SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [X]
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Check the appropriate box:
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
[ ] Confidential, for the Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
DELPHI FINANCIAL GROUP, INC.
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement)
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[DELPHI FINANCIAL LOGO]
April 12, 2004
Dear Stockholder,
It is a pleasure to invite you to Delphi Financial Group, Inc.'s 2004 Annual
Meeting of Stockholders, to be held on May 5, 2004 at the University Club, One
West 54th Street, New York, New York, commencing at 10:00 a.m., Eastern Daylight
Time. We hope that you will be able to attend and review the year with us.
Whether or not you plan to attend the meeting, please exercise your right to
vote as an owner of Delphi Financial Group, Inc. We ask that you review the
proxy materials and then mark your votes on the enclosed proxy card and return
it in the envelope provided as soon as possible.
At the meeting the stockholders will be electing directors and voting on the
adoption of an amendment to the 2003 Employee Long-Term Incentive and Share
Award Plan and the adoption of an Annual Incentive Compensation Plan, and
considering a shareholder proposal regarding investments in tobacco equities,
each as described in the enclosed formal Notice of Annual Meeting of
Stockholders and Proxy Statement. We will also report on the progress of Delphi
Financial Group, Inc. and respond to questions posed by stockholders.
We look forward to seeing you at the Annual Meeting.
Sincerely,
/s/ ROBERT ROSENKRANZ
Robert Rosenkranz
Chairman of the Board
DELPHI FINANCIAL GROUP, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 5, 2004
To the Stockholders of Delphi Financial Group, Inc.:
Notice is hereby given that the 2004 Annual Meeting of Stockholders of Delphi
Financial Group, Inc. will be held at the University Club, One West 54th Street,
New York, New York on May 5, 2004, commencing at 10:00 a.m., Eastern Daylight
Time, for the following purposes:
1. To elect nine directors to serve for a term of one year, one of whom
shall be elected by the holders of the Class A Common Stock, voting as
a separate class.
2. To consider and vote upon an amendment to increase the number of
shares available under the 2003 Employee Long-Term Incentive and Share
Award Plan as described herein.
3. To consider and vote upon the Annual Incentive Compensation Plan as
described herein.
4. To consider and vote upon a shareholder proposal regarding investments
in tobacco equities as described herein.
5. To transact such other business as properly comes before the meeting
or any adjournment thereof.
The Board of Directors has fixed the close of business on March 22, 2004 as the
record date for stockholders entitled to notice of and to vote at the meeting or
any adjournment of the meeting. The list of stockholders entitled to vote at the
meeting shall be available at the offices of Delphi Capital Management, Inc.,
153 East 53rd Street, New York, New York, for a period of ten days prior to the
meeting date.
A copy of Delphi Financial Group, Inc.'s 2003 Annual Report, including its
Annual Report on Form 10-K for the fiscal year ended December 31, 2003, is being
mailed to stockholders together with this notice.
Your attendance at this meeting is very much desired. However, whether or not
you plan to attend the meeting, please sign the enclosed Proxy and return it in
the enclosed envelope. If you attend the meeting, you may revoke the Proxy and
vote in person.
By Order of the Board of Directors,
/s/ ROBERT ROSENKRANZ
Robert Rosenkranz
Chairman of the Board
DELPHI FINANCIAL GROUP, INC.
1105 NORTH MARKET STREET, SUITE 1230
WILMINGTON, DE 19899
PROXY STATEMENT
This Proxy Statement is furnished for the solicitation by the Board of Directors
(the "Board of Directors" or the "Board") of Proxies for the Annual Meeting of
Stockholders of Delphi Financial Group, Inc., a Delaware corporation (the
"Company"), scheduled to be held on May 5, 2004 at the University Club, One West
54th Street, New York, New York, commencing at 10:00 a.m., Eastern Daylight
Time. The submission of a signed Proxy will not affect the stockholder's right
to attend the meeting and vote in person. Any person giving a Proxy may revoke
it at any time before it is exercised by the delivery of a later dated signed
Proxy or written revocation sent to the Investor Relations Department of the
Company, 1105 North Market Street, Suite 1230, Wilmington, DE 19899 or by
attending the Annual Meeting and voting in person.
Management of the Company is not aware of any matters other than those set forth
herein that may come before the meeting. If any other business should properly
come before the meeting, the persons named in the enclosed Proxy will have
discretionary authority to vote the shares represented by the effective Proxies
and intend to vote them in accordance with their best judgment in the interests
of the Company.
The Company's 2003 Annual Report, including its Annual Report on Form 10-K for
the fiscal year ended December 31, 2003, is being mailed together with this
Proxy Statement to each stockholder of record as of the close of business on
March 22, 2004.
MAILING AND VOTING OF PROXIES
This Proxy Statement and the enclosed Proxy were first mailed to stockholders on
or about April 12, 2004. Properly executed Proxies, timely returned, will be
voted and, where the person solicited specifies by means of a ballot a choice
with respect to the election of the nominees chosen by the Board, the shares
will be voted as indicated by the stockholder. Each share of the Company's Class
A Common Stock, par value $.01 per share (the "Class A Common Stock"), entitles
the holder thereof to one vote and each share of the Company's Class B Common
Stock, par value $.01 per share (the "Class B Common Stock" and, together with
the Class A Common Stock, the "Common Stock"), entitles the holder thereof to a
number of votes per share equal to the lesser of (i) the number of votes such
that the aggregate of all outstanding shares of Class B Common Stock will be
entitled to cast 49.9% of all of the votes represented by the aggregate of all
outstanding shares of Class A Common Stock and Class B Common Stock or (ii) 10
votes. Based on the shares of Common Stock outstanding as of March 22, 2004, the
Class B Common Stock will have the number of votes described in clause (i) of
the preceding sentence. Proposals submitted to a vote of stockholders will be
voted on by holders of Class A Common Stock and Class B Common Stock voting
together as a single class, except that holders of Class A Common Stock will
vote as a separate class to elect one director (the "Class A Director"). If the
person solicited does not specify a choice with respect to the election of any
nominee for director, the shares will be voted "for" such nominee. Proxies
marked as abstaining (including Proxies containing broker non-votes) on any
matter to be acted upon by stockholders
will be treated as present at the meeting for purposes of determining a quorum
but will not be counted as votes cast on such matters.
As of March 22, 2004, Mr. Robert Rosenkranz, by means of beneficial ownership of
the corporate general partner of Rosenkranz & Company and direct or beneficial
ownership, had the power to vote all of the outstanding shares of Class B Common
Stock, which as of such date represented 49.9% of the voting power of the Common
Stock. Mr. Rosenkranz has entered into an agreement with the Company not to vote
or cause to be voted certain shares of Common Stock, if and to the extent that
such shares would cause him and Rosenkranz & Company, collectively, to have more
than 49.9% of the combined voting power of the Company's stockholders.
Rosenkranz & Company and Mr. Rosenkranz have informed the Company that they
intend to vote in favor of the election of all nominated directors for which
they are entitled to vote, in favor of the adoption of the amendment to the 2003
Employee Long-Term Incentive and Share Award Plan and the Annual Incentive
Compensation Plan, and against the shareholder proposal regarding investments in
tobacco equities.
SOLICITATION OF PROXIES
The cost of soliciting Proxies will be borne by the Company. It is expected that
the solicitation of Proxies will be primarily by mail. Proxies may also be
solicited by officers and employees of the Company, at no additional cost to the
Company, in person or by telephone, telegram or other means of communication.
Upon written request, the Company will reimburse custodians, nominees and
fiduciaries holding the Company's Common Stock for their reasonable expenses in
sending proxy materials to beneficial owners and obtaining their Proxies.
STOCKHOLDERS ENTITLED TO VOTE AND SHARES OUTSTANDING
Holders of record of Common Stock at the close of business on March 22, 2004
will be eligible to vote at the meeting. The Company's stock transfer books will
not be closed. As of the close of business on March 22, 2004, the Company had
outstanding 27,201,773 shares of Class A Common Stock and 4,177,357 shares of
Class B Common Stock.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of shares of Common Stock by each of the Company's directors and
executive officers, each person known by the Company to own beneficially more
than five percent of the Common Stock and all directors and executive officers
of the Company as a group as of March 22, 2004. The information shown assumes
the exercise by each person (or all directors and officers as a group) of the
stock options owned by such person and the exercise by no other person (or
group) of stock options. Unless otherwise indicated, each beneficial owner
listed below is believed by the Company to own the indicated shares directly and
have sole voting and dispositive power with respect thereto.
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Amount and
Nature of Percent
Name of Beneficial Owner Ownership of Class
------------------------ ------------ ---------
Class B Common Stock:
Five or greater percent owner:
Rosenkranz & Company..................................... 4,117,692(1) 77.4%
Directors, Nominees for Director and Executive Officers:
Robert Rosenkranz......................................... 5,317,534(1) 100.0%
Chad W. Coulter........................................... - -
Lawrence E. Daurelle...................................... - -
Edward A. Fox............................................. - -
Van D. Greenfield......................................... - -
Harold F. Ilg............................................. - -
James N. Meehan........................................... - -
Philip R. O'Connor........................................ - -
Donald A. Sherman......................................... - -
Robert M. Smith, Jr....................................... - -
Directors, Nominees for Director and Officers as a group (11 persons) 5,317,534 100.0%
Class A Common Stock:
Five or greater percent owners............................... - -
Directors, Nominees for Director and Executive Officers:
Harold F. Ilg............................................. 445,163(2) 1.6%
Robert Rosenkranz......................................... 419,460(1) 1.5%
Robert M. Smith, Jr....................................... 272,835(3) 1.0%
Lawrence E. Daurelle...................................... 100,394(4) *
Chad W. Coulter........................................... 82,024(5) *
Edward A. Fox............................................. 79,302(6) *
Donald A. Sherman......................................... 10,270(7) *
Philip R. O'Connor........................................ 4,824(8) *
James N. Meehan........................................... 3,834(2) *
Van D. Greenfield......................................... 1,090(2) *
Directors, Nominees for Director and Officers as a group (11 persons) 1,435,826(9) 5.1%
* Amount is less than 1% of Class.
(1) Mr. Rosenkranz, as the beneficial owner of the corporate general partner of
Rosenkranz & Company, has the power to vote the shares of Class B Common
Stock held by Rosenkranz & Company. Accordingly, Mr. Rosenkranz may be
deemed to be the beneficial owner of all of the shares of the Company held
by Rosenkranz & Company. In addition, Mr. Rosenkranz has direct or
beneficial ownership of 59,665 additional shares of Class B Common Stock
and direct or beneficial ownership of 98,032 shares of Class A Common
Stock. The remaining indicated shares of Class A Common Stock and Class B
Common Stock, respectively, consist of 321,428 shares of Class A Common
Stock and 715,444 shares of Class B Common Stock which may be acquired
pursuant to stock options within 60 days and 424,733 deferred shares of
Class B Common Stock. The address of Rosenkranz & Company and Mr.
Rosenkranz is 153 East 53rd Street, New York, NY 10022.
(2) None of the indicated shares of Class A Common Stock are presently owned,
but they may be acquired pursuant to stock options within 60 days. Mr.
Ilg's address is c/o Safety National Casualty Corp., 2043 Woodland Parkway,
Suite 200, St. Louis, MO 63146. Messrs. Meehan's and Greenfield's address
is c/o Delphi Capital Management, Inc., 153 East 53rd Street, New York, NY
10022.
(3) Of the indiciated shares of Class A Common Stock, 1,979 shares are
presently owned by Mr. Smith. Of the shares presently owned, Mr. Smith has
sole voting and dispositive power with respect to 996 shares and shared
voting and dispositive power with respect to 983 shares. The remaining
shares indicated consist of 263,124 shares of Class A Common Stock which
may be acquired pursuant to stock options within 60 days and 7,732 Class A
Common Stock restricted share units. Mr. Smith's address is c/o Delphi
Capital Management, Inc., 153 East 53rd Street, New York, NY 10022.
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(4) Of the indicated shares of Class A Common Stock, 3,185 shares are presently
owned by Mr. Daurelle. The remaining shares indicated may be acquired
pursuant to stock options within 60 days. Mr. Daurelle's address is c/o
Reliance Standard Life Insurance Company, Two Commerce Square, 2001 Market
Street, Suite 1500, Philadelphia, PA 19103.
(5) Of the indicated shares of Class A Common Stock, 1,810 shares are presently
owned by Mr. Coulter. The remaining shares indicated consist of 75,059
shares of Class A Common Stock which may be acquired pursuant to stock
options within 60 days and 5,155 Class A Common Stock restricted share
units. Mr. Coulter's address is c/o Delphi Capital Management, Inc., 153
East 53rd Street, New York, NY 10022.
(6) Of the indicated shares of Class A Common Stock, 10,000 shares are
presently owned by Mr. Fox. The remaining shares indicated may be acquired
pursuant to stock options within 60 days. Mr. Fox's address is c/o Delphi
Capital Management, Inc., 153 East 53rd Street, New York, NY 10022.
(7) Of the indicated shares of Class A Common Stock, 1,560 shares are presently
owned by Mr. Sherman. The remaining shares indicated may be acquired
pursuant to stock options within 60 days. Mr. Sherman's address is c/o
Delphi Capital Management, Inc., 153 East 53rd Street, New York, NY 10022.
(8) Of the indicated shares of Class A Common Stock, 990 shares are presently
owned by Mr. O'Connor. The remaining shares indicated may be acquired
pursuant to stock options within 60 days. Mr. O'Connor's address is c/o
Delphi Capital Management, Inc., 153 East 53rd Street, New York, NY 10022.
(9) Includes 1,303,753 shares of Class A Common Stock which may be acquired
pursuant to stock options within 60 days.
ELECTION OF DIRECTORS
The Board of Directors currently consists of nine members. Each director is
elected annually to serve until his successor has been elected and qualified, or
he has resigned or been removed from office. All nominees are currently
directors of the Company and have been previously elected by the stockholders
except for Van D. Greenfield, who was initially recommended as a candidate for
director by the Company's chief executive officer and was elected a director by
the Board in November 2003. The Board has determined in its business judgment
that each of Messrs. Fox, Greenfield, Meehan, Sherman and O'Connor, who
constitute all of the non-management members of the Board, has no material
relationship with the Company, and therefore is an independent director, for
purposes of the New York Stock Exchange ("NYSE") listing standards. The
Company's Restated Certificate of Incorporation provides that the holders of
Class A Common Stock are entitled to vote as a separate class to elect the Class
A Director so long as the outstanding shares of Class A Common Stock represent
at least 10% of the aggregate number of outstanding shares of the Company's
Class A and Class B Common Stock. As of the date of this Proxy Statement, this
condition continues to be satisfied. Mr. Donald A. Sherman was elected by the
holders of the Class A Common Stock in 2003 as the Class A Director, and the
Board of Directors has unanimously recommended Mr. Sherman for election as the
Class A Director.
It is intended that the shares of Common Stock represented by Proxies will be
voted "for" the election of all such nominees unless a contrary direction is
indicated on the Proxy. While it is not expected that any of the nominees will
be unable to qualify for or accept office, if for any reason any nominee shall
be unable to do so, Proxies that would otherwise have been voted "for" such
nominee will instead be voted "for" a substitute nominee selected by the Board.
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Nominees for Director
The following sets forth information as to each nominee for election at the 2004
Annual Meeting, including his age, positions with the Company, length of service
as a director of the Company, other directorships currently held, if any,
principal occupations and employment during the past five years and other
business experience.
ROBERT ROSENKRANZ, 61, has served as the President and Chief Executive Officer
of the Company since May 1987 and has served as Chairman of the Board of
Directors of the Company since April 1989. He also serves as Chairman of the
Board or as a Director of the Company's principal subsidiaries. Mr. Rosenkranz
has served since October 1978 as either sole or managing general partner of
Rosenkranz & Company or as beneficial owner of its corporate general partner.
ROBERT M. SMITH, JR., 52, has served as Executive Vice President of the Company
and Delphi Capital Management, Inc. ("DCM") since November 1999 and as a
Director of the Company since January 1995. He has also served as the Chief
Investment Officer of Reliance Standard Life Insurance Company ("RSLIC") and
First Reliance Standard Life Insurance Company ("FRSLIC") since April 2001. From
July 1994 to November 1999, he served as Vice President of the Company and DCM.
Mr. Smith also serves as a Director of the Company's principal subsidiaries.
LAWRENCE E. DAURELLE, 52, has served as a Director of the Company since August
2002. He also has served as President and Chief Executive Officer of RSLIC,
FRSLIC and Reliance Standard Life Insurance Company of Texas ("RSLIC-Texas")
since October 2000. He served as Vice President and Treasurer of the Company
from August 1998 to April 2001. He also serves on the Board of Directors of
RSLIC, FRSLIC and RSLIC-Texas. From May 1995 until October 2000, Mr. Daurelle
was Vice President and Treasurer of RSLIC, FRSLIC and RSLIC-Texas.
EDWARD A. FOX, 67, has served as a Director of the Company since March 1990. He
has served as Chairman of the Board of SLM Corporation since August 1997 and is
currently a director of Greenwich Capital Holdings. From May 1990 until
September 1994, Mr. Fox was the Dean of the Amos Tuck School of Business
Administration at Dartmouth College, and from April 1973 until May 1990, he was
President and Chief Executive Officer of the Student Loan Marketing Association.
VAN D. GREENFIELD, 58, has served as a Director of the Company since November
2003. He has been the owner and General Securities Principal of Blue River
Capital, LLC since 1980. The principal business for Blue River Capital, LLC is
proprietary trading in public securities involved in merger and acquisition
transactions, risk arbitrage, and convertible security arbitrage. In addition,
he presently serves as Co-Chairman of the Official Committee of Unsecured
Creditors for WorldCom Inc., Chairman of the Official Committee of Unsecured
Creditors for Globalstar LLP and Co-Chairman of the Official Committee of Equity
Security Holders for Adelphia Communications Corp.
HAROLD F. ILG, 56, has served as a Director of the Company since August 2002. He
also has served as Chairman of the Board of Safety National Casualty Corporation
("SNCC") since January 1999. He serves on the Board of Directors of RSLIC,
FRSLIC, and RSLIC-Texas. From April 1999 until October 2000, he served as
President and Chief Executive Officer of RSLIC, FRSLIC, and RSLIC-Texas. Prior
to January 1999, he served as Vice Chairman of the Board of SNCC, where he has
been employed in various capacities since 1978.
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JAMES N. MEEHAN, 58, has served as a Director of the Company since May 2003. He
also has served as a Director of RSLIC since July 1988 and FRSLIC since April
1993. Mr. Meehan retired from Banc of America Securities/Bank of America as a
Managing Director in May 2002 after 15 years of service with the organization
and its predecessors. During his tenure, he was responsible for the bank's
commercial relationships with the insurance industry. Mr. Meehan also serves as
a director of Bristol West Holdings, Inc. and American Fuji Fire and Marine
Insurance Company.
PHILIP R. O'CONNOR, 55, has served as a Director of the Company since May 2003.
He also has served as a Director of RSLIC since March 1993. Dr. O'Connor is
currently the President of PROactive Strategies, a provider of policy analysis
and advice on insurance regulation. He is also a Vice President of Constellation
NewEnergy, Inc. ("NewEnergy"), a provider of competitive retail electricity. Dr.
O'Connor served as the Illinois Director of Insurance from 1979 to 1982. From
1983 through 1985, Dr. O'Connor was Chairman of the Illinois Commerce
Commission, the utility regulatory body of Illinois, and he served on the
Illinois State Board of Elections from 1998 until April 2004. After 1985, Dr.
O'Connor formed Palmer Bellevue Corporation, an energy and insurance consulting
firm that became a part of Coopers and Lybrand in 1993. In 1998, he established
the Midwest business of NewEnergy. He also serves as a member of the Board of
the Big Shoulders Foundation for the schools of the Archdiocese of Chicago.
Nominee for Class A Director
DONALD A. SHERMAN, 53, has served as a Director of the Company since August
2002. Mr. Sherman has served as Chairman and Chief Executive Officer of
Waterfield Mortgage Company, Inc. ("Waterfield") since 1999 and as President of
Waterfield from 1989 to 1999. Waterfield is the largest privately held mortgage
banking institution in the United States and the largest privately held banking
institution in the State of Indiana. From 1985 to 1988, he served as President
and as a member of the Board of Directors of Hyponex Corporation ("Hyponex") and
from 1983 to 1985 served as Chief Financial Officer of Hyponex. From 1975 to
1983, he held various positions with the public accounting firm of Coopers and
Lybrand and was elected to partner in 1981.
DIRECTORS' ATTENDANCE
The Board of Directors held eight meetings during 2003. Each incumbent director
attended at least 75% of the aggregate of (i) the total number of meetings held
during the period for which such incumbent was a director, and (ii) the total
number of meetings held by all committees of the Board of Directors on which
such incumbent served. Directors are encouraged to attend the Company's annual
meetings of stockholders where practicable. Three Directors attended last year's
annual meeting.
DIRECTORS' COMPENSATION
The Company pays its directors who are not officers or employees of the Company
or any of the Company's affiliates (each, an "outside director") annual
compensation consisting of options to purchase Class A Common Stock, or cash in
an amount as described in the following sentence (the "Annual Retainer"), and a
fee of $750 plus expenses for each Board of Directors or committee meeting
attended. Such amount, if paid in cash, for an outside director who has not
previously served as an officer or employee of the Company or any of its
subsidiaries, is $50,000, and for an outside director who has formerly so
served, is $25,000. In addition to option grants in respect of the Annual
Retainer, outside directors also receive certain option
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grants on an annual formulaic basis and are eligible to receive grants of
options at such times and in such amounts as are determined by the committee
consisting of the full Board of Directors of the Company in its discretion. All
of these grants are made pursuant to the Second Amended and Restated Directors
Stock Option Plan (the "Directors Option Plan").
Under the Directors Option Plan, options to purchase 49,123 shares of Class A
Common Stock, in the aggregate, were granted to outside directors in May 2003 at
an exercise price of $29.34 per share. In addition, options to purchase 4,168
shares of Class A Common Stock, in the aggregate, were granted to an outside
director upon his election to the Board in November 2003 at an exercise price of
$34.42 per share. The shares to which such options relate for current directors
are included in the "Security Ownership of Certain Beneficial Owners and
Management" table.
The Directors Option Plan was adopted in 1994 and amended and restated in 1997
and in 2003. Under the Directors Option Plan, on the business day following the
Company's Annual Meeting of Stockholders for each year that the Directors Option
Plan is in effect, each outside director then in office is granted an option to
purchase a number of shares of Class A Common Stock determined pursuant to the
following formula: number of option shares equal to 3,975 multiplied by [1+(.125
multiplied by the number of calendar years of continuous service of such outside
director to that point, including any portion of a calendar year of service as a
full year)]. The price per share upon the exercise of an option is 100% of the
fair market value of the Class A Common Stock on the date of the grant. For this
purpose, the fair market value on any such date is the closing price per share
of the Class A Common Stock, as reported through the New York Stock Exchange for
such date. Options granted become exercisable in five equal annual installments
so long as the director continues to serve on the Board, commencing on the first
anniversary of the date of the grant, and expire ten years from the date of
grant.
The Directors Option Plan also provides for the Annual Retainer to be paid
through the grant of options to purchase Class A Common Stock to each outside
director for the period from the director's date of election or reelection to
the Board of Directors to the Company's next Annual Meeting of Stockholders,
unless such director makes an election in advance to receive the Annual Retainer
in cash or in restricted shares for such period. Options (or, if elected by the
outside director, restricted shares) are granted on the first business day
following the date on which each outside director is elected, reelected or
appointed. The number of shares of Class A Common Stock to which each option
relates is equal to (a) three times the director's Annual Retainer that would
otherwise be payable in cash for the applicable period divided by (b) the fair
market value of a share of Class A Common Stock of the Company on the date of
grant, and the exercise price is 100% of such fair market value on the date of
grant. If restricted shares are elected by an outside director, the number of
restricted shares granted to the outside director will be the nearest number of
whole shares determined by dividing the Annual Retainer by the fair market value
of a share on the date of grant. For this purpose, the fair market value on any
such date is the closing price per share of the Class A Common Stock, as
reported on the New York Stock Exchange for such date. Options or restricted
shares granted become vested in four equal 90-day installments and options
expire ten years from the date of grant. The number of options or restricted
shares that an outside director may receive in respect of the Annual Retainer is
dependent upon the time at which such director is elected and the fair market
value of the Class A Common Stock on the date of grant and, therefore, is not
determinable in advance.
In addition to the formulaic annual option grants for which the Directors Option
Plan provides, as described above, a committee consisting of the full Board of
Directors of the Company may make grants of options to outside directors at such
times and in such amounts as are determined by such committee in its discretion.
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As is the case for options granted under the formulaic provisions of the plan,
the exercise price for any options granted under this provision is the fair
market value of a share of Class A Common Stock on the date of grant and such
options expire ten years from the date of grant. For this purpose, the fair
market value on any such date is the closing price per share of the Class A
Common Stock, as reported on the New York Stock Exchange for such date. Grants
under this provision occur primarily under unusual circumstances in which the
formulaic provisions would not otherwise effectively operate; for example, where
a new outside director joins the Company's Board on a date other than the annual
grant date under the formulaic provisions.
COMMUNICATION WITH BOARD OF DIRECTORS
Any stockholder may communicate with the Board of Directors, any Board committee
or any individual Director(s) by directing such communication in writing to the
Company's Secretary, c/o Delphi Capital Management, Inc., 153 East 53rd Street,
New York, New York 10022. The communication should indicate that the sender is a
stockholder and that it is a Board, committee or individual Director
communication, as the case may be. The Secretary will forward such communication
to the members of the Board or of the relevant committee or individual
Director(s), as indicated in such communication.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors of the Company maintains three committees: the Stock
Option and Compensation Committee (the "Compensation Committee"), the Nominating
and Corporate Governance Committee (the "Governance Committee"), and the Audit
Committee. Each of such committees is comprised solely of individuals who are
independent directors for purposes of the NYSE listing standards. See "Election
of Directors." Further information regarding these committees, including general
descriptions of their respective duties, is set forth below. The charters of all
of these committees, which contain further detail regarding their functions, are
available at the Company's website at www.delphifin.com/corp_governance/.
COMPENSATION COMMITTEE
The primary responsibilities of the Compensation Committee include oversight of
the compensation of the Company's key executives, administration of the stock
option and other stock-related plans of the Company, and making recommendations
regarding the compensation of the Company's outside directors. The Compensation
Committee's responsibilities and authority are described in greater detail in
its written charter, which is available on the Company's website
www.delphifin.com/corp_governance/. The Board of Directors increased the number
of members of the Compensation Committee from two to three during 2003. The
committee's membership consists of Messrs. Sherman (Chairman), Meehan and
O'Connor. The Compensation Committee held five meetings during 2003. The
Compensation Committee's report on executive compensation can be found on page
29 of this Proxy Statement.
GOVERNANCE COMMITTEE
In 2003, the Board of Directors formed the Governance Committee, the members of
which are Messrs. O'Connor (Chairman), Fox and Greenfield. The Governance
Committee, among other things, identifies and recommends to the Board nominees
for election as Directors and develops and recommends to the Board
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criteria for the selection of new Board members and corporate governance
guidelines for the Company. The Governance Committee's responsibilities and
authority are described in greater detail in its written charter, which is
available on the Company's website www.delphifin.com/corp_governance/. The
Governance Committee met twice in 2003.
For purposes of identifying Board nominees, the Governance Committee relies
primarily on personal contacts of members of the Board and does not maintain any
formal process in this regard. The Governance Committee will consider
stockholder recommendations of Board nominees which are made in accordance with
the requirements set forth below. The Company has not engaged the services of
any third party search firm in connection with the identification or evaluation
of potential Board nominees. While the Governance Committee has not adopted
specific, minimum qualifications for director nominees, the Board has adopted,
on the recommendation of the Governance Committee, criteria for the evaluation
of such nominees. These criteria provide that the Board should be composed of
individuals who have demonstrated substantial achievements in business,
government, education or other relevant fields, and who possess the requisite
intelligence, experience and education to make meaningful contributions to the
Board, as well as high ethical standards and a dedication to exercising
independent business judgment. The evaluative factors contained in the criteria
address, in addition to various factors relevant to these overall goals, whether
the nominee has the ability, in light of his or her personal circumstances, to
devote sufficient time to carrying out his or her duties and responsibilities
effectively.
The Governance Committee will consider stockholder recommendations of Board
nominees which are made in accordance with the following requirements.
Recommendations must be sent to the Secretary of the Company, c/o Delphi Capital
Management, Inc., 153 East 53rd Street, New York, New York 10022 and must be
received by the Secretary no later than November 30 of the calendar year
preceding the Annual Meeting of Stockholders. The recommendation must include
information demonstrating that the person submitting the recommendation is in
fact a stockholder, the proposed candidate's written consent to the nomination,
background information regarding the proposed candidate and an undertaking by
the proposed candidate to provide any further information requested by the
Governance Committee, including by means of an in-person interview. The
Secretary will forward the recommendation to each member of the Governance
Committee. The Governance Committee, with reference to the Board member criteria
discussed above and taking into account the Board of Director's then-current
needs, size and composition and any other factors it deems relevant, will
determine whether to accept such recommendation.
AUDIT COMMITTEE
The Audit Committee is governed by a charter adopted by the Board of Directors,
which was amended and restated during 2003. A copy of such charter is attached
hereto as Appendix A. Pursuant to such charter, the Audit Committee assists the
Board of Directors in its oversight of the integrity of the Company's financial
statements, the Company's compliance with legal and regulatory requirements, the
qualifications and independence of the Company's independent auditor, and the
performance of the Company's internal audit function and independent auditor.
Management has the primary responsibility for the Company's financial statements
and its reporting process, including its systems of internal controls. The
independent auditors are responsible for performing an audit of the Company's
consolidated financial statements in accordance with auditing standards
generally accepted in the United States and issuing a report thereon. The Board
of Directors increased the number of members of the Audit Committee from three
to four during 2003. Mr. Fox is the Chairman of the Audit Committee. During
2003, Messrs. Greenfield, Meehan and Sherman
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became members of the Audit Committee and Lewis S. Ranieri and Thomas L. Rhodes
retired from the Audit Committee and the Board of Directors. Each of the current
members of the Audit Committee meets the criteria for independence set forth in
Rule 10A-3 under the Securities Exchange Act, in addition to the independence
criteria contained in the NYSE standards referenced above. The Board of
Directors has determined that each of the current members of the Audit Committee
is an "audit committee financial expert" as that term is defined in Item 401(h)
of Regulation S-K under the Securities Exchange Act. Further information
concerning the Audit Committee and its activities is set forth in the Report of
the Audit Committee which follows. The Committee held nine meetings during 2003.
REPORT OF THE AUDIT COMMITTEE
During 2003, the Audit Committee recommended and the Board approved the
selection of the Company's independent auditor to audit the Company's
consolidated financial statements. The Audit Committee discussed with the
Company's independent and internal auditors the overall scope and plans for
their respective audits, and regularly met with such auditors, with and without
management present, to discuss the results of their audits, their evaluations of
the Company's internal controls and such other matters as the Audit Committee
deemed appropriate.
The Audit Committee met with management and the independent auditors to review
and discuss the Company's audited consolidated financial statements for the
fiscal year ended December 31, 2003, and discussed with the independent auditors
the matters required to be discussed by Statement of Auditing Standards No. 61,
"Communication with Audit Committees." In addition, the Audit Committee
discussed with the independent auditors the auditor's independence, including
the matters contained in the written disclosures and letter required by
Independence Standards Board Standard No. 1, "Independence Discussions with
Audit Committees." The Audit Committee considered whether the provision of
non-audit services to the Company was compatible with maintaining their
independence and also reviewed the amount of fees paid to the independent
auditors for audit and non-audit services. Based on such review and discussions,
the Audit Committee recommended to the Board of Directors that the audited
financial statements be included in the Company's Annual Report on Form 10-K for
the year ended December 31, 2003 for filing with the Securities and Exchange
Commission.
Edward A. Fox, Audit Committee Chairman
Van D. Greenfield
James N. Meehan
Donald A. Sherman
March 10, 2004
CODE OF ETHICS
The Company has a written Code of Conduct that is applicable to all of the
Company's Directors and employees, as well as a written Code of Ethics that
applies specifically to the Company's Chief Executive Officer, Executive Vice
President and Vice President and Treasurer. Such Codes are posted on the
Company's website at www.delphifin.com/corp_governance/. The Company intends to
satisfy any disclosure requirements under Item 10 of Form 8-K regarding an
amendment to, or a waiver from, a provision of the Code of Ethics by posting
such information on its website.
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PROPOSAL TO INCREASE SHARES AVAILABLE UNDER THE 2003
EMPLOYEE LONG-TERM INCENTIVE AND SHARE AWARD PLAN
Amendment to Share Plan. In 2003, the 2003 Employee Long-Term Incentive and
Share Award Plan (the "Share Plan") was adopted by the Board of Directors and
approved by the Company's stockholders. The Board of Directors has amended the
Share Plan, subject to stockholder approval, to increase the aggregate number of
shares of Class A Common Stock reserved for issuance under the Share Plan by
1,000,000 to a total of 2,500,000 (which amount reflects the adjustment that
previously occurred under the terms of the Share Plan to reflect the
three-for-two common stock split effected in December 2003). The stockholders
are now requested to approve the amendment to the Share Plan. The primary
purpose of the amendment is to ensure that a sufficient number of shares will be
available under the Share Plan for the granting of approximately 1.1 million
performance-contingent incentive options to purchase shares of Class A Common
Stock, in the aggregate, to the members of executive management of RSLIC. While
no Compensation Committee or Board action has been taken as to the granting of
such options, based on preliminary discussions, it is likely that in the near
future, subject to stockholder approval of the amendment to the Share Plan, such
options will be granted. While the particular financial performance goals for
RSLIC that would be specified in the option agreements and which, if attained,
would result in the vesting of such options have not been finally determined, it
is likely that such goals would entail cumulative three and five year
performance periods which include the current year. In the event the amendment
is approved by the stockholders and the incentive options described above are
not granted or not earned, options in a corresponding amount would be available
for grants under the Share Plan generally.
The following summary of the Share Plan, as amended, is qualified in its
entirety by express reference to the actual text of the Share Plan document
which is attached as Appendix B to this Proxy Statement.
General. The Share Plan is intended to provide incentives to attract, retain and
motivate employees and other participants in order to achieve our long-term
growth and profitability objectives. The Share Plan will provide for the grant
of awards to employees and other individuals who, in the Committee's judgment,
can make substantial contributions to the long-term profitability and value of
the Company, its subsidiaries or affiliates. The types of awards that may be
granted are stock options, restricted shares, restricted share units, and other
share-based awards (the "Awards"). An aggregate of 2,500,000 shares of Class A
Common Stock have been reserved for issuance under the Share Plan. In addition,
the maximum number of shares of Class A Common Stock with respect to which
options may be granted to an eligible participant under the Share Plan during
any calendar year will be 750,000 shares of Class A Common Stock, and the
maximum number of shares of Class A Common Stock with respect to which Awards
intended to qualify as qualified performance-based compensation (other than
options) may be granted to an eligible participant during any calendar year will
be the equivalent of 225,000 shares of Class A Common Stock. These share amounts
are subject to antidilution adjustments in the event of certain changes in the
capital structure of the Company, as described below. Shares issued pursuant to
the Share Plan will be either authorized but unissued shares of Class A Common
Stock or treasury shares of Class A Common Stock.
Administration. The Share Plan will be administered by the Compensation
Committee or such other Board committee (or the entire Board of Directors) as
may be designated by the Board of Directors (the "Committee"). Unless otherwise
determined by the Board of Directors, the Committee will consist of two or more
non-employee directors within the meaning of Rule 16b-3 of the Securities
Exchange Act of 1934 (the "Exchange Act"), each of whom is an outside director
within the meaning of Section 162(m) of the Internal
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Revenue Code of 1986, as amended (the "Code"). The Committee will determine the
persons who will receive Awards, the types of Awards to be received and the
terms and conditions thereof. The Committee will have authority to waive
conditions relating to an Award or accelerate vesting of Awards. Approximately
1,045 employees are currently eligible to participate in the Share Plan.
Awards. Incentive stock options ("ISOs") intended to qualify for special tax
treatment in accordance with the Code and nonqualified stock options not
intended to qualify for special tax treatment under the Code may be granted for
such number of Shares as the Committee determines. The Committee will be
authorized to set the terms relating to an option, including exercise price and
the time and method of exercise. However, the exercise price of options will not
be less than the fair market value of the Class A Common Stock on the date of
grant, and the term will not be longer than ten years from the date of grant of
the options. The terms of ISOs will comply with the provisions of Section 422 of
the Code. ISOs may only be granted to employees.
Awards of restricted shares will consist of Class A Common Stock and will be
subject to such restrictions on transferability and other restrictions, if any,
as the Committee may impose. Such restrictions will lapse under such
circumstances as the Committee may determine, including upon the achievement of
performance criteria referred to below. Except as otherwise determined by the
Committee, eligible employees granted restricted shares will have all of the
rights of a stockholder, including the right to vote restricted shares and
receive dividends thereon, and unvested restricted shares will be forfeited upon
termination of service during the applicable restriction period.
A restricted share unit will entitle the holder thereof to receive Class A
Common Stock or cash at the end of a specified deferral period. Restricted share
units will also be subject to such restrictions as the Committee may impose.
Such restrictions will lapse under circumstances as the Committee may determine,
including upon the achievement of performance criteria referred to below. Except
as otherwise determined by the Committee, restricted share units subject to
deferral or restriction will be forfeited upon termination of service during any
applicable deferral or restriction period.
The Committee is also authorized, subject to limitations under applicable law,
to grant other Share-based awards that may be denominated in, valued in, or
otherwise based on, the Class A Common Stock, as deemed by the Committee to be
consistent with the purposes of the Share Plan.
If the Committee determines that an award of restricted shares or restricted
share units or an other Share-based award to be granted under the Share Plan
should qualify as "qualified performance-based compensation" for purposes of
Section 162(m) of the Code, the grant, vesting and/or settlement of such an
Award shall be contingent upon achievement of preestablished performance
objectives set forth below. The performance objectives may vary from individual
to individual and will be based upon one or more of the following performance
criteria as the Committee may deem appropriate: appreciation in value of the
Class A Common Stock; total stockholder return; operating income or earnings
and/or growth thereof; net income; pretax earnings; pretax earnings before
interest, depreciation and amortization; pro forma net income; return on equity;
return on designated assets; return on capital; economic value added; earnings
per share; revenues; expenses (including expense ratio); loss ratio; combined
ratio; new business production; operating profit margin; operating cash flow;
free cash flow; cash flow return on investment; operating margin; net profit
margin; or any of the above criteria as compared to the performance of a
published or special index or benchmark deemed applicable by the Committee.
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Change of Ownership. In the event of a change of ownership (as defined in the
Share Plan), all Awards granted under the Share Plan then outstanding but not
then exercisable (or subject to restrictions) shall become immediately
exercisable, all restrictions shall lapse, and any performance criteria shall be
deemed satisfied, unless otherwise provided in the applicable Award agreement.
Capital Structure Changes. If the Committee determines that any dividend,
recapitalization, share split, reorganization, merger, consolidation, spin-off,
repurchase, or other similar corporate transaction or event affects the Class A
Common Stock such that an adjustment is appropriate in order to prevent dilution
or enlargement of the rights of eligible participants under the Share Plan, then
the Committee is authorized to make such equitable changes or adjustments as it
deems appropriate, including adjustments to (i) the number and kind of shares
which may thereafter be issued under the Plan, (ii) the number and kind of
shares, other securities or other consideration issued or issuable in respect of
outstanding Awards, and (iii) the exercise price, grant price or purchase price
relating to any Award.
Amendment and Termination. The Share Plan may be amended, suspended or
terminated by the Board of Directors at any time, in whole or in part. However,
any such amendment, suspension or termination shall be subject to stockholder
approval (i) if, and to the extent, required under the rules of any stock
exchange or automated quotation system on which the Shares may then be listed or
quoted, and (ii) as it applies to ISOs, to the extent required under Section 422
of the Code. In addition, no amendment, suspension, or termination of the Plan
may materially and adversely affect the rights of a participant under any Award
theretofore granted to him or her without such participant's consent. The
Committee may waive any conditions or rights of, amend any terms of, or amend,
suspend or terminate, any Award granted, provided that, without such
participant's consent, such amendment, suspension or termination may not
materially and adversely affect the rights of a participant under any Award
previously granted to him or her.
Effective Date and Term. The Share Plan became effective as of April 1, 2003.
Unless earlier terminated, the Share Plan will expire on April 1, 2013, and no
further awards may be granted thereunder after such date.
Market Value. The per share closing price of the Class A Common Stock on March
22, 2004 was $41.41.
FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the federal income tax consequences of the Share
Plan, based upon current provisions of the Code, the Treasury regulations
promulgated thereunder and administrative and judicial interpretations thereof,
and does not address the consequences under any state, local or foreign tax
laws.
Stock Options. In general, the grant of an option will not be a taxable event to
the recipient and it will not result in a deduction to the Company. The tax
consequences associated with the exercise of an option and the subsequent
disposition of Shares acquired on the exercise of such option depend on whether
the option is a nonqualified stock option or an ISO.
Upon the exercise of a nonqualified stock option, the participant will recognize
ordinary taxable income equal to the excess of the fair market value of the
Shares received upon exercise over the exercise price. The Company will
generally be entitled to a deduction in an equivalent amount. Any gain or loss
upon a subsequent sale or exchange of the Class A Common Stock received will be
capital gain or loss, long-term or short-term, depending on the holding period
for the Class A Common Stock.
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Generally, a participant will not recognize ordinary taxable income at the time
of exercise of an ISO and no deduction will be available to the Company,
provided the option is exercised while the participant is an employee or within
three months following termination of employment (longer, in the case of
disability or death). If an ISO granted under the Share Plan is exercised after
these periods, the exercise will be treated for federal income tax purposes as
the exercise of a nonqualified stock option. Also, an ISO granted under the
Share Plan will be treated as a nonqualified stock option to the extent it
(together with other ISOs granted to the participant by the Company) first
becomes exercisable in any calendar year for Class A Common Stock having a fair
market value, determined as of the date of grant, in excess of $100,000.
If Class A Common Stock acquired upon exercise of an ISO are sold or exchanged
more than one year after the date of exercise and more than two years after the
date of grant of the option, any gain or loss will be long-term capital gain or
loss. If Class A Common Stock acquired upon exercise of an ISO are disposed of
prior to the expiration of these one-year or two-year holding periods (a
"Disqualifying Disposition"), the participant will recognize ordinary income at
the time of disposition, and the Company will generally be entitled to a
deduction in an amount equal to the excess of the fair market value of the Class
A Common Stock at the date of exercise over the exercise price. Any additional
gain will be treated as capital gain, long-term or short-term, depending on how
long the Class A Common Stock has been held. Where Class A Common Stock is sold
or exchanged in a Disqualifying Disposition (other than certain related party
transactions) for an amount less than their fair market value at the date of
exercise, any ordinary income recognized in connection with the Disqualifying
Disposition will be limited to the amount of gain, if any, recognized in the
sale or exchange, and any loss will be a long-term or short-term capital loss,
depending on how long the Class A Common Stock has been held.
Although the exercise of an ISO as described above would not produce ordinary
taxable income to the participant, it would result in an increase in the
participant's alternative minimum taxable income and may result in an
alternative minimum tax liability.
If an option is exercised through the use of Class A Common Stock previously
owned by the participant, such exercise generally will not be considered a
taxable disposition of the previously owned Class A Common Stock and, thus, no
gain or loss will be recognized with respect to such previously owned Class A
Common Stock upon such exercise. The amount of any built-in gain on the
previously owned Class A Common Stock generally will not be recognized until the
new Class A Common Stock acquired on the option exercise is disposed of in a
sale or other taxable transaction.
Restricted Shares. A participant who receives restricted shares will generally
recognize ordinary income at the time that they "vest"; i.e., when they are not
subject to a substantial risk of forfeiture. The amount of ordinary income so
recognized will be the fair market value of the Class A Common Stock at the time
the income is recognized (determined without regard to forfeiture conditions),
less the amount, if any, paid for the Class A Common Stock. This amount is
generally deductible for federal income tax purposes by the Company. Dividends
paid with respect to unvested Class A Common Stock will be ordinary compensation
income to the participant (and generally deductible by the Company). Any gain or
loss upon a subsequent sale or exchange of the Class A Common Stock, measured by
the difference between the sale price and the fair market value on the date the
Class A Common Stock vests, will be capital gain or loss, long-term or
short-term, depending on the holding period for the Class A Common Stock. The
holding period for this purpose will begin on the date following the date the
Class A Common Stock vests.
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In lieu of the treatment described above, a participant may elect immediate
recognition of income under Section 83(b) of the Code. In such event, the
participant will recognize as income the fair market value of the restricted
stock at the time of grant (determined without regard to forfeiture conditions),
and the Company will generally be entitled to a corresponding deduction.
Dividends paid with respect to Class A Common Stock as to which a proper Section
83(b) election has been made will not be deductible to the Company. If a Section
83(b) election is made and the restricted stock is subsequently forfeited, the
participant will not be entitled to any offsetting tax deduction.
Other Awards. With respect to restricted share units and other Share-based
awards under the Share Plan not described above, generally, in the case of a
payment to a participant with respect to any such Award granted under the Share
Plan, the amount of cash and the fair market value of any other property
received will be ordinary income to such participant and will be allowed as a
deduction for federal income tax purposes to the Company.
Deductibility Limit on Compensation in Excess of $1 Million. Section 162(m) of
the Code generally limits the deductible amount of annual compensation paid
(including, unless an exception applies, compensation otherwise deductible in
connection with Awards granted under the Share Plan) by a public company to a
"covered employee" (i.e., the chief executive officer and the four other most
highly compensated executive officers of the Company) to no more than $1 million
each. It is presently anticipated that stock options granted and other Awards
made under the Share Plan would be structured so that compensation arising out
of such awards will be deductible under the Code.
NEW PLAN BENEFITS
As discussed in more detail above, it is likely that, subject to stockholder
approval of the proposed amendment to the Share Plan, approximately 1.1 million
performance-contingent incentive options will be granted in 2004 under the Share
Plan to members of executive management of RSLIC. See "Amendment to Share Plan."
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors recommends a vote FOR approval of the amendment to the
2003 Employee Long-Term Incentive and Share Award Plan.
PROPOSAL TO ADOPT THE
ANNUAL INCENTIVE COMPENSATION PLAN
The Company's Board of Directors has adopted the annual incentive compensation
plan (the "Incentive Compensation Plan") pursuant to which executive officers of
the Company may be entitled to receive annual bonus compensation contingent upon
the attainment of certain performance goals. The Company intends that
compensation payable under the Incentive Compensation Plan will constitute
"qualified performance-based compensation" under Section 162(m) of the Code.
In order to constitute "qualified performance-based compensation" under Section
162(m) of the Code, and thereby avoid potential non-deductibility of
compensation paid to certain executive officers, the material
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terms of the Incentive Compensation Plan (including the class of eligible
participants, the performance criteria contemplated by the plan and the maximum
amount payable to any individual under the plan) must be approved by
stockholders periodically. Accordingly, the Incentive Compensation Plan is being
submitted for approval by stockholders.
The following summary of the Incentive Compensation Plan is qualified in its
entirety by express reference to the actual text of the Incentive Compensation
Plan document which is attached as Appendix C to this Proxy Statement.
Purpose. The purpose of the Incentive Compensation Plan is to attract and retain
executive officers of the Company by providing them with an opportunity to earn
annual incentive compensation, contingent on the achievement of certain
performance goals, as an incentive and reward for their contributions to the
growth, profitability and success of the Company.
Administration. The Incentive Compensation Plan will be administered by the
Compensation Committee, which shall be comprised solely of at least two persons
who, to the extent required to satisfy the exception for "qualified
performance-based compensation" under Section 162(m) of the Code, will be
"outside directors" within the meaning of such section.
Subject to the express provisions of the Incentive Compensation Plan, the
Compensation Committee has the authority to (i) establish performance goals for
the granting of awards for each plan year, (ii) determine the executive officers
who may potentially receive awards for each plan year, (iii) determine whether
the performance goals for any plan year have been achieved, (iv) authorize
payment of awards under the plan, (v) adopt, alter and repeal such
administrative rules, guidelines and practices governing the plan as it deems
advisable, and (vi) interpret the terms and provisions of the plan.
Determination of Awards. The amount of any award paid to a participant under the
Incentive Compensation Plan for any plan year will be an amount not greater than
$3 million, which amount will be determined based on the achievement of one or
more performance goals established by the Compensation Committee with respect to
such participant. Performance goals may vary from participant to participant and
shall be based upon one or more of the following criteria, as the Compensation
Committee may deem appropriate: appreciation in value of the Company's stock;
total shareholder return; earnings per share; operating income; net income;
pretax earnings; pretax earnings before interest, depreciation and amortization;
pro forma net income; return on equity; return on designated assets; return on
capital; economic value created or economic profit; earnings per share and/or
growth thereof; revenues; expenses (including expense ratio); loss ratio;
combined ratio; new business production; capital markets and/or acquisition
transactions; investment programs initiated; operating profit margin; operating
cash flow; free cash flow; cash flow return on investment; operating margin; and
net profit margin. The performance goals may be expressed as absolute goals,
goals compared to past performance, goals compared to the performance of an
index or benchmark or otherwise as determined by the Compensation Committee, and
they may be determined by reference to the performance of the Company, or of a
subsidiary or affiliate, or of a division or unit of any of the foregoing. Not
later than the day immediately preceding the first day of the plan year (or a
later date as may be permitted pursuant to Section 162(m) of the Code), the
Compensation Committee will establish (i) the executive officers who may
potentially receive an award for such plan year, (ii) the performance goals for
such plan year, and (iii) the corresponding annual incentive compensation
amounts payable under the plan upon achievement of the performance goals and
satisfaction of any other conditions specified by the Compensation Committee.
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Payment of Award. Annual incentive compensation (if any) payable to any
participant for a plan year will be paid after the end of the plan year,
provided the Compensation Committee shall have first certified in writing (i)
that the applicable performance goal or goals with respect to the participant
for such plan year was satisfied and the level of attainment of the goal, and
(ii) the amount of each participant's award. The Compensation Committee, unless
it determines otherwise, may exercise negative discretion to reduce the amount
that would otherwise be payable under an award by reason of the applicable
performance goals having been achieved. Payments under the plan will be in cash,
except that, to the extent shares are available under a separate equity
compensation plan of the Company and permitted to be granted in connection with
an incentive award, the Compensation Committee may also provide that an award
will be paid in whole or in part in shares of the Company's common stock or
other Company common stock-based awards, in any case with a fair market value at
the time of payment not greater than $3 million. If a participant dies after the
end of a plan year but before receiving payment of any award, the amount will be
paid to a designated beneficiary or, if no beneficiary has been designated, to
the participant's estate. Notwithstanding the foregoing, the Compensation
Committee may determine, by separate agreement with any participant or
otherwise, that all or a portion of an award for a plan year will be payable to
the participant upon his or her death, disability, or termination of employment,
or upon a change of control of the Company.
Non-Transferability. No award or rights under the plan may be transferred or
assigned other than by will or by the laws of descent and distribution.
Amendments and Termination. The entire board of directors may terminate the plan
and may amend it from time to time, except that no termination or amendment of
the plan will materially and adversely affect the rights of a participant or a
beneficiary with respect to previously certified annual incentive compensation.
Amendments to the plan may be made without stockholder approval except as
required to satisfy Section 162(m) of the Code.
FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of certain federal income tax aspects with respect to
the Incentive Compensation Plan based upon the laws in effect on the date
hereof.
Upon payment of annual incentive compensation to a participant for any plan year
pursuant to the Incentive Compensation Plan, the participant will recognize
ordinary income in the amount of such compensation on the date the compensation
is paid.
The Company will generally be entitled to a deduction equal to the amount
taxable as ordinary income to the participant, subject to the limitation imposed
by Section 162(m) of the Code. The Company intends that compensation paid to
participants pursuant to the plan will generally constitute "qualified
performance-based compensation" under Section 162(m) of the Code and,
consequently, should generally not be subject to the $1 million deduction limit
thereunder.
The foregoing is based upon federal income tax laws and regulations as presently
in effect and does not purport to be a complete description of the Federal
income tax aspects of the Incentive Compensation Plan. Also, the specific state
and local tax consequences to a participant and the Company may vary, depending
upon the laws of the various states and localities and the individual
circumstances of the participant.
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NEW PLAN BENEFITS
The amount of benefits payable in the future under the Incentive Compensation
Plan is not currently determinable and, as of the date hereof, the Company has
paid no compensation under the plan.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors recommends a vote FOR approval of the adoption of the
Incentive Compensation Plan.
SHAREHOLDER PROPOSAL
The Company received the following resolution submitted by CHRISTUS Health and
is including it in this proxy statement in accordance with SEC Rule 14a-8 of the
Securities and Exchange Act of 1934. The Company will provide the addresses for
the proponent as well as the number of common shares of the Company's stock that
it holds promptly upon written or oral request addressed to the Company's
Secretary, c/o Delphi Capital Management, Inc., 153 East 53rd Street, New York,
New York 10022.
INSURANCE INVESTMENTS IN TOBACCO COMPANIES
WHEREAS - as shareholders, we are concerned about investing in the tobacco
industry by any health care institution, especially when the negative health
effects of tobacco use are so clearly understood by health care insurers and
providers.
- A March 1998 analysis by the U.S. Treasury Department found the nation
loses $80 billion a year on goods and services otherwise produced by
Americans who die prematurely or retire early because of smoking-related
ills.
- A Philip Morris-commissioned Arthur D. Little International Report in 2001
showed a cost-benefit analysis of smoking and social services in the Czech
Republic. It noted savings of $24.2 million to $30.6 million from lower
costs for health care and retirement benefits caused by a shortened life
span of smokers who die early by tobacco use. If this Report is true it
would indicate that, for purely financial reasons, such investments
undermine the bottom-line of our industry, to say nothing of the ethical
implications.
- While Steve Parrish, Senior Vice President of Corporate Affairs for PM,
responded that for the company "to commission this study was not only a
terrible mistake, it was wrong" (USA Today 07/30/01). This apology for the
Report being commissioned failed to include an apology for the facts
contained in the report.
- In 1996, the AMA called for mutual funds and health-conscious investors to
divest from stocks and bonds in tobacco companies.
- We believe it is inconsistent for a health care company to invest in
tobacco equities and yet proclaim concerns about quality healthcare.
Whether or not the facts in studies such as that commissioned by
-18-
Philip Morris are true or not is not the issue. The fact is that our
company is invested in an industry that has a cavalier attitude toward life
itself.
RESOLVED: that shareholders request the Board to initiate a policy mandating no
further purchases of tobacco equities in any of the portfolios under our direct
control unless it can be proven that tobacco use does not cause the illnesses
and deaths that have been attributed to it. If the company cannot produce such
proof, it shall divest itself of all tobacco stocks by January 1, 2005.
SUPPORTING STATEMENT
In commenting on the huge tobacco equities of health insurers and health
providers, a July 7-9, 1995 editorial in USA Today declared:
major U.S. health insurers are large investors in major U.S. tobacco
companies. In other words, the nation's merchants of care are partners with
the nation's merchants of death.... These investments grate and gall. Every
year, tobacco use is fatal for thousands of Americans. For insurers to
provide health care for those suffering smokers on the one hand while
investing in the source of their misery on the other is unconscionable....
And hypocritical.
Harvard, Johns Hopkins and the Maryland Retirement and Pension Systems have
divested from tobacco stocks. If you think our Company should not profit from
peoples' illness and death by investing in tobacco, vote YES for this
resolution.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors recommends a vote AGAINST the proposal.
-19-
EXECUTIVE COMPENSATION
The following table sets forth aggregate compensation paid by the Company and
its subsidiaries for services rendered in all capacities to the Company and its
subsidiaries during the fiscal years ended December 31, 2003, 2002 and 2001 to
or for the benefit of each of the five most highly compensated executive
officers of the Company and its subsidiaries.
SUMMARY COMPENSATION TABLE
Long-Term
Annual Compensation Compensation
-------------------------------------------- -----------------------------
Securities All Other
Other Annual Restricted Underlying Compen-
Name and Principal Compensation Stock Options sation
Position Year Salary ($) Bonus ($) ($)(1) Award ($) (#)(2) ($)(3)
-------- ---- ---------- ---------- ------------ ------------- ---------- -------------
Robert Rosenkranz, 2003 $ 674,608 $1,000,000 $ - $ 2,599,588(4) - $ -
President & Chief Executive 2002 599,976 900,000 - - - -
Officer of the Company 2001 599,976 300,000 - - - -
Chad W. Coulter 2003 285,308 150,000 - 200,014(5) - 6,000(7)
Vice President, Secretary 2002 240,000 125,000 - - - 5,500(7)
and General Counsel of 2001 240,000 80,000 - - - 4,320(7)
the Company
Lawrence E. Daurelle, 2003 269,757 220,801 - - - 6,000(7)
President & Chief 2002 246,043 202,145 - - - 5,500(7)
Executive Officer of RSLIC 2001 218,530 131,118 - - - 3,934(7)
Harold F. Ilg, 2003 441,242 459,375 - - 225,000 11,000(7)
Chairman of the Board of 2002 435,692 437,500 - - - 11,000(7)
SNCC 2001 398,442 16,667 - - - 9,350(7)
Robert M. Smith, Jr., 2003 378,847 400,000 - 300,002(6) - 4,000(7)
Executive Vice President 2002 340,002 340,000 - - - 4,000(7)
of the Company 2001 340,002 255,000 - - - 3,400(7)
(1) Personal benefits, which are non-cash compensation, were not disclosed in
the "Other Annual Compensation" column since they did not exceed the lesser
of either $50,000 or 10% of the total of annual salary and bonus for any
named executive officer.
(2) Other than granting of stock options listed above, no other long-term
compensation was provided to the named executive officers.
(3) The Company and its subsidiaries paid certain amounts in 2003, 2002 and
2001 to a wholly-owned subsidiary of Rosenkranz & Company pursuant to two
investment consulting agreements. Portions of these amounts were in turn
earned by Mr. Rosenkranz in addition to the amounts set forth above. See
"Certain Relationships and Related Transactions."
(4) Under the Amended and Restated Long-Term Performance-Based Incentive Plan,
Mr. Rosenkranz was awarded 67,010 deferred shares of Class B Common Stock.
(5) Under the 2003 Employee Long-Term Incentive and Share Award Plan, Mr.
Coulter was awarded 5,155 Class A Common Stock restricted share units.
(6) Under the 2003 Employee Long-Term Incentive and Share Award Plan, Mr. Smith
was awarded 7,732 Class A Common Stock restricted share units.
(7) These amounts represent the Company's annual contribution on behalf of the
employee to Company-sponsored defined contribution benefit plans.
-20-
INCENTIVE PLAN
At the 2003 Annual Meeting, the Company's stockholders approved the Amended and
Restated Long-Term Performance-Based Incentive Plan (the "Incentive Plan") for
Robert Rosenkranz, the Chairman, President and Chief Executive Officer of the
Company. The Incentive Plan replaced the Long-Term Performance-Based Incentive
Plan approved by the Company's stockholders at the 1997 Annual Meeting. The
purpose of the Incentive Plan is to provide Mr. Rosenkranz with a compensation
arrangement that rewards him for his contributions to the performance of the
Company and enhancement of the interests of the Company's stockholders. The
Compensation Committee administers the Incentive Plan and has the authority to
determine the number of shares subject to any award, to grant awards annually as
deemed appropriate in accordance with the plan and to interpret the plan. Mr.
Rosenkranz received 67,010 deferred shares of Class B Common Stock under the
Incentive Plan for 2003.
Within the ninety day period following the end of each fiscal year of the
Company (each, a "Fiscal Year") for which the Incentive Plan is in effect, the
Compensation Committee shall determine whether and to what extent to grant an
Award for such year (including the number of shares subject to any Award it
determines to grant), and the composition of such Award as between restricted or
deferred shares of Class B Common Stock and options to purchase Class B Common
Stock, based on such criteria relating to Mr. Rosenkranz's performance, the
Company's performance, the Company's stock performance and such other factors
for or relating to such year as it, in its sole discretion, deems relevant or,
if applicable, the extent to which Mr. Rosenkranz is entitled to an Award for
such Fiscal Year based on the satisfaction of the performance criteria
previously established by the Compensation Committee in its sole discretion for
such year. If Mr. Rosenkranz's employment terminates during any Fiscal Year for
which the Incentive Plan is in effect, he will be eligible to receive an award
under the Incentive Plan based on the discretion of the Compensation Committee
through such date, unless his employment was terminated by the Company for
"Cause" or by Mr. Rosenkranz without "Good Reason," as such terms are defined in
the Incentive Plan.
The Incentive Plan provides, as to each calendar year of such plan, for a
maximum award of an aggregate amount of shares and options collectively
representing 238,482 "Stock Units," plus the "Carryover Award Amount." For this
purpose, "Stock Units" consist of restricted or deferred shares of Class B
Common Stock, each of which individual shares represent one Stock Unit, and
options to purchase shares of Class B Common Stock, each of which individual
options represent one-third of one Stock Unit. The "Carryover Award Amount"
consists of 476,964 restricted or deferred shares of Class B Common Stock and
options to purchase 1,430,886 shares of Class B Common Stock, representing the
number of shares as to which Awards were available but not granted under the
predecessor to the Incentive Plan, and all or a portion of such Carryover Award
Amount may be applied to increase the amount of the Award for any calendar year
of the Incentive Plan, with the Carryover Award Amount to be decreased by any
portions thereof so applied for purposes of future calendar years of the
Incentive Plan. The exercise price of options granted under the Incentive Plan
will be equal to the fair market value per share of the Company's Class A Common
Stock on the date of grant, and the term of the options will be ten years from
the date of grant. Options will become exercisable thirty days after the date of
grant. Restricted or deferred shares of Class B Common Stock awarded under the
Incentive Plan vest upon the termination of Mr. Rosenkranz's employment: (1) due
to death, disability or normal retirement, (2) by the Company other than for
Cause, (3) by Mr. Rosenkranz for Good Reason, or (4) upon a "Change of
Ownership," as such term is defined in the Incentive Plan. If Mr. Rosenkranz's
employment is terminated by himself for other than normal retirement or Good
Reason or by the Company for Cause, such restricted or deferred shares are
forfeited to the Company.
-21-
Because the Incentive Plan provides for accelerated vesting of restricted or
deferred shares of Class B Common Stock awarded under the Plan upon a Change of
Ownership, it is possible that a twenty percent "golden parachute" excise tax
could be imposed upon Mr. Rosenkranz under the Code if such vesting were to
occur in such an event. In order to preserve the benefits intended to be
provided under the Incentive Plan, the plan contains a provision under which
payments would be made by the Company to Mr. Rosenkranz in order to adjust, on
an after-tax basis, for the amount of any such tax.
The Incentive Plan and awards of restricted or deferred shares and options
thereunder may be amended by the Compensation Committee at any time, subject to
Mr. Rosenkranz's consent if such amendment would adversely affect his rights
under the Incentive Plan or any such award. The Incentive Plan will terminate on
December 31, 2013.
EMPLOYEE STOCK OPTION PLAN
The Employee Stock Option Plan (the "Employee Option Plan") provides for a total
of 5,100,000 shares of Class A Common Stock which may be issued upon exercise of
options granted thereunder. Through March 22, 2004, options for 4,618,869 shares
of Class A Common Stock have been granted, net of option forfeitures and
expirations. As of March 22, 2004, options covering 2,491,894 shares of Class A
Common Stock have been exercised. These exercises reduced the total number of
outstanding options exercisable for Class A Common Stock to 2,126,975 shares, of
which options for 1,769,171 shares of Class A Common Stock were vested as of
March 22, 2004. Options currently outstanding under the Employee Option Plan
expire between 2004 and 2014. Options granted under the Employee Option Plan
have a maximum term of ten years and become exercisable at such times and in
such amounts as are determined by the Compensation Committee at the time of
grant. The price per share upon the exercise of an option is 100% of the fair
market value of the Class A Common Stock on the date of the grant, which, under
the plan, is equal to the closing price per share of the Class A Common Stock,
as reported on the New York Stock Exchange for such date.
2003 EMPLOYEE LONG-TERM INCENTIVE AND SHARE AWARD PLAN
Under the Share Plan, a total of 1,500,000 shares of Class A Common Stock are
reserved for issuance upon the exercise of options, restricted shares,
restricted share units (representing the right to receive shares of Class A
Common Stock or cash at the end of the specified deferral period), and other
share-based awards granted thereunder. For a description of the Share Plan, see
"Proposal to Increase Shares Available Under the 2003 Employee Long-Term
Incentive and Share Award Plan."
Through March 22, 2004, performance-contingent incentive options for 1,125,000
shares of Class A Common Stock and 12,887 Class A Common Stock restricted share
units have been granted under the Share Plan. None of the options are vested as
of March 22, 2004. Options currently outstanding under the Share Plan expire in
2013. The restricted share units that have been granted to date under the Share
Plan are subject to the vesting provisions similar to those applicable to the
deferred or restricted shares that may be granted under the Incentive Plan.
At the 2003 Annual Meeting, stockholders will consider and vote on proposed
amendments to the Share Plan to increase the number of shares of Class A Common
Stock available for grants of options, restricted shares,
-22-
restricted share units and other share-based awards thereunder. See "Proposal to
Increase Shares Available Under the 2003 Employee Long-Term Incentive and Share
Award Plan."
OPTION GRANTS IN LAST FISCAL YEAR
Summarized below in tabular format are options granted to the named executive
officers under the Share Plan in 2003. No options were granted to the named
executive officers under the Employee Option Plan in 2003.
% of Total Potential Realizable Value
Number of Options at Assumed Annual Rates of
Securities Granted to Stock Price Appreciation for
Underlying Employees Exercise Option Term
Options in Last Price Expiration ----------------------------
Name Granted Fiscal Year ($/Sh) Date 5% 10%
-------------------- ----------- ----------- --------- ---------- ----------- ------------
Robert Rosenkranz - - - - $ - $ -
Chad W. Coulter - - - - - -
Lawrence E. Daurelle - - - - - -
Harold F. Ilg 225,000(1) 19% $ 28,9667 05/28/13 4,098,825 10,387,228
Robert M. Smith, Jr. - - - - - -
(1) The options indicated are performance - contingent incentive options which
will become exercisable only to the extent that SIG Holdings, Inc. ("SIG"),
SNCC's parent company, meets specified cumulative financial performance
targets for the three or five fiscal year periods beginning with 2003;
otherwise, such options will be forfeited. 112,500 of the options will
become exercisable if SIG's aggregate consolidated Pre-Tax Operating
Income, as defined and computed under the related option agreement
("PTOI"), for the three year performance period is at least $216.7 million;
otherwise, a reduced number of such options will become exercisable to the
extent that PTOI for such period exceeds $196.1 million, determined by
interpolating between zero and 112,500 according to where the PTOI amount
falls in the range between $196.1 million and $216.7 million. 225,000 of
the options (minus the number of any options that become exercisable for
the three year performance period) will become exercisable if SIG's
aggregate PTOI for the five year performance period is at least $429.1
million; otherwise, a reduced number of such options will become
exercisable to the extent that PTOI for such period exceeds $380.1 million,
determined by interpolating between zero and 225,000 according to where the
PTOI amount falls in the range between $380.1 million and $429.1 million.
All of the options become exercisable for Class A Common Stock.
-23-
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
Summarized below in tabular format are options exercised by the named executive
officers during the fiscal year ended December 31, 2003 and options outstanding
under the Employee Option Plan, the Share Plan or Incentive Plan, as applicable,
at December 31, 2003.
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options at
Shares Options at Fiscal Year-End Fiscal Year-End (1)
Acquired Value --------------------------- ---------------------------
Name On Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
------------------------- ----------- ----------- ----------- ------------- ----------- -------------
Robert Rosenkranz - $ - 1,029,372 15,000 $10,271,837 $ 245,000
Chad W. Coulter 18,000 243,072 100,059 3,060 1,421,156 46,410
Lawrence E. Daurelle 39,795 398,343 97,209 - 1,922,784 -
Harold F. Ilg - - 467,663 240,000 6,922,278 1,827,492
Robert M. Smith, Jr 58,500 1,507,834 272,377 9,272 5,008,927 86,661
(1) Based on a closing price of $36.00 for the Company's Class A Common Stock
on December 31, 2003.
EQUITY COMPENSATION PLAN INFORMATION
The following table summarizes the number of shares of Class A Common Stock and
Class B Common Stock issuable under the Company's equity compensation plans as
of December 31, 2003. It does not include any additional shares of Class A
Common Stock that may be granted under the Amended Share Plan, which is subject
to stockholder approval at the 2004 Annual Meeting.
(c)
Number of
Securities Remaining
Available for
(a) (b) Future Issuance Under
Number of Securities Weighted-average Equity Compensation
To be Issued Upon Exercise Plans (Excluding
Exercise of Outstanding Price of Outstanding Securities Reflected
Options Options in Column (a))
----------------------- -------------------- ---------------------
Equity compensation plans
approved by stockholders:
Class A Common Stock ........... 3,967,624 (1) $ 22.75 1,811,461 (2) (3)
Class B Common Stock ........... 715,443 28.96 4,531,152 (4)
--------- ---------
Total .................... 4,683,067 23.70 6,342,613
========= =========
Equity compensation plans
not approved by
stockholders ................. None - None
(1) Excludes 107,045 of the equivalent shares of Class A Common Stock issuable
upon the exercise of outstanding stock options under the SIG option plan
assumed by the Company as part of its merger with SIG in 1996. Under SIG's
option plan, 357,179
-24-
SIG options are outstanding. Upon exercise, the holder of a SIG option is
entitled to receive (i) .2099 of a share of Class A Common Stock for each
option; plus (ii) an additional number of shares of Class A Common Stock
equal to the quotient of (a) $1.90 multiplied by the number of options
being exercised increased by an interest component from the time of the
merger to the exercise date, divided by (b) the average closing share price
for the Company's Class A Common Stock for the ten days prior to the
exercise date. These options have an exercise price of $0.02. The Company
has not made, and will not make, any other grants or awards of equity
securities under the SIG option plan.
(2) Of these shares, 468,526 shares of Class A Common Stock were available for
purchases pursuant to the Company's Employee Stock Purchase Plan. These
shares may be purchased by the employee at 85% of the market value under
the terms and conditions set forth in the plan.
(3) The number of securities remaining available for future issuance include
the restricted share units of Class A Common Stock awarded under the Share
Plan to Messrs. Coulter and Smith related to their performance during 2003,
since these share units were granted in 2004.
(4) Under the Incentive Plan approved at the 2003 Annual Meeting, a maximum
award of up to 238,482 shares measured by reference to Stock Units, plus
the Carryover Award Amount, as then effect, per year over a ten-year term
may be granted. A Stock Unit consists of restricted or deferred shares of
the Company's Class B Common Stock, each of which individual shares
represent one Stock Unit, and options to purchase shares of Class B Common
Stock, each of which individual options represents one-third of one Stock
Unit. The Carryover Award Amount consists of 476,964 restricted or deferred
shares and options to purchase 1,430,886 shares of Class B Common Stock.
The number of securities remaining available for future issuance include
the 67,010 deferred shares of Class B Common Stock awarded to Mr.
Rosenkranz related to his performance during 2003, since these deferred
shares were granted in 2004.
PENSION PLANS
The Reliance Standard Life Insurance Company Pension Plan (the "Pension Plan")
is a noncontributory, qualified defined benefit pension plan that provides
retirement and, in certain instances, death benefits to employees of RSLIC,
FRSLIC, DCM and other subsidiaries of the Company. Benefits under the Pension
Plan at the employee's normal retirement age, which for this purpose is 65, are
calculated as the employee's years of service up to 35 years multiplied by the
sum of (i) 0.85% of the employee's average compensation for the five consecutive
calendar years in the last ten years of participation prior to retirement during
which the employee was most highly paid ("Average Compensation") up to and
including the employee's Social Security covered compensation level plus (ii)
1.5% of the employee's Average Compensation in excess of their Social Security
covered compensation level. The benefits under the Pension Plan are increased by
1% of the employee's Average Compensation multiplied by the employee's years of
service in excess of 35. Average Compensation is subject to the statutory
limitation pursuant to the Code of $205,000 for 2004 (or any limits as required
by the Code in the future). Employees are eligible to participate in the Pension
Plan following the completion of one year of service and the attainment of age
21 and continue to accrue benefits generally until termination of employment,
death or retirement. Benefits vest after five years of service with RSLIC,
FRSLIC and/or DCM.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
The Reliance Standard Life Insurance Company Supplemental Executive Retirement
Plan (the "RSL SERP") provides certain key employees of RSLIC, FRSLIC, DCM and
other subsidiaries of the Company with the opportunity for additional
postemployment income, which would otherwise have been limited under the Pension
Plan due to the statutory limit on employee's compensation as calculated under
the Pension Plan pursuant to the Code. The RSL SERP is a nonqualified deferred
retirement plan and is unfunded. Retirement benefits under the RSL SERP are
calculated in a similar manner as those under the Pension Plan, except that
Average Compensation is limited under the plan to $306,820 for 2004 (adjusted
annually by the
-25-
Social Security Cost of Living Adjustment). Any benefits payable under the
Pension Plan are deducted from the benefit calculated under the RSL SERP. All
other terms and conditions of the RSL SERP are substantially identical to those
contained in the Pension Plan.
The estimated annual benefits payable under the Pension Plan and the RSL SERP at
the normal retirement age of 65 are set forth in the table below for the
indicated compensation and years of service classifications in the form of a
straight life annuity. The benefits calculations are based upon the Social
Security Act in effect for an employee retiring in 2003.
Years of Service as
Retirement Plan Participant and Estimated Amount of Benefits
Average ---------------------------------------------------------------------------
Compensation 10 15 20 25 30 35
------------ --------- -------- --------- --------- --------- ---------
$175,000...... $ 23,242 $ 34,862 $ 46,483 $ 58,104 $ 69,725 $ 81,345
200,000...... 26,992 40,487 53,983 67,479 80,975 94,470
225,000...... 30,742 46,112 61,483 76,854 92,225 107,595
250,000...... 34,492 51,737 68,983 86,229 103,475 120,720
300,000...... 41,992 62,987 83,983 104,979 125,975 146,970
350,000...... 49,492 74,237 98,983 123,729 148,475 173,220
400,000...... 56,992 85,487 113,983 142,479 170,975 199,470
The following executives named in the Summary Compensation Table shown under
"Executive Compensation" are covered by the Pension Plan and/or the RSL SERP:
Years of Credited Service
Name As of December 31, 2003
----------------- -------------------------
Chad W. Coulter......................................... 13
Lawrence E. Daurelle.................................... 9
Robert M. Smith, Jr..................................... 10
DCM PENSION PLAN
The Delphi Capital Management, Inc. Pension Plan for Robert Rosenkranz (the "DCM
Pension Plan") is a nonqualified, noncontributory defined benefit pension plan
that provides retirement benefits to Robert Rosenkranz and, in certain
instances, death benefits to his beneficiary. Benefits under the DCM Pension
Plan at Mr. Rosenkranz's normal retirement age, which for this purpose is 65,
are calculated as Mr. Rosenkranz's years of service up to 35 years multiplied by
the sum of (i) 0.85% of Mr. Rosenkranz's Average Compensation which is not in
excess of the Social Security covered compensation level plus (ii) 2.0% of Mr.
Rosenkranz's Average Compensation in excess of the Social Security covered
compensation level. The benefits under the DCM Pension Plan are increased by 1%
of Mr. Rosenkranz's Average Compensation multiplied by the years of service in
excess of 35. Benefits are reduced if Mr. Rosenkranz elects an earlier
retirement date. The DCM Pension Plan is unfunded; however, plan payments are
unconditionally guaranteed by the Company under a guarantee agreement between
the Company and Robert Rosenkranz. Mr. Rosenkranz does not participate in either
the Pension Plan or the RSL SERP. At December 31, 2003, Mr. Rosenkanz had 26
years of credited service covered by the DCM Pension Plan.
-26-
The estimated annual benefits payable under the DCM Pension Plan at the normal
retirement age of 65 are set forth in the table below for the indicated
compensation and years of service classifications in the form of a straight life
annuity. The benefits calculations are based upon the Social Security Act in
effect for an employee retiring in 2004.
Years of Service as
Retirement Plan Participant and Estimated Amount of Benefits
Average ---------------------------------------------------------------------------
Compensation 10 15 20 25 30 35
------------ --------- -------- -------- ---------- ---------- ----------
$1,300,000...... $ 254,677 $382,016 $509,355 $ 636,693 $ 764,032 $ 891,371
1,400,000...... 274,677 412,016 549,355 686,693 824,032 961,371
1,500,000...... 294,677 442,016 589,355 736,693 884,032 1,031,371
1,600,000...... 314,677 472,016 629,355 786,693 944,032 1,101,371
1,700,000...... 334,677 502,016 669,355 836,693 1,004,032 1,171,371
1,800,000...... 354,677 532,016 709,355 886,693 1,064,032 1,241,371
1,900,000...... 374,677 562,016 749,355 936,693 1,124,032 1,311,371
2,000,000...... 394,677 592,016 789,355 986,693 1,184,032 1,381,371
2,100,000...... 414,677 622,016 829,355 1,036,693 1,244,032 1,451,371
EMPLOYMENT CONTRACTS
The Company has entered into an agreement with Mr. Smith which provides that if
he is terminated without good and reasonable cause he will be entitled to a
severance payment up to a maximum of twelve months of base salary, plus health
benefits.
The Company entered into an Employment Agreement with Mr. Ilg, in July 2003,
pursuant to which Mr. Ilg serves as the Chairman of SNCC. The agreement entitles
Mr. Ilg to participate in the benefit plans of SNCC and other perquisites
maintained for SNCC's senior executives, established his minimum base salary at
$441,000, and provides for an annual performance bonus, at the discretion of the
SNCC board of directors and subject to the review of the Compensation Committee.
If Mr. Ilg's employment is terminated by SNCC without cause (as defined in the
agreement) or if he terminates his employment for good reason (as defined in the
agreement), he will be entitled to a lump-sum severance payment equal to his
annual base salary for the longer of the then-remaining term of the employment
period under the agreement (which ends on December 31, 2007) or eighteen months,
and to the continuation of benefits for the longer of such periods. In addition,
if such termination of Mr. Ilg's employment occurs subsequent to a change of
ownership of the Company, as defined in the Share Plan, and so long as certain
performance conditions specified in the employment agreement have been met, Mr.
Ilg will, unless the vesting of certain options granted to him in 2003 (see
"Option Grants in Last Fiscal Year") is fully accelerated, be entitled to
receive the fair value of such options pursuant to the Black-Scholes option
pricing model.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Meehan, O'Connor and Sherman, the members of the Compensation Committee
during 2003, are not "insiders" within the meaning of the Securities Act and
there were no "interlocks" within the meaning of the Securities Act.
-27-
PERFORMANCE GRAPH
In order to further assist stockholders in analyzing disclosure on compensation,
a graph comparing the total return on the Company's Class A Common Stock to the
total return on the common stock of the companies included in the Standard &
Poor's 500 Index ("S&P 500 Index") and the Standard & Poor's Insurance Index
("S&P Insurance Index") has been provided. The S&P Insurance Index is based on
the Standard & Poor's ("S&P") Insurance Composite Index for the years from 1993
through 2001, which index was discontinued by S&P at the end of 2001. In 2002,
S&P introduced the S&P 500 Insurance Index which includes companies in the
life/health, multi-line and property-casualty insurance businesses, similar to
those included in the former S&P Insurance Composite Index, and also includes
insurance brokers. The performance graph should be analyzed in connection with
the tables on the preceding pages detailing the payment of compensation and the
granting of employee stock options. The graph reflects a $100 investment in the
Company's Class A Common Stock and the indices reflected therein as of December
31, 1998, and reflects the value of that investment on various dates from
December 31, 1993 through December 31, 2003.
As of
December 31: 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
------------ ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Delphi 37 28 32 53 82 100 60 76 67 76 110
S&P 500
Index 34 34 47 58 78 100 121 110 97 76 97
S&P Insurance
Index 37 38 53 66 97 100 104 144 125 99 120
The following table presents the average annual total returns on the Company's
Class A Common Stock, the S&P 500 Index and the S&P Insurance Index for the
periods presented. The average annual total returns are based on the growth or
decline in the value of a $100 investment in the Company's Class A Common Stock
and the indices depicted in the performance graph, respectively, for the periods
indicated in the table. The average annual total return is the percentage rate
that would have produced the same result, on a compounded basis, if the rate of
growth or decline in the value of the Company's Class A Common Stock
-28-
and the indices had been constant throughout the period. To illustrate, a
hypothetical cumulative total return of 100% over 10 years would result in an
average annual total return of 7.18%, which is the constant annual rate that
would equal 100% growth on a compounded basis in 10 years. Such calculation does
not take into account any brokerage commissions or taxes payable by a holder of
the Company's Class A Common Stock that would have reduced returns.
The following table does not reflect the average annual total returns of the
Company's Class A Common Stock or the indices for all periods reflected in the
above performance graph, and is not intended as a substitute for, or to be given
greater weight than, the information contained in such graph. An investment
cannot be directly made in the indicated indices. While average annual total
returns represent one means of comparing the performance of an investment in the
Company's Class A Common Stock to that of such indices for the indicated
periods, it should be emphasized that the performance of the Company's Class A
Common Stock has not been and will not be constant over time, but varies from
year to year, and that average annual total returns represent averaged figures
as opposed to actual year-to-year performance. Past performance is not a
guarantee of future results.
Average Annual Total Returns for
the period ended December 31, 2003: 1 Year 3 Years 5 Years 10 Years
------- ------- ------- ---------
Delphi 43.36% 12.80% 1.86% 11.45%
S&P 500 Index 28.68% -4.05% -0.57% 11.07%
S&P Insurance Index 21.02% -5.90% 3.67% 12.31%
REPORT ON EXECUTIVE COMPENSATION
Compensation of the Company's executive officers (including the named executive
officers) is supervised by the Stock Option and Compensation Committee of the
Board of Directors (the "Compensation Committee"). The objective of the
Company's compensation program is to provide a total compensation package that
will enable the Company to attract, motivate and retain outstanding individuals
and to reward such individuals for enhancing the Company's performance and
stockholder value.
To implement this objective, the total annual compensation for executive
officers of the Company and its subsidiaries is determined by one base element,
salary, and two incentive elements, annual bonus and grants of share-based
awards under the Employee Option Plan and the Share Plan or, in the case of Mr.
Rosenkranz, the Incentive Plan.
Base salaries for executive officers of the Company and its subsidiaries are
determined by taking into account salary levels for executive officers at other
companies with comparable responsibilities, as well as an evaluation of the
individual executive officer's overall performance and compensation level at the
Company during the prior year and such other factors as may be deemed relevant
by the Compensation Committee and by management in making its proposals to the
committee.
The level of the annual bonuses for the executive officers of the Company are
established by the Compensation Committee according to the performance of the
Company and the individual performance of the executive officer during the year,
and such other factors as are deemed relevant by the committee and by
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management in making its proposals to the committee. For Mr. Rosenkranz, formal
bonus criteria were in effect for 2003 which provided him with opportunity to
earn a partial annual bonus of up to 60% of base salary based on the operating
return on equity percentage achieved by the Company for 2003, and such partial
bonus was fully earned. The remaining portion of the bonus ($595,235) was
determined in the discretion of the Compensation Committee based on its
performance evaluation with respect to various specified factors, including
elements of the Company's financial performance other than that captured in the
operating return on equity percentage and improvement in the valuation of the
Company's stock relative to industry peers.
For executive officers employed in RSLIC's insurance operations, the level of
cash bonus paid is determined under the Senior Management Incentive Plan
administered by the Compensation Committee of RSLIC's Board of Directors. The
criterion determining the maximum level of bonus attainable under this plan
consists of RSLIC's operating performance for the year relative to the
pre-determined target, and such bonus further depends on an assessment of the
particular individual's performance. The level of the annual bonus for the
executive officers employed in SNCC's insurance operations is established based
on the operating performance of SNCC for the year and the individual performance
of such executive officer for the year. In the cases of both RSL and SNCC
employees, attainable bonus as a percentage of base salary generally increases
with the level of responsibility of the executive officer.
The principal method for Mr. Rosenkranz's long-term incentive compensation is
the Incentive Plan, which is described above under "Executive Compensation -
Incentive Plan." Under this plan, he is eligible to receive annual awards in the
discretion of the Compensation Committee based on such performance-related and
other factors for the applicable year as the committee deems relevant, or based
on the achievement of such objective performance goals as were specified by the
committee in advance for such year. The ultimate value to Mr. Rosenkranz of
awards under the Incentive Plan will depend on the Company's stockholder
returns, since the value of any restricted or deferred shares awarded will
fluctuate with such returns, and options awarded will have value only to the
extent of subsequent Company stock price appreciation. Mr. Rosenkranz received a
discretionary award of 67,010 deferred shares of Class B Common Stock under the
Incentive Plan for 2003.
For executive officers other than Mr. Rosenkranz, the principal method for
long-term incentive compensation is the Employee Option Plan and the Share Plan
described above under "Executive Compensation - Employee Stock Option Plan" and
"Executive Compensation - 2003 Employee Long-Term Incentive and Share Award
Plan." The compensation under the Employee Option Plan consists of stock option
grants and the compensation under the Share Plan consists of grants of stock
options, restricted shares, restricted share units, and other share-based
awards. Those grants are designed to promote the identity of long-term interests
between key employees of the Company and its subsidiaries and the Company's
stockholders, since their value to the employee will increase or decrease with
the value of the Company's common stock. Accordingly, key individuals are
rewarded in a manner that is commensurate with increases in stockholder value.
The sizes of individual option grants are determined based on the individual's
position with and contributions to the Company (or, in the case of new hires,
the individual's anticipated contributions). These grants typically include five
year vesting periods to encourage continued employment, but in certain cases may
vest over a shorter period or immediately.
Section 162(m) of the Code limits deductibility of certain compensation for the
Chief Executive Officer and the additional four highest paid executive officers
in excess of $1 million per year. The Compensation Committee intends to
establish and maintain executive compensation levels and programs that will be
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competitive within the industry and will attract and retain highly talented
individuals. Executive compensation will be structured to avoid limitations on
deductibility where this result can be achieved consistent with the Company's
compensation goals. To this end, an Annual Incentive Compensation Plan is being
submitted for stockholder approval at the 2004 Annual Meeting. See "Proposal to
Adopt the Annual Incentive Compensation Plan."
Donald A. Sherman, Stock Option and Compensation Committee Chairman
James N. Meehan
Philip R. O'Connor
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to two consulting agreements, RSLIC and the Company pay to a wholly
owned subsidiary of Rosenkranz & Company certain fees associated with the
formulation of the business and investment strategies of the Company and its
subsidiaries. These fees amounted to $4.5 million for the year ended December
31, 2003. These fees generally increase at an annual rate of 10.0% and are
expected to be $4.9 million for calendar year 2004. Pursuant to a cost-sharing
arrangement, a subsidiary of the Company received payments from a wholly-owned
subsidiary of Rosenkranz & Company, Acorn Partners, and various other entities
in which Mr. Rosenkranz has direct and indirect beneficial interests, in respect
of expenses associated with the sharing of office space and office personnel.
The total amount of these payments for 2003 was $3.6 million. Of the aggregate
amounts paid for services rendered during the year ended December 31, 2003
pursuant to the consulting agreements, $2.6 million was earned by Mr. Rosenkranz
due to his indirect and direct financial interests in Rosenkranz & Company.
Management believes that the fees charged under these agreements are comparable
to fees charged by unaffiliated third parties for consulting services of
considerably narrower scope than the services provided thereunder. During 2003,
subsidiaries of the Company and other companies in which the Company had a
financial interest maintained arrangements with entities in which Mr. Rosenkranz
has a financial interest, under which $21.4 million in assets are presently
managed pursuant to a discrete investment program. Under such arrangement,
asset-based and performance-based fees are paid to such entities, which also
provide similar services to unaffiliated third parties on comparable terms.
Management believes that such fees, which totaled $0.8 million in 2003, are
comparable to fees charged by unaffiliated third parties in connection with
similar investment programs. Also in 2003, subsidiaries of the Company
transferred various investments having an aggregate market value of $24.3
million to a newly-formed investment partnership whose general partners are
controlled by Mr. Rosenkranz and in which Mr. Rosenkranz has a financial
interest in exchange for limited partner interests in such partnership in an
amount of $18.0 million and $6.3 million in cash. The partnership has waived, as
to the Company's subsidiaries, the imposition of the management and incentive
fees that otherwise apply to investments by its limited partners.
Pursuant to various investment management agreements, subsidiaries of the
Company paid a total of $332,097 in fees during 2003 to an investment advisor,
Hyperion Capital Management, Inc. ("Hyperion"), of which Mr. Ranieri, who
retired from the Company's Board of Directors in November 2003, is the Chairman.
Management believes that the fees charged by Hyperion under the investment
management agreements are comparable to the fees charged by other unaffiliated
investment advisors for these types of services. In addition, in 2003, a
subsidiary of the Company had an equity investment of $1.0 million in a limited
partnership in which Mr. Ranieri held a substantial equity interest. The general
partner of such partnership,
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which was formed in connection with the acquisition of a banking institution,
was controlled by Mr. Ranieri. The terms of the Company's investment were the
same as those of Mr. Ranieri's and the third party investors' in the
partnership, and Mr. Ranieri did not receive any management fees or other
compensation in respect of such investment.
INDEPENDENT AUDITOR
The Audit Committee engaged the firm of Ernst & Young LLP to serve as the
Company's independent auditor for 2003 and 2004. A representative of Ernst &
Young LLP is expected to be present at the Annual Meeting to respond to
appropriate questions and to make a statement if such representative desires.
For 2003 and 2002, Ernst & Young LLP billed the Company for the following
professional services:
Audit Fees. Fees for audit services were $834,000 in 2003 and $621,000 in 2002,
including fees associated with the annual audit, reviews of the condensed
financial statements included in the Company's quarterly reports on Form 10-Q
and statutory audits required for the Company's insurance subsidiaries.
Audit-Related Fees. Fees for audit-related services were $177,000 in 2003 and
$416,000 in 2002. Those services consisted of assistance with the documentation
of processes and controls related to the Sarbanes-Oxley internal control
attestation, actuarial attestation services and, in 2002, permitted internal
audit outsourcing.
Tax Fees. Fees for tax services, including tax compliance, advice and planning,
were $10,000 in 2003 and $28,000 in 2002.
All Other Fees. No services other than the types described above were rendered
by Ernst & Young LLP during 2003 or 2002.
Audit and Non-audit Services Pre-approval Policy. In 2003, the Audit Committee
adopted a formal policy concerning the pre-approval of audit and non-audit
services to be provided by the Company's independent auditor. The policy
requires that the Audit Committee pre-approve all services to be performed by
the independent auditor, including audit services, audit-related services, tax
services and permitted non-audit services. Pursuant to such policy, the annual
audit engagement terms and fees are subject to the specific pre-approval of the
Audit Committee, and such committee will periodically pre-approve fee levels or
budget amounts for specifically enumerated categories of other services. The
term of any such pre-approval is 12 months from the date thereof, unless the
Audit Committee specifically provides for a different period. Services not
falling within such categories of pre-approved services require the specific
pre-approval of the Audit Committee. The Audit Committee may delegate
pre-approval authority to one or more of its members, and has presently
delegated such authority to its Chairman. The Audit Committee pre-approved all
services provided by Ernst & Young LLP during 2003.
-32-
FINANCIAL STATEMENTS AVAILABLE
Consolidated financial statements for Delphi Financial Group, Inc. are included
in the Company's 2003 Annual Report on Form 10-K for the year ended December 31,
2003, which is being mailed together with this Proxy Statement. Additional
copies of the Form 10-K and the Annual Report to Stockholders may be obtained
without charge by submitting a written request to the Investor Relations
Department, Delphi Financial Group, Inc., 1105 North Market Street, Suite 1230,
Wilmington, Delaware 19899.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
To the Company's knowledge, based solely on its review of Forms 3, 4 and 5 and
amendments thereto furnished to the Company pursuant to Section 16 of the
Securities Exchange Act of 1934 and written representations that no other
reports were required for such persons, all persons subject to these reporting
requirements filed the required reports on a timely basis.
SUBMISSION OF STOCKHOLDER PROPOSALS
Proposals of stockholders intended to be presented at the 2005 Annual Meeting of
Stockholders must be received by the Company at 1105 North Market Street, Suite
1230, Wilmington, Delaware 19899, by December 1, 2004.
By Order of the Board of Directors,
/s/ ROBERT ROSENKRANZ
Robert Rosenkranz
Chairman of the Board
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APPENDIX A
CHARTER OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS OF
DELPHI FINANCIAL GROUP, INC.
The Board of Directors of Delphi Financial Group, Inc. (the "Company") has
established a committee known as the Audit Committee. This Charter confirms and
describes the purpose, composition and responsibilities and processes of the
Audit Committee.
PURPOSE
The Audit Committee (the "Committee") shall provide assistance to the Board of
Directors of the Company (the "Board") in fulfilling its oversight
responsibility relating to (a) the integrity of the Company's financial
statements, (b) the Company's compliance with legal and regulatory requirements,
(c) the qualifications and independence of the Company's independent auditor,
(d) the performance of the Company's internal audit function and independent
auditor, and (e) the preparation of the report of the Committee that SEC rules
require be included in the Company's annual proxy statement.
COMPOSITION
The Committee shall be comprised of at least three members of the Board who meet
all requirements of the SEC and the New York Stock Exchange relating to
independence and other qualifications, including at least one member meeting any
special requirements relating to financial or other expertise. All
determinations involving the application of such requirements shall be made by
the Board. No member of the Committee shall simultaneously serve on the audit
committees of more than two other public companies.
RESPONSIBILITIES AND PROCESSES
The Committee will:
- Be directly responsible for the appointment, compensation, retention and
oversight of the work of the Company's independent auditor, who will report
directly to the Committee, and resolve any disagreements between Company
management and the independent auditor regarding financial reporting.
- Obtain and review, at least annually, a report by the Company's independent
auditor describing such auditor's internal quality control procedures; any
material issues raised by the most recent quality control review, or peer
review, of such auditor or by any inquiry or investigation by governmental
or professional authorities, within the preceding five years, respecting
one or more independent audits carried out by such auditor, and any steps
taken to deal with any such issues.
- At least annually, assess the independence of the Company's independent
auditor, and, to assist in this assessment, obtain from such auditors a
description of all of their relationships and professional services
pertaining to the Company.
- Review with the Company's independent auditor any audit problems or
difficulties and management's response.
A-1
- Establish policies and procedures for the pre-approval, as deemed
appropriate, of all non-audit services permitted by law to be performed by
the Company's independent auditor.
- Require that management obtain the Committee's approval of any appointment,
termination, or replacement decisions with respect to the Company's
internal audit function.
- Review the activities of the Company's independent and internal auditors,
including the overall scope and plans for their respective audits and
reviews, the coordination of such audits and reviews, and the fees or other
compensation to be paid to such auditors.
- Require that the Company's internal auditors provide to the Committee, on
at least a quarterly basis, a report on their activities, addressing such
matters as the Committee may require.
- Periodically, meet separately with each of the Company's management, its
independent auditor and its internal auditors.
- Review with the Company's management and its independent auditor the
Company's quarterly financial statements prior to the filing of the
Company's Form 10-Q, including the Company's disclosures under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and require that such auditors discuss with the Committee
their review of the interim financial information contained therein and any
other matters required to be communicated to the Committee by the
independent auditor under generally accepted auditing standards, as then in
effect ("GAAS").
- Prior to the filing of the Company's Annual Report on Form 10-K, (i)
discuss with the Company's independent auditor the results of the annual
audit and require that the independent auditor discuss any matters related
to such audit that are required to be communicated to the Committee under
GAAS and (ii) review with the Company's management and its independent
auditor the Company's audited financial statements, including the Company's
disclosures under "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
- Review and discuss the general types of presentations and information to be
included in earnings press releases and financial information and earnings
guidance provided to analysts and rating agencies.
- Discuss the Company's policies with respect to risk assessment and risk
management.
- Review periodically with the chief legal officer of the Company legal and
regulatory matters that may have a material impact on the Company's
consolidated financial statements, ethics and compliance practices and
material reports or inquiries received from regulators or governmental
agencies.
- Establish a policy relating to the hiring of employees and former employees
of the Company's independent auditor.
- Establish procedures for the receipt, retention and treatment of complaints
received by the Company regarding accounting, internal accounting controls,
or auditing matters.
- Establish procedures for the confidential and anonymous submission by
employees of concerns regarding questionable accounting or auditing
matters.
- Submit this Charter to the Board for approval and review and reassess this
Charter from time to time as appropriate, but no less frequently than
annually.
A-2
- Conduct an annual evaluation of the performance by the Committee of the
responsibilities set forth in this Charter.
- Cause a report of the Committee to be included in each proxy statement of
the Company, and require that the Company include a copy of this Charter in
its proxy statement at least triennially.
- Report regularly to the Board, including the submission to the Board of the
minutes of all meetings of the Committee.
- Require that the Company provide for appropriate funding, as determined by
the Committee, in its capacity as a committee of the Board, for payment of
compensation to the Company's independent auditor for work relating to
audit reports or performing other review and attest services for the
Company; for compensation to advisers retained by the Committee pursuant to
this Charter; and for ordinary administrative expenses of the Committee
that are necessary or appropriate in carrying out its responsibilities.
AUTHORITY
In carrying out its responsibilities, the Committee shall have the authority, at
the Company's expense, to:
- Conduct such investigations with respect to the Company's operations as it
deems necessary or appropriate, with full access to the Company's books,
records, facilities and personnel.
- Retain independent legal, accounting or other advisers as it deems
necessary or appropriate in connection with the carrying out of its
responsibilities.
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APPENDIX B
DELPHI FINANCIAL GROUP, INC.
2003 EMPLOYEE LONG-TERM INCENTIVE AND SHARE AWARD PLAN
1. PURPOSES
The purposes of the 2003 Long-Term Incentive and Share Award Plan are to advance
the interests of Delphi Financial Group, Inc. and its shareholders by providing
a means to attract, retain, and motivate employees of the Company and its
Subsidiaries and Affiliates and other participants upon whose judgment,
initiative and efforts the continued success, growth and development of the
Company is dependent.
2. DEFINITIONS
For purposes of the Plan, the following terms shall be defined as set forth
below:
(a) "AFFILIATE" means any entity other than the Company and its
Subsidiaries that is designated by the Board or the Committee as a participating
employer under the Plan; provided, however, that the Company directly or
indirectly owns at least 30% of the combined voting power of all classes of
stock of such entity or at least 30% of the ownership interests in such entity.
(b) "AWARD" means any Option, Restricted Share, Restricted Share Unit, or
Other Share-Based Award granted to an Eligible Person under the Plan.
(c) "AWARD AGREEMENT" means any written agreement, contract, or other
instrument or document evidencing an Award.
(d) "BOARD" means the Board of Directors of the Company.
(e) "CODE" means the Internal Revenue Code of 1986, as amended from time to
time. References to any provision of the Code shall be deemed to include
successor provisions thereto and regulations thereunder.
(f) "COMMITTEE" means the Stock Option and Compensation Committee of the
Board, or such other Board committee (which may include the entire Board) as may
be designated by the Board to administer the Plan; provided, however, that,
unless otherwise determined by the Board, the Committee shall consist of two or
more directors of the Company, each of whom is a "non-employee director" within
the meaning of Rule 16b-3 under the Exchange Act, to the extent applicable, and
each of whom is an "outside director" within the meaning of Section 162(m) of
the Code, to the extent applicable; provided, further, that the mere fact that
the Committee shall fail to qualify under either of the foregoing requirements
shall not invalidate any Award made by the Committee which Award is otherwise
validly made under the Plan.
B-1
(g) "COMPANY" means Delphi Financial Group, Inc., a corporation organized
under the laws of Delaware, or any successor corporation.
(h) "ELIGIBLE PERSON" means (i) an employee of the Company, a Subsidiary or
an Affiliate, including any director who is an employee, or (ii) another
individual who, in the Committee's judgment, can make substantial contributions
to the long-term profitability and value of the Company, its Subsidiaries or
Affiliates. Notwithstanding any provision of this Plan to the contrary, an Award
may be granted to an employee, in connection with his or her hiring, prior to
the date the employee first performs services for the Company, a Subsidiary or
an Affiliate; provided, however, that any such Award shall not become vested
prior to the date the employee first performs such services
(i) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended
from time to time. References to any provision of the Exchange Act shall be
deemed to include successor provisions thereto and regulations thereunder.
(j) "FAIR MARKET VALUE" means, with respect to Shares or other property,
the fair market value of such Shares or other property determined by such
methods or procedures as shall be established from time to time by the
Committee. If the Shares are listed on any established stock exchange or a
national market system, unless otherwise determined by the Committee in good
faith, the Fair Market Value of Shares shall mean the closing price per Share on
the applicable date (or, if the Shares were not traded on that day, the next
preceding day on which the Shares were traded) on the principal exchange or
market system on which the Shares are traded, as such prices are officially
reported on such exchange.
(k) "ISO" means any Option intended to be and designated as an incentive
stock option within the meaning of Section 422 of the Code.
(l) "NQSO" means any Option that is not an ISO.
(m) "OPTION" means a right, granted under Section 5(b), to purchase Shares.
(n) "OTHER SHARE-BASED AWARD" means a right, granted under Section 5(e),
that relates to or is valued by reference to Shares.
(o) "PARTICIPANT" means an Eligible Person who has been granted an Award
under the Plan.
(p) "PLAN" means this 2003 Employee Long-Term Incentive and Share Award
Plan.
(q) "RESTRICTED SHARES" means an Award of Shares under Section 5(c) that
may be subject to certain restrictions and to a risk of forfeiture.
(r) "RESTRICTED SHARE UNIT" means a right, granted under Section 5(d), to
receive Shares or cash at the end of a specified deferral period.
B-2
(s) "RULE 16b-3" means Rule 16b-3, as from time to time in effect and
applicable to the Plan and Participants, promulgated by the Securities and
Exchange Commission under Section 16 of the Exchange Act.
(t) "SHARES" means Class A common stock, $.01 par value per share, of the
Company.
(u) "SUBSIDIARY" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if each of the
corporations (other than the last corporation in the unbroken chain) owns shares
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in the chain.
3. ADMINISTRATION
(a) AUTHORITY OF THE COMMITTEE. The Plan shall be administered by the
Committee, and the Committee shall have full and final authority to take the
following actions, in each case subject to and consistent with the provisions of
the Plan:
(i) to select Eligible Persons to whom Awards may be granted;
(ii) to designate Affiliates;
(iii) to determine the type and number of Awards to be granted, the
number of Shares to which an Award may relate, the terms and conditions of any
Award granted under the Plan (including, but not limited to, any exercise price,
grant price, or purchase price, any restriction or condition, any schedule for
lapse of restrictions or conditions relating to transferability or forfeiture,
exercisability, or settlement of an Award, and waiver or accelerations thereof,
and waivers of performance conditions relating to an Award, based in each case
on such considerations as the Committee shall determine), and all other matters
to be determined in connection with an Award;
(iv) to determine whether, to what extent, and under what
circumstances an Award may be settled, or the exercise price of an Award may be
paid, in cash, Shares, other Awards, or other property, or an Award may be
canceled, forfeited, exchanged, or surrendered;
(v) to determine whether, to what extent, and under what circumstances
cash, Shares, other Awards, or other property payable with respect to an Award
will be deferred either automatically, at the election of the Committee, or at
the election of the Eligible Person;
(vi) to prescribe the form of each Award Agreement, which need not be
identical for each Eligible Person;
(vii) to adopt, amend, suspend, waive, and rescind such rules and
regulations and appoint such agents as the Committee may deem necessary or
advisable to administer the Plan;
B-3
(viii) to correct any defect or supply any omission or reconcile any
inconsistency in the Plan and to construe and interpret the Plan and any Award,
rules and regulations, Award Agreement, or other instrument hereunder;
(ix) to accelerate the exercisability or vesting of all or any portion
of any Award or to extend the period during which an Award is exercisable;
(x) to determine whether uncertificated Shares may be used in
satisfying Awards and otherwise in connection with the Plan; and
(xi) to make all other decisions and determinations as may be required
under the terms of the Plan or as the Committee may deem necessary or advisable
for the administration of the Plan.
(b) MANNER OF EXERCISE OF COMMITTEE AUTHORITY. The Committee shall have
sole discretion in exercising its authority under the Plan. Any action of the
Committee with respect to the Plan shall be final, conclusive, and binding on
all persons, including but not limited to the Company, Subsidiaries, Affiliates,
Eligible Persons, any person claiming any rights under the Plan from or through
any Eligible Person, and shareholders. The express grant of any specific power
to the Committee, and the taking of any action by the Committee, shall not be
construed as limiting any power or authority of the Committee. The Committee may
delegate to other members of the Board or officers or employees of the Company
or any Subsidiary or Affiliate the authority, subject to such terms as the
Committee shall determine, to perform administrative functions.
(c) LIMITATION OF LIABILITY. Each member of the Committee shall be entitled
to, in good faith, rely or act upon any report or other information furnished to
him or her by any officer or employee of the Company or any Subsidiary or
Affiliate, the Company's independent certified public accountants, or other
professional retained by the Company to assist in the administration of the
Plan. No member of the Committee, and no officer or employee of the Company
acting on behalf of the Committee, shall be personally liable for any action,
determination, or interpretation taken or made in good faith with respect to the
Plan, and all members of the Committee and any officer or employee of the
Company acting on their behalf shall, to the fullest extent permitted by law, be
indemnified and protected by the Company with respect to any such action,
determination, or interpretation.
(d) LIMITATION ON COMMITTEE'S DISCRETION. Anything in this Plan to the
contrary notwithstanding, in the case of any Award which is intended to qualify
as "qualified performance-based compensation" within the meaning of Section
162(m) of the Code, the Committee shall have no discretion to increase the
amount of compensation payable under the Award to the extent such an increase
would cause the Award to lose its qualification as such qualified
performance-based compensation.
B-4
4. SHARES SUBJECT TO THE PLAN
(a) Subject to adjustment as provided in Section 4(c) hereof, the total
number of Shares reserved for issuance in connection with Awards under the Plan
shall be 2,500,000. No Award may be granted if the number of Shares to which
such Award relates, when added to the number of Shares previously issued under
the Plan and the number of shares to which outstanding Awards then relate,
exceeds the number of Shares reserved under the preceding sentence. If any
Awards are forfeited, canceled, terminated, exchanged or surrendered or such
Award is settled in cash or otherwise terminates without a distribution of
Shares to the Participant, any Shares counted against the number of Shares
reserved and available under the Plan with respect to such Award shall, to the
extent of any such forfeiture, settlement, termination, cancellation, exchange
or surrender, again be available for Awards under the Plan. Upon the exercise of
any Award granted in tandem with any other Awards, such related Awards shall be
canceled to the extent of the number of Shares as to which the Award is
exercised.
(b) Subject to adjustment as provided in Section 4(c) hereof, the maximum
number of Shares (i) with respect to which Options may be granted during a
calendar year to any Eligible Person under this Plan shall be 750,000 Shares,
and (ii) with respect to Restricted Shares, Restricted Share Units or Other
Share-Based Awards intended to qualify as qualified performance-based
compensation within the meaning of Section 162(m) of the Code, shall be the
equivalent of 225,000 Shares during a calendar year to any Eligible Person under
this Plan.
(c) In the event that the Committee shall determine that any dividend in
Shares, recapitalization, Share split, reverse split, reorganization, merger,
consolidation, spin-off, combination, repurchase, or share exchange, or other
similar corporate transaction or event, affects the Shares or the value thereof
such that an adjustment is appropriate in order to prevent dilution or
enlargement of the rights of Eligible Persons under the Plan, then the Committee
shall make such equitable changes or adjustments as it deems appropriate,
including but not limited to the adjustment, in such manner as it may deem
equitable, of any or all of (i) the number and kind of shares which may
thereafter be issued under the Plan, (ii) the number and kind of shares, other
securities or other consideration issued or issuable in respect of outstanding
Awards, and (iii) the exercise price, grant price, or purchase price relating to
any Award; provided, however, in each case that, with respect to ISOs, such
adjustment shall be made in accordance with Section 424(a) of the Code, unless
the Committee determines otherwise. In addition, subject to the limitations set
forth in Section 3(d) and Section 7 hereof, the Committee is authorized to make
adjustments in the terms and conditions of, and the criteria and performance
objectives, if any, included in, Awards in recognition of unusual or
non-recurring events (including, without limitation, events described in the
preceding sentence) affecting the Company or any Subsidiary or Affiliate or the
financial statements of the Company or any Subsidiary or Affiliate, or in
response to changes in applicable laws, regulations, or accounting principles.
(d) Any Shares distributed pursuant to an Award may consist, in whole or in
part, of authorized and unissued Shares or treasury Shares including Shares
acquired by purchase in the open market or in private transactions.
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5. SPECIFIC TERMS OF AWARDS
(a) GENERAL. Awards may be granted on the terms and conditions set forth in
this Section 5. In addition, the Committee may impose on any Award or the
exercise thereof, at the date of grant or thereafter (subject to Section 9(d)),
such additional terms and conditions, not inconsistent with the provisions of
the Plan, as the Committee shall determine, including terms regarding forfeiture
of Awards or continued exercisability of Awards in the event of termination of
service by the Eligible Person.
(b) OPTIONS. The Committee is authorized to grant Options, which may be
NQSOs or ISOs, to Eligible Persons on the following terms and conditions:
(i) EXERCISE PRICE. The exercise price per Share purchasable under an
Option shall be determined by the Committee; provided, however, that the
exercise price per Share of an Option shall not be less than the Fair Market
Value of a Share on the date of grant of the Option. The Committee may, without
limitation, set an exercise price that is based upon achievement of performance
criteria if deemed appropriate by the Committee.
(ii) OPTION TERM AND EXERCISE PERIOD. The term of each Option shall be
determined by the Committee; provided, however, that such term shall not be
longer than ten years from the date of grant of the Option. The last day of the
term of an Option shall be referred to herein as its "Expiration Date." Subject
to Sections 5(b)(iii) through 5(b)(vi), Options may be exercised by a
Participant only for so long as such Participant is employed by the Company.
(iii) TERMINATION OF EMPLOYMENT EXCEPT BY DEATH, DISABILITY OR
DISCHARGE FOR CAUSE. Unless otherwise specified in an Award Agreement, in the
event that the employment of a Participant by the Company, its Subsidiaries or
Affiliates shall terminate for any reason other than death, disability, or
discharge for cause, Options may be exercised only within ninety (90) days after
such termination of employment or such longer period as may be established by
the Committee at the time of grant or thereafter, but (unless otherwise
determined by the Committee) only to the extent such Option was exercisable on
the last day of employment, and in no event may an Option be exercised after its
Expiration Date. Any portion of the Option which was not exercisable on such
last day shall expire immediately. Whether an authorized leave of absence or
absence for military or governmental service shall constitute termination of
employment for purposes of the Plan shall be determined by the Committee, which
determination shall be final and conclusive.
B-6
(iv) DEATH OR DISABILITY. Unless otherwise specified in an Award
Agreement, in the event a Participant shall die or become disabled while in the
employ of the Company, a Subsidiary or an Affiliate, Options may be exercised at
any time within one (1) year after the Participant's death or disability or such
longer period as may be established by the Committee at the time of grant or
thereafter, but (unless otherwise determined by the Committee) only to the
extent that such Option was exercisable on the last day of employment, and in no
event may an Option be exercised after its Expiration Date. During such one-year
period, the Option may be exercised by the Participant or a representative, or
in the case of death, by the executors or administrators of the Participant or
by any person or persons who shall have acquired the Option directly from the
Participant by bequest or inheritance. Whether a Participant shall have become
disabled for the purposes of the Plan shall be determined by the Committee,
which determination shall be final and conclusive.
(v) DISCHARGE FOR CAUSE. If a Participant is discharged for cause, all
unexercised Options shall terminate as of the date of discharge. Whether a
Participant is discharged for cause for purposes of the Plan shall be determined
by the Committee, which determination shall be final and conclusive.
(vi) RETIREMENT. Notwithstanding the provisions of Section 5(b)(iii)
hereof, the Committee may, at the time of grant of an Option or thereafter,
permit the Participant to exercise Options up to one (1) year following the
Participant's retirement under the Company's, its Subsidiary's or its
Affiliate's, as applicable, retirement policy or such longer period as may be
established by the Committee at the time of grant or thereafter; provided that
in no event may an Option be exercised after its Expiration Date.
(vii) NON-EMPLOYEE OPTIONEES. Section 5(b)(ii) (except for the first
sentence thereof) through (vi) shall not apply with respect to Options having
been granted to a Participant who is not an employee of the Company, a
Subsidiary, or an Affiliate (a "Non-Employee Optionee"). In the case of any such
Options, the Award Agreement shall set forth the applicable limitations on the
exercisability thereof, and the effect on such exercisability of death,
disability and any other events provided for therein, at the time of grant or
thereafter.
(viii) RIGHT OF COMPANY. In the case of a termination of an Optionee's
employment by reason of death, disability, retirement or discharge other than
for cause (or, in the case of a Non-Employee Optionee, to the extent provided in
the Award Agreement at the time of grant or thereafter) the Company may, but is
not obligated to, purchase unexercised Options held by such Participant and pay
such person the amount of cash equal to (i) the aggregate Fair Market Value of
the Shares underlying such Option (to the extent that such Options would have
been exercisable by the Participant upon termination of employment) as of the
date of termination of employment (or, in the case of a Non-Employee Optionee,
the date provided in the Award Agreement at the time of grant or thereafter),
less (ii) the aggregate exercise price under such option.
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(ix) TIME AND METHOD OF EXERCISE. The Committee shall determine at the
date of grant or thereafter the time or times at which an Option may be
exercised in whole or in part (including, without limitation, upon achievement
of performance criteria if deemed appropriate by the Committee), the methods by
which such exercise price may be paid or deemed to be paid (including, without
limitation, broker-assisted exercise arrangements), the form of such payment
(including, without limitation, cash, Shares, notes or other property), and the
methods by which Shares will be delivered or deemed to be delivered to Eligible
Persons; provided, however, unless otherwise determined by the Committee that in
no event may any portion of the exercise price be paid with Shares acquired
either under an Award granted pursuant to this Plan, upon exercise of a stock
option granted under another Company plan or as a stock bonus or other stock
award granted under another Company plan unless, in any such case, the Shares
were acquired and vested more than six months in advance of the date of
exercise.
(x) ISOS. The terms of any ISO granted under the Plan shall comply in
all respects with the provisions of Section 422 of the Code, including but not
limited to the requirement that the ISO shall be granted within ten years from
the earlier of the date of adoption or shareholder approval of the Plan. ISOs
may only be granted to employees of the Company or a Subsidiary.
(c) RESTRICTED SHARES. The Committee is authorized to grant Restricted
Shares to Eligible Persons on the following terms and conditions:
(i) ISSUANCE AND RESTRICTIONS. Restricted Shares shall be subject to
such restrictions on transferability and other restrictions, if any, as the
Committee may impose at the date of grant or thereafter, which restrictions may
lapse separately or in combination at such times, under such circumstances
(including, without limitation, upon achievement of performance criteria if
deemed appropriate by the Committee), in such installments, or otherwise, as the
Committee may determine. Except to the extent restricted under the Award
Agreement relating to the Restricted Shares, an Eligible Person granted
Restricted Shares shall have all of the rights of a shareholder including,
without limitation, the right to vote Restricted Shares and the right to receive
dividends thereon. If Restricted Shares are intended to qualify as "qualified
performance-based compensation" for purposes of Section 162(m) of the Code, such
Restricted Shares shall be issued in accordance with the provisions of Section 7
below.
(ii) FORFEITURE. Except as otherwise determined by the Committee, at
the date of grant or thereafter, upon termination of service during the
applicable restriction period, Restricted Shares and any accrued but unpaid
dividends that are at that time subject to restrictions shall be forfeited;
provided, however, that the Committee may provide, by rule or regulation or in
any Award Agreement, or may determine in any individual case, that restrictions
or forfeiture conditions relating to Restricted Shares will be waived in whole
or in part in the event of terminations resulting from specified causes, and the
Committee may in other cases waive in whole or in part the forfeiture of
Restricted Shares.
B-8
(iii) CERTIFICATES FOR SHARES. Restricted Shares granted under the
Plan may be evidenced in such manner as the Committee shall determine. If
certificates representing Restricted Shares are registered in the name of the
Eligible Person, such certificates shall bear an appropriate legend referring to
the terms, conditions, and restrictions applicable to such Restricted Shares,
and the Company shall retain physical possession of the certificate.
(iv) DIVIDENDS. Dividends paid on Restricted Shares shall be either
paid at the dividend payment date, or deferred for payment to such date as
determined by the Committee, in cash or in unrestricted Shares having a Fair
Market Value equal to the amount of such dividends. Shares distributed in
connection with a Share split or dividend in Shares, and other property
distributed as a dividend, shall be subject to restrictions and a risk of
forfeiture to the same extent as the Restricted Shares with respect to which
such Shares or other property has been distributed.
(d) RESTRICTED SHARE UNITS. The Committee is authorized to grant Restricted
Share Units to Eligible Persons, subject to the following terms and conditions:
(i) AWARD AND RESTRICTIONS. Delivery of Shares or cash, as the case
may be, will occur upon expiration of the deferral period specified for
Restricted Share Units by the Committee (or, if permitted by the Committee, as
elected by the Eligible Person). In addition, Restricted Share Units shall be
subject to such restrictions as the Committee may impose, if any (including,
without limitation, the achievement of performance criteria if deemed
appropriate by the Committee), at the date of grant or thereafter, which
restrictions may lapse at the expiration of the deferral period or at earlier or
later specified times, separately or in combination, in installments or
otherwise, as the Committee may determine. If Restricted Share Units are
intended to qualify as "qualified performance-based compensation" for purposes
of Section 162(m) of the Code, such Restricted Share Units shall be issued in
accordance with the provisions of Section 7 below.
(ii) FORFEITURE. Except as otherwise determined by the Committee at
date of grant or thereafter, upon termination of service (as determined under
criteria established by the Committee) during the applicable deferral period or
portion thereof to which forfeiture conditions apply (as provided in the Award
Agreement evidencing the Restricted Share Units), or upon failure to satisfy any
other conditions precedent to the delivery of Shares or cash to which such
Restricted Share Units relate, all Restricted Share Units that are at that time
subject to deferral or restriction shall be forfeited; provided, however, that
the Committee may provide, by rule or regulation or in any Award Agreement, or
may determine in any individual case, that restrictions or forfeiture conditions
relating to Restricted Share Units will be waived in whole or in part in the
event of termination resulting from specified causes, and the Committee may in
other cases waive in whole or in part the forfeiture of Restricted Share Units.
B-9
(e) OTHER SHARE-BASED AWARDS. The Committee is authorized, subject to
limitations under applicable law, to grant to Eligible Persons such other Awards
that may be denominated or payable in, valued in whole or in part by reference
to, or otherwise based on, or related to, Shares, as deemed by the Committee to
be consistent with the purposes of the Plan, including, without limitation,
unrestricted shares awarded purely as a "bonus" and not subject to any
restrictions or conditions, other rights convertible or exchangeable into
Shares, purchase rights for Shares, Awards with value and payment contingent
upon performance of the Company or any other factors designated by the
Committee, and Awards valued by reference to the performance of specified
Subsidiaries or Affiliates. The Committee shall determine the terms and
conditions of such Awards at date of grant or thereafter. Shares delivered
pursuant to an Award in the nature of a purchase right granted under this
Section 5(e) shall be purchased for such consideration, paid for at such times,
by such methods, and in such forms, including, without limitation, cash, Shares,
notes or other property, as the Committee shall determine. Cash awards, as an
element of or supplement to any other Award under the Plan, shall also be
authorized pursuant to this Section 5(e).
6. CERTAIN PROVISIONS APPLICABLE TO AWARDS
(a) STAND-ALONE, ADDITIONAL, TANDEM AND SUBSTITUTE AWARDS. Awards granted
under the Plan may, in the discretion of the Committee, be granted to Eligible
Persons either alone or in addition to, in tandem with, or in exchange or
substitution for, any other Award granted under the Plan or any award granted
under any other plan or agreement of the Company, any Subsidiary or Affiliate,
or any business entity to be acquired by the Company or a Subsidiary or
Affiliate, or any other right of an Eligible Person to receive payment from the
Company or any Subsidiary or Affiliate. Awards may be granted in addition to or
in tandem with such other Awards or awards, and may be granted either as of the
same time as or a different time from the grant of such other Awards or awards.
The per Share exercise price of any Option or purchase price of any other Award
conferring a right to purchase Shares which is granted, in connection with the
substitution of awards granted under any other plan or agreement of the Company
or any Subsidiary or Affiliate or any business entity to be acquired by the
Company or any Subsidiary or Affiliate, shall be determined by the Committee, in
its discretion.
(b) TERM OF AWARDS. The term of each Award granted to an Eligible Person
shall be for such period as may be determined by the Committee; provided,
however, that in no event shall the term of any Option exceed a period of ten
years from the date of its grant (or such shorter period as may be applicable
under Section 422 of the Code).
(c) FORM OF PAYMENT UNDER AWARDS. Subject to the terms of the Plan and any
applicable Award Agreement, payments to be made by the Company or a Subsidiary
or Affiliate upon the grant, maturation, or exercise of an Award may be made in
such forms as the Committee shall determine at the date of grant or thereafter,
including, without limitation, cash, Shares, notes or other property, and may be
made in a single payment or transfer, in installments, or on a deferred basis.
The Committee may make rules relating to installment or deferred payments with
respect to Awards, including the rate of interest to be credited with respect to
such payments, and the Committee may require deferral of payment under an Award
if, in the sole judgment of the Committee, it may be necessary in order to avoid
nondeductibility of the payment under Section 162(m) of the Code.
B-10
(d) NONTRANSFERABILITY. Unless otherwise set forth by the Committee in an
Award Agreement, Awards shall not be transferable by an Eligible Person except
by will or the laws of descent and distribution and shall be exercisable during
the lifetime of an Eligible Person only by such Eligible Person or his guardian
or legal representative. An Eligible Person's rights under the Plan may not be
pledged, mortgaged, hypothecated, or otherwise encumbered, and shall not be
subject to claims of the Eligible Person's creditors.
(e) NONCOMPETITION. The Committee may, by way of the Award Agreements or
otherwise, establish such other terms, conditions, restrictions and/or
limitations, if any, of any Award, provided they are not inconsistent with the
Plan, including, without limitation, the requirement that the Participant not
engage in competition with the Company.
7. PERFORMANCE AWARDS GRANTED TO DESIGNATED PARTICIPANTS
(a) GENERAL. If the Committee determines that an award of Restricted Shares
or Restricted Share Units or an Other Share-Based Award to be granted to a
Participant should qualify as "qualified performance-based compensation" for
purposes of Section 162(m) of the Code, the grant, vesting and/or settlement of
such an Award shall be contingent upon achievement of preestablished performance
goals and other terms set forth in this Section 7.
(b) PERFORMANCE GOALS GENERALLY. The performance goals for such Awards
("Performance Awards") shall consist of one or more business criteria and a
targeted level or levels of performance with respect to each of such criteria,
as specified by the Committee consistent with this Section 7. Performance goals
shall be objective and shall otherwise meet the requirements of Section 162(m)
of the Code and regulations thereunder (including Regulation 1.162-27 and
successor regulations thereto). The Committee may determine that such
Performance Awards shall be granted, vested and/or settled upon achievement of
any one performance goal or that two or more of the performance goals must be
achieved as a condition to grant, vesting and/or settlement of such Performance
Awards. Performance goals may differ for Performance Awards granted to any one
Participant or to different Participants.
(c) BUSINESS CRITERIA. One or more of the following business criteria for
the Company, on a consolidated basis, and/or for specified subsidiaries or
business units of the Company (except with respect to the total stockholder
return and earnings per share criteria), shall be used by the Committee in
establishing performance goals for such Performance Awards: appreciation in
value of the Shares; total shareholder return; operating income or earnings; net
income; pretax earnings; pretax earnings before interest, depreciation and
amortization; pro forma net income; return on equity; return on designated
assets; return on capital; economic value added; earnings per share and/or
growth thereof; revenues; expenses (including expense ratio); loss ratio;
combined ratio; new business production; operating profit margin; operating cash
flow; free cash flow; cash flow return on investment; operating margin; or net
profit margin; or any of the above criteria as compared to the performance of a
published or special index or benchmark deemed applicable by the Committee.
B-11
(d) PERFORMANCE PERIOD; TIMING FOR ESTABLISHED PERFORMANCE GOALS.
Achievement of performance goals in respect of such Performance Awards shall be
measured over a performance period, as specified by the Committee. Performance
goals shall be established not later than 90 days after the beginning of any
performance period applicable to such Performance Awards, or at such other date
as may be required or permitted for "qualified performance-based compensation"
under Section 162(m) of the Code.
(e) SETTLEMENT OF PERFORMANCE AWARDS; OTHER TERMS. Settlement of such
Performance Awards shall be in cash, Shares or other property, in the discretion
of the Committee. The Committee may, in its discretion, reduce the amount of a
settlement otherwise to be made in connection with such Performance Awards, but
may not exercise discretion to increase any such amount payable to the
Participant in respect of a Performance Award subject to this Section 7.
(f) WRITTEN DETERMINATION. All determinations by the Committee as to the
establishment of performance goals or potential individual Performance Awards
and as to the achievement of performance goals relating to Performance Awards
under Section 7 shall be made in writing in the case of any award intended to
qualify under Section 162(m) of the Code.
8. CHANGE OF OWNERSHIP PROVISIONS
(a) ACCELERATION OF EXERCISABILITY AND LAPSE OF RESTRICTIONS. Unless
otherwise provided by the Committee at the time of the Award grant, in the event
of a Change of Ownership, (i) all outstanding Awards pursuant to which the
Participant may have rights the exercise of which is restricted or limited,
shall become fully exercisable at the time of the Change of Ownership, and (ii)
unless the right to lapse of restrictions or limitations is waived or deferred
by a Participant prior to such lapse, all restrictions or limitations (including
risks of forfeiture and deferrals) on outstanding Awards subject to restrictions
or limitations under the Plan shall lapse, and all performance criteria and
other conditions to payment of Awards under which payments of cash, Shares or
other property are subject to conditions shall be deemed to be achieved or
fulfilled and shall be waived by the Company at the time of the Change of
Ownership.
(b) DEFINITION OF CHANGE OF OWNERSHIP. For purposes of this Section 8, a
"Change of Ownership" shall be deemed to have occurred (1) if individuals who,
as of the effective date of this Plan, constitute the Board (the "Incumbent
Board") cease for any reason to constitute at least a majority of the directors
constituting the Board, provided that any person becoming a director subsequent
to the effective date of this Plan whose election, or nomination for election by
the Company's shareholders, was approved by a vote of at least three-quarters
(3/4) of the then directors who are members of the Incumbent Board (other than
an election or nomination of an individual whose initial assumption of office is
(A) in connection with the acquisition by a third person, including a "group" as
such term is used in Section 13(d)(3) of the Exchange Act, of beneficial
ownership, directly or indirectly, of 20% or more of the combined voting
securities ordinarily having the right to vote for the election of directors of
the Company (unless such acquisition of beneficial ownership was approved by a
majority of the Board who are members of the Incumbent Board), or (B) in
connection with an actual or threatened election contest relating to the
election of the directors of the Company, as such terms are used in Rule 14a-11
of Regulation 14A promulgated under the Exchange Act) shall be, for purposes of
this Plan, considered as though
B-12
such person were a member of the Incumbent Board; or (2) if the stockholders of
the Company approve a merger, consolidation, recapitalization or reorganization
of the Company, reverse split of any class of voting securities of the Company,
or an acquisition of securities or assets by the Company, or the sale or
disposition by the Company of all or substantially all of the Company's assets,
or if any such transaction is consummated without stockholder approval, other
than any such transaction in which the holders of outstanding Company voting
securities immediately prior to the transaction receive, with respect to such
Company voting securities, voting securities of the surviving or transferee
entity representing more than 60 percent of the total voting power outstanding
immediately after such transaction, with the voting power of each such
continuing holder relative to other such continuing holders not substantially
altered in the transaction; or (3) if the stockholders of the Company approve a
plan of complete liquidation of the Company.
9. GENERAL PROVISIONS
(a) COMPLIANCE WITH LEGAL AND TRADING REQUIREMENTS. The Plan, the granting
and exercising of Awards thereunder, and the other obligations of the Company
under the Plan and any Award Agreement, shall be subject to all applicable
federal, state and foreign laws, rules and regulations, and to such approvals by
any regulatory or governmental agency as may be required. The Company, in its
discretion, may postpone the issuance or delivery of Shares under any Award
until completion of such stock exchange or market system listing or registration
or qualification of such Shares or other required action under any state or
federal law, rule or regulation as the Company may consider appropriate, and may
require any Participant to make such representations and furnish such
information as it may consider appropriate in connection with the issuance or
delivery of Shares in compliance with applicable laws, rules and regulations. No
provisions of the Plan shall be interpreted or construed to obligate the Company
to register any Shares under federal, state or foreign law. The Shares issued
under the Plan may be subject to such other restrictions on transfer as
determined by the Committee.
(b) NO RIGHT TO CONTINUED EMPLOYMENT OR SERVICE. Neither the Plan nor any
action taken thereunder shall be construed as giving anyone the right to be
retained in the employ or service of the Company or any of its Subsidiaries or
Affiliates, nor shall it interfere in any way with the right of the Company or
any of its Subsidiaries or Affiliates to terminate anyone's employment or
service at any time.
(c) TAXES. The Company or any Subsidiary or Affiliate is authorized to
withhold from any Award granted, any payment relating to an Award under the
Plan, including from a distribution of Shares, or any payroll or other payment
to an Eligible Person, amounts of withholding and other taxes due in connection
with any transaction involving an Award, and to take such other action as the
Committee may deem advisable to enable the Company and Eligible Persons to
satisfy obligations for the payment of withholding taxes and other tax
obligations relating to any Award. This authority shall include authority to
withhold or receive Shares or other property and to make cash payments in
respect thereof in satisfaction of an Eligible Person's tax obligations;
provided, however, that the amount of tax withholding to be satisfied by
withholding Shares shall be limited to the minimum amount of taxes, including
employment taxes, required to be withheld under applicable Federal, state and
local law.
B-13
(d) CHANGES TO THE PLAN AND AWARDS. The Board may amend, alter, suspend,
discontinue, or terminate the Plan or the Committee's authority to grant Awards
under the Plan without the consent of shareholders of the Company or
Participants; provided, however, that any such amendment, alteration,
suspension, discontinuance or termination shall be subject to the approval of
the Company's shareholders (i) if, and to the extent, required under the rules
of any stock exchange or automated quotation system on which the Shares may then
be listed or quoted, and (ii) as it applies to ISOs, to the extent required
under Section 422 of the Code. Notwithstanding the foregoing, without the
consent of an affected Participant, no amendment, alteration, suspension,
discontinuation, or termination of the Plan may materially and adversely affect
the rights of such Participant under any Award theretofore granted to him or
her. The Committee may waive any conditions or rights under, amend any terms of,
or amend, alter, suspend, discontinue or terminate, any Award theretofore
granted, prospectively or retrospectively; provided, however, that, without the
consent of a Participant, no amendment, alteration, suspension, discontinuation
or termination of any Award may materially and adversely affect the rights of
such Participant under any Award theretofore granted to him or her.
(e) NO RIGHTS TO AWARDS; NO SHAREHOLDER RIGHTS. No Eligible Person or
employee shall have any claim to be granted any Award under the Plan, and there
is no obligation for uniformity of treatment of Eligible Persons and employees.
No Award shall confer on any Eligible Person any of the rights of a shareholder
of the Company unless and until Shares are duly issued or transferred to the
Eligible Person in accordance with the terms of the Award.
(f) UNFUNDED STATUS OF AWARDS. The Plan is intended to constitute an
"unfunded" plan for incentive compensation. With respect to any payments not yet
made to a Participant pursuant to an Award, nothing contained in the Plan or any
Award shall give any such Participant any rights that are greater than those of
a general creditor of the Company; provided, however, that the Committee may
authorize the creation of trusts or make other arrangements to meet the
Company's obligations under the Plan to deliver cash, Shares, other Awards, or
other property pursuant to any Award, which trusts or other arrangements shall
be consistent with the "unfunded" status of the Plan unless the Committee
otherwise determines with the consent of each affected Participant.
(g) NONEXCLUSIVITY OF THE PLAN. Neither the adoption of the Plan by the
Board nor its submission to the shareholders of the Company for approval shall
be construed as creating any limitations on the power of the Board to adopt or
utilize such other incentive arrangements as it may deem desirable, including,
without limitation, the granting of options and other awards otherwise than
under the Plan, and such arrangements may be either applicable generally or only
in specific cases.
(h) NOT COMPENSATION FOR BENEFIT PLANS. No Award payable under this Plan
shall be deemed salary or compensation for the purpose of computing benefits
under any benefit plan or other arrangement of the Company unless the Company, a
Subsidiary or Affiliate shall determine otherwise.
(i) NO FRACTIONAL SHARES. No fractional Shares shall be issued or delivered
pursuant to the Plan or any Award. The Committee shall determine whether cash,
other Awards, or other property shall be issued or paid in lieu of such
fractional Shares or whether such fractional Shares or any rights thereto shall
be forfeited or otherwise eliminated.
B-14
(j) GOVERNING LAW. The validity, construction, and effect of the Plan, any
rules and regulations relating to the Plan, and any Award Agreement shall be
determined in accordance with the laws of Delaware, without giving effect to
principles of conflict of laws thereof.
(k) EFFECTIVE DATE; PLAN TERMINATION. The Plan shall become effective as of
April 1, 2003 (the "Effective Date"), subject to approval by the shareholders of
the Company. The Plan shall terminate as to future awards on the date which is
ten (10) years after the Effective Date.
(l) TITLES AND HEADINGS. The titles and headings of the sections in the
Plan are for convenience of reference only. In the event of any conflict, the
text of the Plan, rather than such titles or headings, shall control.
B-15
APPENDIX C
DELPHI FINANCIAL GROUP, INC.
ANNUAL INCENTIVE COMPENSATION PLAN
SECTION 1. PURPOSE.
Delphi Financial Group, Inc. (the "Company") hereby establishes,
subject to shareholder approval, this Annual Incentive Compensation Plan (the
"Plan") in order to provide the Company with an additional means to attract and
retain executive officers by providing them with an opportunity to earn annual
incentive compensation, contingent on the achievement of certain performance
goals, as an incentive and reward for their contributions to the growth,
profitability and success of the Company from year to year.
The Company intends that compensation payable under the Plan will
constitute "qualified performance-based compensation" under Section 162(m) of
the Code (as hereinafter defined). The Plan shall be interpreted and construed
in a manner consistent with such intent.
SECTION 2. DEFINITIONS.
2.1. "AWARD" means the amount of incentive compensation to which
a Participant is entitled for each Plan Year as determined by the Committee
pursuant to Sections 4 and 5 of the Plan.
2.2. "BOARD" means the Company's Board of Directors.
2.3. "CODE" means the Internal Revenue Code of 1986, as amended,
including applicable regulations thereunder.
2.4. "COMMITTEE" means the Stock Option and Compensation
Committee of the Board, which shall be comprised solely of at least two persons
who, to the extent required to satisfy the exception for performance-based
compensation under Section 162(m) of the Code, are "outside directors" within
the meaning of such section. However, no act of the Committee shall be void or
deemed to be without authority due to the failure of a member to meet any
qualification requirement at the time the action is taken.
2.5. "DETERMINATION DATE" means the day not later than the 90th
day of a Plan Year or such other date by which the Committee may establish
performance goals for a Plan Year without causing an Award to be treated as
other than performance-based compensation under Section 162(m) of the Code.
2.6. "ELIGIBLE EMPLOYEE" means any executive officer (as that
term is defined in Rule 3b-7 under the Securities Exchange Act of 1934, as
amended) of the Company.
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2.7. "PARTICIPANT" means an Eligible Employee who has been
selected to potentially receive an Award for a given Plan Year, subject to
achievement of one or more performance goals and satisfaction of other
conditions under the Plan or specified by the Committee.
2.8. "PLAN YEAR" means the fiscal year of the Company or such
other period established by the Committee.
SECTION 3. ADMINISTRATION.
The Plan shall be administered by the Committee. The Committee
shall have the authority to establish performance goals for the awarding of
Awards for each Plan Year; to determine the Participants for each Plan Year; to
determine whether performance goals for each Plan Year have been achieved; to
authorize payment of Awards under the Plan, including determining the form and
timing of payment and any conditions (such as further service requirements) that
will apply to such payment; to adopt, alter and repeal such administrative
rules, guidelines and practices governing the Plan as it shall deem advisable;
and to interpret the terms and provisions of the Plan. All determinations made
by the Committee with respect to the Plan and Awards thereunder shall be final
and binding on all persons, including the Company and all Eligible Employees.
SECTION 4. DETERMINATION OF AWARDS.
The amount of a Participant's Award for any Plan Year shall be an
amount not greater than $3,000,000, which amount shall be determined based on
the achievement of one or more performance goals established by the Committee
with respect to a Participant. Performance goals may vary as among Participants
and shall be based upon one or more of the following criteria, as the Committee
may deem appropriate: appreciation in value of the Company's common stock; total
shareholder return; earnings per share; operating income; net income; pretax
earnings; pretax earnings before interest, depreciation and amortization; pro
forma net income; return on equity; return on designated assets; return on
capital; economic value created or economic profit; earnings per share and/or
growth thereof; revenues; expenses (including expense ratio); loss ratio;
combined ratio; new business production; capital markets and/or acquisition
transactions; investment programs initiated; operating profit margin; operating
cash flow; free cash flow; cash flow return on investment; operating margin; and
net profit margin. Performance goals may be expressed as absolute goals, goals
compared to past performance, goals compared to the performance of a published
or special index or benchmark deemed applicable by the Committee, or otherwise
as determined by the Committee. The performance goals may be determined by
reference to the performance of the Company and/or a subsidiary or affiliate of
the Company, or of a division or unit of any of the foregoing. No later than the
Determination Date for a Plan Year, the Committee shall designate (i) the
Participants for such Plan Year, (ii) the performance goals for such Plan Year
and (iii) the corresponding Award amounts payable to each Participant under the
Plan upon achievement of such performance goals and satisfaction of other
conditions under the Plan or specified by the Committee. So long as an Award is
fully contingent upon a measure of performance as specified in this Section 4,
the Committee may consider other measures of performance or other circumstances
in its exercise of discretion ("negative discretion") to reduce the final Award.
The Committee may specify at the time an Award opportunity is authorized or at
any other time such other performance measures or other terms upon which it will
exercise negative discretion.
C-2
SECTION 5. PAYMENT OF AWARD.
An Award (if any) to a Participant for a Plan Year shall be paid
following the end of the Plan Year; provided, however, that the Committee shall
have first certified in writing (i) that the applicable performance goal or
goals with respect to such Participant for such Plan Year were satisfied and the
level of the attainment of such goal or goals, (ii) that all other material
terms upon which payment of the Award is conditioned were satisfied and (iii)
the amount of each Participant's Award. The Committee, unless it determines
otherwise, may exercise negative discretion to reduce the amount that would
otherwise be payable under an Award by reason of the applicable performance
goal's having been achieved. Payments will be in cash, subject to any conditions
the Committee may impose; provided, however, that the Committee may also provide
that an Award will be paid in whole or in part in shares of the Company's common
stock or other Company common stock-based awards, including restricted shares,
restricted share units or other share awards, if and to the extent that shares
are available under a separate equity compensation plan of the Company and
permitted to be granted in connection with such incentive awards, in any case
with an aggregate fair market value at the time of payment not to exceed
$3,000,000. If a Participant dies after the end of a Plan Year but before
receiving payment of any Award, the amount of such Award shall be paid to a
designated beneficiary or, if no beneficiary has been designated, to the
Participant's estate, in the form of a lump sum payment in cash as soon as
practicable after the Award for the Plan Year has been determined and certified
in accordance with this Section 5. Notwithstanding the foregoing, the Committee
may determine, by separate agreement with any Participant or otherwise, that all
or a portion of an Award for a Plan Year shall be payable to the Participant
upon the Participant's death, disability or termination of employment with the
Company, or upon a change of control of the Company, during the Plan Year.
SECTION 6. NON-TRANSFERABILITY.
No Award or rights under this Plan may be transferred or assigned
other than by will or by the laws of descent and distribution.
SECTION 7. AMENDMENTS AND TERMINATION.
The Board may terminate the Plan at any time and may amend it
from time to time, provided, however, that no termination or amendment of the
Plan shall materially and adversely affect the rights of a Participant or a
beneficiary with respect to a previously certified Award except with the written
consent of such Participant or beneficiary. Amendments to the Plan may be made
without shareholder approval except as required to satisfy Section 162(m) of the
Code.
SECTION 8. GENERAL PROVISIONS.
8.1 Nothing set forth in this Plan shall prevent the Board or
the Committee from adopting other or additional compensation arrangements.
Neither the adoption of the Plan or any Award hereunder shall confer upon any
person any right to continued employment.
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8.2 No member of the Board or the Committee, nor any officer or
employee of the Company acting on behalf of the Board or the Committee, shall be
personally liable for any action, determination or interpretation taken or made
with respect to the Plan, and all members of the Board or the Committee and all
officers or employees of the Company acting on their behalf shall, to the extent
permitted by law, be fully indemnified and protected by the Company in respect
of any such action, determination or interpretation.
8.3 The Committee is authorized to make adjustments in the terms
and conditions of, and the criteria included in, the authorization of Awards and
performance goals in recognition of unusual or nonrecurring events, including
stock splits, stock dividends, reorganizations, mergers, consolidations, large,
special and non-recurring dividends, and acquisitions and dispositions of
businesses and assets, affecting the Company and its subsidiaries or any
business unit thereof, or the financial statements of the Company or any
subsidiary, or in response to changes in applicable laws, regulations,
accounting principles, tax rates and regulations or business conditions or in
view of the Committee's assessment of the business strategy of the Company, any
subsidiary or affiliate or business unit thereof, performance of comparable
organizations, economic and business conditions, and any other circumstances
deemed relevant; provided, however, that no such adjustment shall be authorized
or made if and to the extent that the existence or exercise of such authority
would cause an Award potentially grantable hereunder to fail to qualify as
"performance-based compensation" under Section 162(m) of the Code.
8.4 The Company shall deduct from any payment in settlement of a
Participant's Award or other payment to the Participant any Federal, state, or
local withholding or other tax or charge which the Company is then required to
deduct under applicable law with respect to the Award.
8.5 The validity, construction, and effect of the Plan and any
rules and regulations or document hereunder shall be determined in accordance
with the laws (including those governing contracts) of Delaware, without giving
effect to principles of conflicts of laws.
SECTION 9. EFFECTIVE DATE OF PLAN.
The Plan shall become effective as of January 1, 2004, subject to
approval by the stockholders of the Company at the Company's 2004 Annual Meeting
of Stockholders.
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[DELPHI FINANCIAL LOGO]
Dear Stockholder,
Please take note of the important information enclosed with this Proxy. Your
vote counts, and you are strongly encouraged to exercise your right to vote your
shares.
Please mark the boxes on this proxy card to indicate how your shares will be
voted. Then sign the card, detach it and return your proxy vote in the enclosed
postage paid envelope.
Your vote must be received prior to the 2004 Annual Meeting of Stockholders,
scheduled to be held on May 5, 2004.
Thank you in advance for your prompt consideration of these matters.
Sincerely,
/s/ ROBERT ROSENKRANZ
Robert Rosenkranz
Chairman of the Board
FOLD AND DETACH HERE
--------------------------------------------------------------------------------
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF DELPHI FINANCIAL
GROUP, INC. and, when properly executed, will be voted in the manner directed
herein by the undersigned stockholder. If no direction is made, this proxy will
be voted "FOR" all nominees for Director, "FOR" Proposals 2, 3 and 5 and
"ABSTAIN" on Proposal 4. The Board of Directors recommends a vote "FOR" all
nominees for Director, "FOR" Proposals 2, 3 and 5 and "AGAINST" Proposal 4.
SIGNED:___________________________________________
SIGNED:___________________________________________
Please sign exactly as your name(s) appear(s)
hereon. Joint owners should each sign personally.
Trustees and other fiduciaries should indicate the
capacity in which they sign, and where more than
one name appears, a majority must sign. If a
corporation or partnership, this signature should
be that of an authorized officer who should state
his or her title.
DATED:____________________________________________
IMPORTANT: Please mark, sign and date this proxy
and return it promptly in the enclosed
envelope. No postage is required if
mailed in the United States.
FOLD AND DETACH HERE
--------------------------------------------------------------------------------
DELPHI FINANCIAL GROUP, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF DELPHI FINANCIAL
GROUP, INC.
The undersigned stockholder hereby appoints Robert Rosenkranz and Robert M.
Smith, Jr., or either of them, as attorneys or proxies, each with full power of
substitution, and hereby authorizes each of them to represent and vote in the
manner designated below (or, if no designation is made, as provided on the
reverse side of this card), all of the shares of Class A Common Stock of Delphi
Financial Group, Inc. (the "Company") held of record by the undersigned at the
close of business on March 22, 2004 at the Company's 2004 Annual Meeting of
Stockholders scheduled to be held on May 5, 2004 at 10:00 a.m., EDT, or any
adjournments or postponements thereof.
The undersigned acknowledges receipt of the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 2003, Notice of Annual Meeting of
Stockholders and Proxy Statement dated April 12, 2004, and grants authority to
each of said proxies or their substitutes, and ratifies and confirms all that
said proxies may lawfully do in the undersigned's name, place and stead.
1. Election of Directors.
[ ] FOR all nominees listed [ ] WITHHOLD AUTHORITY to vote
(except as written on the space provided below) for all nominees listed below
Class A Director: Donald A. Sherman
Directors: Robert Rosenkranz Robert M. Smith, Jr. Lawrence E. Daurelle Edward A. Fox
Van D. Greenfield Harold F. Ilg James N. Meehan Philip R. O'Connor
INSTRUCTION: To withhold authority to vote for any individual nominee
listed above, write that nominee's name on the space provided
below.
2. Approval of the amendment to the 2003 Employee Long-Term Incentive and Share
Award Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Approval of the adoption of the Annual Incentive Compensation Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. Shareholder proposal regarding investments in tobacco equities.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. To transact such other business as properly comes before the meeting or any
adjournment thereof.
[ ] FOR [ ] AGAINST [ ] ABSTAIN