UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, For Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-12
SELECTIVE INSURANCE GROUP, INC.
(Name of Registrant as Specified in Its Charter)
None
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transactions applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
{GRAPHIC OMITTED]
April 6, 2005
NOTICE OF 2005 ANNUAL MEETING OF STOCKHOLDERS
AND PROXY STATEMENT
April 27, 2005
Selective Insurance Group, Inc.'s ("Selective") 2005 Annual Meeting of
Stockholders will be held at 11:00 AM on Wednesday, April 27, 2005, in the
Auditorium at Selective's offices at 40 Wantage Avenue, Branchville, New Jersey
07890.
At the meeting, we will ask stockholders to:
1. Elect three (3) Class III directors for terms expiring in 2008;
2. Approve the Selective Insurance Group, Inc. 2005 Omnibus Stock Plan;
3. Approve the Selective Insurance Group, Inc. Cash Incentive Plan; and
4. Ratify the appointment of KPMG LLP as independent auditors for the
fiscal year ending December 31, 2005.
We plan a business meeting focused on these items and we will attend to any
other proper business that may arise. The Board of Directors recommends that
you vote in favor of Items 1, 2, 3, and 4. These proposals are further
described in the Proxy Statement.
Also enclosed is Selective's 2005 Annual Report to Stockholders. At the
meeting, we will also be making a presentation on operations and we will offer
time for your comments and questions.
Selective stockholders of record at the close of business on March 10, 2005 are
entitled to notice of and to vote at the meeting and any adjournment thereof. A
quorum is a majority of outstanding shares. YOUR VOTE IS IMPORTANT. WE URGE YOU
TO VOTE YOUR SHARES BY (1) CALLING THE TOLL-FREE TELEPHONE NUMBER LISTED ON THE
PROXY CARD, (2) ACCESSING THE INTERNET VIA THE WEBSITE LISTED ON THE PROXY
CARD, OR (3) COMPLETING, DATING, AND SIGNING THE ENCLOSED PROXY CARD AND
RETURNING IT IN THE ENCLOSED ENVELOPE. YOUR PROXY MAY BE REVOKED AT ANY TIME
PRIOR TO THE TIME IT IS VOTED AT THE 2005 ANNUAL MEETING.
Very truly yours,
/s/ Gregory E. Murphy
Gregory E. Murphy
Chairman of the Board, President & Chief Executive Officer
By Order of the Board of Directors:
/s/ Michele N. Schumacher
Michele N. Schumacher
Vice President, Corporate Secretary & Corporate Governance Officer
GENERAL INFORMATION ABOUT SELECTIVE'S ANNUAL MEETING
WHEN AND WHERE IS THE ANNUAL MEETING?
------------------------------------
The Annual Meeting will be held on Wednesday, April 27, 2005, at 11:00 AM in
the Auditorium at Selective's principal offices at 40 Wantage Avenue,
Branchville, New Jersey 07890. Directions are on the back of the Proxy
Statement.
WHO IS ENTITLED TO VOTE AT THE ANNUAL MEETING?
----------------------------------------------
Anyone who owned Selective common stock as of the close of business on March
10, 2005, is entitled to one vote per share owned. There were 28,361,002 shares
outstanding on that date.
WHO IS SOLICITING MY PROXY TO VOTE MY SHARES AND WHEN?
-----------------------------------------------------
Selective's Board of Directors is soliciting your "proxy," or your
authorization for our representatives to vote your shares. Your proxy will be
effective for the April 27, 2005 meeting and for any adjournments or
continuations of that meeting.
WHO IS PAYING FOR AND WHAT IS THE COST OF SOLICITING PROXIES?
-------------------------------------------------------------
Selective is bearing the entire cost of soliciting proxies. Proxies will be
solicited principally through the mail, but may also be solicited personally or
by telephone, telegraph, or special letter by directors, officers, and regular
Selective employees for no additional compensation. To assist in the
solicitation of proxies and the distribution and collection of proxy materials,
Selective has engaged Georgeson Shareholder Communications Inc., a proxy
solicitation firm, for an estimated fee of approximately $7,500 plus expenses.
Selective will reimburse banks, brokerage firms, and other custodians,
nominees, and fiduciaries for reasonable expenses incurred by them in sending
proxy materials to their customers or principals who are the beneficial owners
of shares of common stock.
WHAT ARE THE REQUIREMENTS FOR BUSINESS TO BE CONDUCTED AT THE ANNUAL MEETING?
----------------------------------------------------------------------------
For business to be conducted at the Annual Meeting, a quorum of 14,180,502
Selective stockholders (a majority of the issued and outstanding shares
entitled to vote) must be in attendance or represented by proxy.
1
PROPOSALS FOR STOCKHOLDER VOTE AND APPROVAL REQUIREMENTS
Management is presenting four (4) proposals for a stockholder vote.
PROPOSAL 1. ELECTION OF DIRECTORS
THE BOARD RECOMMENDS THAT YOU VOTE FOR THE THREE NOMINATED CLASS III DIRECTORS:
PAUL D. BAUER, JOAN M. LAMM-TENNANT, AND RONALD L. O'KELLEY.
You can find information about these nominees, as well as information about
Selective's Board of Directors, its committees, compensation for directors, and
other related matters beginning on Page 7.
New Jersey law and Selective's By-laws govern the vote on Proposal 1. You may
vote in favor of all the nominees, withhold your votes as to all nominees, or
withhold your votes as to specific nominees. Assuming a quorum, the three (3)
candidates receiving the highest number of votes will be elected. Stockholders
may not cumulate their votes. Abstentions and broker non-votes will have no
effect on the outcome of the vote.
PROPOSAL 2. APPROVAL OF THE SELECTIVE INSURANCE GROUP, INC. 2005 OMNIBUS
STOCK PLAN
THE BOARD RECOMMENDS THAT YOU VOTE FOR THE 2005 OMNIBUS STOCK PLAN.
You can find information about the 2005 Omnibus Stock Plan beginning on Page
25.
New Jersey law and Selective's By-laws govern the vote on Proposal 2. You may
vote in favor of Proposal 2, vote against Proposal 2, or abstain from voting.
Assuming a quorum, the proposal will pass if approved by a majority of the
stockholders present in person or represented by proxy and entitled to vote at
the Annual Meeting. Abstentions will have the same effect as votes against
Proposal 2 and broker non-votes will have no effect on the outcome of the vote.
A majority vote is also required to approve Proposal 2 for purposes of Sections
162(m) and 422 of the Internal Revenue Code of 1986, as amended ("Internal
Revenue Code").
PROPOSAL 3. APPROVAL OF THE SELECTIVE INSURANCE GROUP, INC. CASH INCENTIVE PLAN
THE BOARD RECOMMENDS THAT YOU VOTE FOR THE CASH INCENTIVE PLAN.
You can find information about the Cash Incentive Plan beginning on Page 30.
New Jersey law and Selective's By-laws govern the vote on Proposal 3. You may
vote in favor of Proposal 3, vote against Proposal 3, or abstain from voting.
Assuming a quorum, Proposal 3 will pass if approved by a majority of the
stockholders present in person or represented by proxy and entitled to vote at
the Annual Meeting. Abstentions will have the same effect as votes against
Proposal 3 and broker non-votes will have no effect on the outcome of the vote.
A majority vote is also required to approve Proposal 3 for purposes of Section
162(m) of the Internal Revenue Code.
2
PROPOSAL 4. RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
THE BOARD RECOMMENDS THAT YOU VOTE TO RATIFY THE APPOINTMENT OF KPMG LLP AS
INDEPENDENT PUBLIC ACCOUNTANTS FOR THE FISCAL YEAR ENDING DECEMBER 31, 2005.
You can find information about Selective's relationship with KPMG LLP beginning
on Page 34.
New Jersey law and Selective's By-laws govern the vote on Proposal 4. You may
vote in favor of Proposal 4, vote against Proposal 4, or abstain from voting.
Assuming a quorum, Proposal 4 will pass if approved by a majority of the
stockholders present in person or represented by proxy and entitled to vote at
the Annual Meeting. Abstentions will have the same effect as votes against
Proposal 4 and broker non-votes will have no effect on the outcome of the vote.
OTHER MATTERS TO COME BEFORE THE ANNUAL MEETING
The Board of Directors is not aware of any other business to be presented to a
vote of the stockholders at the 2005 Annual Meeting. If any other matters are
properly presented for a vote, the people named as proxies will have
discretionary authority, to the extent permitted by applicable law and NASDAQ
Stock Market ("NASDAQ") and Securities and Exchange Commission rules and
regulations, to vote on such matters according to their best judgment.
The Chairman of the Annual Meeting may refuse to allow presentation of a
proposal or nominee for the Board of Directors if the proposal or nominee is
not properly submitted. The requirements for submitting proposals and
nominations for this year's meeting were the same as those described on Page 36
for next year's meeting.
VOTING AND PROXY PROCEDURE
HOW DO I VOTE?
You can vote four (4) ways:
1. BY MAIL. Mark your voting instructions on, and sign and date, the
proxy card and then return it in the postage-paid envelope provided.
If you mail your proxy card, we must receive it before the polls close
at the end of the meeting.
If we receive your signed proxy card, but you do not give voting
instructions, our representatives will vote your shares FOR Items 1,
2, 3, and 4. If any other matters arise during the meeting that
require a vote, the representatives will exercise their discretion, to
the extent permitted by applicable law and NASDAQ and Securities and
Exchange Commission rules and regulations.
2. BY TELEPHONE. Call the toll-free number on your proxy card to vote by
phone. Follow the instructions on your proxy card and the voice
prompts. IF YOU VOTE BY TELEPHONE, YOU DO NOT NEED TO RETURN YOUR
PROXY CARD.
3. BY INTERNET. Go to the website listed on your proxy card to vote
through the Internet. Follow the instructions on your proxy card and
the website. If you vote through the Internet, you may incur telephone
and/or Internet access charges from your service providers. IF YOU
VOTE BY INTERNET, YOU DO NOT NEED TO RETURN YOUR PROXY CARD.
4. IN PERSON. Attend the Annual Meeting, or send a personal
representative with an appropriate proxy, in order to vote.
3
HOW DO I REVOKE MY PROXY OR CHANGE MY VOTING INSTRUCTIONS?
----------------------------------------------------------
You may revoke your proxy by writing to the Corporate Secretary, Michele N.
Schumacher, at the address in the meeting notice on the cover of this Proxy
Statement. You may also change your vote at any time before the proxy is
exercised by entering a new vote via the Internet, by telephone or by returning
a properly executed proxy bearing a later date. Any subsequent timely and valid
vote by any means will change your prior vote. For example, if you voted by
telephone, a subsequent Internet vote will change your vote. The last vote
received before noon central time, April 26, 2005 will be the vote that is
counted. You may also change your vote by voting in person at the Annual
Meeting.
HOW WILL PROXIES BE VOTED IF I GIVE MY AUTHORIZATION?
-----------------------------------------------------
If you properly execute your proxy on the accompanying form, return it to
Selective, and do not subsequently revoke your proxy, your shares of common
stock will be voted at the 2005 Annual Meeting in accordance with your
instructions. In the absence of instructions, our representatives will vote
your shares "FOR" the election of each director nominee, "FOR" the approval of
the 2005 Omnibus Stock Plan, "FOR" the approval of the Cash Incentive Plan, and
"FOR" the ratification of the appointment of KPMG LLP as Selective's
independent public accountants. If other matters should properly come before
the meeting, our representatives will vote on such matters, to the extent
permitted by applicable law and NASDAQ and Securities and Exchange Commission
rules and regulations, in accordance with their best judgment.
HOW WILL VOTES BE COUNTED?
-------------------------
The inspector of elections appointed by the Board of Directors for the Annual
Meeting will separately tabulate affirmative and negative votes, abstentions
and "broker non-votes" (shares held by a broker, bank or other nominee that
does not have authority, either express or discretionary, to vote on a
particular matter). Shares represented by proxies that reflect abstentions and
broker non-votes are counted for determining whether there is a quorum.
Abstentions and broker non-votes will not be considered in determining whether
director nominees have received the requisite number of affirmative votes. For
each of the remaining proposals, approval will require the affirmative votes of
the holders of a majority of the total number of the votes of the stockholders
present at the Annual Meeting or represented by proxy and entitled to vote on
the proposal. For each of these remaining proposals, abstentions will have the
effect of a vote "Against" such proposal, and broker non-votes, although
counted for purposes of determining the presence of a quorum, will have the
effect of a vote neither for nor against such proposal.
WHAT IF MY SHARES ARE NOT REGISTERED IN MY NAME?
------------------------------------------------
If you own your shares in "street name," meaning that your broker is actually
the record owner, you should contact your broker. When a broker does not have
voting instructions and withholds its vote on one of these matters, it is
called a "broker non-vote." Broker non-votes count toward a quorum, but
otherwise do not affect the outcome of any proposal.
4
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS AND CERTAIN
BENEFICIAL OWNERS AND SECURITIES AUTHORIZED FOR ISSUANCE
UNDER EQUITY COMPENSATION PLANS
SECURITY OWNERSHIP OF MANAGEMENT
AS OF FEBRUARY 28, 2005
The following table shows:
o How much Selective common stock each nominee for director, director, the
Chairman of the Board, Chief Executive Officer, and President ("CEO"),
and the next four most highly compensated executive officers other than
the CEO, own directly or beneficially.
o How much Selective common stock the directors and executive officers of
Selective own, directly or beneficially as a group.
-----------------------------------------------------------------------------------------------------------------
NUMBER TOTAL
OF SHARES SHARES
BENEFICIALLY OWNED OPTIONS BENEFICIALLY PERCENT
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NAME OF OWNER OWNED EXERCISABLE(1) OWNED OF CLASS
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Bauer, Paul D. 13,122 18,000 31,122 *
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Brown, A. David 14,363 18,000 32,363 *
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Coleman, James W., Jr. 45,988 17,712 63,700 *
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Connell, Richard F. 35,831 5,000 40,831 *
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Herder, C. Edward 79,907(2) 27,000 106,907 *
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Kearns, William M., Jr. 82,700 27,000 109,700 *
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Lamm-Tennant, Joan M. 14,742 27,000 41,742 *
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McClellan, S. Griffin, III 23,697(3) 12,000 35,697 *
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Murphy, Gregory E. 145,738 43,025 188,763 *
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Ochiltree, Jamie, III 105,771(4) 46,932 152,703 *
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O'Kelley, Ronald L. 600 0 600 *
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Rockart, John F. 3,042 6,000 9,042 *
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Rue, William M. 241,133(5) 27,000 268,133 *
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Thebault, J. Brian 18,766(6) 27,000 45,766 *
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Zaleski, Ronald J. 40,303 11,996 52,299 *
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All executive officers and 1,017,347 377,515 1,394,862 4.93
directors as a group (20
persons)
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* Less than 1% of the common stock outstanding.
(1) Includes shares under options exercisable on February 28, 2005, and within
sixty (60) days thereafter.
(2) Includes 13,495 shares held by Mr. Herder's wife and 4,800 shares held by
The Hand Income Trust, of which Mr. Herder and his wife are co-trustees
and disclaim beneficial ownership.
(3) Includes 2,000 shares held by Mr. McClellan's wife, of which Mr. McClellan
disclaims beneficial ownership.
(4) Includes 30,434 shares held by Mr. Ochiltree's wife, of which Mr.
Ochiltree disclaims beneficial ownership.
(5) Includes (i) 16,292 shares held by Chas. E. Rue & Sons, Inc., a general
insurance agency of which Mr. Rue is President and owner of more than a 5%
equity interest (see Page 11 of this Proxy Statement); (ii) 13,472 and
13,434 shares held in trust of daughter and son, respectively; (iii) 990
shares held by Mr. Rue's wife, of which Mr. Rue disclaims beneficial
ownership; and (iv) 18,434 shares held by a trust, of which Mr. Rue is a
co-trustee for the benefit of his son and daughter.
(6) Includes 100 shares held in custody for Mr. Thebault's son and 100 shares
held in custody for Mr. Thebault's daughter.
5
HOLDERS OF 5% OR MORE OF SELECTIVE SECURITIES
The following table lists the only person or group who is known to Selective to
be the beneficial owner of more than 5% of any class of Selective's voting
securities as of December 31, 2004.
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Title of Class Name & Address of Amount & Nature of Percentage of Class
Beneficial Owner Beneficial Ownership
-----------------------------------------------------------------------------------------------------------
Common Stock Dimensional Fund Advisors, Inc. 1,891,852 shares 6.81%
1299 Ocean Avenue, 11th Floor of common stock
Santa Monica, CA 90401
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The information in the above table is based on a Schedule 13G filed by
Dimensional Fund Advisors on February 9, 2005 with the Securities and Exchange
Commission.
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
The following table sets forth certain information as of December 31, 2004,
with respect to compensation plans under which shares of Selective's common
stock may be issued.(1)
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Plan Category (a) (b) (c)
Number of securities Weighted-average Number of securities
to be issued upon exercise price of remaining available for
exercise of outstanding future issuance under
outstanding options, options, warrants equity compensation
warrants and rights and rights plans (excluding
securities reflected in
column (a))
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Equity compensation plans approved 927,276 $22.90 2,179,946 (2)
by security holders
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Equity compensation plans not - N/A 640,930 (3)
approved by security holders
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Total 927,276 $22.90 2,820,876
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(1) Since December 31, 2004, Selective has issued (i) 33,000 stock options
under Selective's Stock Option Plan for Directors; (ii) 1,082 shares
under Selective's Stock Compensation Plan for Nonemployee Directors; and
(iii) 312,876 restricted shares and 105,663 stock options under
Selective Insurance Stock Option Plan III.
(2) Includes (i) 268,282 shares available for issuance under Selective's
Employee Stock Purchase Plan; (ii) 364,000 shares available for issuance
under Selective's Stock Option Plan for Directors; (iii) 323,876 shares
available for issuance under Selective's Stock Compensation Plan for
Nonemployee Directors; (iv) 2,000 shares available for Selective's
Deferred Compensation Plan for Nonemployee Directors; (v) 43,290 shares
available for issuance under Selective's Deferred Director Converted
Units Plan; and (vi) 1,178,498 shares available under Selective
Insurance Stock Option Plan III, which can be issued as stock options or
in the form of restricted stock awards.
(3) Reflects the number of shares available for issuance under Selective's
Stock Purchase Plan for Independent Insurance Agents.
6
INFORMATION REGARDING PLANS AND ARRANGEMENTS
NOT SUBJECT TO SECURITY HOLDER ACTION
Stock Purchase Plan For Independent Insurance Agents
----------------------------------------------------
Selective adopted the Selective Insurance Group Stock Purchase Plan for
Independent Insurance Agents (the "Independent Agents Plan") to motivate its
independent agents by enabling them to participate in Selective's long-term
growth and success by purchasing shares of common stock at a discounted price.
The Independent Agents Plan was originally adopted in May 1989 and was most
recently amended on July 24, 2000. The purchase price for shares offered under
the Independent Agents Plan is the average of the high and low sale prices of
Selective's common stock quoted on NASDAQ on the date of purchase, less a
discount of 10%.
Eligibility
Each independent insurance agency under contract with Selective to promote and
sell its insurance products is eligible to participate in the Independent
Agents Plan and to purchase shares of common stock under such plan. Also
eligible to purchase shares under the Independent Agents Plan are: the
principals of such agencies, general partners, officers and stockholders of
eligible insurance agencies, key employees of eligible insurance agencies
designated by the principals, general partners or officers of the agencies,
their individual retirement plans, their Keogh plans, and employee benefit
plans of eligible insurance agencies.
Restrictions on Shares Purchased under the Plan
Shares purchased under the Independent Agents Plan are restricted for a period
of one-year that commences the day after the purchase. During this one-year
period, shares purchased under the Independent Agents Plan cannot be sold,
transferred, pledged, assigned, or disposed of in any way.
INFORMATION ABOUT PROPOSAL 1
Election of Directors
Selective's Board of Directors currently has twelve (12) directors, divided
into three (3) classes designated Class I, Class II, and Class III. William A.
Dolan, II will retire from the Board of Directors on April 27, 2005, the date
of the Annual Meeting. Upon Mr. Dolan's retirement, the number of directors
will be reduced to eleven (11). Pursuant to Selective's Restated Certificate of
Incorporation, as amended (the "Certificate"), and its By-laws, Selective may
have a minimum of seven (7) and a maximum of twenty (20) directors. By majority
vote, the Board of Directors may set the number of directors within this range
at any time.
Under Selective's By-laws, directors are elected at the Annual Meeting for
terms of three (3) years. No family relationships exist between any of
Selective's current directors and executive officers. At present, the Board has
authorized twelve (12) directors.
The Board nominated three (3) Class III directors to stand for election at the
Annual Meeting for terms expiring at the 2008 Annual Meeting or when a
successor has been duly elected and qualified: Paul D. Bauer, Joan M.
Lamm-Tennant, and Ronald L. O'Kelley. Mr. O'Kelley was recommended by
non-management directors of Selective. All three (3) nominees have consented to
serve if elected and the Board does not know of any reason why any of these
nominees would decline or be unable to serve if elected. If a nominee becomes
unavailable or unable to serve before the Annual Meeting, the Board can either
reduce its size or designate a substitute nominee. If the Board designates a
substitute nominee, proxies that would have been cast for the original nominee
will be cast for the substitute nominee unless instructions are given to the
contrary.
7
NOMINEES OF THE BOARD OF DIRECTORS FOR TERMS TO EXPIRE AT THE 2008
ANNUAL MEETING
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CLASS III - DIRECTORS CONTINUING IN OFFICE UNTIL THE 2008 ANNUAL MEETING OF STOCKHOLDERS
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Name, Age, Year Elected To Board
of Directors Occupation And Background
-------------------------------- -------------------------
Paul D. Bauer, 61 o Designated by the Board of Directors as Audit Committee
Independent Director, 1998 Financial Expert.
o Retired Financial Executive.
o Executive Vice President and Chief Financial Officer, Tops
Markets, Inc., a grocery concern, 1970 to 1993.
o Director, R.P. Adams Co., 1991 to 2004.
o Director, Rosina Holdings Inc., since 2002.
o Director, IMC, Inc., 1995 to 2000.
o Director, Catholic Health System of Western New York, since
1998.
o Trustee, D'Youville College, since 1995.
o Graduate of Boston College (B.S. in Accounting).
Joan M. Lamm-Tennant, 52 o Senior Vice President, General Reinsurance Corporation, a
Independent Director, 1993 reinsurance company, since 1997.
o Professor of Finance, Villanova University, 1988 to 2000.
o Director, IVANS, since 2004.
o Member, American Risk and Insurance Association.
o Member, International Insurance Society.
o Member, Association for Investment Management and Research.
o Graduate of St. Mary's University (B.B.A. and M.B.A.).
o Graduate of the University of Texas (Ph.D.).
Ronald L. O'Kelley, 60 o Chairman and CEO, Atlantic Coast Venture Investments Inc., a
Independent Director, 2005 venture capital and real estate investment company, since 2003.
o Executive Vice President, CFO and Treasurer, State Street
Corporation, 1995-2002.
o Director, United States Shipping Corporation, since 2004.
o Member, American Institute of Certified Public Accountants.
o Graduate of Duke University (A.B.).
o Graduate of Carnegie-Mellon University (M.B.A).
8
CONTINUING DIRECTORS
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CLASS II - DIRECTORS CONTINUING IN OFFICE UNTIL THE 2006 ANNUAL MEETING OF STOCKHOLDERS
------------------------------------------------------------------------------------------------------------
Name, Age, Year Elected To Board
of Directors Occupation And Background
-------------------------------- -------------------------
A. David Brown, 62 o Managing Partner, Bridge Partners, LLC, an executive
Independent Director, 1996 recruiting firm, since October 2003.
o Partner, Whitehead Mann, executive recruiters, 1997 to 2003.
o Managing Vice President, Korn/Ferry International, executive
recruiters, 1994 to 1997.
o Senior Vice President of Human Resources and other executive
positions, R.H. Macy & Co., Inc., 1968 to 1994.
o Director, Zale Corporation, since 1997.
o Director, Hanover Direct, since 2003.
o Director, The Sports Authority, Inc., 1998 to 2003.
o Trustee, Drew University.
o Trustee, Jackie Robinson Foundation.
o Graduate of Monmouth University (B.S.).
William M. Kearns, Jr., 69 o Chairman and Co-CEO and other executive positions, Keefe
Independent Director, 1975 Managers, LLC, a money management firm, since 1998.
Lead Director o President, W.M. Kearns & Co., Inc., a private investment
company, since 1994.
o Advisory Director and Managing Director,
Lehman Brothers and predecessor firms,
1977 to 1994.
o Advisory Director, Proudfoot Consulting, PLC, since 1996.
o Trustee of EQ Advisors Trust (Equitable Life Assurance Society
of the U.S.), AXA Financial, since 1997.
o Trustee, AXA Enterprise Funds, since 2004.
o Director, Transitor Devices, Inc., since 1991.
o Advisory Director, Gridley and Company LLC, since 2001.
o Director, United States Shipping Corporation, since 2002.
o Advisory Director, Private Client Resources LLC, since 2004.
o Member, Executive Advisory Committee, William E. Simon School
of Business Administration, University of Rochester, since 1986.
o Member, Securities Industry Association.
o Member, National Association of Securities Dealers.
o Honorary LLD, Gonzaga University.
o Graduate of the University of Maine (B.A.).
o Graduate of New York University (M.A.).
S. Griffin McClellan III, 67 o Retired Banking Executive.
Independent Director, 1980 o Self-employed Banking Consultant, 1994 to 2001.
o Chairman of Crestmont Federal Savings and Loan Association,
1989 to 1994.
o Graduate of Harvard University (B.A.).
9
John F. Rockart, 73 o Senior Lecturer Emeritus and Senior Lecturer, Massachusetts
Independent Director, 2002 Institute of Technology, since 1982.
o Director, Keane, Inc., since 1968.
o Director, Comshare, Inc., since 1988.
o Director, Oasis Semiconductor, Inc., since 2004.
o Member, Society Information Management, Association
Information Systems.
o Graduate of Princeton University (A.B.).
o Graduate of Harvard Business School (M.B.A.).
o Graduate of Massachusetts Institute of Technology (Ph.D.).
J.Brian Thebault, 53 o Chairman and Chief Executive Officer, L.P. Thebault
Independent Director, 1996 Company, a graphic communications concern, since
1998.
o Trustee of The Delbarton School, since 1990.
o Trustee of the Peck School, since 1994.
o Graduate of University of Southern California (B.S.).
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CLASS I - DIRECTORS CONTINUING IN OFFICE UNTIL THE 2007 ANNUAL MEETING OF STOCKHOLDERS
------------------------------------------------------------------------------------------------------------
Name, Age, Year Elected To Board
of Directors Occupation And Background
-------------------------------- -------------------------
C.Edward Herder, 69 o President, Chester H. Herder & Son, Inc., a general
Independent Director, 1978 insurance agency, since 1959.
o Partner, Herder Associates, 1982 to 2000.
o Director, Flemington National Bank & Trust Co., 1981 to
1996.
o Director, American Reliance Insurance Co., 1966 to 1986.
o Member, Society of CPCU.
o Member, Professional Insurance Agents Association.
o Graduate of Bucknell University (B.S.).
Gregory E. Murphy, 49 o Chairman, President, and Chief Executive Officer of Selective,
Employee Director, 1997 since May 2000.
o President and Chief Executive Officer of Selective, May 1999
to May 2000.
o President and Chief Operating Officer
of Selective, 1997 to May 1999.
o Director, Newton Memorial Hospital Foundation, Inc., since
1999.
o Director, American Insurance Association, since 2002.
o Trustee, the American Institute for CPCU (AICPCU) and the
Insurance Institute of America (IIA), since June 2001.
o Member, New Jersey Society of Certified Public Accountants.
o Boston College (B.S.).
o Harvard University (Advanced Management Program).
William M. Rue, 57 o President, Rue Insurance, a general insurance agency, since
Non-Independent Director, 1977 1969.
o Director, 1st Constitution Bank, since 1989.
o Director, Robert Wood Johnson University Hospital at Hamilton,
since 1993.
o Trustee, Rider University, since 1993.
o Director, Robert Wood Johnson University Hospital Foundation,
since 1999.
o Member, Society of CPCU.
o Member, Professional Insurance Agents Association.
o Graduate of Rider College (B.S.).
10
The Board of Directors has determined that all directors, except for Mr. Murphy
and Mr. Rue, are independent as defined by the applicable NASDAQ and Securities
and Exchange Commission rules and regulations. See the section entitled Certain
Relationships and Related Transactions below for further information concerning
Mr. Rue.
EXECUTIVE OFFICERS
Information regarding Executive Officers is incorporated by reference to
Selective's Annual Report on Form 10-K in the item in Part I captioned
"Executive Officers of the Registrant."
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with Management and Others/Certain Business Relationships
William M. Rue, a Selective director, is President of and owns more than 10% of
the equity of Rue Insurance., a general independent insurance agency ("Rue
Agency"). The Rue Agency is an appointed independent agent of Selective's
insurance subsidiaries and also places insurance for Selective's business
operations. Selective's relationship with the Rue Agency has existed since 1928
and Selective expects that its relationship with the Rue Agency will continue
in 2005. In 2004, Selective paid the Rue Agency:
o $1.8 million in commissions for insurance policies placed with
Selective's insurance subsidiaries in the normal course of business.
o $13,000 in commissions for business placed with Selective's human
resources administration subsidiary.
o $1.4 million in premiums for insurance coverages through non-Selective
insurance companies for its own operations, from which the Rue Agency was
paid commission pursuant to its agreements with those carriers.
o $0.2 million in reinsurance commissions to PL, LLC, an insurance fund
administrator of which the Rue Agency owns 20% and which places
reinsurance through a Selective insurance subsidiary.
Indebtedness of Management
The following are loans to executives that are grandfathered under the
Sarbanes-Oxley Act of 2002 and were authorized by the Board of Directors to
encourage Selective stock ownership:
o On December 16, 1994, Selective made a loan to Gregory E. Murphy, now
Selective's Chairman, President, and Chief Executive Officer, in the
original principal amount of $105,395 at an annual interest rate of zero
percent and a maturity date in 2005 to finance the exercise of
non-qualified Selective stock options granted on same date. Mr. Murphy
paid the loan in full in April of 2004.
o On December 16, 1994, Selective made a loan to Jamie Ochiltree III, now
Selective's Senior Executive Vice President, Insurance Operations, in the
original principal amount of $197,000 at an annual interest rate of zero
percent and a maturity date in 2005 to finance the exercise of
non-qualified Selective stock options granted on same date. Mr. Ochiltree
paid the loan in full as of February of 2005.
o On August 7, 1998, Selective made a loan to Gregory E. Murphy, now
Selective's Chairman, President and Chief Executive Officer, in the
original principal amount of $162,495 at an annual interest rate of 2.5%
and a maturity date in 2009 to finance the purchase of Selective common
stock in the open market. Mr. Murphy paid the loan in full in November of
2004.
o On August 7, 1998, Selective made a loan to Jamie Ochiltree III, now
Selective's Senior Executive Vice President, Insurance Operations, in the
original principal amount of $98,799 at an annual interest rate of 2.5%
and a maturity date in 2009 to finance the purchase of Selective common
stock in the open market. As of February 28, 2005, the outstanding
principal amount under this loan was $50,387.
o On August 7, 1998, Selective made a loan to James W. Coleman, Jr., now
Selective's Executive Vice President, Diversified Insurance Operations,
in the original principal amount of $83,196 at an annual interest rate of
2.5% and a maturity date in 2009 to finance the purchase of Selective
11
common stock in the open market. As of February 28, 2005, the outstanding
principal amount under this loan was $42,430.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended ("Exchange
Act"), requires Selective's directors and executive officers, and persons who
own more than 10% of a registered class of Selective's equity securities, to
file with the Securities and Exchange Commission initial reports of ownership
and reports of changes in ownership of Selective's equity securities. Officers,
directors, and greater than 10% stockholders are required by Securities and
Exchange Commission regulation to furnish Selective with copies of all Section
16(a) reports they file. Based solely on its review of the copies of Forms 3,
4, and 5 or written representations from certain reporting persons that no
Forms 5 were required for those persons, Selective believes that all reporting
requirements under Section 16(a) for the fiscal year ended December 31, 2004,
were met in a timely manner by its directors, executive officers, and greater
than 10% beneficial owners.
CODE OF CONDUCT
Selective has adopted a Code of Conduct which sets forth the guiding principles
of business ethics for all Selective personnel, including executive officers.
The Code of Conduct can be found under the Corporate Governance section of
Selective's website, www.selective.com. Any amendment to or waiver from the
provision of the Code of Conduct that applies to Selective's senior officers
will be posted to Selective's website, www.selective.com.
THE BOARD OF DIRECTORS AND ITS COMMITTEES
The Board of Directors held five (5) meetings in 2004.
The Board has five (5) standing committees: Audit, Corporate Governance and
Nominating, Executive, Finance, and Salary and Employee Benefits. The Audit,
Corporate Governance and Nominating, and Salary and Employee Benefits
Committees have written charters, all of which can be found under the Corporate
Governance section of Selective's website at www.selective.com.
All of the members of the Audit Committee, the Corporate Governance and
Nominating Committee, and the Salary and Employee Benefits Committee are
independent directors as defined by NASDAQ and Securities and Exchange
Commission rules and regulations.
All directors attended 75% or more of the meetings of the Board of Directors
and the committees of which they are members.
It is Selective's policy that all directors are expected to attend the Annual
Meeting. All directors attended the 2004 Annual Meeting.
12
The following table lists for each of these five(5) standing committees, its
membership, a summary of its responsibilities, and the number of meetings it
held in 2004:
-------------------------------------------------------------------------------------------------------------
COMMITTEE NAME AND 2004
MEMBERSHIP COMMITTEE RESPONSIBILITIES MEETINGS
-------------------------------------------------------------------------------------------------------------
Audit o Reviewing the integrity of Selective's auditing,
----- accounting, and reporting processes and considering
Joan M. Lamm-Tennant, and approving appropriate changes.
Chairperson o Reviewing Selective's financial reports and other
Paul D. Bauer * financial information provided to the public and
S. Griffin McClellan III filed with the Securities and Exchange Commission.
John F. Rockart o Reviewing Selective's internal controls regarding
J. Brian Thebault finance, accounting, legal compliance, and ethics.
o Appointing Selective's independent accountants, 8
* Designated by the Board of supervising the relationship between Selective
Directors as a Financial and its independent public accountants, including
Expert in accordance with annually reviewing their performance, making
Securities and Exchange decisions with respect to their retention or
Commission rules and removal, reviewing the scope of their audit
regulations. services, approving significant non-audit
services, and confirming the independence
of the independent public accountants.
------------------------------------------------------------------------------------------------------------
Corporate Governance and o Developing and adopting corporate governance
Nominating guidelines.
------------------------ o Overseeing Selective's conflict of interest
William M. Kearns, policy.
Chairperson o Appointing Board members to the various Board 5
William A. Dolan, II committees and as chairpersons.
C. Edward Herder o Nominating candidates for the Board of Directors
Ronald L. O'Kelley in accordance with Selective's Director Selection
John F. Rockart Process.
-------------------------------------------------------------------------------------------------------------
Executive Committee o Authorized to exercise the Board of Directors'
------------------- powers and authority in the management of
Gregory E. Murphy, Selective's business and affairs between Board
Chairperson meetings.
A. David Brown o Has the right and authority to exercise all the
William M. Kearns, Jr. powers of the Board of Directors on all matters 0
Joan M. Lamm-Tennant brought before it except matters concerning
William M. Rue Selective's investments.
-------------------------------------------------------------------------------------------------------------
Finance Committee o Establishes Selective's overall investment
----------------- policies and guidelines, and reviews and approves
William M. Rue, investments made pursuant to those policies and
Chairperson guidelines.
William M. Kearns, Jr. 4
Joan M. Lamm-Tennant
S. Griffin McClellan III
Gregory E. Murphy
Ronald L. O'Kelley
-------------------------------------------------------------------------------------------------------------
13
-------------------------------------------------------------------------------------------------------------
Salary & Employee Benefits o Sets executive compensation policies and approves 6
-------------------------- compensation levels of senior management and works
A. David Brown, with senior management on benefit and compensation
Chairperson programs for Selective employees.
Paul D. Bauer o Supervises the administration of Selective's
C. Edward Herder employee equity plans, and provides disinterested
S. Griffin McClellan III* administration of employee benefit plans in which
J. Brian Thebault Section 16 officers are eligible to
participate.
o Continuously evaluates employee benefits and
supervises their administration.
* Appointed Chairman in April
2004 and resigned from the
committee in July 2004
-------------------------------------------------------------------------------------------------------------
DIRECTOR SELECTION PROCESS
The Corporate Governance and Nominating Committee ("CGNC") is responsible for
reviewing candidates for election to Selective's Board of Directors that are
identified by Board members, management, and/or search firms and selecting
nominees for approval by the stockholders. In making selections, the CGNC
reviews the skills and characteristics required in light of current Board
membership, including business experience, diversity, and skills in technology,
finance, marketing, financial reporting, and other areas. Candidates for
election should be willing to devote sufficient time to carry out their duties
and responsibilities effectively, and should possess the highest personal and
professional ethics, integrity, and values. Candidates must be committed to
representing the long-term interests of Selective and its stockholders. The
CGNC considers nominees recommended by stockholders for election as directors
at an Annual Meeting of Stockholders, but does not solicit such
recommendations. The CGNC applies the same standards in considering candidates
submitted by stockholders as it does in evaluating candidates identified by
other sources. Stockholders who wish to propose a nominee for consideration by
the CGNC must do so in writing addressed to the Chairman of the CGNC, c/o the
Corporate Secretary of Selective, 40 Wantage Avenue, Branchville, NJ 07890. The
notification must contain all information relating to each person whom the
stockholder proposes that the CGNC consider for nomination as a director as
would be required to be disclosed in a solicitation of proxies for the election
of such person as a director pursuant to Regulation 14A under the Exchange Act.
14
DIRECTOR COMPENSATION
Compensation for nonemployee directors in 2003 and 2004 is shown on the table
below. Employee directors do not receive compensation for serving on the Board
of Directors.
--------------------------------------------------- ------------------- ----------------
COMPENSATION 2004 2003
--------------------------------------------------- ------------------- ----------------
Annual Retainer Fee (1) $43,000 $38,000
--------------------------------------------------- ------------------- ----------------
Annual Option Grant (2) 3,000 3,000
--------------------------------------------------- ------------------- ----------------
Board Meeting Attendance $0 $0
--------------------------------------------------- ------------------- ----------------
Committee Attendance Fee (3)
In person $1,500 $1,500
By telephone $1,000 $1,000
--------------------------------------------------- ------------------- ----------------
Annual Chairperson Fee(4)
Audit Committee $10,000 $10,000
Salary & Employee Benefits Committee $10,000 $10,000
--------------------------------------------------- ------------------- ----------------
Lead Director Fee(5) $0 $0
--------------------------------------------------- ------------------- ----------------
Expenses Reasonable Reasonable
--------------------------------------------------- ------------------- ----------------
_______________________________
(1) The Annual Retainer Fee is set annually by the Corporate Governance
and Nominating Committee. Pursuant to the Stock Compensation Plan for
Nonemployee Directors ("Directors Stock Plan") and the proposed 2005
Omnibus Stock Plan, directors, by December 20 of the prior year, must
elect to receive the Annual Retainer Fee either (i) entirely in shares
of common stock or (ii) in a combination of shares of common stock and
cash, (but in no event more than 50% of which may be in the form of
cash). The Annual Retainer Fee is paid in equal quarterly installments
on the first (1st) day of January, April, July, and October. The
number of shares of common stock issued in each quarterly installment
is determined by multiplying the amount of Annual Retainer Fee to be
paid in stock by one-quarter (0.25) and dividing that product by the
average of the high and low sale price of Selective's common stock as
quoted on NASDAQ on the payment date ("Fair Market Value"). Under the
Director Stock Plan and the proposed 2005 Omnibus Stock Plan, by
December 20 of the prior year, directors may also elect to defer the
receipt of the Annual Retainer Fee and any dividends and accrued
interest to a specified future year, the attainment of age 70, or
termination of services as a director.
(2) Under the Stock Option Plan for Directors ("Directors Option Plan")
and the proposed 2005 Omnibus Stock Plan, each director automatically
receives an option to purchase 3,000 shares of common stock on March 1
or the following business day if March 1 is on a weekend. The exercise
price for each option is the Fair Market Value and is payable in cash
or in common stock. Each option vests on the first anniversary of its
grant and has a term of ten (10) years. In the event of a director's
death or disability, an option may be exercised, in whole or in part,
by the director's executor, administrator, guardian or legal
representative in accordance with the terms of such option.
(3) Committee Attendance Fees are set by the Corporate Governance and
Nominating Committee and are paid in cash. Directors may also elect to
defer the receipt of their Committee Attendance Fees and any interest
thereon, to a specified future year, the attainment of age 70, or
termination of services as a director.
(4) Annual Chairperson Fees are set by the Corporate Governance and
Nominating Committee and are paid quarterly in cash. Directors may
also elect to defer the receipt of their Annual Chairman Fee and any
interest thereon, to a specified future year, the attainment of age
70, or termination of service as a director.
(5) The Corporate Governance and Nominating Committee has set an annual
fee of $10,000 to be paid quarterly in cash to the Lead Director
effective in 2005.
15
EXECUTIVE COMPENSATION
The following Summary Compensation Table shows how much compensation
Selective's CEO and the next four most highly compensated executive officers
other than the CEO earned over the past three (3) fiscal years (these
executives are referred to as our "named executive officers"). Other tables
that follow provide more detail about the specific types of compensation.
---------------------------------- -------------------------
Long-Term Compensation
Annual Compensation Awards
----------------------------- ------- ---------- ------------ ----------- ----------- ------------- --------------
Other Restricted Securities All Other
Salary Compen- Stock Underlying Compen-
Name And Annual Bonus sation Awards Options/ sation
Principal Position Year ($)(1) ($)(2) ($)(3) ($)(4) Warrants (#) ($)(5)
----------------------------- ------- ---------- ------------ ----------- ------------ ------------- --------------
Gregory E. Murphy Chairman, 2004 695,385 1,000,000 0 870,500 5,000 7,832
President & Chief Executive 2003 635,769 621,600 0 466,400 10,000 34,296
Officer 2002 582,308 197,438 0 210,500 10,000 24,304
----------------------------- ------- ---------- ------------ ----------- ------------ ------------- --------------
Jamie Ochiltree III Senior 2004 371,385 330,000 0 313,380 5,000 22,248
Executive Vice President 2003 337,662 190,400 0 186,560 7,000 22,480
2002 308,462 69,750 0 105,250 5,000 18,491
----------------------------- ------- ---------- ------------ ----------- ------------ ------------- --------------
Richard F. Connell 2004 327,693 240,000 0 313,380 5,000 14,910
Executive Vice President & 2003 298,846 168,000 0 186,560 7,000 13,597
Chief Information Officer 2002 283,462 64,125 0 105,250 5,000 10,214
----------------------------- ------- ---------- ------------ ----------- ------------ ------------- --------------
James W. Coleman, Jr. 2004 321,139 225,000 0 313,380 5,000 16,189
Executive Vice President 2003 292,923 164,640 0 93,280 5,000 15,093
2002 278,462 63,000 55,456 105,250 5,000 11,986
----------------------------- ------- ---------- ------------ ----------- ------------ ------------- --------------
Ronald J. Zaleski 2004 316,769 205,000 0 313,380 5,000 14,413
Executive Vice President 2003 288,692 162,400 0 186,500 7,000 13,135
& Chief Actuary 2002 271,615 61,425 0 105,250 5,000 9,786
----------------------------- ------- ---------- ------------ ----------- ------------ ------------- --------------
(1) Annual Compensation is paid by Selective Insurance Company of America
("SICA"), which also sponsors the employee benefit plans in which such
executive officers participate.
(2) Bonus payments in each year are made pursuant to Selective's Annual Cash
Incentive Plan, by which employees receive a percentage of salary as
Annual Cash Incentive Payments if they achieve specified personal goals
and Selective achieves stated corporate performance goals. The amounts
contained in this column reflect the amounts earned for the applicable
fiscal year.
(3) Securities and Exchange Commission rules do not require the reporting of
perquisites and other personal benefits to the extent that the aggregate
amount of such compensation is the lesser of either $50,000 or 10% of the
total annual salary and bonus reported for each named executive officer.
The amount paid to Mr. Coleman in 2002 was a tax gross up for reimbursed
relocation expenses included in his taxable income for 2001.
(4) All amounts represent the dollar value of the restricted stock on the
date granted. Grants were made pursuant to Selective's Stock Option Plans
II and III, under which such shares and their accumulated dividends
cliff-vest four years from the date granted depending upon achievement of
predetermined performance goals. The grants are subject to forfeiture
should the named executive resign or be terminated for cause prior to
vesting. The aggregate value of restricted stock awards at the end of
2004 was $3,539,200 for Mr. Murphy, $1,282,960 for Mr. Ochiltree,
$1,150,240 for Mr. Connell, $1,106,000 for Mr. Coleman, and $1,282,960
for Mr. Zaleski. The aggregate number of restricted shares held at the
end of 2004 was 80,000 by Mr. Murphy, 29,000 by Mr. Ochiltree, 26,000 by
Mr. Connell, 25,000 by Mr. Coleman, and 29,000 by Mr. Zaleski.
(5) The amounts for the fiscal year ended 2002 represent Selective's annual
contribution on behalf of the named executives to the Selective
Retirement Savings Plan and Selective's Deferred Compensation Plan. The
amounts for the fiscal year ended 2003 and 2004 represent Selective's
annual contribution on behalf of the named executive to Selective's
Deferred Compensation Plan. The contributions reflected in the table for
2004 are $7,140 for Mr. Murphy, $16,898 for Mr. Ochiltree, $14,910 for
Mr. Connell, $14,612 for Mr. Coleman, and $14,413 for Mr. Zaleski. In
addition, the amounts for Messrs. Murphy, Ochiltree, and Coleman also
include $692, $5,350 and $1,577, which respectively, represent the
difference between the market rate of interest and the actual rate of
interest on indebtedness of such executive officer to Selective.
16
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table sets forth information concerning stock option grants in
2004 to each of the named executive officers in the Summary Compensation Table.
No stock appreciation rights ("SAR") were granted in 2004.
-------------------------------------------------------------------------------------------------------------------------
Potential Realizable Value
at Assumed Annual Rates of
Stock Price Appreciation
Individual Grants for Option Term(1)
-------------------------------------------------------------------------------------------------------------------------
Number of % of Total
Securities Options/SARs Exercise
Underlying Granted to or Base
Options/SARs Employees in Price Expiration 5% 10%
Named Executive Officer Granted (#)(2) Fiscal Year ($/Sh) (3) Date ($) ($)
-------------------------------------------------------------------------------------------------------------------------
Gregory E. Murphy 5,000 4.78 34.79 2/03/2014 8,700 17,400
-------------------------------------------------------------------------------------------------------------------------
Jamie Ochiltree III 5,000 4.78 34.79 2/03/2014 8,700 17,400
-------------------------------------------------------------------------------------------------------------------------
Richard F. Connell 5,000 4.78 34.79 2/03/2014 8,700 17,400
-------------------------------------------------------------------------------------------------------------------------
James W. Coleman, Jr. 5,000 4.78 34.79 2/03/2014 8,700 17,400
-------------------------------------------------------------------------------------------------------------------------
Ronald J. Zaleski 5,000 4.78 34.79 2/03/2014 8,700 17,400
-------------------------------------------------------------------------------------------------------------------------
(1) There can be no assurance provided to any executive officer or any other
holder of Selective's securities that the actual stock price
appreciation over the (ten) 10-year option term will be at the assumed
5% and 10% compounded annual rates or at any other defined level. Unless
the market price of the common stock appreciates over the option term,
no value will be realized from the option grants made to the named
executive officers.
(2) The stock options were granted under the Selective's Stock Option Plan
III ("Plan III"). Plan III permits the granting of options to all
employees and permits the granting of SARs in tandem with any or all
stock options. If a SAR is exercised, the employee must surrender the
related stock option or portion thereof. Upon exercise of a SAR, payment
will be made by Selective in stock, cash, or some combination thereof as
a committee appointed by the Board of Directors shall determine at the
time of exercise. None of the options granted to the named executive
officers in 2004 have SARs attached. Under the terms of Plan III,
options or any related SARs, may be granted at no less than fair market
value as of the date of grant. Options or any related SARs must be
exercised within ten (10) years from the date of grant. In the event of
any change in the number of outstanding shares of Selective's common
stock as a result of a stock dividend, stock split, or other
readjustments, the committee appointed by the Board of Directors shall
make an appropriate adjustment in the aggregate number of shares which
may be subject to stock options granted under Plan III and in the number
of shares subject to and the option price of each then outstanding
option.
(3) The exercise price is equal to the fair market value of the common stock
on the date of grant and the option may be immediately exercised.
17
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information concerning stock option exercises in
2004 to each of the named executive officers in the Summary Compensation Table.
No stock appreciation rights were exercised in 2004, and none of these named
executive officers had any unexercised stock appreciation rights outstanding as
of December 31, 2004.
-------------------------------- ----------------------------
Number of Securities Value of Unexercised
Underlying Unexercised In-The-Money Options
Options at Fiscal Year End (#) At Fiscal Year End ($)(1)
-------------------------------- ----------------------------
Shares
Acquired Value
on Realized
Name Exercise(#) ($)(2) Exercisable Unexercisable Exercisable Unexercisable
--------------------------- -------- ---------- --------------- -------------- ------------- ---------------
Gregory E. Murphy 8,772 141,783 43,025 0 908,483 0
--------------------------- -------- ---------- --------------- -------------- ------------- ---------------
Jamie Ochiltree III 24,997 603,123 46,932 0 1,035,523 0
--------------------------- -------- ---------- --------------- -------------- ------------- ---------------
Richard F. Connell 19,000 323,780 5,000 0 49,475 0
--------------------------- -------- ---------- --------------- -------------- ------------- ---------------
James W. Coleman, Jr. 18,256 401,412 50,044 0 1,124,835 0
--------------------------- -------- ---------- --------------- -------------- ------------- ---------------
Ronald J. Zaleski 0 0 30,000 0 645,328 0
--------------------------- -------- ---------- --------------- -------------- ------------- ---------------
(1) Calculated by multiplying the number of underlying shares of common
stock by the difference between the fair market value of the common
stock as of December 31, 2004 and the exercise price of the option.
(2) Calculated by multiplying the number of shares acquired on exercise by
the difference between the fair market value of the shares on the date
of exercise and the exercise price.
18
DEFINED BENEFIT PLAN
Selective maintains a non-contributory retirement income plan ("Pension Plan")
that benefits most employees, including the named executive officers. The
Pension Plan was amended as of July 1, 2002, and provides for different
calculations based on service with Selective as of that date.
PENSION PLAN TABLE I
(EMPLOYEES WITH FIVE YEARS OF VESTING AS OF JULY 1, 2002
WHOSE AGE + YEARS OF VESTING SERVICE EQUALED OR EXCEEDED 55)
Years of Service
Remuneration 5 10 15 20 25 30 35
-------------------------------------------------------------------------------------------------------
200,000 19,200 39,200 59,200 79,200 99,200 119,200 139,200
225,000 21,600 44,100 66,600 89,100 111,600 134,100 156,600
250,000 24,000 49,000 74,000 99,000 124,000 149,000 174,000
275,000 26,400 53,900 81,400 108,900 136,400 163,900 191,400
300,000 28,800 58,800 88,800 118,800 148,800 178,800 208,800
325,000 31,200 63,700 96,200 128,700 161,200 193,700 226,200
350,000 33,600 68,600 103,600 138,600 173,600 208,600 243,600
375,000 36,000 73,500 111,000 148,500 186,000 223,500 261,000
400,000 38,400 78,400 118,400 158,400 198,400 238,400 278,400
425,000 40,800 83,300 125,800 168,300 210,800 253,300 295,800
450,000 43,200 88,200 133,200 178,200 223,200 268,200 313,200
475,000 45,600 93,100 140,600 188,100 235,600 283,100 330,600
500,000 48,000 98,000 148,000 198,000 248,000 298,000 348,000
525,000 50,400 102,900 155,400 207,900 260,400 312,900 365,400
550,000 52,800 107,800 162,800 217,800 272,800 327,800 382,800
575,000 55,200 112,700 170,200 227,700 285,200 342,700 400,200
600,000 57,600 117,600 177,600 237,600 297,600 357,600 417,600
625,000 60,000 122,500 185,000 247,500 310,000 372,500 435,000
650,000 62,400 127,400 192,400 257,400 322,400 387,400 452,400
675,000 64,800 132,300 199,800 267,300 334,800 402,300 469,800
700,000 67,200 137,200 207,200 277,200 347,200 417,200 487,200
725,000 69,600 142,100 214,600 287,100 359,600 432,100 504,600
750,000 72,000 147,000 222,000 297,000 372,000 447,000 522,000
775,000 74,400 151,900 229,400 306,900 384,400 461,900 539,400
800,000 76,800 156,800 236,800 316,800 396,800 476,800 556,800
Pension Plan Table I illustrates annual pension benefits, including
supplemental benefits, at normal retirement (age 65) for various years of
credited service in the form of a single life annuity and prior to any offset
for Social Security benefits for participants. Salary is the only compensation
covered by the Pension Plan; Bonus and Other Annual Compensation is not covered
by the Pension Plan.
The following table lists the average monthly compensation and estimated
credited years of service for the named executive officers that qualify for the
pension benefits depicted on Pension Plan Table I:
---------------------------------- ----------------------------------------- --------------------------------
Average Monthly Compensation Years of Service as of
Named Executive Officer as of December 31, 2004 December 31, 2004
---------------------------------- ----------------------------------------- --------------------------------
Gregory E. Murphy 48,833 23
---------------------------------- ----------------------------------------- --------------------------------
Jamie Ochiltree III 26,144 9
---------------------------------- ----------------------------------------- --------------------------------
James W. Coleman, Jr. 22,978 21
---------------------------------- ----------------------------------------- --------------------------------
Monthly Pension Plan benefits at normal retirement age are computed by adding
two calculations. The first is the former plan calculation which provides for
2% of "average monthly compensation" (based on the monthly average of the
member's salary for the 60 months out of the most recent 120 months of
employment preceding the member's termination of employment for which the
employee's salary is the highest) less 1 3/7% of a Social Security benefit
multiplied by the number of years of benefit service through June 30, 2002 (up
to a maximum of 35 years). The second calculation provides for 1.2% of
average monthly compensation (as defined herein) multiplied by the number
of years of benefit service after June 30, 2002.
19
PENSION PLAN TABLE II
(EMPLOYEES HIRED BEFORE JULY 1, 2001 WHO, AS OF JULY 1, 2002,
NEITHER (I) WERE AGE 50 AND HAD 5 YEARS OF VESTING SERVICE,
NOR (II) HAD 25 YEARS OF VESTING SERVICE)
Years of Service
Remuneration 5 10 15 20 25 30 35
--------------------------------------------------------------------------------------------------------
200,000 18,000 38,000 58,000 78,000 98,000 118,000 138,000
225,000 20,250 42,750 65,250 87,750 110,250 132,750 155,250
250,000 22,500 47,500 72,500 97,500 122,500 147,500 172,500
275,000 24,750 52,250 79,750 107,250 134,750 162,250 189,750
300,000 27,000 57,000 87,000 117,000 147,000 177,000 207,000
325,000 29,250 61,750 94,250 126,750 159,250 191,750 224,250
350,000 31,500 66,500 101,500 136,500 171,500 206,500 241,500
375,000 33,750 71,250 108,750 146,250 183,750 221,250 258,750
400,000 36,000 76,000 116,000 156,000 196,000 236,000 276,000
425,000 38,250 80,750 123,250 165,750 208,250 250,750 293,250
450,000 40,500 85,500 130,500 175,500 220,500 265,500 310,500
475,000 42,750 90,250 137,750 185,250 232,750 280,250 327,750
500,000 45,000 95,000 145,000 195,000 245,000 295,000 345,000
525,000 47,250 99,750 152,250 204,750 257,250 309,750 362,250
550,000 49,500 104,500 159,500 214,500 269,500 324,500 379,500
575,000 51,750 109,250 166,750 224,250 281,750 339,250 396,750
600,000 54,000 114,000 174,000 234,000 294,000 354,000 414,000
625,000 56,250 118,750 181,250 243,750 306,250 368,750 431,250
650,000 58,500 123,500 188,500 253,500 318,500 383,500 448,500
675,000 60,750 128,250 195,750 263,250 330,750 398,250 465,750
700,000 63,000 133,000 203,000 273,000 343,000 413,000 483,000
725,000 65,250 137,750 210,250 282,750 355,250 427,750 500,250
750,000 67,500 142,500 217,500 292,500 367,500 442,500 517,500
775,000 69,750 147,250 224,750 302,250 379,750 457,250 534,750
800,000 72,000 152,000 232,000 312,000 392,000 472,000 552,000
Pension Plan Table II illustrates annual pension benefits, including
supplemental benefits, at normal retirement (age 65) for various years of
credited service in the form of a single life annuity and prior to any offset
for Social Security benefits for participants. Salary is the only compensation
covered by the Pension Plan; Bonus and Other Annual Compensation is not covered
by the Pension Plan.
The following table lists the average monthly compensation and estimated
credited years of service for the named executive officers that qualify for the
pension benefits depicted on Pension Plan Table II:
---------------------------------- ----------------------------------------- --------------------------------
Average Monthly Compensation Years of Service as of
Named Executive Officer as of December 31, 2004 December 31, 2004
---------------------------------- ----------------------------------------- --------------------------------
Richard F. Connell 21,256 3
---------------------------------- ----------------------------------------- --------------------------------
Ronald J. Zaleski 22,659 4
---------------------------------- ----------------------------------------- --------------------------------
Monthly Pension Plan benefits at normal retirement age are computed by
comparing two calculations and providing the benefit which is the greater of
the two. The first is the former plan calculation which provides for 2% of
"average monthly compensation" (based on the monthly average of the member's
salary for the 60 months out of the most recent 120 months of employment
preceding the member's termination of employment for which the employee's
salary is the highest) less 1 3/7% of a Social Security benefit multiplied by
the number of years of benefit service through June 30, 2002 (up to a maximum
of 35 years). The second calculation provides for 1.2% of average monthly
compensation (as defined herein) multiplied by all years of benefit service.
20
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT,
AND CHANGE-IN-CONTROL AGREEMENTS
EMPLOYMENT AGREEMENTS
---------------------
Messrs. Murphy, Ochiltree, Connell and Coleman have employment agreements with
SICA, which contain similar terms and conditions. The agreement entered into
between Mr. Murphy and SICA on August 1, 1995 was most recently amended on May
1, 2004 and is in effect until May 1, 2007. Pursuant to the terms of the
agreement, Mr. Murphy receives an annual salary of not less than $700,000. The
agreement entered into between Mr. Ochiltree and SICA on October 21, 1995 was
most recently amended on May 1, 2004 and is in effect until May 1, 2007.
Pursuant to the terms of the agreement, Mr. Ochiltree receives an annual salary
of not less than $374,000. The agreement entered into between Mr. Connell and
SICA on August 8, 2000 was most recently amended on March 1, 2003 and is in
effect until March 1, 2006. Pursuant to the terms of the agreement, Mr. Connell
receives an annual salary of not less than $300,000. The agreement entered into
between Mr. Coleman and SICA on May 2, 1997 was most recently amended on March
1, 2003 and is in effect until March 1, 2006. Pursuant to the terms of the
agreement, Mr. Coleman receives an annual salary of not less than $294,000. If
any of these executive officers are not reelected to their current position, or
are terminated without cause, he will be entitled to receive severance pay
equal to his salary and certain benefits in effect at the time of his
termination of employment for a period of two (2) years after the date of such
termination, payable in monthly installments. If any of these executive
officers is terminated for cause, he is entitled to receive that portion of his
salary earned to the date of his termination and the benefits accrued to him
under certain employee benefit plans to the date of such termination, to the
extent that such benefits may be payable to him under the provisions of such
plans in effect on the date of the termination of his employment. Selective has
guaranteed SICA's performance of all its obligations under the employment
agreements.
TERMINATION AGREEMENTS
----------------------
Messrs. Murphy, Ochiltree, Connell, Coleman, and Zaleski have termination
agreements with SICA pursuant to which payments will be made under certain
circumstances following a Change in Control (as defined in the agreements) of
Selective. Mr. Murphy's agreement is automatically renewable for successive
one-year terms each August, unless prior written notice of non-renewal is
given. Mr. Ochiltree's agreement is automatically renewable for successive
one-year terms each October unless prior written notice of non-renewal is
given. Mr. Connell's agreement is automatically renewable for successive
one-year terms each August unless prior written notice of non-renewal is given.
Mr. Coleman's agreement is automatically renewable for successive one-year
terms each May unless prior written notice of non-renewal is given. The
agreement for Mr. Zaleski is automatically renewable for successive one-year
terms each September unless prior written notice of non-renewal is given. Each
agreement provides that, in the event of a Change in Control of Selective, SICA
will continue to employ the executive officer in the capacities in which he was
serving immediately prior to the Change in Control for a period of three (3)
years, commencing on the date on which the Change in Control shall have
occurred, which term will be automatically renewed for successive one-year
periods unless prior written notice is given. Each agreement provides that if
the executive officer's employment is terminated as set forth in the agreement
after a Change in Control occurs, other than (i) due to the executive officer's
death or retirement, (ii) by SICA for Cause or Disability (as defined in the
agreements), or (iii) by the executive officer other than for Good Reason (as
defined in the agreements), the executive officer will be entitled to receive
earned but unpaid base salary through the date of termination, as well as any
incentive compensation benefits or awards that have been accrued, earned, or
become payable but which have not been paid, and as severance pay in lieu of
any further salary for periods subsequent to the date of termination, an amount
in cash equal to his "annualized includible compensation for the base period"
(as defined in Section 280G(d)(1) of the Internal Revenue Code, multiplied by a
factor of 2.99, provided that if any of the payments or benefits provided for
in the agreement, together with any other payments or benefits that the
executive officer has the right to receive would constitute a "parachute
payment" (as defined in Section 280G(b) of the Internal Revenue Code),
Selective will pay to the executive officer on a net after-tax basis the
greater of (i) the payments and benefits due to the executive officer reduced
in order of priority and amount as executive officer shall elect, to the
largest amount as will result in no portion of such payments being subject to
the excise tax imposed by Section 4999 of the Internal Revenue Code or (ii)
payments and benefits due to the executive officer, plus an amount in cash
equal to (x) the amount of such "excess parachute payments" multiplied by (y)
twenty (20%) percent. Selective has guaranteed SICA's performance of all its
obligations under the termination agreements.
21
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION IN COMPENSATION DECISIONS
During 2004, the members of the Salary and Employee Benefits Committee were A.
David Brown, Paul D. Bauer, William A. Dolan, II, C. Edward Herder, S. Griffin
McClellan III, and J. Brian Thebault. None of these individuals:
o Was employed in 2004 as an officer or an employee of Selective or
one of its subsidiaries.
o Is formerly an officer of Selective or one of its subsidiaries.
o Had any relationship with Selective other than service as a director
or received compensation from Selective other than for Board of
Directors service in 2004.
No Selective executive officer served as a member of the compensation committee
of another entity, or as a director of another entity, one of whose executive
officers served on the Salary and Employee Benefits Committee of Selective.
REPORT OF THE SALARY AND EMPLOYEE BENEFITS COMMITTEE
Selective's Salary and Employee Benefits Committee ("SEBC") establishes general
executive compensation policies and establishes the salaries and bonuses of
Selective's executive officers, including the Chief Executive Officer. The SEBC
decisions on executive compensation are subject to the approval of the Board of
Directors, except for grants under certain of Selective's employee benefit
plans, which the SEBC solely makes in order to satisfy the administration
requirements of Rule 16b-3 under the Exchange Act, and Section 162(m) of the
Internal Revenue Code. The Board of Directors did not modify any action or
recommendation made by the SEBC with respect to executive compensation in 2004.
The following table summarizes the key policies, factors, and other
compensation information that the SEBC used in determining executive
compensation in 2004:
--------------------------------------------------------------------------------
Policies o Provide competitive compensation packages
to attract and retain qualified executives.
o Reflect Selective's performance and the
value created for Selective's stockholders.
o Tie personal performance and contribution
to Selective's operational and financial
performance.
o Support the short-term and long-term
strategic goals and values of Selective and
reward individual contribution to
Selective's success.
--------------------------------------------------------------------------------
Executive Compensation o Annual base salary, tied to the SEBC's
Elements evaluation of personal executive performance,
including managerial ability and development
of personnel, the competitive marketplace for
comparable executives, and internal alignment
considerations.
o Specifically, base salaries for Selective's
executives are targeted to be lower than
the median base salaries paid for similar
positions at four groups of companies
compared on labor, market/product, capital,
and size.
o Variable incentive awards tied to
Selective's achievement of corporate
operational and financial performance
targets established at the beginning of the
fiscal year and personal executive
objectives also established at the
beginning of the year.
o Long-term, equity-based incentive awards of
stock options (with or without tandem stock
appreciation rights) and stock grants, tied
to aligning the interests of executive
officers with those of stockholders and
ensuring that officers have an equity-stake
management view.
o In 2004, the CEO and each of the executive
officers named in the summary compensation
table met or exceeded the goals established
for them at the beginning of the year. This
achievement is reflected in the awards
granted to them for 2004.
22
--------------------------------------------------------------------------------
CEO-Specific Compensation Detailed performance evaluation that considered:
Elements o The CEO's qualifications.
o Level of experience brought to the position
and gained while in the position.
o Selective's performance implementing or
completing critical projects or processes.
o Selective's underwriting performance as
measured by the statutory combined ratio
relative to the industry.
o The importance of the CEO's contribution to
the achievement of Selective's strategic
initiatives and financial performance.
Specifically under Mr. Murphy's leadership
in 2004, Selective achieved the following:
o Net premium written growth of 12%;
o Statutory combined ratio of 95.9%
compared to 101.5% for 2003; and
o Operating earnings per share of $3.58
compared to $1.94 in 2003.
o Specific individual accomplishments.
--------------------------------------------------------------------------------
2004 Factors o Successful completion of Strategic
Initiatives aimed at:
o Personal and commercial lines price
increases.
o Growth in commercial lines business.
o Growth in diversified insurance
business.
o Technology initiatives for agent
processing and commercial lines
automated system.
o Expense reduction in claims handling.
o Selective's financial performance compared
to its performance in the prior year,
including its combined ratio (both overall
and by lines of insurance), return on
equity, results of operations, and overall
financial condition.
--------------------------------------------------------------------------------
In 2004, the SEBC retained an independent compensation consultant to provide
advice on executive compensation matters, including the base salary and
incentive compensation levels for executive officers. The consulting firm
furnished the SEBC with compensation surveys and data for purposes of comparing
Selective's executive compensation levels with those at companies within and
outside the industry with which Selective competes for executive talent and is
providing the SEBC with specific recommendations for maintaining Selective's
executive compensation at a level competitive with the marketplace.
Section 162(m) of the Internal Revenue Code disallows a tax deduction to
publicly held companies for compensation paid to certain of their executive
officers, to the extent that compensation exceeds $1 million per covered
officer in any fiscal year and is not under a stockholder approved plan. The
limitation applies only to compensation which is not considered to be
performance-based. The SEBC intends, to the extent practicable, to preserve
deductibility under the Internal Revenue Code for compensation paid to its
executive officers while maintaining compensation programs to attract and
retain highly qualified executives in a competitive environment. For the first
time in Selective's history, non-performance based compensation paid to a
Selective executive officer in 2004 exceeded the $1 million limit.
Consequently, the SEBC has decided to propose the Cash Incentive Plan for
stockholder approval.
Submitted by the Salary and Employee Benefits Committee of Selective's
Board of Directors
A. David Brown, Chairman
Paul D. Bauer
C. Edward Herder
J. Brian Thebault
23
Performance Graph
The following chart, produced by Research Data Group, Inc., depicts Selective's
performance for the period beginning January 1, 1999 and ending December 31,
2004, as measured by total stockholder return on the common stock compared with
the total return of the NASDAQ Stock Market (U.S.) Index and the NASDAQ Fire,
Marine and Casualty Index in SIC Major Group 633 (SIC 6330-6339 U.S. fire,
marine and casualty insurance). Upon request, Selective will furnish
stockholders a list of the component companies of such indexes.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG SELECTIVE INSURANCE GROUP, INC., THE NASDAQ STOCK MARKET (U.S.) INDEX
AND PEER GROUP
[LINE GRAPH OMITTED]
Cumulative Total Return
-------------------------------------------------------------------------
12/99 12/00 12/01 12/02 12/03 12/04
SELECTIVE INSURANCE GROUP, INC. 100.00 145.92 134.06 159.17 209.34 291.65
NASDAQ STOCK MARKET (U.S.) 100.00 60.09 45.44 26.36 38.55 40.87
PEER GROUP 100.00 125.35 133.62 135.85 160.94 198.61
* $100 invested on 12/31/99 in stock or index-including reinvestment of dividends.
Fiscal year ending December 31.
Notwithstanding anything to the contrary set forth in any of Selective's
previous filings under the Securities Act of 1933 or the Exchange Act that
might incorporate future filings made by Selective under those statutes, the
preceding Report of the Compensation Committee of the Board of Directors on
Executive Compensation and Selective's Stock Performance Graph will not be
incorporated by reference into any of those prior filings, nor will such report
or graph be incorporated by reference into any future filings made by Selective
under those statutes.
24
INFORMATION ABOUT PROPOSAL 2
Approval of the Selective Insurance Group, Inc. 2005 Omnibus Stock Plan
Selective's stockholders are being asked to approve the 2005 Omnibus Stock Plan
("Stock Plan"). The purpose of the Stock Plan is to attract and retain
employees and nonemployee directors of Selective, to motivate them to achieve
Selective's long-term goals, and to further align their interests with those of
the Selective's stockholders. Under rules of NASDAQ, the Stock Plan must be
approved by Selective's stockholders in order to have effect.
Upon approval of the Stock Plan, no further grants will be made under the
Selective Insurance Stock Option Plan III, the Selective Insurance Group, Inc.
Stock Option Plan for Directors, or the Selective Insurance Group, Inc. Stock
Compensation Plan for Nonemployee Directors, as amended (each a "Prior Plan"),
but awards outstanding under the Prior Plans as of the date of stockholder
approval (each a "Prior Plan Award") will continue in effect according to the
terms of the applicable Prior Plan and any applicable agreements evidencing
such Prior Plan Awards. If stockholders do not approve the Stock Plan, the
Stock Plan will have no effect and awards may continue to be granted under the
Prior Plans.
In designing the Stock Plan, the Board of Directors was guided by current best
practices that seek to identify specific performance metrics that are most
closely tied to achievement of Selective's growth and profitability goals as
well as enhancement of shareholder value. The Stock Plan is designed to work
with other elements of Selective's compensation program, including the Cash
Incentive Plan subject to stockholder approval in Proposal 3, to
appropriately motivate and compensate executives and employees. Under the
Stock Plan, vesting and payment of certain of the awards may be directly
linked to the achievement of these specific performance metrics (outlined in
the table below).
The introduction of this Stock Plan supports Selective's ongoing goals of
attaining greater levels of administrative efficiency and simplification by
combining the three (3) existing stock-based compensation plans into a unified
omnibus Stock Plan.
In order to address any issues that stockholders may have regarding the number
of shares that Selective would be able to grant subject to awards under the
Stock Plan, Selective's Board of Directors has determined that the average
annual number of shares that may be granted subject to awards during the three
(3) fiscal years commencing January 1, 2005, under the Stock Plan shall not be
greater than two (2%) percent of the average annual number of outstanding
shares during such three (3) fiscal years. The calculation shall be made as
follows:
o Average annual number of shares granted = (A + B + C) / 3 expressed as a
percentage, where A = the number of common shares granted subject to
awards under the Stock Plans for fiscal year 2005; B = the number of
common shares granted under the Stock Plans for fiscal year 2006; and C =
the number of common shares granted under the Stock Plans for fiscal year
2007.
o The number of shares granted subject to awards under the Stock Plan for
each fiscal year = X / Y expressed as a percentage, where X = the sum of
the number of common shares granted subject to awards during the fiscal
year pursuant to stock options, stock appreciation rights, restricted
stock, phantom stock, stock bonus, other stock-based awards, actual
performance shares delivered pursuant to long-term incentive plan awards,
and earned deferred shares to employees and directors (if not otherwise
included in one of the previously listed types of awards whether in the
same or a previous year); and Y = the number of common shares of
Selective outstanding at the end of the fiscal year or, in the case of
the 2007 fiscal year, the number of common shares that Selective believes
will be outstanding at the end of such fiscal year.
o Each award other than options and stock appreciation rights will count as
equivalent to two (2) options, as Selective's stock price volatility as of
the date hereof is between 25% and 52%.
25
The following table provides a summary of the Stock Plan, which is qualified in
its entirety by the text of the Stock Plan, a copy of which is attached to this
Proxy Statement as Appendix A.
-------------------------------------------------------------------------------
Plan Administrator o The Salary and Employee Benefits Committee ("SEBC") as
to employees and executive officers. The Corporate
Governance and Nominating Committee ("CGNC") as to
nonemployee directors.
-------------------------------------------------------------------------------
Authority of Plan o Grant awards under the Stock Plan;
Administrator o Determine the persons to whom and the time or times at
which awards will be granted;
o Determine the type and number of awards to be granted,
the number of shares to which an award may relate and
the terms, conditions, restrictions, and performance
criteria relating to any award;
o Determine whether, to what extent, and under what
circumstances an award may be settled, cancelled,
forfeited, exchanged, or surrendered;
o Construe and interpret the Stock Plan and any award
under the Stock Plan;
o Prescribe, amend, and rescind rules and regulations
relating to the Stock Plan;
o Determine the terms and provisions of the agreements
evidencing awards under the Stock Plan; and
o Make all other determinations deemed necessary or
advisable for the administration of the Stock Plan,
including:
o Accelerate the date on which any option or stock
appreciation right granted under the Stock Plan
becomes exercisable;
o Waive or amend the operation of Stock Plan
provisions with respect to exercise after
termination of employment (provided that the term of
an option or stock appreciation right may not be
extended beyond ten (10) years from the date of
grant);
o Accelerate the vesting date, or waive any condition
imposed under the Stock Plan, with respect to any
share of restricted stock, phantom stock, stock
bonus, or other award; and
o Otherwise adjust any of the terms applicable to any
such award in a manner consistent with the terms of the
Stock Plan.
-------------------------------------------------------------------------------
Term of Plan o Ten (10) years from the date of stockholder approval.
-------------------------------------------------------------------------------
Eligibility o Employees, officers, and nonemployee directors of
Selective or any of its affiliates. Approximately 955
employees and 11 nonemployee directors are currently
eligible to participate in the Stock Plan.
-------------------------------------------------------------------------------
Shares Reserved for o Maximum number of common shares reserved for issuance
Issuance is 1,760,000 (any or all of which may be granted
pursuant to options, including incentive stock
options), with adjustments based on stock splits,
dividends, recapitalizations, and other changes or
transactions. The shares may be authorized but unissued
Selective common stock or authorized and issued
Selective common stock held in Selective's treasury. Of
the 1,760,000 shares (subject to adjustment) that may
be delivered under the Stock Plan, 1,359,208 shares
previously reserved under the Prior Plans would be
available for delivery under the Stock Plan.
o Maximum number of shares subject to awards that can be
awarded to one (1) participant in any year is 100,000,
subject to adjustments based on stock splits,
dividends, recapitalizations and other changes or
transactions.
o Shares forfeited, cancelled, exchanged, surrendered, or
not distributed are returned as shares available for
future award.
-------------------------------------------------------------------------------
26
-------------------------------------------------------------------------------
Types of Awards o Stock Options (including "incentive stock options"
within the meaning of Section 422 of the Internal
Revenue Code); provided that (i) the per shares
exercise price of each option may not be less than 100%
of the fair market value of a share of Selective common
stock on the date of grant, and (ii) the term of any
option may not exceed ten (10) years;
o Stock appreciation rights, which are the rights to
receive, upon exercise, the amount in shares of
Selective common stock, as described in the Stock Plan,
may be granted either at the time of grant or, with
respect to a nonqualified stock option, at any time
thereafter during the term of the option, or may be
granted unrelated to an option, in which case the term
of the right may not exceed ten (10) years.
o Restricted stock;
o Phantom stock, which is an award of the right to
receive shares of Selective common stock, plus an
amount in cash equal to the aggregate cash dividends
paid with respect to such shares, at a future date;
o Stock bonuses; or
o Other stock-based awards.
-------------------------------------------------------------------------------
Vesting Performance o The SEBC and CGNC may determine that vesting or payment
Goals Measured as of an award under the Stock Plan will be subject to the
appropriate in GAAP attainment of one or more performance goals with
or Statutory respect to a fiscal year, including any of the
Accounting Principles following:
o Return on total stockholder equity;
o Earnings per share or book value per share of
Selective's stock;
o Net income (before or after taxes);
o Earnings before all or any interest, taxes,
depreciation, and/or amortization;
o Return on assets, capital, or investment;
o Market share;
o Cost reduction goals;
o Earnings from continuing operations;
o Levels of expense, costs, or liabilities;
o Department, division, or business unit level
performance;
o Operating profit;
o Sales or revenues;
o Stock price appreciation;
o Total stockholder return;
o Growth in net premiums written;
o Combined ratios;
o Implementation or completion of critical projects or
processes;
o Except in the case of a "covered employee" (as
defined by the Cash Incentive Plan), any other
performance criteria established by the SEBC or
CGNC; or
o Any combination of the foregoing.
-------------------------------------------------------------------------------
Nonemployee Director o Nonemployee directors receive their annual fees in (i)
Fees and Deferrals shares of Selective common stock, or (ii) at their
election, in a combination of shares of Selective
common stock and cash (but in no event more than 50% of
which compensation may be paid in the form of cash.)
o Annual fees, which are recommended by the CGNC and
ratified by the Board of Directors, are paid quarterly
on January 1, April 1, July 1, and October 1 of each
year. The number of Selective common shares issued on
each quarterly date is calculated by dividing
one-fourth (1/4) of the annual fee by the fair market
value of Selective's common shares on the quarterly
date.
o Deferral of the receipt of annual fees and shares of
Selective common stock and accrued interest and
dividends to a specified future date, the attainment of
age 70, termination, or retirement may be elected on or
before December 20 of the prior year.
-------------------------------------------------------------------------------
27
-------------------------------------------------------------------------------
Automatic o 3,000 options (referred to as an "automatic director
Nonemployee options") automatically granted annually to nonemployee
Director Options directors on March 1 (or if March 1 is on a Saturday or
Sunday, the following business day).
o Exercise price is the fair market value of Selective
common stock on the grant date.
o Vests entirely on the first (1st) anniversary of the
grant date.
o Unless otherwise determined by the CGNC, all of a
nonemployee director's unvested automatic director
options will become fully vested and exercisable upon
his or her ceasing to be a member of the Board for any
reason other than cause (as defined by the Stock Plan),
and in the event of such a cessation for cause, all of
the nonemployee director's unvested automatic director
options will be terminated at the time of such
cessation.
o Options expire on tenth (10th) anniversary of the
grant.
-------------------------------------------------------------------------------
Termination of o Unless otherwise provided by the SEBC or CGNC, upon
Employment or termination for any reason other than cause (as defined
Service by the Stock Plan), death or disability, the grantee
will have one (1) year to exercise all vested
nonqualified options and stock appreciation rights, and
ninety (90) days to exercise incentive stock options
o Unless otherwise provided by the SEBC or CGNC, upon
termination due to death or disability, the grantee
will have one (1) year to exercise all vested options
and stock appreciation rights.
o Upon a termination for cause, all options and stock
appreciation rights, whether or not vested will be
forfeited.
o Except as provided above with respect to automatic
director options, any unvested options and stock
appreciation rights will be forfeited upon any
termination of grantee's employment with or service to
Selective, its affiliates or related entities.
o Upon termination for death, disability, or retirement
(as defined in the grantee's agreement) any unvested
shares of restricted stock will become fully vested.
o Unless otherwise provided by the SEBC or CGNC, upon
termination for any reason other than death,
disability, or retirement (as defined in the grantee's
agreement), any unvested shares of restricted stock
will be forfeited.
o Unless otherwise provided by the SEBC or CGNC, upon
termination for any reason all shares of phantom stock
will be forfeited.
-------------------------------------------------------------------------------
Change o All unvested awards vest and become fully vested and
in Control exercisable on change in control date.
-------------------------------------------------------------------------------
Award o Unless otherwise determined by the SEBC or CGNC, only
Transferability by will or the laws of descent and distribution.
-------------------------------------------------------------------------------
Amendment or o The Stock Plan may, at any time, be terminated,
Termination of the revised, or amended in any respect whatsoever;
Stock Plan provided, that (i) approval by Selective's stockholders
will be required for any such amendment if and to the
extent such approval is required in order to comply
with applicable law or stock exchange listing
requirement, and (ii) no such action may reduce the a
grantee's rights under an outstanding award without the
grantee's consent.
-------------------------------------------------------------------------------
28
Federal Income Tax o The following summarizes certain current U.S. federal
Consequences of the income tax laws and regulations generally applicable to
Stock Plan approved awards pursuant to the Stock Plan, all of
which are subject to change (possibly with retroactive
effect) and does not address any tax considerations
under Section 409A of the Internal Revenue Code, or the
laws of any local, state, or foreign jurisdiction. This
summary does not purport to be complete.
o Incentive Stock Options.
o Not taxable income upon grant.
o Amounts received in excess of the exercise price
from the sale of shares received ("Option
Shares") that are held shorter than one (1) year
from receipt or two (2) years from the option
grant ("Disqualifying Disposition") are treated
as ordinary income in the year of disposition and
Selective is entitled to deduct the same amount
as compensation expense.
o Amounts received from the sale of Option Shares
in a transaction that is not a Disqualifying
Disposition are treated as capital gain or loss,
with the basis being the exercise price. The
amount by which the fair market value of the
Option Shares exceeds the exercise price,
however, will constitute an item that increases
the participant's "alternative minimum taxable
income."
o An incentive stock option generally will not be
treated as an incentive stock option if it is
exercised more than three (3) months following
termination of employment; in which case the
option will be treated as a nonqualified stock
option.
o Nonqualified Stock Options.
o Not taxable income upon grant.
o Amounts in excess of the exercise price at the
time of exercise are treated as ordinary income
and Selective is entitled to deduct the same
amount as compensation expense.
o Amounts received from the sale of Option Shares
following exercise are treated as capital gain or
loss, with the basis being the exercise price
plus the ordinary income incurred upon exercise.
o Restricted Stock.
o Generally, not taxable income upon grant.
o Ordinary income is recognized on the date the
restrictions are removed in an amount equal to
the fair market value of such shares on such
date, less any amount paid for the shares, at
which time Selective is entitled to deduct the
same amount as compensation expense.
o An Internal Revenue Code Section 83(b) election
may be made within thirty (30) days of receipt to
recognize ordinary income in an amount equal to
the fair market value on the grant date; but the
holder will not be allowed a deduction for shares
subsequently forfeited or returned. Amounts
received from the subsequent sale of the
restricted stock are treated as capital gain or
loss, with the basis being the amount paid by the
holder for the restricted stock, if any, plus the
amount included in the income by the holder of
the award as a result of the Internal Revenue
Code 83(b) election.
o Other Types of Awards.
o Not taxable income upon grant of a stock
appreciation right.
o Upon settlement of such a right or the payment of
a phantom stock award, a stock bonus award, or
any other stock-based award, ordinary income is
recognized in the aggregate value of the payment
received, and Selective is entitled to a
deduction the same amount as compensation
expense.
-------------------------------------------------------------------------------
29
NEW PLAN BENEFITS
There have been no awards granted under the Stock Plan to date. Because
benefits under the Stock Plan other than with respect to automatic director
options will be granted at the sole discretion of the SEBC or will depend on
elections made by nonemployee directors, Selective cannot determine at this
time the benefits that will be received by executive officers and other
employees and nonemployee directors if the Stock Plan is approved by the
stockholders. If the Stock Plan is approved by stockholders, each nonemployee
director automatically receives an automatic director option to purchase 3,000
shares of Selective common stock on March 1 (or if March 1 is on a Saturday or
Sunday, the following business day) of each year.
INFORMATION ABOUT PROPOSAL 3
Approval of the Selective Insurance Group, Inc. Cash Incentive Plan
Selective's stockholders are being asked to approve the Cash Incentive Plan
("Cash Plan"). The purposes of the Cash Plan are to (i) provide Selective with
an effective vehicle to assist in attracting, retaining, and motivating its
employees; (ii) reinforce corporate, organizational, and business development
goals; and (iii) promote year-to-year and long-range financial and other
business objectives by rewarding the performance of officers and other
employees in fulfilling their individual responsibilities for achieving these
year-to-year and long-range objectives. Internal Revenue Code Section 162(m)
precludes Selective from taking a deduction for compensation for federal income
tax purposes in excess of $1 million paid to any named executive officer.
Certain qualified performance-based compensation is excluded from this
limitation. Compensation to be paid under the Cash Plan will be excluded from
the Section 162(m) limitation if the Cash Plan is approved by our stockholders.
In designing the Cash Plan, the Board of Directors was guided by current best
practices that seek to identify specific performance metrics that are most
closely tied to achievement of Selective's growth and profitability goals as
well as enhancement of shareholder value. The Cash Plan is designed to work
with other elements of Selective's compensation program, including the Stock
Plan subject to stockholder approval in Proposal 2, to appropriately motivate
and compensate executives and employees consistent with the identified
performance metrics. Under the Cash Plan, vesting and payment of certain of
the awards may be directly linked to the achievement of these specific
performance metrics (outlined in the table below).
The following table provides a summary of the Cash Plan, which is qualified in
its entirety by the text of the Cash Plan, a copy of which is attached to this
Proxy Statement as Appendix B.
-------------------------------------------------------------------------------
Cash Plan Administrator o The Salary and Employee Benefits Committee
("SEBC") is the Cash Plan Administrator.
-------------------------------------------------------------------------------
30
-------------------------------------------------------------------------------
Administrator's Authority o Grant awards;
o Determine the persons to whom and the time
or times at which awards will be granted;
o Determine the terms, conditions,
restrictions, and performance criteria,
including performance goals, and the length
of the performance period (which will be no
less than one (1) year), relating to any
award;
o Determine whether, to what extent, and under
what circumstances an award may be settled,
cancelled, forfeited, or surrendered;
o Make adjustments in the performance goals in
recognition of unusual or non-recurring
events affecting Selective or the financial
statements of Selective, or in response to
changes in applicable laws, regulations, or
accounting principles, or for any other
reason;
o Construe and interpret the Cash Plan and any
award;
o Prescribe, amend, and rescind rules and
regulations relating to the Cash Plan;
o Determine the terms and provisions of any
award;
o Make all other determinations deemed
necessary or advisable for the
administration of the Cash Plan;
o Delegate to one or more of its members or to
one or more agents such administrative
duties as it may deem advisable; and
o Employ one or more persons to render advice
with respect to any responsibility the SEBC
or delegated party may have under the Cash
Plan.
-------------------------------------------------------------------------------
Eligibility o Officers and other employees of Selective
and its subsidiaries in the sole discretion
of the SEBC. Approximately 1,659 employees
are currently eligible to participate in the
Cash Plan.
-------------------------------------------------------------------------------
Type of Awards o Cash, paid before March 15 of the year
following the tax year when the payments
become earned and payable.
-------------------------------------------------------------------------------
Performance Goals for Award o Return on total stockholder equity;
(Measured as appropriate in o Earnings per share or book value per share
GAAP or Statutory Accounting of Selective's stock;
Principles) o Net income (before or after taxes);
o Earnings before all or any interest, taxes,
depreciation, and/or amortization;
o Return on assets, capital, or investment;
o Market share;
o Cost reduction goals;
o Earnings from continuing operations;
o Levels of expense, costs, or liabilities;
o Department, division, or business unit level
performance;
o Operating profit;
o Sales or revenues;
o Stock price appreciation;
o Total stockholder return;
o Growth in net premiums written;
o Combined ratios;
o Implementation or completion of critical
projects or processes;
o Except in the case of a "covered employee"
(as defined in the Cash Plan), any other
performance criteria established by the
SEBC; or
o Any combination of the foregoing.
-------------------------------------------------------------------------------
Maximum Annual Award Amount o No participant may receive payments under
the Cash Plan for any performance period in
an amount of no more than the product of (x)
$7.5 million and (y) the number of full and
partial years of the performance period.
31
-------------------------------------------------------------------------------
Reduction of Awards o The SEBC may reduce or eliminate any award
under the Cash Plan, but in no event may the
SEBC increase the amount of an award payable
to a "covered employee" (as defined in the
Cash Plan) over such amount payable based on
the objective criteria established at the
outset of the fiscal year for which the
award is made.
-------------------------------------------------------------------------------
Employment Requirements o Must be employed by Selective or one of its
subsidiaries as of the payment date
established for awards relating to the
fiscal year for which payment is to be made;
provided that, if the participant's
employment is terminated prior to such
payment date by reason of death, retirement
on or after "normal retirement age" or
"total disability" as such terms are defined
in SICA's Retirement Income Plan, or for any
other reason with the express consent of the
SEBC, the SEBC, in its sole discretion, may
provide for an award payment to the
participant or, if applicable, the
participant's designated beneficiary.
-------------------------------------------------------------------------------
Award Transferability o Only by will or the laws of descent and
distribution.
-------------------------------------------------------------------------------
Plan Amendment or Termination o At any time by the SEBC or Board of
Directors; provided that, (i) no amendment
that requires stockholder approval in order
for the Cash Plan to continue to comply with
Internal Revenue Code Section 162(m) will be
effective unless approved by the requisite
vote of the stockholders of Selective, and
(ii) no amendment may adversely affect any
of the rights of any participant, without
such participant's consent, under any award
previously granted under the Cash Plan.
-------------------------------------------------------------------------------
32
NEW PLAN BENEFITS
There have been no awards granted under the Cash Plan to date. Because benefits
under the Cash Plan will be granted at the sole discretion of the Salary and
Employee Benefits Committee, Selective cannot determine at this time the
benefits that will be received by executive officers and other employees if the
Cash Plan is approved by the stockholders. Nonemployee directors are not
eligible to participate in the Cash Plan.
Though the Salary and Employee Benefits Committee has established the
performance goals with respect to the 2005 plan year, there have been no cash
award payments made under the Cash Plan to date. As the payments under the Cash
Plan are based on achievement of performance goals in 2005, the amounts that
will be paid under the Cash Plan to any participant in 2006 is not yet
determinable. However, the following table shows the range of amounts that
would be payable with respect to the 2005 plan year in 2006 to the named
executive officers and employee directors of Selective, if the Salary and
Employee Benefits Committee does not exercise its discretion to reduce or
eliminate the awards. Such range spans from (i) the amount that would be
payable if the minimum level of achievement of the performance goals is not
attained to (ii) the amount that would be payable if the performance goals are
fully achieved. Nonemployee directors are not eligible to participate in the
Cash Plan.
-------------------------------------------------------------------------------
Name and Position Dollar Amount ($)
-------------------------------------------------------------------------------
Gregory E. Murphy
Chairman, President & Chief Executive Officer $0 - $1,575,000
-------------------------------------------------------------------------------
Jamie Ochiltree III
Senior Executive Vice President $0 - $546,000
-------------------------------------------------------------------------------
Richard F. Connell
Executive Vice President & Chief Information Officer $0 - 490,000
-------------------------------------------------------------------------------
James W. Coleman, Jr.
Executive Vice President $0 - $470,400
-------------------------------------------------------------------------------
Ronald J. Zaleski
Executive Vice President & Chief Actuary $0 - 466,200
-------------------------------------------------------------------------------
Current executive officers as a group $0 - 5,204,080
-------------------------------------------------------------------------------
Current directors who are not executive officers as a group 0
-------------------------------------------------------------------------------
Non-executive officer employees as a group $0 - $32,585,613
-------------------------------------------------------------------------------
33
INFORMATION ABOUT PROPOSAL 4
Ratification of Appointment of
Independent Public Accountants
The Audit Committee has appointed KPMG LLP to act as Selective's independent
public accountants for the fiscal year ending December 31, 2005. The Board of
Directors has approved the appointment and has directed that such appointment
be submitted to Selective's stockholders for ratification at the 2005 Annual
Meeting.
Stockholder ratification of the appointment of KPMG LLP as Selective's
independent public accountants is not required. The Board of Directors,
however, is submitting the appointment to the stockholders for ratification as
a matter of good corporate practice. If the stockholders do not ratify the
appointment, the Audit Committee and the Board of Directors will reconsider
whether or not to retain KPMG LLP or another firm. Even if the appointment is
ratified, the Board of Directors, in its discretion, may direct the appointment
of a different auditing firm at any time during the 2005 fiscal year if the
Board determines that such a change would be in the best interests of Selective
and its stockholders.
Representatives of KPMG LLP are expected to be present at the 2005 Annual
Meeting, will have an opportunity to make a statement if they so desire, and
will be available to respond to appropriate questions.
Audit Committee Report
The Audit Committee oversees Selective's financial reporting process on behalf
of the Board of Directors. Management has the primary responsibility for
overseeing preparation of the financial statements and the overall reporting
process, including the systems of internal controls. In fulfilling its
oversight responsibilities, the Audit Committee has periodically met with and
held discussions with management and the independent public accountants. The
Audit Committee reviewed the audited financial statements for the year ended
December 31, 2004, included in the Annual Report with management. Management
represented to the Audit Committee that (i) the financial statements were
prepared in accordance with accounting principles generally accepted in the
United States of America and (ii) management had reviewed Selective's
disclosure controls and procedures and believes those controls are effective.
The Audit Committee discussed with KPMG LLP, Selective's independent public
accountants, matters as are required to be discussed with the Audit Committee
under generally accepted auditing standards, including the Statement on
Auditing Standards No. 61, as may be modified or supplemented. In addition, the
Audit Committee has discussed with the independent public accountants the
public accountants' independence from management and Selective, including the
matters in the written disclosures delivered to the Audit Committee and
required by the Independence Standards Board in Standard No. 1 (Independence
Discussion with Audit Committee), as may be modified or supplemented.
34
In reliance on the reviews and discussions referred to above, the Audit
Committee recommended to the Board of Directors (and the Board approved) the
inclusion of the audited financial statements in the Annual Report on Form 10-K
for the year ended December 31, 2004, for filing with the Securities and
Exchange Commission. The Audit Committee and the Board have also recommended,
subject to stockholder approval, the selection of KPMG LLP as Selective's
independent public accountants.
Submitted by the Audit Committee of Selective's Board of Directors
Joan M. Lamm-Tennant, Chairperson
Paul D. Bauer
S. Griffin McClellan III
John F. Rockart
J. Brian Thebault
Fees of Independent Public Accountants
KPMG LLP, Selective's independent public accountants, provided services in the
following categories and amounts in 2004 and 2003:
Category 2004 2003
Audit Fees(1) $1,263,850 $646,000
Audit-Related Fees(2) $88,750 $151,000
Tax Fees $0 $0
All Other Fees $0 $0
TOTAL $1,352,600 $797,000
(1) The increase in Audit Fees in 2004 over 2003 was primarily related to
work required by Section 404 of the Sarbanes-Oxley Act of 2002.
(2) Audit-Related Fees for 2003 and 2004 consisted primarily of the
independent actuarial review and reserve opinion. The Audit Related Fees
for 2003 also include audits of the employee benefit plans.
The Audit Committee has a Pre-Approval Policy that requires pre-approval of
audit and audit-related services on an annual basis and authorizes the Audit
Committee to delegate to one or more of its members pre-approval authority with
respect to permitted services. In 2004, the Audit Committee pre-approved all
audit and audit-related services and concluded that KPMG LLP's provision of
such services was compatible with the maintenance of KPMG LLP's independence in
the conduct of its auditing functions. KPMG LLP provided no tax services or
non-audit related services in 2004. Any such future services also would require
Audit Committee pre-approval on an individual engagement basis.
35
STOCKHOLDER PROPOSALS AND NOMINATIONS
Proposals for Inclusion in 2006 Proxy
From time to time, stockholders present proposals that may be proper subjects
for inclusion in the proxy statement and for consideration at an annual
meeting. Under the rules of the Securities and Exchange Commission (Rule 14a-8
under the Exchange Act), stockholder proposals to be included in the proxy
statement for the 2006 annual meeting to be held on or about April 26, 2006,
must be received by Selective's Corporate Secretary at 40 Wantage Avenue,
Branchville, NJ 07890 no later than December 7, 2005.
Other Proposals and Nominations
A stockholder who otherwise intends to present business at Selective's 2006
annual meeting must comply with Selective's By-laws, which state, among other
things, that to properly bring business before an annual meeting, a stockholder
must deliver notice to the Secretary of the Company in proper written form not
less than ninety (90) days nor more than one hundred twenty (120) days prior to
the first anniversary of the preceding year's annual meeting. Thus, a notice of
a stockholder proposal for the 2006 annual meeting, submitted other than
pursuant to Rule 14a-8 of the Exchange Act, will be untimely if received by the
Secretary before December 28, 2005 or after January 27, 2006.
Under Section 3B of Selective's By-laws, stockholders may (i) present proposals
that are proper subjects for consideration at an annual meeting, which
proposals are not submitted for inclusion in the proxy statement for such
annual meeting pursuant to Rule 14a-8 of the Exchange Act, or (ii) nominate a
person for election to our Board of Directors at the annual meeting. On written
request to Selective's Corporate Secretary at 40 Wantage Avenue, Branchville,
NJ 07890, stockholders of record may receive a free copy of Selective's
By-laws. Procedures in the By-laws are separate and distinct from those
required by the Securities and Exchange Commission.
Selective's By-laws require that the stockholder provide the following
information in writing regarding any proposal:
o the business proposed to be brought before the annual meeting;
o the reasons for conducting the business at the annual meeting;
o any material interest of the stockholder in the business;
o the beneficial owner, if any, on whose behalf the proposal is made;
o the name and address of the stockholder giving the notice, as they
appear on our books, and of the beneficial owner of those shares; and
o the class and number of shares which are owned beneficially and of
record by the stockholder and the beneficial owner.
Selective's By-laws require that the stockholder to provide the following
information in writing regarding any nomination for director:
o all information relating to each person whom the stockholder proposes
to nominate for election as a director as would be required to be
disclosed in a solicitation of proxies for the election of such person
as a director pursuant to Regulation 14A under the Exchange Act
(including such person's written consent to being named in the proxy
statement as a nominee and to serving as a director if so elected);
o the name and address of the stockholder giving the notice, as they
appear on our books, and of the beneficial owner of those shares; and
o the class and number of shares which are owned beneficially and of
record by the stockholder and the beneficial owner.
36
STOCKHOLDER COMMUNICATION WITH THE BOARD
Stockholders so desiring may send communications to the Board of Directors or
individual directors by writing to Selective's Corporate Secretary, Selective
Insurance Group, Inc., 40 Wantage Avenue, Branchville, NJ 07890 or by e-mail,
corporate.governance@selective.com. The Board has instructed the Corporate
Secretary to use discretion in forwarding unsolicited advertisements,
invitations to conferences, or other promotional material.
* * * * * * * *
It is important that your shares be represented at the meeting, regardless of
the number of shares that you hold. YOU ARE, THEREFORE, URGED TO PROMPTLY VOTE
YOUR SHARES BY (1) CALLING THE TOLL-FREE TELEPHONE NUMBER LISTED ON THE PROXY
CARD, (2) ACCESSING THE INTERNET VIA THE WEBSITE LISTED ON THE PROXY CARD, OR
(3) COMPLETING, DATING, AND SIGNING THE ENCLOSED PROXY CARD AND RETURNING IT IN
THE ENCLOSED ENVELOPE. Stockholders who are present at the meeting may revoke
their proxies and vote in person or, if they prefer, may abstain from voting in
person and allow their proxies to be voted.
By Order of the Board of Directors:
/s/ Michele N. Schumacher
Michele N. Schumacher
Vice President, Corporate Secretary & Corporate Governance Officer
April 6, 2005
Branchville, New Jersey
DOCUMENTS INCORPORATED BY REFERENCE
Information regarding Executive Officers is incorporated by reference to
Selective's Annual Report on Form 10-K in the item in Part I captioned
"Executive Officers of the Registrant."
37
APPENDIX A
----------
SELECTIVE INSURANCE GROUP, INC.
2005 OMNIBUS STOCK PLAN
1. Purpose; Establishment.
The Selective Insurance Group Inc. 2005 Omnibus Stock Plan (the "Plan") is
intended to attract and retain employees and non-employee directors of the
Company, to motivate them to achieve long-term Company goals and to further
align their interests with those of the Company's stockholders. The Plan was
adopted and approved by the Board effective as of April 1, 2005, subject to
approval by the stockholders of the Company. Upon stockholder approval of the
Plan, no further grants shall be made under the Selective Insurance Stock
Option Plan III, the Selective Insurance Group, Inc. Stock Option Plan for
Directors or the Selective Insurance Group, Inc. Stock Compensation Plan for
Nonemployee Directors, as Amended (each a "Prior Plan"), but awards outstanding
under the Prior Plans as of the date of such stockholder approval (each a
"Prior Plan Award") shall continue in effect according to the terms of the
applicable Prior Plan and any applicable agreements evidencing such Prior Plan
Awards.
2. Definitions.
As used in the Plan, the following definitions apply to the terms indicated
below:
(a) "Administrative Actions" shall have the meaning set forth in Section
4(b) hereof.
(b) "Affiliate" means any entity if, at the time of granting of an Award
(1) the Company, directly or indirectly, owns at least 80% of the
combined voting power of all classes of stock of such entity or at
least 80% of the ownership interests in such entity or (2) such
entity, directly or indirectly, owns at least 80% of the combined
voting power of all classes of stock of the Company.
(c) "Agreement" shall mean the written agreement between the Company and
a Participant evidencing an Award or a notice of an Award delivered
to a Participant by the Company in hard copy paper form,
electronically via the Internet or through other electronic means.
(d) "Automatic Director Option" shall have the meaning set forth in
Section 13(a) hereof.
(e) "Award" shall mean any Option, Stock Appreciation Right, Restricted
Stock, Phantom Stock, Stock Bonus or Other Award granted pursuant to
the terms of the Plan.
(f) "Board" shall mean the Board of Directors of the Company.
(g) "Cause" shall mean, unless otherwise defined in the Participant's
Agreement, employment agreement, or other written agreement
describing the Participant's terms of employment with the Company or
its Affiliates, termination of the Participant's employment or
service by the Company or its Affiliates if, in the reasonable
determination of the Company or its applicable Affiliate, the
Participant (i) engages in conduct that violates written policies of
the Company, (ii) fails to perform the essential functions of his or
her job (except for a failure resulting from a bona fide illness or
incapacity), (iii) fails to carry out the Company's reasonable
directions, issued through its Chief Executive Officer, the Board,
other appropriate senior employee responsible for the Participant's
business unit or area, or the Participant's supervisor, (iv) engages
in embezzlement, misappropriation of corporate funds, any act of
fraud, dishonesty or self-dealing, or the commission of a felony or
any significant violation of any statutory or common law duty of
loyalty to the Company, (v) commits an act or omission that could
adversely and materially affect the Company's business or reputation
or involves moral
A-1
turpitude, or (vi) breaches a material provision of this Plan or the
Agreement evidencing an Award.
(h) "Change in Control" shall mean the first occurrence of an event of a
nature that would be required to be reported in response to Item 5.01
of a Current Report on Form 8-K, as in effect on the date hereof,
pursuant to Sections 13 or 15(d) of the Exchange Act; provided,
however, that a Change in Control shall, in any event, conclusively
be deemed to have occurred upon the first to occur of any one of the
following events:
(i) The acquisition by an person or group, including, without
limitation, any current stockholder or stockholders of the
Company, of securities of the Company resulting in such person
or group owning, of record or beneficially, 25 percent or more
of any class of voting securities of the Company;
(ii) The acquisition by an person or group, including, without
limitation, any current stockholder or stockholders of the
Company, of securities of the Company resulting in such
persons or groups owning, of record or beneficially, 20
percent or more, but less than 25 percent, of any class of
voting securities of the Company, if the Board adopts a
resolution that such acquisition constitutes a Change in
Control;
(iii) The sale or disposition of all or substantially all of the
assets of the Company;
(iv) The reorganization, recapitalization, merger, consolidation or
other business combination involving the Company, the result
of which is the ownership by the stockholders of the Company
of less than 80 percent of those voting securities of the
resulting or acquired entity having the power to elect a
majority of the board of directors of such entity; or
(v) A change in the membership of the Board, which taken in
conjunction with any other prior to concurrent changes,
results in 20 percent or more of the membership of the Board
being persons not nominated by the Board as set forth in the
Company's then most recent proxy statement, excluding changes
resulting from substitutions by the Board because of
retirement or death of a director or directors, removal of a
director or directors by the Board or resignation of a
director or directors due to demonstrated disability oar
incapacity.
Provided, however, that (A) for each Award subject to Section 409A of
the Code, a Change in Control shall be deemed to have occurred under
this Plan with respect to such Award only if a change in the
ownership or effective control of the Company or a change in the
ownership of a substantial portion of the assets of the Company shall
also be deemed to have occurred under Section 409A of the Code, and
(B) notwithstanding anything in this definition to the contrary, no
Change in Control shall be deemed to have occurred for the purpose of
a Participant's Award by virtue of any transaction which results in
such Participant, or a group of persons which includes such
Participant, acquiring, directly or indirectly, voting securities of
the Company.
For the purpose of this Section 2(g), the following definitions shall
apply:
(I) the terms "person" and "beneficial owner" shall have
the meanings set forth in Regulation 13D under the
Exchange Act, as such regulation exists on the date
hereof;
(II) the term "voting security" shall include any security
that has, or may have upon an event of default or in
respect of any transaction, a right to vote on any
A-2
matter on which the holder of any class of common stock
of the Company would have a right to vote;
(III) the term "group" shall have the meaning set forth in
Section 13(d) of the Exchange Act; and
(IV) the term "substantially all of the assets of the
Company" shall mean more than 50 percent of the
Company's assets on a consolidated basis, as shown in
the Company's most recent audited balance sheet.
(i) "Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time, and any regulations promulgated thereunder.
(j) "Committee" shall mean the Company's Salary and Employee Benefits
Committee, which shall consist of two or more persons appointed by
the Board, each of whom shall qualify as an "outside director" within
the meaning of Section 162(m) of the Code, and a "nonemployee
director" within the meaning of Rule 16b-3.
(k) "Company" shall mean Selective Insurance Group, Inc., a New Jersey
corporation.
(l) "Company Stock" shall mean the common stock of the Company, par value
$2.00 per share.
(m) "Covered Employee" shall have the meaning set forth in Section 162(m)
of the Code.
(n) "Director Compensation" shall mean the annual compensation payable to
a Non-Employee Director for his or her service as a member of the
Board, consisting of annual director fees, committee fees and
committee chairperson fees.
(o) "Director Payment Date" shall have the meaning set forth in Section
13(c)(i) hereof.
(p) "Deferred Period" shall have the meaning set forth in Section
13(c)(iv)(E) hereof.
(q) "Effective Date" shall mean April 1, 2005.
(r) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
(s) "Fair Market Value" of the Company Stock shall be calculated as
follows: (i) if the Company Stock is listed on a national securities
exchange or traded on the NASDAQ National Market or the NASDAQ
SmallCap Market and sale prices are regularly reported for the
Company Stock, then the Fair Market Value shall be the closing
selling price for the Company Stock reported on the applicable
composite tape or other comparable reporting system on the applicable
date, or if the applicable date is not a trading day, on the most
recent trading day immediately prior to the applicable date; or (ii)
if closing selling prices are not regularly reported for the Company
Stock as described in clause (i) above but bid and asked prices for
the Company Stock are regularly reported, then the Fair Market Value
shall be the arithmetic mean between the closing or last bid and
asked prices for the Company Stock on the applicable date or, if the
applicable date is not a trading day, on the most recent trading day
immediately prior to the applicable date; or (iii) if prices are not
regularly reported for the Company Stock as described in clause (i)
or (ii) above, then the Fair Market Value shall be such value as the
Committee in good faith determines.
(t) "Immediate Family Member" shall have the meaning set forth in Section
22(c) hereof.
A-3
(u) "Incentive Stock Option" shall mean an Option that qualifies as an
"incentive stock option" within the meaning of Section 422 of the
Code, or any successor provision, and which is designated by the
Committee as an Incentive Stock Option.
(v) "Non-Employee Director" shall mean a member of the Board who is not
an employee of the Company or any Subsidiary of the Company.
(w) "Nonqualified Stock Option" shall mean an Option other than an
Incentive Stock Option.
(x) "Option" shall mean an option to purchase shares of Company Stock
granted pursuant to Section 7 or Section 13 hereof.
(y) "Other Award" shall mean an Award granted pursuant to Section 12
hereof.
(z) "Participant" shall mean an employee or non-employee director of the
Company or any of its Affiliates to whom an Award is granted pursuant
to the Plan.
(aa) "Performance Goals" shall mean performance goals based on one or more
of the following criteria: (i) return on total stockholder equity;
(ii) earnings per share or book value per share of Company Stock;
(iii) net income (before or after taxes); (iv) earnings before all or
any interest, taxes, depreciation and/or amortization; (v) return on
assets, capital or investment; (vi) market share; (vii) cost
reduction goals; (viii) earnings from continuing operations; (ix)
levels of expense, costs or liabilities; (x) department, division or
business unit level performance; (xi) operating profit; (xii) sales
or revenues; (xiii) stock price appreciation; (xiv) total stockholder
return; (xv) growth in net premiums written; (xvi) combined ratios;
(xvii) implementation or completion of critical projects or
processes; (xviii) except in the case of a "Covered Employee," any
other performance criteria established by the Committee; or (xix) any
combination of the foregoing. Where applicable, the Performance Goals
may be expressed in terms of attaining a specified level of the
particular criteria or the attainment of a percentage increase or
decrease in the particular criteria, and may be applied to one or
more of the Company, a subsidiary or affiliate, or a division or
strategic business unit of the Company or a combination thereof, or
may be applied to the performance of the Company relative to a market
index, a group of other companies or a combination thereof, all as
determined by the Committee. The Performance Goals may be subject to
a threshold level of performance below which no vesting will occur,
levels of performance at which specified vesting will occur, and a
maximum level of performance above which full vesting will occur. To
the extent possible, each of the foregoing Performance Goals shall be
determined, as appropriate, in accordance with generally accepted
accounting principles or statutory accounting principles and shall be
subject to certification by the Committee; provided that the
Committee shall have the authority to make equitable adjustments to
the Performance Goals in recognition of unusual or non-recurring
events affecting the Company or any subsidiary or affiliate or the
financial statements of the Company or any subsidiary or affiliate,
in response to changes in applicable laws or regulations, or to
account for items of realized and unrealized gain, loss or expense
determined to be extraordinary or unusual in nature or infrequent in
occurrence or related to the disposal of a segment of a business or
related to a change in accounting principles.
(bb) "Phantom Stock" shall mean an Award valued by reference to shares of
Company Stock, granted pursuant to Section 10 hereof, which upon
vesting provides the right to receive shares of Company Stock.
(cc) "Plan" shall have the meaning set forth in Section 1 hereof.
(dd) "Prior Plan" shall have the meaning set forth in Section 1 hereof.
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(ee) "Prior Plan Award" shall have the meaning set forth in Section 1
hereof.
(ff) "Restricted Stock" shall mean a share of Company Stock which is
granted pursuant to the terms of Section 9 hereof and which is
subject to restrictions as set forth in Section 9(d) hereof.
(gg) "Rule 16b-3" shall mean the Rule 16b-3 promulgated under the Exchange
Act, as amended from time to time.
(hh) "Securities Act" shall mean the Securities Act of 1933, as amended
from time to time.
(ii) "Stock Appreciation Right" shall mean the right to receive, upon
exercise of the right, the applicable amounts as described in Section
8 hereof.
(jj) "Stock Bonus" shall mean a bonus payable in shares of Company Stock
granted pursuant to Section 11 hereof.
(kk) "Subsidiary" shall mean a "subsidiary corporation" of the Company
within the meaning of Section 424(f) of the Code.
3. Stock Subject to the Plan.
(a) Shares Available for Awards. The maximum number of shares of Company
Stock reserved for issuance under the Plan shall be 1,760,000 shares
(subject to adjustment as provided herein), provided, however, that
no more than 1,320,000 shares (subject to adjustment as provided
herein) may be granted with respect to Awards other than Options or
Stock Appreciation Rights. Such shares may be authorized but unissued
shares of Company Stock or authorized and issued shares of Company
Stock held in the Company's treasury. Of the maximum 1,760,000 shares
(subject to adjustment as provided herein) that may be delivered
under the Plan, 1,359,208 shares previously reserved under the Prior
Plans are now available for delivery hereunder.
(b) Individual Limitation; Limitation on Certain Awards; Limitation on
Incentive Stock Options. The maximum number of shares of Company
Stock to which Awards relate that may be granted to any Participant
during any calendar year shall not exceed 100,000 shares (subject to
adjustment as provided in Section 3(c) hereof). The maximum number of
shares of Company Stock to which Options relate that may be granted
under the Plan shall be 1,760,000 (subject to adjustment as provided
in Section 3(c) hereof), any or all of which may relate to Incentive
Stock Options.
(c) Adjustment for Change in Capitalization. In the event that any
dividend or other distribution is declared (whether in the form of
cash, Company Stock, or other property), or there occurs any
recapitalization, stock split, reverse stock split, reorganization,
merger, consolidation, spin-off, combination, repurchase, share
exchange or other similar corporate transaction or event, the
Committee shall equitably adjust, in its sole and absolute
discretion, (i) the number and type of shares (or other securities or
property) with respect to which Awards may be granted, (ii) the
number and type of shares (or other securities or property) subject
to outstanding Awards, and (iii) the grant or exercise price with
respect to any Award provided, that (x) in the event of a proposed
corporate transaction, the Committee may provide for the assumption
of outstanding Awards by the surviving or successor entity or the
Committee may terminate all or a portion of any outstanding Award,
effective upon the closing of the corporate transaction, if it
determines that such termination is in the best interests of the
Company (if the Committee decides to terminate outstanding Options or
Stock Appreciation Rights, the Committee shall give each participant
holding an Option or Stock Appreciation Right to be
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terminated not less than seven days' notice prior to any such
termination, and any Option or Stock Appreciation Right that is to be
so terminated may be exercised (if an only to the extent that it is
then exercisable) up to, and including the date immediately preceding
such termination); (y) in each case, with respect to Awards of
Incentive Stock Options, no such adjustment shall be authorized to
the extent that such adjustment would cause the Plan to violate
Section 422(b)(1) of the Code or any successor provision thereto; and
(z) with respect to Options and Stock Appreciation Rights, such
adjustment shall be made in accordance with the provisions of Section
424(h) of the Code.
(d) Reuse of Shares. Except to the extent that to do so would prevent the
grant of Incentive Stock Options hereunder, any shares of Company
Stock subject to an Award or a Prior Plan Award that remain unissued
upon the cancellation, surrender, exchange or termination of such
Award or Prior Plan Award without having been exercised or settled
shall again become available for Awards. In addition, to the extent
an Award or a Prior Plan Award is paid or settled in cash, the number
of shares of Company Stock with respect to which such payment or
settlement is made shall again be available for grants of Awards
pursuant to the Plan.
4. Administration of the Plan.
(a) General. The Plan shall be administered by the Committee. The
Committee shall have the authority in its sole discretion, subject to
and not inconsistent with the express provisions of the Plan, to
administer the Plan and to exercise all the powers and authorities
either specifically granted to it under the Plan or necessary or
advisable in the administration of the Plan, including, without
limitation, the authority to (except as otherwise provided in Section
13 hereof): (i) grant Awards; (ii) determine the persons to whom and
the time or times at which Awards shall be granted; (iii) determine
the type and number of Awards to be granted, the number of shares of
Company Stock or cash or other property to which an Award may relate
and the terms, conditions, restrictions and performance criteria
relating to any Award; (iv) determine whether, to what extent, and
under what circumstances an Award may be settled, cancelled,
forfeited, exchanged, or surrendered; (v) construe and interpret the
Plan and any Award; (vi) prescribe, amend and rescind rules and
regulations relating to the Plan; (vii) determine the terms and
provisions of Agreements; and (viii) to make all other determinations
deemed necessary or advisable for the administration of the Plan. The
Committee may, in its sole and absolute discretion, without amendment
to the Plan, (A) accelerate the date on which any Option or Stock
Appreciation Right becomes exercisable, (B) waive or amend the
operation of Plan provisions respecting exercise after termination of
employment (provided that the term of an Option or Stock Appreciation
Right may not be extended beyond ten years from the date of grant),
(C) accelerate the vesting date, or waive any condition imposed
hereunder, with respect to any share of Restricted Stock, Phantom
Stock, Stock Bonus or Other Award, and (D) otherwise adjust any of
the terms applicable to any such Award in a manner consistent with
the terms of the Plan.
(b) Indemnification. No member of the Committee (or a delegate of the
Committee), and no officer of the Company, shall be liable for any
action taken or omitted to be taken by such individual or by any
other member of the Committee or officer of the Company in connection
with the performance of duties under this Plan, except for such
individual's own willful misconduct or as expressly provided by law
(the "Administrative Actions"). Further, the Committee (and all
delegates of the Committee), in addition to such other rights of
indemnification as they may have as members of the Board or officers
of the Company or an Affiliate, any individual serving as a Committee
member shall be indemnified and held harmless by the Company to the
fullest extent allowed by law against all costs and expenses
reasonably incurred by them in connection with any action, suit or
proceeding to which they or any of them may be party by reason of any
Administrative Action.
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(c) Awards to Non-Employee Directors. Notwithstanding anything in the
Plan to the contrary, the powers and authority of the Committee shall
be exercised by the Corporate Governance and Nominating Committee in
the case of Awards, other than Automatic Director Options, made to
Non-Employee Directors.
5. Eligibility.
The persons who shall be eligible to receive Awards pursuant to the Plan shall
be such employees of the Company or any of its Affiliates (including officers
of the Company or any of its Affiliates, whether or not they are directors of
the Company or any of its Affiliates) and non-employee directors of the Company
or any of its Affiliates, in each case as the Committee (or, as described in
Section 4(c) hereof, the Board) shall select from time to time. The grant of an
Award hereunder to any employee or non-employee director shall impose no
obligation on the Company or any of its Affiliates to continue the employment
or service of a Participant and shall not lessen or affect the Company's or
such Affiliate's right to terminate the employment or service of such
Participant. No Participant or other person shall have any claim to be granted
any Award, and there is no obligation for uniformity of treatment of
Participants, or holders or beneficiaries of Awards, or of multiple Awards
granted to a Participant. The terms and conditions of Awards and the
Committee's determinations and interpretations with respect thereto need not be
the same with respect to each Participant (whether or not such Participants are
similarly situated). Notwithstanding any provision of the Plan, no such Award
may be granted if it would fail to comply with the requirements set forth in
Section 409A of the Code and any regulations or guidance promulgated
thereunder.
6. Awards Under the Plan; Agreement.
The Committee may grant Options, Stock Appreciation Rights, Restricted Stock,
Phantom Stock, Stock Bonuses and Other Awards in such amounts and with such
terms and conditions as the Committee shall determine, subject to the
provisions of the Plan. Each Award granted under the Plan (except unconditional
Stock Bonuses and the cash component of Director Compensation) shall be
evidenced by an Agreement which shall contain such provisions as the Committee
may in its sole discretion deem necessary or desirable and which are not in
conflict with the terms of the Plan. By accepting an Award, a Participant shall
be deemed to agree that the Award shall be subject to all of the terms and
provisions of the Plan and the applicable Agreement.
7. Options.
The following provisions govern Options other than Automatic Director Options
(except that such provisions shall apply to Automatic Director Options to the
extent provided in Section 13 hereof).
(a) Identification of Options. Each Option shall be clearly identified in
the applicable Agreement as either an Incentive Stock Option or a
Nonqualified Stock Option. All Options shall be non-transferable,
except by will or the laws of descent and distribution or except as
otherwise determined by the Committee as provided by Section 22(c)
hereof with respect to a Nonqualified Stock Option.
(b) Exercise Price. Each Agreement with respect to an Option shall set
forth the amount per share (the "option exercise price") payable by
the Participant to the Company upon exercise of the Option; provided,
however, in no event shall the option exercise price be less than the
Fair Market Value of a share of Company Stock as of the date of grant
of such Option.
(c) Term and Exercise of Options.
(i) Each Option shall become exercisable at the time determined by
the Committee and set forth in the applicable Agreement. At
the time of grant of an Option, the Committee may impose such
restrictions or conditions to the exercisability of
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the Option as it, in its absolute discretion, deems
appropriate, including, but not limited to, achievement of one
or more Performance Goals. Subject to Section 7(d) hereof, the
Committee shall determine the expiration date of each Option,
which shall be no later than the tenth anniversary of the date
of grant of the Option.
(ii) An Option shall be exercised by delivering the form of notice
of exercise provided by the Company. Payment for shares of
Company Stock purchased upon the exercise of an Option shall
be made on the effective date of such exercise by one or a
combination of the following means: (A) in cash or by personal
check, certified check, bank cashier's check or wire transfer;
(B) in shares of Company Stock owned by the Participant for at
least six months prior to the date of exercise; (C) by broker
assisted cashless exercise; or (D) by any such other methods
(including broker assisted cashless exercise) as the Committee
may from time to time authorize provided, however, that in the
case of a Participant who is subject to Section 16 of the
Exchange Act, the method of making such payment shall be in
compliance with applicable law. Any payment in shares of
Company Stock shall be effected by the delivery of such shares
to, and in a form approved by, the Secretary of the Company or
his or her designee (including by way of electronic delivery),
accompanied by any other documents and evidences as the
Secretary of the Company or his or her designee shall require.
(iii) Shares of Company Stock purchased upon the exercise of an
Option shall be issued in the name of or for the account of
the Participant or other person entitled to receive such
shares and delivered to the Participant or such other person,
in book entry form (unless otherwise determined by the
Committee or unless certificates representing the shares are
requested by the Participant), as soon as practicable
following the effective date on which the Option is exercised.
(d) Provisions Relating to Incentive Stock Options. Incentive Stock
Options may only be granted to employees of the Company and its
Affiliates, in accordance with the provisions of Section 422 of the
Code. The option exercise price for each Incentive Stock Options
shall be equal to or greater than the Fair Market Value of a share of
Company Stock on the date of grant. To the extent that the aggregate
Fair Market Value of shares of Company Stock with respect to which
Incentive Stock Options are exercisable for the first time by a
Participant during any calendar year under the Plan and any other
stock option plan of the Company or a Subsidiary shall exceed
$100,000, such Options shall be treated as Nonqualified Stock
Options. For purposes of this Section 7(d), Fair Market Value shall
be determined as of the date on which each such Incentive Stock
Option is granted. No Incentive Stock Option may be granted to an
individual if, at the time of the proposed grant, such individual
owns (or is deemed to own under the Code) stock possessing more than
ten percent of the total combined voting power of all classes of
stock of the Company unless (A) the exercise price of such Incentive
Stock Option is at least 110% of the Fair Market Value of a share of
Company Stock at the time such Incentive Stock Option is granted and
(B) such Incentive Stock Option is not exercisable after the
expiration of five years from the date such Incentive Stock Option is
granted.
(e) Effect of Termination of Employment (or Provision of Services).
Unless otherwise provided by the Committee, in the event that the
employment of a Participant with the Company (or the Participant's
service to the Company) shall terminate for any reason other than
Cause, death or disability, (i) each Option granted to such
Participant, to the extent that it is exercisable at the time of such
termination, shall remain exercisable for (x) in the case of
Incentive Stock Options, the 90 day period following such
termination,
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but in no event following the expiration of its term, and (y) in the
case of Nonqualified Stock Options, the one year period following
such termination, but in no event following the expiration of its
term, and (ii) each Option that remains unexercisable as of the date
of such a termination shall be terminated at the time of such
termination. Unless otherwise provided by the Committee, in the event
that the employment of a Participant with the Company (or the
Participant's service to the Company) shall terminate on account of
the death or disability of the Participant, except as otherwise
determined by the Committee, all Options held by the Participant
immediately prior to the Participant's death or disability, as the
case may be, to the extent then exercisable, may be exercised by the
Participant or by the Participant's legal representative, executor,
administrator or transferree by will or the laws of descent and
distribution, at any time within the one year period ending on the
first anniversary of the Participant's death or disability, and shall
thereupon terminate. In no event, however, shall an Option remain
exerisable following the expiration of its term. In the event that
the employment of a Participant with the Company (or the
Participant's service to the Company) shall terminate on account of
Cause, each Option that is outstanding as of the date of such
termination, whether or not then exercisable, shall be terminated at
the time of such termination.
8. Stock Appreciation Rights.
(a) General. A Stock Appreciation Right may be granted in connection with
an Option, either at the time of grant or, with respect to a
Nonqualified Stock Option, at any time thereafter during the term of
the Option, or may be granted unrelated to an Option. At the time of
grant of a Stock Appreciation Right, the Committee may impose such
restrictions or conditions to the exercisability of the Stock
Appreciation Right as it, in its absolute discretion, deems
appropriate, including, but not limited to, achievement of
performance goals based on one or more Performance Goals. The term of
a Stock Appreciation Right granted without relationship to an Option
shall not exceed ten years from the date of grant.
(b) Surrender of Option. A Stock Appreciation Right related to an Option
shall require the holder, upon exercise, to surrender such Option
with respect to the number of shares as to which such Stock
Appreciation Right is exercised, in order to receive payment of any
amount computed pursuant to Section 8(d). Such Option will, to the
extent surrendered, then cease to be exercisable.
(c) Timing and Transferability. Subject to Section 8(h) and to such rules
and restrictions as the Committee may impose, a Stock Appreciation
Right granted in connection with an Option will be exercisable at
such time or times, and only to the extent that a related Option is
exercisable, and will not be transferable except to the extent that
such related Option may be transferable.
(d) Exercise of Stock Appreciation Rights Related to Options. Upon the
exercise of a Stock Appreciation Right related to an Option, the
holder will be entitled to receive payment of an amount determined by
multiplying:
(i) the excess of the Fair Market Value of a share of Company
Stock on the date of exercise of such Stock Appreciation Right
over the option exercise price specified in the related
Option, by
(ii) the number of shares as to which such Stock Appreciation Right
is exercised.
The payment upon exercise of a Stock Appreciation Right granted with
a relationship to an Option shall be in shares of Company Stock
which have an aggregate Fair Market Value (as of the date of
exercise of the Stock Appreciation Right) equal to the amount of the
payment as set forth in such Agreement.
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(e) Exercise of Stock Appreciation Rights Not Related to Options. A Stock
Appreciation Right granted without relationship to an Option will
entitle the holder, upon exercise of the Stock Appreciation Right, to
receive payment of an amount determined by multiplying:
(i) the excess of (A) the Fair Market Value of a share of Company
Stock on the date of exercise of such Stock Appreciation Right
over (B) the greater of the Fair Market Value of a share of
Company Stock on the date the Stock Appreciation Right was
granted or such greater amount as may be set forth in the
applicable Agreement, by
(ii) the number of shares as to which such Stock Appreciation Right
is exercised.
The payment upon exercise of a Stock Appreciation Right granted
without a relationship to an Option shall be in shares of Company
Stock which have an aggregate Fair Market Value (as of the date of
exercise of the Stock Appreciation Right) equal to the amount of the
payment as set forth in such Agreement.
(f) Limitations on Amounts Payable. Notwithstanding subsections (d) and
(e) above, the Committee may place a limitation on the amount payable
upon exercise of a Stock Appreciation Right. Any such limitation must
be determined as of the date of grant and noted in the applicable
Agreement.
(g) Effect of Termination of Employment (or Provision of Services).
Unless otherwise provided by the Committee, in the event that the
employment of a Participant with the Company (or the Participant's
service to the Company) shall terminate for any reason other than
Cause, death or disability, (i) each Stock Appreciation Right granted
to such Participant, to the extent that it is exercisable at the time
of such termination, shall remain exercisable for the one year period
following such termination, but in no event following the expiration
of its term, and (ii) each Stock Appreciation Right that remains
unexercisable as of the date of such a termination shall be
terminated at the time of such termination. In the event that the
employment of a Participant with the Company (or the Participant's
service to the Company) shall terminate on account of the death or
disability of the Participant, except as otherwise determined by the
Committee, all Stock Appreciation Rights held by the Participant
immediately prior to the Participant's death or disability, as the
case may be, to the extent then exercisable, may be exercised by the
Participant or by the Participant's legal representative, executor,
administrator or transferree by will or the laws of descent and
distribution, at any time within the one year period ending on the
first anniversary of the Participant's death or disability, and shall
thereupon terminate. In no event, however, shall a Stock Appreciation
Right remain exerisable following the expiration of its term. In the
event that the employment of a Participant with the Company (or the
Participant's service to the Company) shall terminate on account of
Cause, each Stock Appreciation Right that is outstanding as of the
date of such termination, whether or not then exercisable, shall be
terminated at the time of such termination.
9. Restricted Stock.
(a) Price. At the time of the grant of shares of Restricted Stock, the
Committee shall determine the price, if any, to be paid by the
Participant for each share of Restricted Stock subject to the Award.
(b) Vesting Date. At the time of the grant of shares of Restricted Stock,
the Committee shall establish a vesting date or vesting dates with
respect to such shares. The Committee may divide such shares into
classes and assign a different vesting date for each class. Provided
that all conditions to the vesting of a share of Restricted Stock are
satisfied, and
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subject to Section 9(h), upon the occurrence of the vesting date with
respect to a share of Restricted Stock, such share shall vest and the
restrictions of Section 9(d) shall lapse.
(c) Conditions to Vesting. At the time of the grant of shares of
Restricted Stock, the Committee may impose such restrictions or
conditions to the vesting of such shares as it, in its absolute
discretion, deems appropriate, including, but not limited to,
achievement of performance goals based on one or more Performance
Goals. The Committee may also provide that the vesting or forfeiture
of shares of Restricted Stock may be based upon the achievement of,
or failure to achieve, certain levels of performance and may provide
for partial vesting of Restricted Stock in the event that the maximum
level of performance is not met if the minimum level of performance
has been equaled or exceeded.
(d) Restrictions on Transfer Prior to Vesting. Prior to the vesting of a
share of Restricted Stock, such Restricted Stock may not be
transferred, assigned or otherwise disposed of, and no transfer of a
Participant's rights with respect to such Restricted Stock, whether
voluntary or involuntary, by operation of law or otherwise, shall be
permitted. Immediately upon any attempt to transfer such rights, such
shares, and all of the rights related thereto, shall be forfeited by
the Participant.
(e) Voting Rights; Dividends on Restricted Stock. Unless the Committee
determines otherwise, a Participant who has been awarded shares of
Restricted Stock shall be entitled to vote such shares. The Company
shall pay to each Participant, in cash, any dividends paid on
Restricted Stock awarded to such Participant. Such payment shall be
made on the date that such dividend would be paid to the Company's
shareholders, generally.
(f) Issuance of Certificates. Unless otherwise determined by the
Committee, or requested by the Participant, the shares of Company
Stock underlying Restricted Stock awards shall be registered by the
Company in book entry form. The Committee may, upon such terms and
conditions as it determines, provide that (i) a certificate or
certificates representing the shares underlying a Restricted Stock
award shall be registered in the Participant's name and bear an
appropriate legend specifying that such shares are not transferable
and are subject to the provisions of the Plan and the restrictions,
terms and conditions set forth in the applicable Agreement, and (ii)
such certificate or certificates shall be held in escrow by the
Company on behalf of the Participant until such shares become vested
or are forfeited.
(g) Consequences of Vesting. Upon the vesting of a share of Restricted
Stock pursuant to the terms hereof, the restrictions of Section 9(d)
shall lapse with respect to such share. Following the date on which a
share of Restricted Stock vests, the Company shall cause to be
delivered to the Participant to whom such shares were granted, via
book entry unless otherwise determined by the Committee or requested
by the Participant, a certificate evidencing such shares, which may
bear a restrictive legend, if the Committee determines such a legend
to be appropriate.
(h) Effect of Termination of Employment (or Provision of Services).
Unless otherwise provided by the Committee, upon the termination of a
Participant's employment (or upon cessation of such Participant's
service to the Company) for any reason other than death, disability
or Retirement (as defined in the Participant's Agreement), any and
all shares to which restrictions on transferability apply shall be
immediately forfeited by the Participant and transferred to, and
reacquired by, the Company. In the event of a forfeiture of shares
pursuant to this Section 9(h), the Company shall repay to the
Participant (or the Participant's estate) any amount paid by the
Participant for such shares. In the event that the Company requires a
return of shares, it shall also have the right to require the return
of all dividends paid on such shares, whether by termination of any
escrow arrangement under which such dividends are held or otherwise.
In the event that the employment of a Participant with the Company
(or the Participant's service to the
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Company) shall terminate on account of the death, disability or,
Retirement (as defined in the Participant's Agreement) of the
Participant, all shares of Company Stock formerly to subject to
restrictions on transferability shall no longer be subject to such
restrictions and shall be delivered to the Participant or his
executor, administrator, personal representative, heirs or
beneficiaries, as the case may be, as provided in Section 9(g)
hereof.
10. Phantom Stock.
(a) Vesting Date. At the time of the grant of shares of Phantom Stock,
the Committee shall establish a vesting date or vesting dates with
respect to such shares. The Committee may divide such shares into
classes and assign a different vesting date for each class. Provided
that all conditions to the vesting of a share of Phantom Stock
imposed pursuant to Section 10(c) are satisfied, and subject to
Section 10(d), upon the occurrence of the vesting date with respect
to a share of Phantom Stock, such share shall vest.
(b) Benefit Upon Vesting. Upon the vesting of a share of Phantom Stock,
the Participant shall be paid, within 30 days of the date on which
such share vests, a share of Company Stock, plus an amount in cash
equal to the aggregate cash dividends paid with respect to a share of
Company Stock during the period commencing on the date on which the
share of Phantom Stock was granted and terminating on the date on
which such share vests.
(c) Conditions to Vesting. At the time of the grant of shares of Phantom
Stock, the Committee may impose such restrictions or conditions to
the vesting of such shares as it, in its absolute discretion, deems
appropriate, including, but not limited to, achievement of
performance goals based on one or more Performance Goals.
(d) Effect of Termination of Employment (or Provision of Services). All
shares of Phantom Stock held by a Participant which are not vested
upon the termination of such Participant's employment (or upon
cessation of such Participant's services to the Company) shall be
forfeited to the Company unless otherwise provided by the Committee
as set forth in the Agreement evidencing the grant of such Phantom
Stock.
11. Stock Bonuses.
In the event that the Committee grants a Stock Bonus, a certificate for the
shares of Company Stock constituting such Stock Bonus shall be issued in the
name of the Participant to whom such grant was made and delivered to such
Participant, via book entry unless otherwise determined by the Committee or
requested by the Participant, as soon as practicable after the date on which
such Stock Bonus is payable.
12. Other Awards.
Other forms of Awards ("Other Awards") valued in whole or in part by reference
to, or otherwise based on, Company Stock may be granted either alone or in
addition to other Awards under the Plan. Subject to the provisions of the Plan,
the Committee shall have sole and complete authority to determine the persons
to whom and the time or times at which such Other Awards shall be granted, the
number of shares of Company Stock to be granted pursuant to such Other Awards,
or the conditions to the vesting and/or payment of such Other Awards (which may
include, but not be limited to, achievement of performance goals based on one
or more Performance Goals) and all other terms and conditions of such Other
Awards, provided, however, that to the extent the Committee determines that an
Other Award is subject to Section 409A of the Code, the terms and conditions of
such Other Award must comply with the applicable provisions of such section.
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13. Automatic Director Options and Director Compensation
(a) Automatic Director Options. A Nonqualified Stock Option to purchase
three thousand (3,000) shares of Company Stock (an "Automatic
Director Option") shall be granted automatically to each Non-Employee
Director on March 1 or, if March 1 is not a business day, on the next
succeeding business day of each year, during the duration of the
Plan.
(i) Each Automatic Director Option shall become exercisable on the
first anniversary of the date upon which it was granted;
provided, however, that, unless otherwise determined by the
Committee, any outstanding Automatic Director Option that is
not yet exercisable shall become exercisable in full upon the
date that the Non-Employee Director who is a holder of such
Automatic Director Option ceases to be a member of the Board
for any reason other than Cause (and in the event that such
cessation is due to the Non-Employee Director's death or
disability may be exercised, in whole or in part, by his or
her executor, administrator, guardian or legal representative,
in accordance with the terms of the Agreement with respect to
such Automatic Director Option), and will remain exercisable
as set forth in the Agreement evidencing such Automatic
Director Option; provided that no Automatic Director Option
shall be exercisable after the expiration of ten (10) years
from the date upon which such Automatic Director Option was
granted.
(ii) In the event a Non-Employee Director who is a holder of an
Automatic Director Option ceases to be a member of the Board
by reason of Cause, each Automatic Director Option that is
outstanding as of the date of such cessation, whether or not
then exercisable, shall be terminated at the time of such
cessation.
(iii) The per share option exercise price payable by the holder of
an Automatic Director Option to the Company upon exercise of
the Automatic Director Option shall be equal to the Fair
Market Value of a share of Company Stock on the date of grant
of such Automatic Director Option.
(iv) Each Automatic Director Option shall be exercised in
accordance with Section 7(c)(ii) of the Plan.
(b) Director Compensation.
(i) Director Compensation shall be paid in (i) shares of Company
Stock or (ii) in cash and shares of Company Stock, at the
election of the Non-Employee Director, provided that not more
than fifty percent (50%) of the Director Compensation shall be
paid in cash. Each Non-Employee Director may elect on or
before December 20 of each year to receive in cash up to fifty
percent (50%) of his or her Director Compensation payable
during the next succeeding calendar year. The elections made
pursuant to this Section 13(b) shall be irrevocable for the
calendar year for which the election is made and shall apply
to each calendar year thereafter until the Non-Employee
Director, on or before December 20 of the immediately
preceding calendar year, makes a different election for the
next succeeding calendar year, which election shall remain
continue in effect until a different election is made in the
manner provided in the Plan. The number of shares of Company
Stock to be issued to each Non-Employee Director pursuant to
this Section 13(b)(i) shall be determined on January 1, April
1, July 1 and October 1 of each year (each, a "Director
Payment Date"), or the next succeeding business day if a
Director Payment Date is not a business day. On each Director
Payment Date, each Non-Employee Director shall become entitled
to receive the number of shares of Company Stock determined by
dividing one-fourth of the amount of the Director's Director
A-13
Compensation to be paid in Company Stock by the Fair Market
Value of a share of Company Stock on the Director Payment
Date. Any fractional shares resulting from such calculation
shall be rounded up to the nearest whole number of shares and
shall be issued on the applicable Director Payment Date.
(ii) Any person who becomes a Non-Employee Director after a
Director Payment Date and before the next succeeding Director
Payment Date in any year, whether by appointment or election
as a member of the Board or by ceasing to be an employee of
the Company or a Subsidiary of the Company, shall receive a
pro rata amount of Director Compensation payable under Section
13(b)(i) until the next Director Payment Date. Such pro rata
amount of Director Compensation shall be determined by
multiplying the amount of such Non-Employee Director's
Director Compensation by a fraction, the numerator of which
shall be the number of days remaining from the date of
election or appointment until the next succeeding Director
Payment Date, and the denominator of which shall be 365.
Within 30 days of becoming a Non-Employee Director, such
person may effect an election under Section 13(b)(i) for the
remainder of the calendar year in which he or she became a
Non-Employee Director.
(iii) No certificate for shares of Company Stock will be issued to a
Director unless the Non-Employee Director requests such
issuance in writing to the Company. Shares of Company Stock
issuable to a Non-Employee Director will be credited to such
Non-Employee Director's account until receipt of such written
request for all or part of such shares. The number of shares
of Company Stock issuable on each Director Payment Date and
the cumulative number of shares credited to an account under
the Plan will be shown on a statement of account furnished to
each Non-Employee Director after each Director Payment Date.
Except as otherwise provided in Section 13(b)(iv), upon a
Non-Employee Director's written request to the Company, a
certificate for all or any portion of the whole shares of
Company Stock credited to such Non-Employee Director's account
will be issued to such Non-Employee Director.
(iv) Deferral of Receipt of Director Compensation.
(A) A Non-Employee Director may irrevocably elect, on or
before December 20 of the year prior to which Director
Compensation will be earned, to defer the issuance and
receipt of shares of Company Stock and cash (if any)
issuable under the Plan in respect of such Director
Compensation. Any such election shall be irrevocable
for the calendar year for which the election is made
and shall apply to each calendar year thereafter unless
the Non-Employee Director, on or before December 20 of
the immediately preceding calendar year, makes a
different election for the next succeeding calendar
year, which election shall continue in effect until a
different election is made in the manner provided in
the Plan. The Non-Employee Director may, as previously
described in this Section 13(b)(iv)(A), elect to defer
such issuance of shares of Company Stock and cash (if
any) until (I) a specified date or dates in the future,
(II) the attainment of age 70 or (III) termination of
services as a Non-Employee Director.
(B) In the event of a Change of Control, notwithstanding
any Non-Employee Director's election, and if such
Change of Control results in the termination of a
Non-Employee Director's service as a member of the
Board, all shares of Company Stock and cash (if any)
deferred
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under the Plan shall be issued on the first day of the
month following such termination of such Non-Employee
Director's service.
(C) A deferred compensation account shall be established
for each Non-Employee Director who elects to defer the
receipt of shares of Company Stock and cash under the
Plan, and all shares and cash so deferred shall be
credited to such Non-Employee Director's deferred
compensation account.
(D) An election pursuant to this Section 13(b)(iv) covering
an amount previously deferred may be modified by a
Non-Employee Director by written notice to the Company
received not later than one (1) year prior to the first
date for which such revocation or modification is to
apply, provided that the change must defer the time
that payment begins to a date at least five (5) years
after the previous starting date, and must otherwise
comply with the provisions of Section 409A of the Code.
(E) In the event that cash dividends on the shares of
Company Stock, the issuances of which are deferred
hereunder, are declared and paid during the period
commencing on the date such shares would have been
issued but for such deferral and terminating on the
date of issuance of such shares of Company Stock (the
"Deferred Period"), an amount equal to the amount of
such dividends shall be credited to such Non-Employee
Director's deferred compensation account as and when
such dividends are paid by the Company as if such
shares of Company Stock had been issued and outstanding
during the Deferred Period. The cash portion of such
account, including Director Compensation paid in cash,
shall be credited with interest on December 31 of each
year (if on such date there is a balance in the
account) equal to the amount of interest, if any, which
would have been earned on the average cash balance in a
Non-Employee Director's account for the year at an
annual rate of interest equal to the average two-year
United States Treasury Bill rate for the year. If
amounts credited to a Non-Employee Director's account
are distributed prior to any such December 31, interest
on such distributed amounts shall be credited to such
account calculated at an annual rate equal to the
average two-year United States Treasury Bill rate from
the beginning of the year to the date of the
distribution. The Company shall pay the Non-Employee
Director on the date such Non-Employee Director's
deferred shares of Company Stock are actually issued an
amount in cash equal to the amount of cash dividends
paid on shares of Company Stock, on a cumulative basis,
and interest, if any, credited to such Non-Employee
Director's account.
(F) At the time of making an initial deferral election
pursuant to this Section 13(b)(iv) with respect to
Director Compensation to be earned in the following
calendar year, a Non-Employee Director may elect to
receive shares of Company Stock and cash, the issuance
of which is deferred hereunder, and any cash dividends
on shares of Company Stock, the issuance of which is
deferred hereunder, in either (i) a lump sum or (ii)
subject to Section 13(b)(iv)(B), up to five equal (or
as nearly equal as possible) installments, provided,
that the dates for such payments are determined in
accordance with Section 13(b)(iv)(A).
(G) The right to receive the shares of Company Stock and
cash deferred hereunder, amounts of cash dividends, and
interest thereon, if any,
A-15
described in this Section 13(b)(iv) shall not be
transferable, except by will or the laws of descent and
distribution.
(H) Nothing contained herein shall be deemed to create a
trust of any kind or create any fiduciary relationship.
Funds payable in respect of cash, dividends on shares
of Company Stock, and interests thereon, if any, under
this Section 13(b)(iv) shall continue for all purposes
to be a part of the general funds of the Company and
shall not be specifically set aside or otherwise
segregated. The obligation of the Company to issue and
deliver shares of Company Stock under this Section
13(b)(iv) shall be a general contractual obligation of
the Company. To the extent that a Non-Employee Director
acquires a right to receive payments from the Company
and shares of Company Stock from the Company under the
Plan, such rights shall be no greater than the rights
of any unsecured general creditor of the Company and
such rights shall be an unsecured claim against the
general assets of the Company.
(I) A statement will be furnished to each Non-Employee
Director on or about March 1 of each year stating the
number of shares of Company Stock and the cash balance
credited to such Non-Employee Director's deferred
compensation account as of the preceding December 31.
14. Special Provisions Regarding Certain Awards.
The Committee may make Awards hereunder to Covered Employees (or to individuals
whom the Committee believes may become Covered Employees) that are intended to
qualify as performance-based compensation under Section 162(m) of the Code. The
exercisability and/or payment of such Awards may be subject to the achievement
of one or more Performance Goals and to certification of such achievement in
writing by the Committee. Such Performance Goals shall be established in
writing by the Committee not later than the time period prescribed under
Section 162(m) and the regulations thereunder. All provisions of such Awards
which are intended to qualify as performance-based compensation shall be
construed in a manner to so comply.
15. Change in Control.
Notwithstanding any other provisions of the Plan, if a Change of Control
occurs, then:
(a) the Participant's Restricted Stock that was forfeitable shall
thereupon become nonforfeitable;
(b) any unexercised Option or Stock Appreciation Right, whether or not
exercisable on the date of such Change of Control, shall thereupon be
fully exercisable and may be exercised, in whole or in part; and
(c) any other Award granted pursuant to the Plan, to the extent not
previously vested, shall thereupon become fully vested.
16. Rights as a Stockholder.
Except as specifically provided by the Plan or an Agreement, no person shall
have any rights as a stockholder with respect to any shares of Company Stock
covered by or relating to any Award until the date of issuance of a stock
certificate with respect to such shares. Except for adjustments provided in
Section 3(c) or as otherwise specifically provided by the Plan or an Agreement,
no adjustment to any Award shall be made for dividends or other rights for
which the record date occurs prior to the date such stock certificate is
issued.
A-16
17. No Employment Rights; No Right to Award.
Nothing contained in the Plan or any Agreement shall confer upon any
Participant any right with respect to the continuation of employment by or
provision of services to the Company or interfere in any way with the right of
the Company, subject to the terms of any separate agreement to the contrary, at
any time to terminate such employment or service or to increase or decrease the
compensation of the Participant. No person shall have any claim or right to
receive an Award hereunder. The Committee's granting of an Award to a
Participant at any time shall neither require the Committee to grant any other
Award to such Participant or other person at any time nor preclude the
Committee from making subsequent grants to such Participant or any other
person.
18. Securities Matters.
(a) Notwithstanding anything herein to the contrary, the Company shall
not be obligated to cause to be issued or delivered any certificates
evidencing shares of Company Stock pursuant to the Plan unless and
until the Company is advised by its counsel (which may be the
Company's in-house counsel) that the issuance and delivery of such
certificates is in compliance with all applicable laws, regulations
of governmental authority and the requirements of any securities
exchange on which shares of Company Stock are traded. The Committee
may require, as a condition of the issuance and delivery of
certificates evidencing shares of Company Stock pursuant to the terms
hereof, that the recipient of such shares make such agreements and
representations, and that such certificates bear such legends, as the
Committee, in its sole discretion, deems necessary or advisable.
(b) The transfer of any shares of Company Stock hereunder shall be
effective only at such time as counsel to the Company (which may be
the Company's in-house counsel) shall have determined that the
issuance and delivery of such shares is in compliance with all
applicable laws, regulations of governmental authority and the
requirements of any securities exchange on which shares of Company
Stock are traded. The Committee may, in its sole discretion, defer
the effectiveness of any transfer of shares of Company Stock
hereunder in order to allow the issuance of such shares to be made
pursuant to registration or an exemption from registration or other
methods for compliance available under federal or state securities
laws. The Committee shall inform the Participant in writing of its
decision to defer the effectiveness of a transfer. During the period
of such deferral in connection with the exercise of an Option, the
Participant may, by written notice, withdraw such exercise and obtain
the refund of any amount paid with respect thereto.
19. Withholding Taxes.
Whenever cash is to be paid pursuant to an Award, the Company shall have the
right to deduct therefrom an amount sufficient to satisfy any federal, state
and local withholding tax requirements related thereto. Whenever shares of
Company Stock are to be delivered pursuant to an Award, the Company shall have
the right to require the Participant to remit to the Company in cash an amount
sufficient to satisfy any federal, state and local withholding tax requirements
related thereto. With the approval of the Committee, a Participant may satisfy
the foregoing requirement by electing to have the Company withhold from
delivery shares of Company Stock having a value equal to the amount of tax
required to be withheld, as determined by the Committee. Such shares shall be
valued at their Fair Market Value on the date of which the amount of tax to be
withheld is determined. Fractional share amounts shall be settled in cash. Such
a withholding election may be made with respect to all or any portion of the
shares to be delivered pursuant to an Award.
A-17
20. Notification of Election Under Section 83(b) of the Code.
If any Participant shall, in connection with the acquisition of shares of
Company Stock under the Plan, make the election permitted under Section 83(b)
of the Code, such Participant shall notify the Company of such election within
10 days of filing notice of the election with the Internal Revenue Service.
21. Amendment or Termination of the Plan.
The Board may, at any time, suspend or terminate the Plan or revise or amend it
in any respect whatsoever; provided, however, that stockholder approval shall
be required for any such amendment if and to the extent such approval is
required in order to comply with applicable law (including, but not limited to,
the incentive stock options regulations and any amendments thereto) or stock
exchange listing requirement. Nothing herein shall restrict the Committee's
ability to exercise its discretionary authority pursuant to Sections 3 and 4,
which discretion may be exercised without amendment to the Plan. No action
hereunder may, without the consent of a Participant, reduce the Participant's
rights under any outstanding Award. In addition, the Board shall not, without
the prior approval of the Company's stockholders, amend any Award outstanding
under the Plan to reduce the exercise price of such Award (other than equitable
adjustments made in accordance with Section 3(c) hereof); nor shall the Board,
without the prior approval of the Company's stockholders, cancel any Award
outstanding under the Plan and then subsequently regrant to the Participant the
same Award with a lower exercise price.
22. Nontransferability of Awards.
(a) Except as provided below, each Award, and each right under any Award,
shall be exercisable only by the Participant during the Participant's
lifetime, or, if permissible under applicable law, by the
Participant's guardian or legal representative.
(b) Except as provided below, no Award, and no right under any Award, may
be assigned, alienated, pledged, attached, sold or otherwise
transferred or encumbered by a Participant otherwise than by will or
by the laws of descent and distribution, and any such purported
assignment, alienation, pledge, attachment, sale, transfer or
encumbrance shall be void and unenforceable against the Company or
any Affiliate; provided, that the designation of a beneficiary shall
not constitute an assignment, alienation, pledge, attachment, sale,
transfer or encumbrance.
(c) To the extent and in the manner permitted by the Committee, and
subject to such terms, conditions, restrictions or limitations that
may be prescribed by the Committee, a Participant may transfer an
Award (other than an Incentive Stock Option) to (i) a spouse,
sibling, parent, stepparent, child, stepchild, grandchild,
mother-in-law, father-in-law, son-in-law, daughter-in-law,
brother-in-law, or sister-in-law, including adoptive relationships
(any of which, an "Immediate Family Member") of the Participant; (ii)
a trust, the primary beneficiaries of which consist exclusively of
the Participant or Immediate Family Members of the Participant; or
(iii) a corporation, partnership or similar entity, the owners of
which consist exclusively of the Participant or Immediate Family
Members of the Participant.
23. Leaves of Absence.
In the case of any Participant on an approved leave of absence, the Committee
may make such provisions respecting the continuance of Awards while such
Participant is in the employ or service of the Company as it may deem
equitable, except that in no event may any Option or Stock Appreciation Right
be exercised after the expiration of its term.
A-18
24. Expenses and Receipts.
The expenses of the Plan shall be paid by the Company. Any proceeds received by
the Company in connection with any Award may be used for general corporate
purposes.
25. Effective Date and Term of Plan.
The Plan shall be subject to the requisite approval of the stockholders of the
Company. In the absence of such approval, any Awards theretofore granted
(including for this purpose the equity-based component of any Director
Compensation, but excluding the cash component of any Director Compensation)
shall be null and void. Unless earlier terminated by the Board, the right to
grant Awards under the Plan shall terminate on the tenth anniversary of the
Effective Date. Awards outstanding at Plan termination shall remain in effect
according to their terms and the provisions of the Plan.
26. Applicable Law.
Except to the extent preempted by any applicable federal law, the Plan shall be
construed and administered in accordance with the laws of the State of New
Jersey without reference to its principles of conflicts of law.
27. Participant Rights.
No Participant shall have any claim to be granted any award under the Plan, and
there is no obligation for uniformity of treatment for Participants.
28. Unfunded Status of Awards.
The Plan is intended to constitute an "unfunded" plan for incentive and
deferred compensation. With respect to any payments not yet made to a
Participant pursuant to an Award, nothing contained in the Plan or any
Agreement shall give any such Participant any rights that are greater than
those of a general creditor of the Company.
29. No Fractional Shares.
No fractional shares of Company Stock shall be issued or delivered pursuant to
the Plan. 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.
30. Beneficiary.
A Participant may file with the Committee a written designation of a
beneficiary on such form as may be prescribed by the Committee and may, from
time to time, amend or revoke such designation. If no designated beneficiary
survives the Participant, the executor or administrator of the Participant's
estate shall be deemed to be the Participant's beneficiary.
31. Severability.
If any provision of the Plan is held to be invalid or unenforceable, the other
provisions of the Plan shall not be affected but shall be applied as if the
invalid or unenforceable provision had not been included in the Plan.
A-19
32. 409A Compliance.
Notwithstanding anything to the contrary contained in the Plan or in any
Agreement, to the extent that the Committee determines that the Plan or any
Award is subject to Section 409A of the Code and fails to comply with the
requirements of Section 409A of the Code, the Committee reserves the right to
amend or terminate the Plan and/or amend, restructure, terminate or replace the
Award in order to cause the Award to either not be subject to Section 409A of
the Code or to comply with the applicable provisions of such section.
A-20
EXHIBIT 1
---------
SELECTIVE INSURANCE GROUP, INC.
2005 OMNIBUS STOCK PLAN
STOCK OPTION AGREEMENT
This STOCK OPTION AGREEMENT (the "Stock Option Agreement"), is made
and entered into as of [DATE] (the "Date of Grant"), by and between Selective
Insurance Group, Inc., a New Jersey corporation (the "Company") and [EMPLOYEE]
(the "Optionee").
WHEREAS, the Salary and Employee Benefits Committee (the
"Committee") of the Board of Directors of the Company (the "Board") has
approved the grant of an Option pursuant to the Selective Insurance Group Inc.
2005 Omnibus Stock Plan (the "Plan"), as hereinafter defined, to the Optionee
as set forth below;
NOW, THEREFORE, in consideration of the covenants and agreements
herein contained, and intending to be legally bound hereby, the parties agree
as follows:
1. Definitions. Capitalized terms which are not defined herein shall
have the meaning set forth in the Plan.
2. Number of Shares and Exercise Price. The Company hereby grants to
the Optionee an option (the "Option"), subject to the terms and conditions set
forth herein, to purchase [NUMBER] shares of the common stock of the Company,
par value $2.00 per share, at a price (the "Exercise Price") of $[PRICE](1) per
share. The Option is intended to be a [Nonqualified Stock Option][Incentive
Stock Option].(2)
3. Term of Option and Conditions of Exercise.
(a) Term of Option. Unless the Option is earlier terminated in
accordance with the terms of the Plan, the term of the Option shall commence on
the Date of Grant and terminate upon the expiration of [ten (10)](3) years from
the Date of Grant. Upon the termination of the Option, all rights of the
Optionee hereunder shall cease.
(b) Vesting. The Option shall become vested and exercisable upon the
schedule set forth on Exhibit A hereto. Notwithstanding the foregoing, upon
the occurrence of a Change of Control, the Option shall become fully vested
and exercisable as provided in Section 15 of the Plan.
______________________________
1 [Determined by the Committee at the time of grant, but this number must be
not less 100% of the Fair Market Value of a share of company Stock on the
Date of Grant (110% for ISOs granted to 10% holders).]
2 [Incentive Stock Options may only be granted to employees of the Company and
its Affiliates, in accordance with the provisions of Section 422 of the
Code.]
3 [Five (5) years for ISOs granted to 10% holders.]
A-21
4. Nontransferability of Option. [Unless otherwise determined by the
Committee pursuant to Section 22 of the Plan,](4) the Option shall not be
assignable or transferable otherwise than by will or by the laws of descent and
distribution and the Option may be exercised, during the lifetime of the
Optionee, only by the Optionee or the Optionee's legal representative.
5. Exercise of Option. The Option may be exercised by written notice
pursuant to the form provided by the Company, delivered to the Secretary of the
Company or his or her designee, specifying the portion of the Option to be
exercised and accompanied by payment therefor. The Exercise Price for any
shares of Common Stock purchased pursuant to the exercise of the Option shall
be paid in full upon such exercise by one or a combination of the means
provided in Section 7(c)(ii) of the Plan.
6. Undertakings by Optionee. The Optionee hereby agrees to take
whatever additional actions and execute whatever additional documents the
Committee may, in its discretion, deem necessary or advisable in order to carry
out or effect one or more of the obligations or restrictions imposed on the
Optionee pursuant to the express provisions of this Stock Option Agreement and
the Plan.
7. Notices. Any notice required or permitted under this Stock Option
Agreement shall be deemed given when delivered personally, or when deposited in
a United States Post Office, postage prepaid, addressed, as appropriate, to the
Optionee either at the Optionee's address as last known by the Company or such
other address as the Optionee may designate in writing to the Company.
8. Failure to Enforce Not a Waiver. The failure of the Company to
enforce at any time any provision of this Stock Option Agreement shall in no
way be construed to be a waiver of such provision or of any other provision
hereof.
9. Amendments. Except as otherwise provide in Section 12, this Stock
Option Agreement may be amended or modified at any time only by an instrument
in writing signed by each of the parties hereto.
10. Survival of Terms. This Stock Option Agreement shall apply to and
bind the Optionee and the Company and their respective permitted assignees and
transferees, heirs, legatees, executors, administrators and legal successors.
11. Agreement Not a Contract for Services. Neither the grant of the
Option, execution of this Stock Option Agreement nor any other action taken
pursuant to this Stock Option Agreement shall constitute or be evidence of any
agreement or understanding, express or implied, that the Optionee has a right
to continue to provide services as an employee, officer or director of the
Company for any period of time or at any specific rate of compensation.
12. Severability. If a provision of this Stock Option Agreement is
held invalid by a court of competent jurisdiction, the remaining provisions
will nonetheless be enforceable according to their terms. Further, if any
provision is held to be over broad as written, that provision shall be
______________________________
4 [This language to be included for Nonqualified Stock Options.]
A-22
amended to narrow its application to the extent necessary to make the
provision enforceable according to applicable law and enforced as amended.
13. Governing Law. This Stock Option Agreement shall be governed by
and construed according to the laws of the State of New Jersey, without regard
to the conflicts of law rules thereof.
14. Incorporation of Plan; Acknowledgment. The Plan is hereby
incorporated herein by reference and made a part hereof, and the Option and
this Stock Option Agreement are subject to all terms and conditions of the
Plan. In the event of any inconsistency between the Plan and this Stock Option
Agreement, the provisions of the Plan shall govern. By signing this Stock
Option Agreement, the Optionee acknowledges having received and read a copy of
the Plan.
(The remainder of this page is intentionally blank.)
A-23
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Stock Option Agreement on the day and year first above written.
------------------------------------
Selective Insurance Group, Inc.
By:
Title:
------------------------------------
[EMPLOYEE]:
A-24
EXHIBIT A
---------
-------------------------------------------------------------------------------
Number of Shares of Common Stock
Subject to the Option Vesting Date(s)
-------------------------------------------------------------------------------
[NUMBER] [DATE](5)
[NUMBER] [DATE]
[NUMBER] [DATE]
-------------------------------------------------------------------------------
______________________________
5 [Determined by the Committee at the time of Grant.]
A-25
EXHIBIT 2
---------
SELECTIVE INSURANCE GROUP, INC.
2005 OMNIBUS STOCK PLAN
AUTOMATIC DIRECTOR
STOCK OPTION AGREEMENT
This AUTOMATIC DIRECTOR STOCK OPTION AGREEMENT (the "Stock Option
Agreement"), is made and entered into as of March [ ], 20[ ] (the "Date of
Grant"), by and between Selective Insurance Group, Inc., a New Jersey
corporation (the "Company") and [DIRECTOR] (the "Optionee").
WHEREAS, the Board of Directors of the Company (the "Board") has
adopted the Selective Insurance Group Inc. 2005 Omnibus Stock Plan (the
"Plan"); and
WHEREAS, Section 13 of the Plan provides for the automatic grant of
options to each Non-Employee Director on March 1 or, if March 1 is not a
business day, on the next succeeding business day of each year, during the
duration of the Plan;
NOW, THEREFORE, in consideration of the covenants and agreements
herein contained, and intending to be legally bound hereby, the parties agree
as follows:
1. Definitions. Capitalized terms which are not defined herein shall
have the meaning set forth in the Plan.
2. Number of Shares and Exercise Price. The Company hereby grants to
the Optionee an option (the "Option"), subject to the terms and conditions set
forth herein, to purchase 3,000 shares of the common stock of the Company, par
value $2.00 per share, at a price (the "Exercise Price") of $[PRICE](1) per
share. The Option is intended to be a Nonqualified Stock Option.
3. Term of Option and Conditions of Exercise.
(a) Term of Option. Unless the Option is earlier terminated in
accordance with the terms of the Plan, the term of the Option shall commence
on the Date of Grant and terminate upon the expiration of ten (10) years from
the Date of Grant. Upon the termination of the Option, all rights of the
Optionee hereunder shall cease.
(b) Vesting. The Option shall become vested and exercisable upon
the first anniversary of the Date of Grant; provided, however, that to the
extent that the Option that is not yet exercisable, it shall become exercisable
in full upon (i) the date that the Optionee ceases to be a member of the Board
for any reason other than Cause, or (ii) the occurrence of a Change of Control.
Notwithstanding the foregoing, if the Optionee ceases to be a member of the
Board by reason of Cause, the Option, whether or not then exercisable, shall be
terminated at the time of such cessation.
4. Nontransferability of Option. Unless otherwise determined by the
Committee pursuant to Section 22 of the Plan, the Option shall not be
assignable or transferable otherwise than by
__________________________________
1 [Equal to the Fair Market value of a share of company Stock on the Date of
Grant.]
A-26
will or by the laws of descent and distribution and the Option may be
exercised, during the lifetime of the Optionee, only by the Optionee or the
Optionee's legal representative.
5. Exercise of Option. The Option may be exercised by written notice
pursuant to the form provided by the Company, delivered to the Secretary of the
Company or his or her designee, specifying the portion of the Option to be
exercised and accompanied by payment therefor. The Exercise Price for any
shares of common stock of the Company purchased pursuant to the exercise of the
Option shall be paid in full upon such exercise by one or a combination of the
means provided in Section 7(c)(ii) of the Plan.
6. Undertakings by Optionee. The Optionee hereby agrees to take
whatever additional actions and execute whatever additional documents the
Committee may, in its discretion, deem necessary or advisable in order to carry
out or effect one or more of the obligations or restrictions imposed on the
Optionee pursuant to the express provisions of this Stock Option Agreement and
the Plan.
7. Notices. Any notice required or permitted under this Stock Option
Agreement shall be deemed given when delivered personally, or when deposited in
a United States Post Office, postage prepaid, addressed, as appropriate, to the
Optionee either at the Optionee's address as last known by the Company or such
other address as the Optionee may designate in writing to the Company.
8. Failure to Enforce Not a Waiver. The failure of the Company to
enforce at any time any provision of this Stock Option Agreement shall in no
way be construed to be a waiver of such provision or of any other provision
hereof.
9. Amendments. Except as otherwise provide in Section 12 hereof, this
Stock Option Agreement may be amended or modified at any time only by an
instrument in writing signed by each of the parties hereto.
10. Survival of Terms. This Stock Option Agreement shall apply to and
bind the Optionee and the Company and their respective permitted assignees and
transferees, heirs, legatees, executors, administrators and legal successors.
11. Agreement Not a Contract for Services. Neither the grant of the
Option, the execution of this Stock Option Agreement nor any other action taken
pursuant to this Stock Option Agreement shall constitute or be evidence of any
agreement or understanding, express or implied, that the Optionee has a right
to continue to provide services as a director of the Company for any period of
time or at any specific rate of compensation.
12. Severability. If a provision of this Stock Option Agreement is
held invalid by a court of competent jurisdiction, the remaining provisions
will nonetheless be enforceable according to their terms. Further, if any
provision is held to be over broad as written, that provision shall be amended
to narrow its application to the extent necessary to make the provision
enforceable according to applicable law and enforced as amended.
13. Governing Law. This Stock Option Agreement shall be governed by
and construed according to the laws of the State of New Jersey, without regard
to the conflicts of law rules thereof.
A-27
14. Incorporation of Plan; Acknowledgment. The Plan is hereby
incorporated herein by reference and made a part hereof, and the Option and
this Stock Option Agreement are subject to all terms and conditions of the
Plan. In the event of any inconsistency between the Plan and this Stock Option
Agreement, the provisions of the Plan shall govern. By signing this Stock
Option Agreement, the Optionee acknowledges having received and read a copy of
the Plan.
(The remainder of this page is intentionally blank.)
A-28
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Stock Option Agreement on the day and year first above written.
------------------------------------
Selective Insurance Group, Inc.
By:
Title:
------------------------------------
[DIRECTOR]
A-29
EXHIBIT 3
---------
SELECTIVE INSURANCE GROUP, INC.
2005 OMNIBUS STOCK PLAN
RESTRICTED STOCK AGREEMENT
This RESTRICTED STOCK AGREEMENT (this "Restricted Stock Agreement")
is made and entered into as of [DATE] (the "Date of Grant"), by and between
Selective Insurance Group, Inc., a New Jersey corporation (the "Company") and
[EMPLOYEE] (the "Recipient").
WHEREAS, the Salary and Employee Benefits Committee (the
"Committee") of the Board of Directors of the Company (the "Board") has
approved the grant of Restricted Stock pursuant to the Selective Insurance
Group Inc. 2005 Omnibus Stock Plan (the "Plan"), as hereinafter defined, to the
Recipient as set forth below;
NOW, THEREFORE, in consideration of the covenants and agreements
herein contained, and intending to be legally bound hereby, the parties agree
as follows:
1. Definitions. Capitalized terms which are not defined herein shall
have the meaning set forth in the Plan.
2. Grant of Restricted Stock. The Company hereby grants to the
Recipient [NUMBER] restricted shares of the common stock of the Company, par
value $2.00 per share (the "Restricted Stock"), subject to all of the terms and
conditions of this Restricted Stock Agreement. The Recipient's grant and record
of share ownership shall be kept on the books of the Company, until the
restrictions on transfer have lapsed pursuant to Section 3 below. The Company
shall cause to be delivered to the Recipient the shares that have become vested
pursuant to Section 3 below in a manner determined by the Committee, including
via book entry or a certificate evidencing such shares, which may bear a
restrictive legend, if the Committee determines such a legend to be
appropriate.
3. Lapse of Restrictions. All shares of Restricted Stock shall be
unvested unless and until they become Vested Shares in accordance with this
Section 3. If the Participant is employed by the Company or any Subsidiary as
of the applicable anniversary date set forth below, the Restricted Stock shall
become "Vested Shares" according to the percentage set forth opposite such
date:
Date Percentage Vested
---- -----------------
[First anniversary of the Date of Grant] [NUMBER]%(1)
[Second anniversary of the Date of Grant] [NUMBER]%
[Third anniversary of the Date of Grant] [NUMBER]%
4. Restrictions on Transfer. Shares of Restricted Stock may not be
transferred or otherwise disposed of by the Recipient prior to become Vested
Shares, including by way of sale, assignment, transfer, pledge or otherwise,
except by will or the laws of descent and distribution.
5. Rights as a Stockholder. The Company shall pay to the Recipient,
in cash, any dividends paid on the Restricted Stock awarded to the Recipient.
Such payment shall be made on the date that such dividend would be paid to the
Company's shareholders, generally. The Recipient shall be entitled to vote the
shares of Restricted Stock.
6. Notices. Any notice required or permitted under this Restricted
Stock Agreement shall be deemed given when delivered personally, or when
deposited in a United States Post Office, postage prepaid, addressed, as
appropriate, to the Recipient either at the Recipient's address as last known
by the Company or such other address as the Recipient may designate in writing
to the Company.
--------
1 [Dates and vesting percentages determined by the Committee at the time of
grant.]
A-30
7. Securities Laws Requirements. The Company shall not be obligated to
transfer any shares of Company common stock from the Recipient to another
party, if such transfer, in the opinion of counsel for the Company, would
violate the Securities Act of 1933, as amended from time to time (or any other
federal or state statutes having similar requirements as may be in effect at
that time). Further, the Company may require as a condition of transfer of any
shares to the Recipient that the Recipient furnish a written representation
that he or she is holding the shares for investment and not with a view to
resale or distribution to the public.
8. Protections Against Violations of Restricted Stock Agreement. No
purported sale, assignment, mortgage, hypothecation, transfer, pledge,
encumbrance, gift, transfer in trust (voting or other) or other disposition of,
or creation of a security interest in or lien on, any of the shares of
Restricted Stock by any holder thereof in violation of the provisions of this
Restricted Stock Agreement or the Certificate of Incorporation or the By-Laws
of the Company, shall be valid, and the Company will not transfer any of said
shares of Restricted Stock on its books nor will any of said shares of
Restricted Stock be entitled to vote, nor will any dividends be paid thereon,
unless and until there has been full compliance with said provisions to the
satisfaction of the Company. The foregoing restrictions are in addition to and
not in lieu of any other remedies, legal or equitable, available to enforce
said provisions.
9. Taxes. The Company will withhold from the shares of Restricted
Stock otherwise deliverable hereunder such number of shares as it will
determines is necessary to satisfy all applicable withholding tax obligations
in respect of such shares, unless the Recipient has made alternative
arrangements satisfactory to the Company with respect to such tax withholding
obligations. The Recipient shall promptly notify the Company of any election
made pursuant to Section 83(b) of the Internal Revenue Code of 1986, as amended
from time to time (the "Code").
THE RECIPIENT ACKNOWLEDGES THAT IT IS THE RECIPIENT'S SOLE
RESPONSIBILITY AND NOT THE COMPANY'S TO FILE TIMELY THE
ELECTION UNDER SECTION 83(b) OF THE CODE, IN THE EVENT THAT THE
RECIPIENT DESIRES TO MAKE THE ELECTION.
10. Legend. The Company's Secretary shall, or shall instruct the
Company's transfer agent to, provide stop transfer instructions in the
Company's stock records to prevent any transfer of the Restricted Stock for any
purpose until the stock is vested. Any certificate that the Secretary or the
transfer agent deems necessary to issue to represent shares of Restricted Stock
shall, until all restrictions lapse and new certificates are issued, bear the
following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
VESTING REQUIREMENTS AND MAY BE SUBJECT TO REACQUISITION BY THE
COMPANY UNDER THE TERMS OF THAT CERTAIN RESTRICTED STOCK AGREEMENT BY
AND BETWEEN SELECTIVE INSURANCE GROUP, INC. (THE "COMPANY") AND THE
HOLDER OF THE SECURITIES. PRIOR TO VESTING OF OWNERSHIP IN THE
SECURITIES, THEY MAY NOT BE, DIRECTLY OR INDIRECTLY, OFFERED,
TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE
DISPOSED OF UNDER ANY CIRCUMSTANCES. COPIES OF HE ABOVE REFERENCED
AGREEMENT ARE ON FILE AT THE OFFICES OF THE COMPANY, 40 WANTAGE
AVENUE, BRANCHVILLE, NJ 07890.
11. Failure to Enforce Not a Waiver. The failure of the Company to
enforce at any time any provision of this Restricted Stock Agreement shall in
no way be construed to be a waiver of such provision or of any other provision
hereof.
12. Governing Law. This Restricted Stock Agreement shall be governed
by and construed according to the laws of the State of New Jersey without
regard to its principles of conflict of
A-31
laws.
13. Amendments. Except as otherwise provide in Section 16, this
Restricted Stock Agreement may be amended or modified at any time only by an
instrument in writing signed by each of the parties hereto.
14. Survival of Terms. This Restricted Stock Agreement shall apply to
and bind the Recipient and the Company and their respective permitted assignees
and transferees, heirs, legatees, executors, administrators and legal
successors.
15. Agreement Not a Contract for Services. Neither the grant of
Restricted Stock, the execution of this Restricted Stock Agreement nor any
other action taken pursuant to this Restricted Stock Agreement shall constitute
or be evidence of any agreement or understanding, express or implied, that the
Recipient has a right to continue to provide services as an officer, director,
employee or consultant of the Company for any period of time or at any specific
rate of compensation.
16. Severability. If a provision of this Restricted Stock Agreement is
held invalid by a court of competent jurisdiction, the remaining provisions
will nonetheless be enforceable according to their terms. Further, if any
provision is held to be over broad as written, that provision shall be amended
to narrow its application to the extent necessary to make the provision
enforceable according to applicable law and enforced as amended.
17. Incorporation of Plan; Acknowledgment. The Restricted Stock is
granted pursuant to the Plan, and the Restricted Stock and this Restricted
Stock Agreement are in all respects governed by the Plan and subject to all of
the terms and provisions thereof, whether such terms and provisions are
incorporated in this Restricted Stock Agreement by reference or are expressly
cited. By signing this Restricted Stock Agreement, the Recipient acknowledges
having received and read a copy of the Plan.
(The remainder of this page is intentionally blank.)
A-32
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Restricted Stock Agreement on the day and year first above written.
------------------------------------
Selective Insurance Group, Inc.
By:
Title:
------------------------------------
[EMPLOYEE]:
A-33
APPENDIX B
----------
SELECTIVE INSURANCE GROUP, INC.
CASH INCENTIVE PLAN
1. Purpose.
The purpose of the Cash Incentive Plan of Selective Insurance Group,
Inc. is to provide the Company with an effective vehicle to assist in
attracting, retaining, and motivating its employees; to reinforce corporate,
organizational and business development goals; and to promote year-to-year and
long-range financial and other business objectives by rewarding the
performance of officers and other employees in fulfilling their individual
responsibilities for achieving these year-to-year and long-range objectives.
2. Definitions.
The following terms, as used herein, shall have the following
meanings:
(a) "Award" shall mean an incentive compensation award granted
pursuant to the Plan that is contingent upon the individual performance of a
Participant and the attainment of Performance Goals with respect to a
Performance Period.
(b) "Board" shall mean the Board of Directors of the Company.
(c) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(d) "Committee" shall mean the Salary and Employee Benefits Committee
of the Board.
(e) "Company" shall mean Selective Insurance Group, Inc., a New
Jersey corporation, and its subsidiaries.
(f) "Covered Employee" shall have the meaning set forth in Section
162(m)(3) of the Code.
(g) "Participant" shall mean an officer or other employee of the
Company who is, pursuant to Section 4 of the Plan, selected to participate in
the Plan.
(h) "Performance Goals" means performance goals based on one or more
of the following criteria: (i) return on total stockholder equity; (ii)
earnings per share or book value per share of the Company's stock; (iii) net
income (before or after taxes); (iv) earnings before all or any interest,
taxes, depreciation and/or amortization; (v) return on assets, capital or
investment; (vi) market share; (vii) cost reduction goals; (viii) earnings from
continuing operations; (ix) levels of expense, costs or liabilities; (x)
department, division or business unit level performance; (xi) operating profit;
(xii) sales or revenues; (xiii) stock price appreciation; (xiv) total
stockholder return; (xv) growth in net premiums written; (xvi) combined ratios;
(xvii) implementation or completion of critical projects or processes; (xviii)
except in the case of a "Covered Employee," any other performance criteria
established by the Committee; or (xix) any combination of the foregoing. Where
applicable, the Performance Goals may be expressed in terms of attaining a
specified level of the particular criteria or the attainment of a percentage
increase or decrease in the particular criteria, and may be applied to one or
more of the Company, a subsidiary or affiliate, or a division or strategic
business unit of the Company or a combination thereof, or may be applied to the
performance of the Company relative to a market index, a group of other
companies or a combination thereof, all as determined by the Committee. The
Performance Goals may include a threshold level of
B-1
performance below which no payment will be made, levels of performance at
which specified payments will be made, and a maximum level of performance
above which no additional payment will be made. To the extent possible, each
of the foregoing Performance Goals shall be determined, as appropriate, in
accordance with generally accepted accounting principles or statutory
accounting principles and shall be subject to certification by the Committee;
provided that the Committee shall have the authority to make equitable
adjustments to the Performance Goals in recognition of unusual or
non-recurring events affecting the Company or any subsidiary or affiliate or
the financial statements of the Company or any subsidiary or affiliate, in
response to changes in applicable laws or regulations, or to account for items
of realized and unrealized gain, loss or expense determined to be
extraordinary or unusual in nature or infrequent in occurrence or related to
the disposal of a segment of a business or related to a change in accounting
principles.
(i) "Performance Period" shall mean a period of time determined by
the Committee that is no less than one year.
(j) "Plan" shall mean this Selective Insurance Group, Inc. Cash
Incentive Plan.
3. Administration.
The Plan shall be administered by the Committee. Subject to the
provisions of the Plan, the Committee shall have the authority in its sole
discretion, to administer the Plan and to exercise all the powers and
authorities either specifically granted to it under the Plan or necessary or
advisable in the administration of the Plan, including, without limitation, the
authority to grant Awards; to determine the persons to whom and the time or
times at which Awards shall be granted; to determine the terms, conditions,
restrictions and performance criteria, including Performance Goals and the
length of the Performance Period relating to any Award; to determine whether,
to what extent, and under what circumstances an Award may be settled,
cancelled, forfeited, or surrendered; to make adjustments in the Performance
Goals in recognition of unusual or non-recurring events affecting the Company
or the financial statements of the Company, or in response to changes in
applicable laws, regulations, or accounting principles, or for any other
reason; to construe and interpret the Plan and any Award; to prescribe, amend
and rescind rules and regulations relating to the Plan; to determine the terms
and provisions of any Award; and to make all other determinations deemed
necessary or advisable for the administration of the Plan.
The Committee may delegate to one or more of its members or to one or
more agents such administrative duties as it may deem advisable, and the
Committee or any person to whom it has delegated duties as aforesaid may employ
one or more persons to render advice with respect to any responsibility the
Committee or such person may have under the Plan. All decisions, determinations
and interpretations of the Committee shall be final and binding on all persons,
including the Company, the Participant (or any person claiming any rights under
the Plan from or through any Participant) and any shareholder.
4. Eligibility.
Awards may be granted to officers and other employees of the Company
in the sole discretion of the Committee. In determining the persons to whom
Awards shall be granted and the Performance Goals relating to each Award, the
Committee shall take into account such factors as the Committee shall deem
relevant in connection with accomplishing the purposes of the Plan.
5. Terms of Awards.
Awards granted pursuant to the Plan shall be evidenced in such form
as the Committee shall from time to time approve and the terms and conditions
of such Awards shall be set forth therein. For each Performance Period, the
Committee shall specify the Performance Goals applicable to each Award.
B-2
Performance Goals may include a level of performance below which no payment
shall be made and levels of performance at which specified percentages of the
Award shall be paid. Award levels for any Performance Period may be expressed
as a dollar amount or as a percentage of the Participant's annual base salary.
Unless otherwise determined by the Committee, all payments in respect of Awards
granted under this Plan shall be made, in cash, within a reasonable period
after the end of the Performance Period, provided, however, that all payments
in respect of Awards granted under this Plan shall be made within two and
one-half (2 1/2) months following the of end of the taxable year in which such
payments become earned and payable. Participants must be employed by the
Company or one of its subsidiaries as of the payment date established for
Awards relating to the Performance Period for which payment is to be made
provided that, if the Participant's employment is terminated prior to such
payment date by reason of death, retirement on or after "Normal Retirement Age"
as such is defined in the Retirement Income Plan For Selective Insurance
Company of America, "Total Disability" as such is defined in the aforementioned
Retirement Income Plan, or for any other reason with the express consent of the
Committee, the Committee, in its sole discretion, may provide for an Award
payment to the Participant or, if applicable, the Participant's designated
beneficiary. Notwithstanding anything to the contrary contained herein, in no
event shall payments in respect of Awards be made in any Performance Period to
a Participant in an amount that exceeds the product of (x) seven million five
hundred thousand dollars ($7.5 million), multiplied by (y) the number of full
and partial years of the Performance Period. The Committee may reduce or
eliminate any Award under the Plan, but in no event may the Committee increase
the amount of an Award payable to a Covered Employee over such amount payable
based on the objective criteria established at the outset of the fiscal year
for which the Award is made.
6. General Provisions.
(a) Compliance with Legal Requirements. The Plan and the granting and
payment of Awards, and the other obligations of the Company under the Plan or
other agreement shall be subject to all applicable federal and state laws,
rules and regulations, and to such approvals by any regulatory or governmental
agency as may be required.
(b) Nontransferability. Awards shall not be transferable by a
Participant except by will or the laws of descent and distribution.
(c) No Right To Continued Employment. Nothing in the Plan or in any
Award granted or other agreement entered into pursuant hereto shall confer upon
any Participant the right to continue in the employ of the Company or to be
entitled to any remuneration or benefits not set forth in the Plan or other
agreement or to interfere with or limit in any way the right of the Company to
terminate such Participant's employment.
(d) Withholding Taxes. Where a Participant or other person is
entitled to receive a cash payment pursuant to an Award hereunder, the Company
shall have the right to withhold from such Award or require the Participant or
such other person to pay to the Company the amount of any taxes that the
Company may be required to withhold before delivery to such Participant or
other person of such payment.
(e) Amendment, Termination and Duration of the Plan. The Board or the
Committee may at any time and from time to time alter, amend, suspend, or
terminate the Plan in whole or in part; provided that, no amendment that
requires shareholder approval in order for the Plan to continue to comply with
Code Section 162(m) shall be effective unless the same shall be approved by the
requisite vote of the shareholders of the Company. Notwithstanding the
foregoing, no amendment shall affect adversely any of the rights of any
Participant, without such Participant's consent, under any Award previously
granted under the Plan.
(f) Participant Rights. No Participant shall have any claim to be
granted any Award under the Plan, and there is no obligation for uniformity of
treatment for Participants.
B-3
(g) Unfunded Status of Awards. The Plan is intended to constitute an
"unfunded" plan for incentive and deferred 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.
(h) Governing Law. The Plan and all determinations made and actions
taken pursuant hereto shall be governed by the laws of the State of New Jersey
without giving effect to the conflict of laws principles thereof.
(i) Effective Date. The Plan shall take effect April 1, 2005, subject
to approval by the Company's shareholders.
(j) Beneficiary. A Participant may file with the Committee a written
designation of a beneficiary on such form as may be prescribed by the Committee
and may, from time to time, amend or revoke such designation. If no designated
beneficiary survives the Participant, the executor or administrator of the
Participant's estate shall be deemed to be the grantee's beneficiary.
(k) Interpretation. The Plan is designed and intended to comply, to
the extent applicable, with Section 162(m) of the Code, and all provisions
hereof shall be construed in a manner to so comply.
(l) Other Plans or Payments. Nothing in this Plan shall be construed
(i) to limit the authority of the Committee, the Board of Directors, the
Company, or any subsidiary to establish any other compensation plan, or (ii) to
limit their authority to pay bonuses or other supplemental compensation to any
persons employed by the Company or a subsidiary, whether or not such person is
a Participant in this Plan and regardless of how such compensation or bonus is
determined.
B-4
SELECTIVE INSURANCE GROUP, INC.
Directions to Principal Offices
40 Wantage Avenue
Branchville, NJ 07890-1000
From East:
----------
Route I-80 West to Route 15 North to Route 206 North. Go about 2 miles from
Route 15/Route 206 intersection, turn right at traffic light, then left on
Route 630(Broad Street). Turn right at Post Office onto Wantage Avenue(Route
519). 1st entrance on right - Northeast Operations. 2nd entrance on right -
Corporate office/ main reception area.
From West:
----------
Route I-80 East to Route 94 North to Route 206 North. Right at Branchville
traffic light opposite "Our Lady Queen of Peace" Catholic church, then left on
Route 630(Broad Street). Right at Post Office onto Wantage Avenue(Route 519),
1st entrance on right - Northeast Operations. 2nd entrance on right - Corporate
office/ main reception area.
- or -
Route I-78 East to Pa. Route 611 North to Route 94 North to Route 206 North.
Right at Branchville traffic light opposite "Our Lady Queen of Peace" Catholic
church, then left on Route 630(Broad Street). Right at Post Office onto Wantage
Avenue(Route 519), 1st entrance on right - Northeast Operations. 2nd entrance
on right - Corporate office/ main reception area.
- or -
Route I-78 East to Route 31 North to Route 46 West to Route 94 North to Route
206 North. Right at Branchville traffic light opposite "Our Lady Queen of
Peace" Catholic church, then left on Route 630(Broad Street). Right at Post
Office onto Wantage Avenue(Route 519), 1st entrance on right - Northeast
Operations. 2nd entrance on right - Corporate office/ main reception area.
From North:
-----------
Route I-84 (East or West) to PA Route 209 South to NJ Route 206 South. Left at
Branchville traffic light opposite "Our Lady Queen of Peace" Catholic church,
then left on Route 630(Broad Street). Right at Post Office onto Wantage
Avenue(Route 519), 1st entrance on right - Northeast Operations. 2nd entrance
on right - Corporate office/ main reception area.
From South:
-----------
Route 206 North or Route I-80 West to Route 15 to Route 206 North. Right at
Branchville traffic light opposite "Our Lady Queen of Peace" Catholic church,
then left on Route 630(Broad Street). Right at Post Office onto Wantage
Avenue(Route 519), 1st entrance on right - Northeast Operations. 2nd entrance
on right - Corporate office/ main reception area.
SELECTIVE INSURANCE GROUP, INC.
ANNUAL MEETING OF STOCKHOLDERS
Wednesday, April 27, 2005
11:00 a.m.
40 Wantage Avenue
Branchville, New Jersey 07890
-------------------------------------------------------------------------------
Selective Insurance Group, Inc.
SELECTIVE 40 Wantage Avenue
Branchville, New Jersey 07890 proxy
-------------------------------------------------------------------------------
This proxy is solicited by the Board of Directors for use at the Annual Meeting
on April 27, 2005.
The undersigned, a stockholder of Selective Insurance Group, Inc. (the
"Company") hereby constitutes and appoints A. David Brown, S. Griffin McClellan
III, and John F. Rockart and/or any one or more of them (with full power of
substitution and the full power to act without the others or other), proxies to
vote all the shares of the Common Stock of Selective Insurance Group, Inc.
registered in the name of the undersigned at the Annual Meeting of Stockholders
of the Company to be held on Wednesday, April 27, 2005 at 11:00 a.m. in the
auditorium at the headquarters of the Company at 40 Wantage Avenue,
Branchville, New Jersey, and at any adjournment thereof.
Specify your choices by marking the appropriate box (SEE REVERSE SIDE), but you
need not mark any box if you wish to vote in accordance with the Board of
Directors' recommendations. The proxies cannot vote your shares unless you sign
and return this proxy, submit a proxy by telephone or through the Internet, or
attend the meeting and vote by ballot.
Your vote is important. Please vote immediately.
See reverse for voting instructions.
-------------------
|COMPANY # |
-------------------
There are three ways to vote your Proxy
Your telephone or Internet vote authorizes the Named Proxies to vote your
shares in the same manner as if you marked, signed and returned your proxy
card.
VOTE BY PHONE -- TOLL FREE -- 1-800-560-1965 -- QUICK *** EASY *** IMMEDIATE
o Use any touch-tone telephone to vote your proxy 24 hours a day, 7 days a
week, until 12:00 noon (CT) on April 26, 2005.
o Please have your proxy card and the last four digits of your Social
Security Number or Tax Identification Number available. Follow the simple
instructions the voice provides you.
VOTE BY INTERNET -- http://www.eproxy.com/sigi/ -- QUICK *** EASY *** IMMEDIATE
o Use the Internet to vote your proxy 24 hours a day, 7 days a week, until
12:00 noon (CT) on April 26, 2005.
o Please have your proxy card and the last four digits of your Social
Security Number or Tax Identification Number available. Follow the simple
instructions to obtain your records and create an electronic ballot.
VOTE BY MAIL
Mark, sign and date your proxy card and return it in the postage-paid envelope
we have provided or return it to Selective Insurance Group, Inc., c/o
Shareowner Services(SM), P.O. Box 64873, St. Paul, MN 55164-0873.
TO CHANGE YOUR VOTE
You may revoke your proxy by giving proper written notice of revocation to the
Corporate Secretary of the Company before your proxy is exercised. Any
subsequent vote, by any means, will change your prior vote. For example, if you
voted by telephone, a subsequent Internet vote will change your vote. The last
vote received before 12:00 noon (CT), April 26, 2005, will be the one counted.
You may also change your vote by voting in person at the Annual Meeting.
If you vote by Phone or Internet, please do not mail your Proxy Card
[Please detach here]
The Board of Directors Recommends a Vote FOR Items 1, 2, 3 and 4.
1. Election of three 01 Paul D. Bauer /_/ Vote FOR /_/ Vote WITHHELD
(3) Class III directors 02 Joan M. Lamm-Tennant all nominees from all nominees
for terms expiring in 2008: 03 Ronald L. O'Kelley (except as marked)
(Instructions: To withhold authority to vote for any indicated nominee, ----------------------------------
write the number(s) of the nominee(s) in the box provided to the right.) | |
----------------------------------
2. Approve the Selective Insurance Group, Inc. 2005 Omnibus Stock Plan; /_/ For /_/ Against /_/ Abstain
3. Approve the Selective Insurance Group, Inc. Cash Incentive Plan; and /_/ For /_/ Against /_/ Abstain
4. Ratify the appointment of KPMG LLP as independent public accountants
for the fiscal year ending December 31, 2005. /_/ For /_/ Against /_/ Abstain
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION IS GIVEN, WILL BE VOTED FOR
EACH PROPOSAL.
Address Change? Mark Box /_/ Indicate changes below: Date: ____________________________
----------------------------------
| |
----------------------------------
Signature(s) in Box
Please sign exactly as your
name(s) appears on Proxy. If
held in joint tenancy, all
persons should sign. Trustees,
administrators, etc., should
include title and authority.
Corporations should provide
full name of corporation and
title of authorized officer
signing the proxy.