense, for 12 months following the Date of Termination, or such lesser period as the Executive may require such services. (E) CERTAIN FURTHER PAYMENTS BY COMPANY. ----------------------------------- (I) TAX REIMBURSEMENT PAYMENT. In the event that any amount or benefit paid ------------------------- or distributed to Executive pursuant to this Agreement, taken together with any amounts or benefits otherwise paid or distributed to Executive by the Company or any affiliate (collectively, the "Covered Payments"), are or become subject to the - 18 - tax (the "Excise Tax") imposed under Section 4999 of the Internal Revenue Code of 1986, as amended, or any similar tax that may hereafter be imposed, the Company shall pay to the Executive at the time specified in this Section an additional amount (the "Tax Reimbursement Payment") such that the net amount retained by the Executive with respect to such Covered Payments, after deduction of any Excise Tax on the Covered Payments and any Federal, state and local income tax and other tax on the Tax Reimbursement Payment provided for by this Section, but before deduction for any Federal, state or local income or employment tax withholding on such Covered Payments, shall be equal to the amount of the Covered Payments. (II) APPLICABLE RULES. For purposes of determining whether any of the ----------------- Covered Payments will be subject to the Excise Tax and the amount of such Excise Tax, (A) such Covered Payments will be treated as "parachute payments" within the meaning of Section 280G of the Code, and all "parachute payments" in excess of the "base amount" (as defined under Section 280G(b)(3) of the Code) shall be treated as subject to the Excise Tax, unless, and except to the extent that, in the good faith judgment of the Company's independent certi fied public accountants appointed prior to the Effective Date or tax counsel selected by such accountants (the "Accountants"), the Company has a reasonable basis to conclude that such Covered Payments (in whole or in part) either do not constitute "parachute payments" or represent reasonable compensation for personal services actually rendered (within the meaning of Section 280G(b)(4)(B) of the Code) in excess of the "base amount," or such "parachute payments" are otherwise not subject to such Excise Tax, and (B) the value of any non-cash benefits or any deferred payment or benefit shall be determined by the Accountants in accordance with the principles of Section 280G of the Code. (III) ADDITIONAL RULES. For purposes of determining the amount of the Tax ----------------- Reimbursement Payment, the Executive shall be deemed to pay: (A) Federal income taxes at the highest applicable marginal rate of Federal income taxation for the calendar year in which the Tax Reimbursement Payment is to be made, and (B) any applicable state and local income and other taxes at the highest applicable marginal rate of taxation for the calendar year in which the Tax Reimbursement Payment is to be made, net of the maximum reduction in Federal incomes taxes which could be obtained from the deduction of such state or local taxes if paid in such year. - 19 - (IV) REPAYMENT OR ADDITIONAL PAYMENT IN CERTAIN CIRCUMSTANCES. -------------------------------------------------------- (A) REPAYMENT. In the event that the Excise Tax is subsequently --------- determined by the Accountants or pursuant to any proceeding or negotiations with the Internal Revenue Service to be less than the amount taken into account hereunder in calculating the Tax Reimbursement Payment made, Executive shall repay to the Company, at the time that the amount of such reduction in the Excise Tax is finally determined, the portion of such prior Tax Reimbursement Payment that would not have been paid if such lesser Excise Tax had been applied in initially calculating such Tax Reimbursement Payment, plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. Notwithstanding the foregoing, in the event any portion of the Tax Reimbursement Payment to be repaid to the Company has been paid to any Federal, state or local tax authority, repayment thereof shall not be required until actual refund or credit of such portion has been made to Executive by the applicable tax authority, and interest payable to the Company shall not exceed interest received or credited to the Executive by such tax authority for the period it held such portion. Executive and the Company shall mutually agree upon the course of action to be pursued (and the method of allocating the expenses thereof) if Executive's good faith claim for refund or credit is denied. (B) ADDITIONAL TAX REIMBURSEMENT PAYMENT. In the event that the -------------------------------------- Excise Tax is later determined by the Accountants or pursuant to any proceeding or negotiations with the Internal Revenue Service to exceed the amount taken into account hereunder at the time the Tax Reimbursement Payment is made (including, but not limited to, by reason of any payment the existence or amount of which cannot be determined at the time of the Tax Reimbursement Payment), the Company shall make an additional Tax Reimbursement Payment in respect of such excess (plus any interest or penalty payable with respect to such excess) at the time that the amount of such excess is finally determined. (V) TIMING FOR TAX REIMBURSEMENT PAYMENT. The Tax Reimbursement Payment (or ------------------------------------ portion thereof) provided for in this Section 6 shall be paid to Executive not later than 10 business days following the payment of the Covered Payments; provided, however, that if the amount of such Tax Reimbursement Payment (or portion thereof) cannot be finally determined on or before the date on which payment is due, the Company shall pay to Executive by such date an amount estimated in good faith by the Accountants to be the minimum amount of such Tax Reimbursement Payment and shall pay the remainder of such Tax Reimbursement - 20 - Payment (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined, but in no event later than 45 calendar days after payment of the related Covered Payment. In the event that the amount of the estimated Tax Reimbursement Payment exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Company to Executive, payable on the fifth business day after written demand by the Company for payment (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code). 7. TIMING OF PAYMENTS. ------------------ Accrued Salary, Severance Payments and Vested Benefits Enhancements shall be paid no later than 10 days following the termination of the Employment Period. Pro-Rata Target Bonus shall be paid no later than the same time as similar awards are paid to other executives participating in the plans or programs under which the awards are paid. Vested Benefits and Equity Awards shall be no later than the time for payment Determined Under the Applicable Plan except as otherwise expressly superseded or modified by this Agreement. Tax Reimbursement Payments shall be paid at the time specified in Section 6 hereof. Notwithstanding the foregoing, solely for purposes of amounts payable pursuant to Section 5 hereof, if any amount payable to Executive pursuant to Section 5 would be nondeductible by the Company under Section 162(m) of the Code if paid in the year of Executive's termination, the Company shall have the option of paying such nondeductible amount, with interest at the one-year treasury bill rate as in effect on the date of such termination as reported in the Wall Street Journal, on the first day of the second calendar quarter in the year following such termination. 8. FULL DISCHARGE OF COMPANY OBLIGATIONS. ------------------------------------- Except as expressly provided in the last sentence of this Section 8, the amounts payable to Executive pursuant to either Section 5 or Section 6 following termination of his employment (including amounts payable with respect to Vested Benefits) shall be in full and complete satisfaction of Executive's rights under this Agreement and any other claims he may have in respect of his employment by the Company or any of its affiliates. Such amounts shall constitute liquidated damages with respect to any and all such rights and claims and, upon Executive's receipt of such amounts, the Company shall be released and discharged from any and all liability to Executive in connection with this Agreement or otherwise in connection with Executive's employment with the Company and its affiliates. Nothing in this Section 8 shall be construed to release the Company from its obligation to indemnify Executive as provided in Section 4(e) hereof. - 21 - 9. NONCOMPETITION, CONFIDENTIALITY AND OTHER COVENANTS. --------------------------------------------------- By and in consideration of the compensation and benefits to be provided by the Company hereunder, including the severance arrangements set forth herein, Executive agrees to the following: (A) NONCOMPETITION. During the Employment Period and during the one year -------------- period (the "Restriction Period") following any Voluntary Termination of the Employment Period by Executive pursuant to Section 5 hereof, Executive shall not become associated with any entity, whether as a principal, partner, employee, agent, consultant, shareholder (other than as a holder, or a member of a group which is a holder, of not in excess of 1% of the outstanding voting shares of any publicly traded company) or in any other relationship or capacity, paid or unpaid, that is actively engaged in any geographic area in any business which is in competition with the business of the Company. (B) CONFIDENTIALITY. Without the prior written consent of the Company, --------------- except to the extent required by an order of a court having competent jurisdiction or under subpoena from an appropriate government agency, Executive shall not disclose to any third person, or permit the use of for the benefit of any person or any entity other than The Company or its affiliates, any trade secrets, customer lists, information regarding product development, marketing plans, sales plans, management organization information (including data and other information relating to members of the Board and management), operating policies or manuals, business plans, financial records, or other financial, organizational, commercial, business, sales, marketing, technical, product or employee information relating to the Company or its affiliates or information designated as confidential, proprietary, and/or a trade secret, or any other information relating to the Company or its affiliates that Executive knows from the circumstances, in good faith and good conscience, should be treated as confidential, or any information that the Company or its affiliates may receive belonging to customers, agents or others who do business with the Company or its affiliates, except to the extent that any such information previously has been disclosed to the public by the Company or is in the public domain (other than by reason of Executive's violation of this Section 9(b)). (C) NON-SOLICITATION OF EMPLOYEES. During the Employment Period and the two ----------------------------- year period following any termination of the Employment Period pursuant to Section 5 hereof, Executive shall not directly or indirectly solicit, encourage or induce any employee of the Company or its affiliates to terminate employment with - 22 - such entity, and shall not directly or indirectly, either individually or as owner, agent, employee, consultant or otherwise, employ or offer employment to any person who is or was employed by the Company or an affiliate thereof unless such person shall have ceased to be employed by such entity for a period of at least six months. (D) COMPANY PROPERTY. Except as expressly provided herein, promptly ----------------- following any termination of the Employment Period, Executive shall return to the Company all property of the Company, and all copies thereof in Executive's possession or under his control. (E) INJUNCTIVE RELIEF AND OTHER REMEDIES WITH RESPECT TO COVENANTS. --------------------------------------------------------------------- Executive acknowledges and agrees that the covenants and obligations of Executive with respect to noncompetition, confidentiality, nonsolicitation, and Company property relate to special, unique and extraordinary matters and that a violation of any of the terms of such covenants and obligations will cause the Company irreparable injury for which adequate remedies are not available at law. Therefore, Executive agrees that the Company (i) shall be entitled to an injunction, restraining order or such other equitable relief (without the requirement to post bond) restraining Executive from committing any violation of the covenants and obligations contained in this Section 9, and (ii) shall have no further obligation to make any payments to Executive hereunder following any material violation of the covenants and obligations contained in this Section 9. These remedies are cumulative and are in addition to any other rights and remedies the Company may have at law or in equity. In connection with the foregoing provisions of this Section 9, Executive represents that his economic means and circumstances are such that such provisions will not prevent him from providing for himself and his family on a basis satisfactory to him. Notwithstanding the foregoing, in no event shall an asserted violation of the provisions of this Section constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement following a Change of Control. 10. MISCELLANEOUS. ------------- (A) SURVIVAL. All of the provisions of Sections 5 (relating to termination -------- of the Employment Period prior to a Change of Control), 6 (relating to termination of the Employment Period following a Change of Control or a Potential Change of Control), 9 (relating to noncompetition, confidentiality, nonsolicitation and Company property), 10(b) (relating to arbitration), 10(c) (relating to legal fees) and 10(n) (relating to governing law) of this Agreement shall survive the termination of this Agreement. - 23 - (B) ARBITRATION. Except as provided in Section 9, any dispute or ----------- controversy arising under or in connection with this Agreement shall be resolved by binding arbitration. Such arbitration shall be held in the city of Hartford, Connecticut and except to the extent inconsistent with this Agreement, shall be conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association in effect at the time of the arbitration, and otherwise in accordance with the principles that would be applied by a court of law or equity. The arbitrator shall be acceptable to both the Company and Executive. If the parties cannot agree on an acceptable arbitrator, the dispute or controversey shall be heard by a panel of three arbitrators; one appointed by each of the parties and the third appointed by the other two arbitrators. The Company and Executive further agree that they will abide by and perform any award or awards rendered by the arbitrators and that a judgment may be entered on any award or awards rendered by any state or federal court having jurisdiction over the Company or Executive or any of their respective property. (C) LEGAL FEES AND EXPENSES. In any contest (whether initiated by Executive ----------------------- or by the Company) as to the validity, enforceability or interpretation of any provision of this Agreement, the Company shall pay Executive's legal expenses (or cause such expenses to be paid) including, without limitation, his reasonable attorney's fees, on a quarterly basis, upon presentation of proof of such expenses in a form acceptable to the Company, provided that ------------- Executive shall reimburse the Company for such amounts, plus simple interest thereon at the 90-day United States Treasury Bill rate as in effect from time to time, compounded annually, if Executive shall not prevail, in whole or in part, as to any material issue as to the validity, en forceability or interpretation of any provision of this Agreement. (D) SUCCESSORS; BINDING EFFECT. This Agreement shall inure to the benefit --------------------------- of and be binding upon the Company and its successors. The Company shall require any successor to all or substantially all of the business and/or assets of the Company, whether direct or indirect, by purchase, merger, consolidation, acquisition of stock, or otherwise, by an agreement in form and substance satisfactory to Executive, expressly to assume and agree to perform this Agreement in the same manner and to the same extent as the Company would be required to perform the Agreement if no such succession had taken place. This Agreement is personal to the Executive and, without the prior written consent of the Company, shall not be assignable by Executive otherwise than by will or the law of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by Executive's legal representatives. (E) ASSIGNMENT. Except as provided in Section 10(d), neither this Agreement ---------- nor any of the rights or obligations hereunder shall be assigned or delegated by any party hereto without the prior written consent of the other party. - 24 - (F) ENTIRE AGREEMENT. This Agreement constitutes the entire agreement ----------------- between the parties hereto with respect to the matters referred to herein. This Agreement supersedes and replaces any prior employment or severance agreement or arrangement between the Company and Executive. No other agreement relating to the terms of Executive's employment by the Company, oral or otherwise, shall be binding between the parties unless it is in writing and signed by the party against whom enforcement is sought. There are no promises, representations, inducements or statements between the parties other than those that are expressly contained herein. Executive acknowledges that he is entering into this Agreement of his own free will and accord, and with no duress, and that he has read this Agreement and that he understands it and its legal consequences. (G) SEVERABILITY; REFORMATION. In the event that one or more of the -------------------------- provisions of this Agreement shall become invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not be affected thereby. In the event of a determination that any of the provisions of Section 9(a), Section 9(b) or Section 9(c) are not enforceable in accordance with their terms, Executive and the Company agree that such Section shall be reformed to make such Section enforceable in a manner that provides the Company the maximum rights permitted at law. (H) WAIVER. Waiver by any party hereto of any breach or default by the ------ other party of any of the terms of this Agreement shall not operate as a waiver of any other breach or default, whether similar to or different from the breach or default waived. No waiver of any provision of this Agreement shall be implied from any course of dealing between the parties hereto or from any failure by either party hereto to assert its or his rights hereunder on any occasion or series of occasions. (I) NOTICES. Any notice required or desired to be delivered under this ------- Agreement shall be in writing and shall be delivered personally, by courier service, by registered mail, return receipt requested, or by telecopy and shall be effective upon actual receipt by the party to which such notice shall be directed, and shall be addressed as follows (or to such other address as the party entitled to notice shall hereafter designate in accordance with the terms hereof): - 25 - If to the Company: The Hartford Financial Services Group, Inc. Law Department, HO-1-09 Hartford Plaza Hartford, CT 06115 Attention: Corporate Secretary with a copy to: Debevoise & Plimpton 875 Third Avenue New York, NY 10022 Attn: Lawrence K. Cagney, Esq. If to Executive: The home address of Executive shown on the records of the Company (J) AMENDMENTS. This Agreement may not be altered, modified or amended ---------- except by a written instrument signed by each of the parties hereto. (K) HEADINGS. Headings to provisions of this Agreement are for the -------- convenience of the parties only and are not intended to be part of or to affect the meaning or interpretation hereof. (L) COUNTERPARTS. This Agreement may be executed in counterparts, each of ------------ which shall be deemed an original but all of which together shall constitute one and the same instrument. (M) WITHHOLDING. Any payments provided for herein shall be reduced by any ----------- amounts required to be withheld by the Company from time to time under applicable Federal, State or local income or employment tax laws or similar statutes or other provisions of law then in effect. - 26 - (N) GOVERNING LAW. This Agreement shall be governed by the laws of the -------------- State of Connecticut, without reference to principles of conflicts or choice of law under which the law of any other jurisdiction would apply. IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its duly authorized officer, and Executive has hereunto set his hand, as of the day and year first above written. THE HARTFORD FINANCIAL SERVICES GROUP, INC. WITNESSED: /s/ Ramani Ayer ---------------------------- By: Ramani Ayer Title: Chairman - - ---------------------------- EXECUTIVE: WITNESSED: /s/ David K. Zwiener ---------------------------- David K. Zwiener - - ---------------------------- - 27 - EX-27 5 ARTICLE 7 FDS FOR THE HARTFORD 3RD QUARTER 10-Q
7 1,000,000 9-MOS DEC-31-1997 SEP-30-1997 34,576 0 0 1,908 2 35 40,693 178 11,041 4,001 126,831 23,429 2,941 21,272 65,038 1,759 1 1,000 0 5,807 126,831 7,405 1,909 252 0 5,815 1,394 1,170 1,362 264 1,077 0 0 0 1,077 9.13 9.13 0 0 0 0 0 0 0 REPRESENTS COMPANY OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF SUBSIDIARY TRUSTS HOLDING SOLELY PARENT JUNIOR SUBORDINATED DEBENTURES. AMOUNTS FOR SECURITIES ACT INDUSTRY GUIDE 6 AND EXCHANGE ACT INDUSTRY GUIDE 4 DISCLOSURES ARE REQUIRED FOR ANNUAL FILINGS ONLY. ACCORDINGLY, NO AMOUNTS WILL BE REPORTED FOR INTERIM FILINGS.
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