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FORM 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ______________
Commission file number 0-19277
ITT HARTFORD GROUP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3317783
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
HARTFORD PLAZA, HARTFORD, CONNECTICUT 06115-1900
(Address of principal executive offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (860) 547-5000
Securities registered pursuant to section 12(b) of the Act: the following, all
of which are registered on the New York Stock Exchange, Inc.:
Common Stock, par value $.01 per share
6.375% Notes due November 1, 2002
7.30 % Debentures due November 1, 2015
7.70 % Cumulative Quarterly Income Preferred Securities, Series A, issued
by Hartford Capital I
8.35 % Cumulative Quarterly Income Preferred Securities, Series B, issued
by Hartford Capital II
Securities registered pursuant to Section 12 (g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No[ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of February 28, 1997, there were outstanding 117,850,480 shares of Common
Stock, $.01 par value per share, of the registrant. The aggregate market value
of the shares of Common Stock held by non-affiliates of the registrant was
$8,795,584,275, based on the closing price of $75.00 per share of the Common
Stock on the New York Stock Exchange on February 28, 1997.
Documents Incorporated by Reference:
Portions of the Registrant's definitive proxy statement for its 1997 annual
meeting of shareholders are incorporated by reference in Part III of this Form
10-K.
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[GRAPHIC OMITTED]
ITT Hartford Group, Inc. and its subsidiaries ("The Hartford") is an
international insurance and financial services organization offering commercial,
personal, and reinsurance property and casualty coverages as well as individual
life and annuities, employee benefits and investment product services.
Founded in 1810, The Hartford has grown from a local fire insurance company to
an internationally recognized insurance and financial services enterprise.
CONTENTS
ITEM DESCRIPTION PAGE
PART I 1 Business of The Hartford 2
2 Properties 8
3 Legal Proceedings 8
4 Submission of Matters to a Vote of Security Holders 8
PART II 5 Market for The Hartford's Common Stock and Related
Stockholder Matters 8
6 Selected Financial Data 9
7 Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
8 Financial Statements and Supplementary Data 33
9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 33
PART III 10 Directors and Executive Officers of The Hartford 33
11 Executive Compensation 33
12 Security Ownership of Certain Beneficial Owners
and Management 33
13 Certain Relationships and Related Transactions 33
PART IV 14 Exhibits, Financial Statements, Schedules and
Reports on Form 8-K 33
Signatures II-1
Exhibits Index II-2
PART I
Item 1. BUSINESS OF THE HARTFORD
(DOLLAR AMOUNTS IN MILLIONS UNLESS OTHERWISE STATED)
GENERAL
ITT Hartford Group, Inc. and its subsidiaries ("The Hartford"), headquartered in
Connecticut, are among the largest providers of both property and casualty
insurance and life insurance products in the United States. (The terms "The
Hartford" and the "Company" when used herein, refer to one or more of ITT
Hartford Group, Inc. and its consolidated subsidiaries.) Hartford Fire Insurance
Company ("Hartford Fire"), founded in 1810, is the oldest and best known of The
Hartford's subsidiaries. Hartford Fire and its subsidiaries write insurance in
all fifty states. At December 31, 1996, the total assets and stockholders'
equity of The Hartford were $108.8 billion and $4.5 billion, respectively.
ITT Hartford Group, Inc., a Delaware corporation, was formed in December, 1985
as a wholly-owned subsidiary of ITT Corporation ("ITT"). On December 19, 1995,
ITT distributed all of the outstanding shares of ITT Hartford Group, Inc. to ITT
shareholders of record in an action known herein as the "Distribution". As a
result of the Distribution, The Hartford became an independent, publicly traded
company. In connection with this transaction, ITT transferred the ownership of
First State Insurance Company, together with its subsidiaries ("First State"),
and Fencourt Reinsurance Company, Ltd. ("Fencourt"), both of which were wholly
owned subsidiaries of ITT, to ITT Hartford Group, Inc. prior to the
Distribution. Additional information regarding the Distribution may be found in
Note 2 of Notes to Consolidated Financial Statements and in Management's
Discussion and Analysis of Financial Condition and Results of Operations
("MD&A") within the Distribution section and "Distribution Agreement" within the
Capital Resources and Liquidity section.
As a holding company, ITT Hartford Group, Inc. has no significant business
operations of its own and, therefore, relies on the dividends from its insurance
company subsidiaries, which are primarily domiciled in Connecticut, as the
principal source of cash to meet its obligations. Additional information
regarding the cash flow and liquidity needs of ITT Hartford Group, Inc. may be
found in the Capital Resources and Liquidity section of the MD&A.
BUSINESS SEGMENTS
The Hartford consists of four business segments: North American Property &
Casualty, Life, International, and Runoff. The following is a description of
each segment, including a discussion of principal products, methods of
distribution, and competitive environments. Additional information on The
Hartford's business segments may be found in the MD&A on pages 10 to 19 and Note
1 and Note 17 of Notes to Consolidated Financial Statements.
NORTH AMERICAN PROPERTY & CASUALTY
The Hartford's North American Property & Casualty segment is the 8th largest
property and casualty insurance operation in the United States based on written
premiums for the year ended December 31, 1995, per A.M. Best. With written
premiums of $5.7 billion for the year ended December 31, 1996, North American
Property & Casualty is the largest of the Company's segments. In 1996, the
states producing 5% or more of this segment's written premiums were New York
(12%), California (10%), Florida (7%), Connecticut (6%) and Illinois and Texas
(5% each).
Principal Products
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The Hartford's North American Property & Casualty segment consists of three
major lines of business: Commercial, Personal and Reinsurance. These lines
provide a wide range of insurance coverages for individuals and businesses.
Commercial is the largest line of business with $3.2 billion in written premiums
in 1996. Workers' compensation, property, automobile, liability, marine,
agricultural and bond coverages are offered by the Commercial line of business.
The Hartford ranks among the largest carriers of personal lines insurance,
providing homeowners, automobile and fire coverages to individuals across North
America including a special program designed exclusively for members of the
American Association of Retired Persons ("AARP"). Additionally, The Hartford is
a major international reinsurer, with operations in Hong Kong, Spain, the United
Kingdom, Germany and Canada. (See the Reinsurance section of Item 1 under Other
Matters for additional information.)
Methods of Distribution
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The North American Property & Casualty segment provides insurance products and
services through its home office located in Hartford, Connecticut, and 39
domestic regional offices. The Company markets its products nationwide utilizing
a variety of distribution networks including the use of approximately 6,000
independent agents and direct marketing. Independent agents, who often represent
other companies as well, are compensated on a commission basis and are not
employees of The Hartford. Additionally, the Company assumes insurance from
other insurers and cedes insurance to other insurers or reinsurers in the
worldwide reinsurance market.
Competition
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The property and casualty insurance industry is a highly challenging environment
in which The Hartford competes with other stock companies, mutual companies,
self insurers and other underwriting organizations. Intense competition among
insurers, combined with the continued effects of the last economic downturn,
have created difficult market conditions in the domestic property and casualty
industry. This competitive environment is created by tremendous price
competition, consolidation and globalization of companies, exploration and
utilization of alternative distribution techniques and emphasis on cost
containment and reduction.
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A major competitive advantage of The Hartford is the exclusive licensing
arrangement with AARP to provide personal automobile, homeowners and home-based
business insurance products to its members through the year 2002. Favorable
"baby boomer" demographics are expected to increase AARP membership
significantly during this period. During 1996, The Hartford's relationship with
AARP was further strengthened when it was awarded a contract to provide customer
service for all health insurance products offered through AARP's Group Health
Insurance Program effective January 1, 1998. Additionally, The Hartford has
implemented expense management disciplines within the North American Property &
Casualty segment which are designed to maintain efficient and effective
underwriting, servicing and claim settlement operations.
LIFE
The Hartford's Life segment provides insurance and retirement products for the
benefit of millions of individuals. This segment has been among the fastest
growing major life insurance operations for the past several years, as measured
by assets. The Hartford's domestic life insurance operations achieved the rank
of 8th largest life insurer in the United States at December 31, 1995, based on
statutory admitted assets according to A.M. Best. In the past year, the Life
segment's total assets have grown 25% to $76.3 billion at December 31, 1996. The
Life segment generated $4.4 billion in revenues and $249 in net income in 1996.
The Life segment, headquartered in Simsbury, Connecticut, operates in three
principal divisions: Investment Products, Individual Life Insurance, and
Employee Benefits. Each division has grown significantly in revenues and
operating income. In addition, the Life segment maintains a Corporate Operation
through which it reports net investment income on assets representing surplus
not assigned to any of its business segments and certain other revenue and
expenses not specifically allocable to any of its business segments.
Principal Products
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The Investment Products division focuses on the savings and retirement needs of
the growing number of individuals who are preparing for retirement or have
already retired. This division offers fixed and variable annuities, certain
deferred compensation and retirement plan services, mutual funds, investment
management services and certain other financial products. The Individual Life
Insurance division markets both variable and fixed universal life-type
contracts, as well as single premium variable life and term life products. The
primary products of the Employee Benefits division include group life, group
long-term and short-term managed disability, stop-loss and supplementary medical
coverage to employers and employer-sponsored plans, and accidental death and
dismemberment, travel and special risk coverage to employers and associations,
as well as specialty business such as corporate owned life insurance ("COLI")
and reinsurance.
Methods of Distribution
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The Life segment sells a variety of individual and group financial services and
insurance products through a combination of broker-dealers, licensed agents,
third party administrators and a direct sales force. The Investment Products
division primarily distributes through broker-dealers and financial institutions
for individual sales, and through employees of the Company for institutional
sales. The Individual Life Insurance division distributes its products through
insurance agents, broker-dealers and financial institutions, typically assisted
by a dedicated group of Company employees. Employee Benefits division products
are distributed through insurance agents and brokers, usually assisted by a
dedicated group of Company employees.
Competition
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The life insurance industry in the United States is highly competitive with
approximately 2,000 insurers vying for business. Competitive factors in the life
insurance industry include, but are not limited to, price, name recognition,
quality of distribution systems and financial ratings. In the individual annuity
market, sales volume is also dependent on fund performance, an array of fund and
product options, product design and credited rates. The Company was rated the
number one writer of variable annuities for 1996 with a 13% market share
according to the Variable Annuity and Research Data Service.
INTERNATIONAL
The Hartford's International segment consists of European companies offering a
variety of insurance products designed to meet the needs of local customers.
These companies include ITT London & Edinburgh ("L&E"), headquartered in the
United Kingdom, Zwolsche Algemeene ("Zwolsche"), located in both the Netherlands
and Belgium, and ITT Ercos in Spain. The International segment generated $1.6
billion in revenues and $139 in net income in 1996. Assets totaled $5.3 billion
at December 31, 1996.
Principal Products
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L&E offers both personal and commercial lines property and casualty insurance.
Personal lines include automobile, homeowners and creditor (including credit
life) products. Commercial lines include property and liability products sold to
small to medium sized clients. L&E also provides marine products within the
London market. Zwolsche sells property and casualty and life insurance products.
Personal lines products at Zwolsche include automobile, hospitalization and
homeowners. Commercial products, including automobile, are sold to small to
medium sized clients. Zwolsche life insurance operations offer term life,
mortgage and pension products. ITT Ercos provides both personal and commercial,
property and casualty, and life insurance products.
Methods of Distribution
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The International segment conducts the majority of its business through over
10,000 independent brokers in Western Europe.
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These brokers are not employees of The Hartford and often represent other
companies as well. As such, they are compensated on a commission basis.
Competition
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In the International segment, competition in personal lines insurance comes
primarily from direct writers, while in the commercial insurance market,
competition comes largely from "composites". Composites are well established
companies with both life and property and casualty operations. Within Europe's
life insurance industry, there also exists heavy competition from banks and
direct writers.
RUNOFF
The Hartford's Runoff segment consists of the property and casualty insurance
operations of The Hartford which have ceased writing new and renewal business
and the closed book of guaranteed rate contract business ("Closed Book GRC")
which includes life products with fixed or indexed rates that are guaranteed for
a specific period. Closed Book GRC had no new or renewal business as of the end
of 1994. The Runoff segment has no new product sales, distribution system, or
competitive issues. The property and casualty insurance operations primarily
include First State, located in Boston, Massachusetts and Fencourt,
headquartered in Bermuda.
The primary objective of the Runoff segment is to ensure the full and timely
payment of all runoff liabilities. Specifically, the primary focus of the
property and casualty insurance operations is the proper disposition of claims,
the resolution of disputes, and the collection of reinsurance proceeds related
to policies written and reinsured prior to 1985. The Closed Book GRC's primary
focus is to closely match the interest rate sensitivities of the assets with
those of the liabilities, as well as, matching the duration of its assets to
that of its liabilities.
OTHER MATTERS
PROPERTY AND CASUALTY RESERVES
The Hartford establishes reserves to provide for the estimated costs of paying
claims made by policyholders or against policyholders. These reserves include
estimates for both claims that have been reported and those that have been
incurred but not yet reported to The Hartford and include estimates of all
expenses associated with processing and settling these claims. This estimation
process is primarily based on historical experience and involves a variety of
actuarial techniques which analyze trends and other relevant factors. Further
discussion on The Hartford's property and casualty reserves may be found in the
Reserves section of the MD&A. In addition, a separate process including a study
which reviewed and identified environmental and asbestos exposures in the United
States, was performed in 1996 and is fully discussed in the Environmental and
Asbestos Claims section of the MD&A.
The Hartford continually reviews its estimated claims and claim adjustment
expense reserves as additional experience and other relevant data become
available and reserve levels are adjusted accordingly. Such adjustments are
reflected in net income of the period in which they are made.
The Hartford continues to receive claims asserting damages from environmental
pollution and related clean-up costs and injuries from asbestos and
asbestos-related products. Due to deviations from past experience and a variety
of social, economic and legal issues, the Company's ability to estimate the
future policy benefits, unpaid claims and claim adjustment expenses is
significantly impacted.
Certain liabilities for unpaid claims, principally for permanently disabled
claimants, terminated reinsurance treaties and certain contracts that fund loss
run-offs for unrelated parties have been discounted to present value. The amount
of the discount was approximately $472 and $451 as of December 31, 1996 and
1995, respectively, and the amortization of the discount had no material effect
on net income during 1996, 1995 and 1994, respectively.
In the judgment of The Hartford's management, all information currently
available has been properly considered in establishing the reserves for unpaid
claims and claim adjustment expenses.
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PROPERTY AND CASUALTY RESERVES (CONTINUED)
A reconciliation of liabilities for unpaid claims and claim adjustment expenses
is herein referenced from Note 1(c) of Notes to Consolidated Financial
Statements. A table depicting the historical development of the liabilities for
unpaid claims and claim adjustment expenses follows.
PROPERTY AND CASUALTY CLAIM AND CLAIM ADJUSTMENT
EXPENSE LIABILITY DEVELOPMENT - NET
FOR THE YEARS ENDED DECEMBER 31,
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
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Liabilities for unpaid claims and
claim adjustment expenses [1] $5,903 $7,262 $8,168 $8,666 $9,366 $9,796 $11,103 $11,441 $11,623 $12,047 $13,389
Cumulative paid claims and claim
expenses
One year later 1,808 2,089 2,296 2,545 2,789 2,879 2,806 2,832 2,983 2,797 --
Two years later 2,916 3,323 3,618 4,013 4,428 4,465 4,415 4,602 4,667 -- --
Three years later 3,683 4,187 4,577 5,132 5,511 5,605 5,655 5,755 -- -- --
Four years later 4,275 4,846 5,341 5,863 6,304 6,507 6,507 -- -- -- --
Five years later 4,743 5,392 5,872 6,435 6,979 7,173 -- -- -- -- --
Six years later 5,168 5,787 6,320 6,944 7,505 -- -- -- -- -- --
Seven years later 5,481 6,155 6,733 7,360 -- -- -- -- -- -- --
Eight years later 5,803 6,492 7,094 -- -- -- -- -- -- -- --
Nine years later 6,103 6,815 -- -- -- -- -- -- -- -- --
Ten years later 6,397 -- -- -- -- -- -- -- -- -- --
Liabilities reestimated
One year later 6,293 7,437 8,342 8,879 9,636 11,053 11,311 11,484 11,856 13,078 --
Two years later 6,422 7,619 8,432 9,052 10,780 11,202 11,354 11,691 13,020 -- --
Three years later 6,718 7,719 8,482 10,200 10,905 11,315 11,582 12,810 -- -- --
Four years later 6,885 7,827 9,645 10,342 11,151 11,653 12,740 -- -- -- --
Five years later 7,021 9,117 9,829 10,578 11,515 12,794 -- -- -- -- --
Six years later 8,504 9,287 10,068 10,972 12,649 -- -- -- -- -- --
Seven years later 8,652 9,521 10,478 12,075 -- -- -- -- -- -- --
Eight years later 8,878 9,943 11,550 -- -- -- -- -- -- -- --
Nine years later 9,298 10,991 -- -- -- -- -- -- -- -- --
Ten years later 10,321 -- -- -- -- -- -- -- -- -- --
Deficiency $4,418 $3,729 $3,382 $3,409 $3,283 $2,998 $1,637 $1,369 $1,397 $1,031 $ --
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PROPERTY AND CASUALTY CLAIM AND CLAIM ADJUSTMENT EXPENSE
LIABILITY DEVELOPMENT - GROSS
FOR THE YEARS ENDED DECEMBER 31,
1993 1994 1995 1996
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Net reserve [1] $11,441 $11,623 $12,047 $13,389
Reinsurance recoverables 5,385 5,568 5,209 4,703
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Gross reserve [2] $16,826 $17,191 $17,256 $18,092
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Net reestimated reserve $12,810 $13,020 $13,078
Reestimated reinsurance recoverables 6,007 6,103 5,371
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Gross reestimated reserve $18,817 $19,123 $18,449
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Gross deficiency $ 1,991 $ 1,932 $ 1,193
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The above tables exclude the liabilities and claim developments for reinsurance
coverage written for related parties that fund ultimate net aggregate loss
run-offs since changes to those reserves do not illustrate the manner in which
those reserve estimates changed.
[1] Liabilities, net of reinsurance for unpaid claims and claim adjustment
expenses excluded, were $495, $550 and $500 of December 31, 1994, 1995 and
1996, respectively.
[2] Liabilities, gross of reinsurance for unpaid claims and claim adjustment
expenses excluded, were $244, $280 and $211 as of December 31, 1994, 1995
and 1996, respectively.
Included in the tables above is the impact of the change in The Hartford's
method of discounting to present value certain workers' compensation reserves,
principally for permanently disabled claimants, which was effective January 1,
1994. See Note 1(b) of Notes to Consolidated Financial Statements for further
discussion of this accounting change.
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LIFE RESERVES
In accordance with applicable insurance regulations under which the Life segment
operates, life insurance subsidiaries of The Hartford establish and carry as
liabilities actuarially determined reserves which are calculated to meet The
Hartford's future obligations. Reserves for life insurance and disability
contracts are based on actuarially recognized methods using prescribed morbidity
and mortality tables in general use in the United States modified to reflect The
Hartford's actual experience when appropriate. These reserves are computed at
amounts that, with additions from premiums to be received and with interest on
such reserves compounded annually at certain assumed rates, are expected to be
sufficient to meet The Hartford's policy obligations at their maturities or in
the event of an insured's death. Reserves include unearned premiums, premium
deposits, claims reported but not yet paid, claims incurred but not reported and
claims in the process of settlement. Reserves for assumed reinsurance are
computed on bases essentially comparable to direct insurance reserves.
For The Hartford's individual life, universal life and interest-sensitive whole
life policies, reserves are set according to premiums collected, plus interest
credited, less charges. Other fixed death benefit reserves are based on assumed
investment yield, persistency, mortality and morbidity as per commonly used
actuarial tables, expenses and margins for adverse deviations. For the Company's
group disability policies, the level of reserves is based on a variety of
factors including particular diagnoses, termination rates and benefit payments.
The stability of The Hartford's annuity and other interest-sensitive life
insurance reserves is enhanced by policy restrictions on the withdrawal of
funds. Withdrawals in excess of allowable penalty-free amounts are assessed a
surrender charge during a penalty period of approximately seven years. Such
surrender charge is initially a percentage of the accumulation value, which
varies by product, and generally decreases gradually during the penalty period.
Surrender charges are set at levels to protect The Hartford from loss on early
terminations and to reduce the likelihood of policyholders terminating their
policies during periods of increasing interest rates, thereby lengthening the
effective duration of policy liabilities and improving the Company's ability to
maintain profitability on such policies. In addition, The Hartford's fixed
market value adjusted annuities discourage surrender by policyholders. The
Hartford's reserves comply in all material respects with state insurance
department statutory requirements; however, in the Consolidated Financial
Statements, life insurance reserves are determined in accordance with generally
accepted accounting principles, which may vary from statutory requirements.
REGULATION AND PREMIUM RATES
Insurance companies are subject to comprehensive and detailed regulation and
supervision throughout the United States. The extent of such regulation varies,
but generally has its source in statutes which delegate regulatory, supervisory
and administrative powers to state insurance departments. Such powers relate to,
among other things, the standards of solvency which must be met and maintained;
the licensing of insurers and their agents; the nature of and limitations on
investments; premium rates; claim handling and trade practices; restrictions on
the size of risks which may be insured under a single policy; deposits of
securities for the benefit of policyholders; approval of policy forms; periodic
examinations of the affairs of companies; annual and other reports required to
be filed on the financial condition of companies or for other purposes; fixing
maximum interest rates on life insurance policy loans and minimum rates for
accumulation of surrender values; and the adequacy of reserves and other
necessary provisions for unearned premiums, unpaid claims and claim adjustment
expenses and other liabilities, both reported and unreported.
Regulatory requirements applying to property and casualty premium rates vary
from state to state, but generally provide that rates shall not be inadequate,
excessive or unfairly discriminatory. Rates for many products, including
automobile and homeowners insurance, are subject to prior regulatory approval in
many states. Ocean marine insurance rates are exempt from rate regulation.
Subject to regulatory requirements, management determines the rates charged for
its policies. Methods for arriving at rates vary by product, exposure assumed
and size of risk.
While premium rates in the property and casualty insurance business are for the
most part subject to regulation, such rates are not in most instances uniform
for all insurers within a given jurisdiction, or in all jurisdictions. The
Hartford is a member of various fire, casualty and surety rating organizations.
For some lines of business, The Hartford uses the rates and rating plans which
are filed by these organizations in the various states, while for other lines of
business it uses loss cost data published by such organizations. The Hartford
also uses its own independent rates or otherwise departs from rating
organization rates, where appropriate.
Most states have enacted legislation which regulates insurance holding company
systems such as The Hartford. This legislation provides that each insurance
company in the system is required to register with the insurance department of
its state of domicile and furnish information concerning the operations of
companies within the holding company system which may materially affect the
operations, management or financial condition of the insurers within the system.
All transactions within a holding company system affecting insurers must be fair
and equitable. Notice to the insurance departments is required prior to the
consummation of transactions affecting the ownership or control of an insurer
and of certain material transactions between an insurer and any entity in its
holding company system. In addition, certain of such transactions cannot be
consummated without the applicable insurance department's prior approval.
State insurance regulation requires property and casualty insurers to
participate in assigned risk plans, reinsurance facilities and joint
underwriting associations, which are mechanisms to provide risks with various
basic or minimum insurance coverage when they are not available in voluntary
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markets. Such mechanisms are most prevalent for automobile and workers'
compensation insurance, but a majority of states also mandate participation in
so-called FAIR Plans or Windstorm Plans providing basic property coverage.
Additionally, some states mandate such participation in facilities for providing
medical malpractice insurance. Participation is based upon the amount of a
company's written premiums in a particular state for the classes of insurance
involved.
The extent of insurance regulation on business outside the United States varies
significantly among the countries in which The Hartford operates. Some countries
have minimal regulatory requirements, while others regulate insurers
extensively. Foreign insurers in many countries are faced with greater
restrictions than domestic competitors domiciled in that particular
jurisdiction. The Hartford's International operations are comprised of insurers
licensed in their respective countries and, therefore, are subject to generally
less restrictive domestic insurance regulations.
RATINGS
Reference is made to the Capital Resources and Liquidity section of the MD&A
under "Ratings".
RISK-BASED CAPITAL
Reference is made to the Capital Resources and Liquidity section of the MD&A
under "Risk-based Capital".
LEGISLATIVE INITIATIVES
Reference is made to the Regulatory Initiatives section of the MD&A under
"Legislative Initiatives".
INSOLVENCY FUND
Reference is made to the Regulatory Initiatives section of the MD&A under
"Insolvency Fund".
REINSURANCE
In accordance with normal industry practice, The Hartford is involved in both
the cession and assumption of insurance with other insurance and reinsurance
companies. For property and casualty operations, these reinsurance arrangements
provide greater diversification of business and limit The Hartford's maximum net
loss arising from large risks or catastrophes.
A major portion of The Hartford's property and casualty reinsurance is effected
under general reinsurance contracts known as treaties, or, in some instances, is
negotiated on an individual risk basis, known as facultative reinsurance. The
Hartford also has in-force excess of loss contracts with other reinsurers that
protect it against a specified part or all of certain losses over stipulated
amounts.
The ceding of insurance does not discharge the original insurer from its primary
liability to the policyholder. The original insurer would remain liable in those
situations where the reinsurer is unable to meet the obligations assumed under
reinsurance agreements. The Hartford has established strict standards that
govern the placement of reinsurance and monitors ceded insurance security.
Virtually all of The Hartford's property and casualty reinsurance is placed with
reinsurers that meet strict financial criteria established by a credit
committee.
Relative to life operations, The Hartford reinsures with other companies. As of
December 31, 1996, the maximum amount of life insurance retained on any one life
by any of the life operations is approximately $1.3, excluding accidental death
benefits.
INVESTMENT OPERATIONS
An important element of the financial results of The Hartford is the return on
invested assets. The Hartford's investment activities are generally divided
between property and casualty insurance and life insurance. The investment
portfolios of both the property and casualty and the life operations are managed
based on the underlying characteristics and nature of their respective
liabilities.
The investment objective of property and casualty operations is the maximization
of after-tax income consistent with long-term capital growth and maintenance of
appropriate liquidity to meet corporate and policyholder obligations. Property
and casualty investment strategies are developed based on a variety of factors
including business needs, regulatory requirements and tax considerations.
The primary investment objective of the Life segment's general account and
guaranteed separate accounts is to maximize after-tax returns consistent with
acceptable risk parameters (including the management of the interest rate
sensitivity of invested assets to that of policyholder obligations). Life
operations use various derivatives to modify the characteristics of its
investments.
For a further discussion of strategies including derivative utilization, see the
Investments section of the MD&A under "Life Asset and Liability Management
Strategies" , as well as Note 3 of Notes to Consolidated Financial Statements.
EMPLOYEES
The Hartford had approximately 22,000 employees as of December 31, 1996.
EXECUTIVE OFFICERS OF THE HARTFORD
Information about the executive officers of The Hartford who are also directors
and/or nominees for election as directors is set forth in The Hartford's 1997
Proxy Statement. In addition to those executive officers who are listed in the
1997 Proxy Statement, listed below are the following Company executive officers,
the majority of whom have served in similar positions for The Hartford prior to
the Distribution (referred to herein as "Hartford Fire"):
JOHN F. DONAHUE, 61, became Senior Vice President, International/Reinsurance
Operations of The Hartford in June 1996. Prior to that, he served as Senior Vice
President,
- 7 -
Business Development and Director of reinsurance operations of The Hartford. He
also served as Senior Underwriting Officer of Hartford Fire. Mr. Donahue holds
the designation of Chartered Property/Casualty Underwriter. He was elected Vice
President of Hartford Fire in 1980 and named Director of the commercial lines of
business for Hartford Fire in 1987.
JOSEPH H. GAREAU, 50, has been Executive Vice President and Chief Investment
Officer of Hartford Fire since 1993 and became Executive Vice President and
Chief Investment Officer of the Company in December 1995. Prior to that time, he
served as Senior Vice President and Chief Investment Officer for the domestic
property and casualty operations of Hartford Fire. Mr. Gareau was elected Vice
President of Hartford Fire in 1987.
HELEN G. GOODMAN, 56, has been Senior Vice President, Human Resources of
Hartford Fire since 1994 and became Senior Vice President, Human Resources of
the Company in December 1995. Prior to that time, she held the position of
Senior Vice President, Human Resources for Tambrands Inc.
EDWARD L. MORGAN, 53, has been Senior Vice President, Corporate Relations and
Government Affairs of Hartford Fire since 1993 and became Senior Vice President,
Corporate Relations and Government Affairs of the Company in December 1995. From
1991 to 1993, he served as Vice President and Director of Corporate Relations of
Hartford Fire. Prior to that time, Mr. Morgan held the position of Vice
President of Corporate Relations at Allstate Insurance Company.
JAMES J. WESTERVELT, 50, has been Senior Vice President and Group Controller of
Hartford Fire since 1994. He was appointed to the same position for the Company
in December 1995. He was elected Vice President and became Group Controller in
1989.
MICHAEL S. WILDER, 55, has been Senior Vice President of Hartford Fire since
1987 and General Counsel of Hartford Fire since 1975. He became Senior Vice
President and General Counsel of the Company in December 1995.
ITEM 2. PROPERTIES
The Hartford owns the land and buildings comprising its Hartford location and
other properties within the greater Hartford, Connecticut area which total
approximately 1.6 million square feet. The Hartford's international subsidiaries
own approximately 202 thousand square feet of office space in the United
Kingdom, 218 thousand square feet of office space in the Netherlands and 94
thousand square feet of office space in Spain. In addition, The Hartford leases
approximately 5.1 million square feet throughout the United States and 156
thousand square feet in other countries.
ITEM 3. LEGAL PROCEEDINGS
The Hartford is a defendant in various lawsuits arising out of its business. In
the opinion of management, final outcome of these matters will not materially
affect the consolidated financial position, results of operations or cash flows
of The Hartford.
The Hartford is involved in claim litigation arising in the ordinary course of
business and accounts for such activity through the establishment of policy
reserves. As further discussed above and in the MD&A under the section
Environmental and Asbestos Claims, The Hartford continues to receive
environmental and asbestos claims which involve significant uncertainty
regarding policy coverage issues. Regarding these claims, The Hartford
continually reviews its overall reserve levels, reserving methodologies and
reinsurance coverages.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders of The Hartford during the
fourth quarter of the fiscal year covered by this report.
PART II
ITEM 5. MARKET FOR THE HARTFORD'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Hartford's common stock is traded on the New York Stock Exchange ("NYSE")
under the trading symbol "HIG." On December 20, 1995, the common stock began
regular trading on the NYSE.
The following table presents high and low closing prices for the common stock of
The Hartford on the NYSE for the periods indicated, and the quarterly dividends
declared per share:
Common Stock Price Dividends
High Low Declared
- ----------------------- ----------------------- -----------------
1996
First quarter $53.00 $47.13 $0.40
Second quarter 54.13 45.50 0.40
Third quarter 59.63 50.75 0.40
Fourth quarter 69.50 59.13 0.40
- ----------------------- ----------- ----------- -----------------
1995
Fourth quarter [1] $49.13 $48.13 $ --
- ----------------------- ----------- ----------- -----------------
[1] Represents the period from December 20, 1995 (the day regular trading of The
Hartford's common stock commenced on the NYSE) through December 29, 1995 (the
last trading day in 1995).
At February 28, 1997, there were approximately 60,000 shareholders of record of
The Hartford's common stock.
In 1997, The Hartford expects to continue to pay quarterly dividends on its
common stock of $0.40 per share. Dividend decisions will be based on and
affected by a number of factors, including the operating results and financial
requirements of The Hartford on a stand-alone basis and the impact of
- 8 -
regulatory restrictions discussed in the Liquidity Requirements section of the
MD&A. Prior to the Distribution, dividends that The Hartford declared were paid
to ITT, which then paid dividends to its shareholders.
There are also various legal limitations governing the extent to which The
Hartford's insurance subsidiaries may extend credit, pay dividends or otherwise
provide funds to ITT Hartford Group, Inc. as discussed in the Capital Resources
and Liquidity section of the MD&A under "Liquidity Requirements".
ITEM 6. SELECTED FINANCIAL DATA
(IN MILLIONS, EXCEPT FOR PER SHARE DATA)
1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------------------------
INCOME STATEMENT DATA
Revenues $ 12,473 $ 12,150 $ 11,102 $ 10,338 $ 9,862
Income (loss) before cumulative effect of
accounting changes [1] (99) 559 632 537 (274)
Net income (loss) [1] [2] $ (99) $ 559 $ 644 $ 537 $ (653)
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA
Total assets $ 108,840 $ 93,855 $ 76,765 $ 66,179 $ 54,180
Long-term debt and redeemable preferred stock 1,032 1,022 682 842 867
Company obligated mandatorily redeemable preferred
securities of subsidiary trusts holding solely
parent junior subordinated debentures 1,000 -- -- -- --
Stockholders' equity $ 4,520 $ 4,702 $ 3,184 $ 4,012 $ 3,679
- ---------------------------------------------------------------------------------------------------------------------------------
EARNINGS (LOSS) PER SHARE DATA [3]
Income (loss) before cumulative effect of
accounting changes [1] $ (0.84) $ 4.77 $ 5.40 $ 4.59 $ (2.34)
Net income (loss) [1] [2] $ (0.84) $ 4.77 $ 5.50 $ 4.59 $ (5.58)
Dividends declared per common share [4] $ 1.60 $ 6.65 $ 1.94 $ 1.90 $ 1.16
- ---------------------------------------------------------------------------------------------------------------------------------
OPERATING DATA
COMBINED RATIOS
North American Property & Casualty [5] 105.2 104.5 102.5 103.6 112.3
Worldwide Property & Casualty [5] [6] 105.1 104.1 102.2 104.8 114.8
- ---------------------------------------------------------------------------------------------------------------------------------
[1] 1996 includes other charges of $693, after-tax, or $5.91 per share,
consisting primarily of environmental and asbestos reserve increases and
recognition of losses on the closed book of guaranteed rate contract
business (for additional information see MD&A). 1992 includes after-tax
reserve strengthening actions (as described in item 5 below) of $759, or
$6.48 per share.
[2] 1994 includes $12, after-tax, or $0.10 per share, for the net cumulative
effect of accounting changes for accounting for certain investments in debt
and equity securities and the change in the method of discounting to
present value certain workers' compensation reserves (for additional
information see Note 1(b) in Notes to Consolidated Financial Statements).
1992 includes a net charge of $379, or $3.24 per share, for the net
cumulative effect of accounting changes for postemployment and
postretirement benefits other than pensions.
[3] Actual number of average common shares outstanding at December 31, 1995 of
117.1 is retroactively presented for all prior periods.
[4] Prior to the Distribution, dividends that The Hartford declared were paid
to ITT, which then paid dividends to its shareholders.
[5] 1996 excludes the impact of $660, before-tax, environmental and asbestos
charge. Including the impact of this charge, the combined ratio for 1996
was 116.9 for the North American Property & Casualty segment (for
additional information see MD&A) and 114.7 for the Worldwide Property &
Casualty. The 1992 combined ratio excludes the impact of $900, before-tax,
of reserve strengthening actions taken to address loss developments in
surplus lines and reinsurance at First State Insurance Company and its
subsidiaries reported in the Runoff Segment and $250 of legal defense costs
associated with environmental-related claims. Including the impact of these
actions, the combined ratio for 1992 was 135.4 for the North American
Property & Casualty segment and 133.7 for the Worldwide Property &
Casualty.
[6] For the periods after 1992, the combined ratios exclude the results of the
Runoff segment.
Outlined in the table below are U.S. Industry Combined Ratios for each of the
five years ended December 31:
1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------------------------
U.S. Industry Combined Ratios (a) 107.0 106.4 108.4 106.9 115.7
- ---------------------------------------------------------------------------------------------------------------------------------
(a) U.S. Industry Combined Ratio information obtained from A.M. Best. 1996's
combined ratio is an estimate prepared as of January 1997.
- 9 -
ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA, UNLESS OTHERWISE STATED)
MANAGEMENT'S DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH THE
CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES BEGINNING ON PAGE F-1.
Certain of the statements contained herein (other than statements of historical
fact) are forward-looking statements. Such forward-looking statements are made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. The forward-looking statements are made based upon
management's expectations and beliefs concerning future developments and their
potential effect upon ITT Hartford Group, Inc. ("The Hartford" or the
"Company"). There can be no assurance that future developments will be in
accordance with management's expectations or that the effect of future
developments on The Hartford will be those anticipated by management. Actual
results could differ materially from those expected by The Hartford, depending
on the outcome of certain factors, including those described with the
forward-looking statements herein.
Certain reclassifications have been made to prior year financial information to
conform to the current year presentation.
================================================================================
INDEX
================================================================================
Distribution 10
Consolidated Results of Operations: Operating Summary 10
North American Property & Casualty 12
Life 14
International 17
Runoff 18
Reserves 20
Environmental and Asbestos Claims 20
Investments 22
Capital Resources and Liquidity 29
Regulatory Initiatives 32
Effect of Inflation 32
================================================================================
DISTRIBUTION
================================================================================
On December 19, 1995, ITT Corporation ("ITT") distributed all of the outstanding
shares of common stock of The Hartford to the shareholders of ITT common stock
(the "Distribution" or "Spin-off"). As a result of the Distribution, The
Hartford became an independent publicly-traded company. "Regular Way" trading of
The Hartford's common stock on the New York Stock Exchange (under the symbol
"HIG") commenced on December 20, 1995. In connection with this transaction, ITT
transferred First State Insurance Company, together with its subsidiaries, and
Fencourt Reinsurance Company, Ltd., both of which were wholly owned companies of
ITT, to The Hartford prior to the Distribution. Consistent with the Consolidated
Financial Statements and related Notes, the financial information included
herein reflects the results of The Hartford as if it were a separate entity for
all periods presented. For additional information, see "Distribution Agreement"
under Capital Resources and Liquidity.
================================================================================
CONSOLIDATED RESULTS OF OPERATIONS: OPERATING SUMMARY
================================================================================
OVERVIEW
1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
Earned premiums $ 10,076 $ 9,628 $ 8,753
Net investment income 2,523 2,420 2,259
Net realized capital gains (losses) (126) 102 90
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL REVENUES 12,473 12,150 11,102
-----------------------------------------------------------------------------------------------------------------------
Benefits, claims and claim adjustment expenses 8,942 7,769 7,314
Amortization of deferred policy acquisition costs 1,678 1,658 1,513
Other expenses 2,171 1,981 1,423
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL BENEFITS, CLAIMS AND EXPENSES 12,791 11,408 10,250
-----------------------------------------------------------------------------------------------------------------------
OPERATING INCOME (LOSS) (318) 742 852
Income tax expense (benefit) (219) 180 214
Dividends on subsidiary preferred stock -- (3) (6)
- ---------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGES (99) 559 632
Cumulative effect of accounting changes, net of tax expense of $7 -- -- 12
- --------------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) (99) 559 644
Less: Cumulative effect of accounting changes, net of tax expense of $7 -- -- 12
Net realized capital gains, after-tax [1] 57 67 59
Other charges (693) -- --
Allocated Distribution items -- 14 50
- ---------------------------------------------------------------------------------------------------------------------------------
CORE EARNINGS $ 537 $ 478 $ 523
- ---------------------------------------------------------------------------------------------------------------------------------
[1] 1996 excludes the Closed Book GRC (see below) net realized capital loss of
$137, after-tax. This amount is included in other charges.
- 10 -
Net income, excluding the impact of accounting changes, net realized capital
gains, after-tax, other charges and allocated Distribution items was $537 for
1996 compared with $478 for 1995 and $523 in 1994. The Hartford defines this
presentation of after-tax operational results as "core earnings".
Core earnings increased $59, or 12%, to $537 in 1996 due primarily to increased
revenues earned on a growing annuity asset base, growth in net investment
income, increased group insurance premiums and favorable mortality experience,
partially offset by after-tax underwriting losses resulting from higher
catastrophes in 1996.
1995 core earnings decreased $45, or 9%, from 1994 due primarily to the impact
of the Dow Corning breast implant claims settlement, a loss from a single
industrial fire covered by the Industrial Risk Insurance ("IRI") pool and losses
attributable to Hurricane Opal. Additionally, results in the closed book of
guaranteed rate contract business ("Closed Book GRC") reflected losses due to
lower investment earnings on mortgage-backed securities, the result of
prepayment experience in excess of assumed levels. Improved property and
casualty net investment income and growth in sales of annuities and corporate
owned life insurance ("COLI") products partially offset the core earnings
decline.
CUMULATIVE EFFECT OF ACCOUNTING CHANGES
Items excluded from core earnings include the impact of the adoption of
Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for
Certain Investments in Debt and Equity Securities", and the change in the method
of discounting to present value certain workers' compensation reserves, the
cumulative net effect of which totaled $12, after-tax, recorded as of January 1,
1994. Upon adoption of SFAS No. 115, the amortized cost basis of mortgage-backed
interest-only investments were written down to fair value and reflected as a
cumulative effect of accounting change of $(30) after-tax. A change in the
method of discounting certain workers' compensation reserves from one that used
statutory interest rates to one utilizing a "risk-free" market rate resulted in
a $42 after-tax cumulative effect benefit.
NET REALIZED CAPITAL GAINS
See Investment Results in the Investments discussion.
OTHER CHARGES
Net income for 1996 includes other charges related to environmental and asbestos
reserve increases, net of taxes, of $(429) in the North American Property &
Casualty segment and $(81) at First State in the Runoff segment (as discussed in
the Environmental and Asbestos Claims section), recognition of losses on Closed
Book GRC of $(169) (as discussed in the Runoff section) and other, primarily
foreign tax-related items, of $(2) in each of the North American Property &
Casualty and Life segments and $(10) in the Runoff segment.
ALLOCATED DISTRIBUTION ITEMS
As part of the Distribution, The Hartford was allocated amounts originally
recorded at the ITT corporate level. The allocations resulted in net income of
$14 and $50 in 1995 and 1994, respectively. For more information on liability
sharing arrangements related to the Distribution, see "Distribution Agreement"
and "Tax Allocation Agreement" under Capital Resources and Liquidity.
INCOME TAXES
The effective tax rates for 1996, 1995 and 1994 were 20%, 24% and 25%,
respectively, excluding the impact of other charges in 1996. Tax-exempt interest
earned on invested assets was the principal cause of effective rates lower than
the 35% U.S. statutory rate. Income taxes paid in 1996, 1995 and 1994 were $170,
$302 and $317, respectively. For additional information, see "Tax Allocation
Agreement" under Capital Resources and Liquidity.
PER COMMON SHARE
The following table represents per common share data and return on equity for
the past three years:
1996 1995 1994
- -----------------------------------------------------------------
Weighted average common shares
outstanding [1] 117.3 117.1 117.1
Operating income (loss) $(2.71) $6.34 $7.28
Net income (loss) $(0.84) $4.77 $5.50
Return on equity [2] [3] (2.3)% 12.6% 15.4%
- ----------------------------------------------------------------
[1] Actual number of common shares outstanding at December 31, 1995 of 117.1
million is retroactively presented for December 31, 1994.
[2] Calculated by dividing net income by average equity excluding unrealized
gain (loss), after-tax.
[3] 1996 return on equity excluding the other charges noted above from net
income was 13.8%.
SEGMENT RESULTS
The Hartford's reporting segments reflect the management structure of the
Company. These segments consist of North American Property & Casualty, Life, and
International, all of which represent ongoing operations, and Runoff. Runoff
includes operations which have ceased writing new and renewal business.
Certain transactions between segments occur during the year that primarily
relate to tax settlements, insurance coverage, expense reimbursements, services
provided and capital contributions. Certain reinsurance stop loss agreements
exist between the segments which specify that for consideration received, one
segment will reimburse another for losses incurred in excess of a predetermined
limit. Also, one segment may purchase group annuity contracts from another to
fund pension costs and claim annuities to settle casualty claims.
The following is a summary of core earnings by segment.
1996 1995 1994
- ----------------------------------------------------------------
N. A. Property & Casualty $ 270 $ 251 $ 309
Life 251 221 149
International 87 91 62
Runoff (71) (85) 3
- ----------------------------------------------------------------
CORE EARNINGS $ 537 $ 478 $ 523
- ----------------------------------------------------------------
A description of each segment, as well as an analysis of the operating results
summarized above, is included on the following pages. Reserves, Environmental
and Asbestos Claims, and Investments are discussed in separate sections.
- 11 -
================================================================================
NORTH AMERICAN PROPERTY & CASUALTY
================================================================================
OPERATING SUMMARY
1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
Earned premiums $ 5,657 $ 5,662 $ 5,504
Net investment income 661 646 606
Net realized capital gains 15 29 69
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL REVENUES 6,333 6,337 6,179
-----------------------------------------------------------------------------------------------------------------------
Benefits, claims and claim adjustment expenses 4,994 4,315 4,070
Amortization of deferred policy acquisition costs 1,154 1,178 1,121
Other expenses 584 510 524
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL BENEFITS, CLAIMS AND EXPENSES 6,732 6,003 5,715
-----------------------------------------------------------------------------------------------------------------------
OPERATING INCOME (LOSS) (399) 334 464
Income tax expense (benefit) (248) 61 104
Dividends on subsidiary preferred stock -- (3) (6)
- ---------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGES (151) 270 354
Cumulative effect of accounting changes, net of tax expense of $7 -- -- 12
- ---------------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) (151) 270 366
Less: Cumulative effect of accounting changes, net of tax expense of $7 -- -- 12
Net realized capital gains, after-tax 10 19 45
Other charges (431) -- --
- ---------------------------------------------------------------------------------------------------------------------------------
CORE EARNINGS $ 270 $ 251 $ 309
- ---------------------------------------------------------------------------------------------------------------------------------
Core earnings for the North American Property & Casualty segment were $270, an
increase of $19 from 1995, primarily due to a $53 increase in after-tax net
investment income partially offset by a $37 increase in after-tax underwriting
loss. The increased underwriting loss resulted from significantly higher
catastrophe and winter storm losses in 1996 partially offset by two material
items discussed in the following Summary Underwriting Results section, which
adversely affected underwriting results in 1995. 1995 core earnings of $251 were
down $58 from 1994 due to the two material items noted, as well as decreased
income from third party servicing contracts and very favorable workers'
compensation loss experience in 1994.
Within the North American Property & Casualty segment, management analyzes the
results of operations by the following four major components on a before-tax
basis:
1996 1995 1994
- ----------------------------------------------------------------
Underwriting results $ (986) $ (270) $ (182)
Net investment income 661 646 606
Net realized capital gains 15 29 69
Other miscellaneous expenses 89 71 29
- ----------------------------------------------------------------
Operating income $ (399) $ 334 $ 464
- ----------------------------------------------------------------
The following discussion summarizes underwriting results by major operation (as
defined below) and other miscellaneous expenses. As previously noted, net
investment income and net realized capital gains are covered in a separate
discussion in the Investments section. Other charges, consisting primarily of an
increase in environmental and asbestos reserves, are discussed in the
Environmental and Asbestos Claims section.
SUMMARY UNDERWRITING RESULTS
Underwriting results represent premiums earned less incurred claims, claim
adjustment expenses and underwriting expenses. The following table shows written
premiums, underwriting results and combined ratios for The Hartford's North
American Property & Casualty segment.
1996 1995 1994
- ----------------------------------------------------------------
Written premiums $ 5,688 $ 5,670 $ 5,648
Underwriting results [1] $ (326) $ (270) $ (182)
Combined ratio [1] [2] 105.2 104.5 102.5
- ----------------------------------------------------------------
[1] 1996 excludes the impact of $660, before-tax, environmental and asbestos
charge. Including the impact of this charge, the combined ratio for 1996 was
116.9 for the North American Property & Casualty segment.
[2] "Combined ratio" is a common industry measurement of the results of property
and casualty insurance underwriting. This ratio is the sum of the ratio of
incurred claims and claim expenses to premiums earned (the "loss ratio") and the
ratio of underwriting expenses incurred to premiums written (the "expense
ratio"). A combined ratio under 100.0 generally indicates an underwriting
profit. Federal income taxes, net investment income, deferred policy acquisition
costs and other non-underwriting expenses are not reflected in the combined
ratio.
Written premiums for this segment were up slightly in 1996 and 1995 from the
respective prior year's results. Continued growth in target markets such as
reinsurance, small commercial accounts and business written under an exclusive
licensing arrangement with The American Association of Retired Persons ("AARP")
was offset by decreased premiums from mid-to-large commercial accounts, agency
personal lines and residual markets. The conversion of certain workers'
compensation business to large deductible programs also depressed the growth in
written premiums.
- 12 -
1996 underwriting losses before-tax increased $56 over 1995 primarily due to
severe weather-related catastrophe experience, most notably several first
quarter winter storms and Hurricane Fran in September. These events drove total
catastrophe losses in 1996 to exceed 1995 by approximately $130 causing a 2.3
point increase in the combined ratio.
Underwriting results for 1995 were $88 lower than the prior year largely due to
the impact of two items: a $40 loss, net of reinsurance, in connection with the
settlement of claims against Dow Corning Corporation alleging product defects
arising from breast implants, and a net $32 loss resulting from a single
industrial fire covered by the IRI pool. These non-recurring items increased the
combined ratio by 1.3 points in 1995. The 1994 combined ratio of 102.5 was lower
than both the adjusted (excluding the non-recurring items) 1995 and 1996
combined ratios by 0.7 points and 0.4 points, respectively, largely due to
favorable loss experience in workers' compensation in 1994.
The North American Property & Casualty segment consists of three major
operations: Commercial, Personal and Reinsurance. A description of each
operation, including an analysis of underwriting results, follows.
Commercial
- ----------
1996 1995 1994
- ----------------------------------------------------------------
Written premiums $ 3,211 $ 3,335 $ 3,427
Underwriting results $ (201) $ (227) $ (119)
Combined ratio 105.7 106.6 102.5
- ----------------------------------------------------------------
Commercial Insurance Operations (CIO) provides workers' compensation, property,
automobile, liability, marine, agricultural and bond coverages to commercial
accounts throughout the United States and Canada. Excess and surplus lines
business not normally written by standard lines insurers is also provided. CIO
is organized into three customer market segments: Commercial Business Insurance
Operations (CBI), Commercial Affinity Segment (CAS), and Specialty Commercial
Lines (SCL). CBI provides standard commercial business for small accounts
(Select Customer) and mid-sized insureds (Key Accounts). Agricultural, livestock
and marine products are also managed within CBI. CAS provides commercial risk
management products and services to members of affinity groups and customers of
financial institutions. SCL provides insurance through retailers and wholesalers
to large commercial clients and insureds requiring a variety of specialized
coverages. SCL's results include the bond lines and First State Management
Group, a leading underwriter of excess and surplus lines business produced
primarily through wholesale brokers.
Written premiums decreased 4% in 1996 to $3.2 billion, compared to a 3% decrease
in the previous year. A decline in workers' compensation premium from less
profitable involuntary workers' compensation pools and increasingly intense
price competition are the primary causes for the 1996 decrease. The decrease in
1995 premium volume reflected the conversion of workers' compensation business
to large deductible programs and a reduction in The Hartford's participation in
the less profitable voluntary and involuntary workers' compensation pools.
1996 underwriting results improved $26 compared with the prior year, reflecting
the impact in 1995 of a $40 loss, net of reinsurance, in connection with a
settlement of claims against Dow Corning Corporation alleging product defects
arising from breast implants. Excluding the impact of this settlement on the
prior year comparison, 1996 underwriting results deteriorated $14 from 1995,
reflecting a 0.3 increase in the combined ratio to 105.7 from the adjusted 1995
level. This decline was due to deterioration in property results which were
adversely impacted by severe catastrophes and winter storms and several large
losses. Despite intense competition, workers' compensation results partially
offset the 1996 deterioration reflecting the impacts of legislative reforms,
depopulation in residual pools and effective managed care related initiatives.
1995 underwriting performance deteriorated $108 compared with 1994, increasing
the combined ratio 4.1 points to 106.6. Excluding the impact of the Dow Corning
settlement, 1995 results declined $68 over 1994. This decline was the result of
higher claims and claim adjustment expense costs in workers' compensation and
liability products and the increase in intensity of competition.
Personal
- --------
1996 1995 1994
- ----------------------------------------------------------------
Written premiums $ 1,864 $ 1,813 $ 1,740
Underwriting results $ (110) $ (21) $ (56)
Combined ratio 105.2 100.9 102.7
- ----------------------------------------------------------------
Personal operations provides automobile, homeowners, home-based business and
fire coverages to individuals throughout the United States and Canada. Personal
operations are organized to provide customized products and services to three
market opportunities: the membership of AARP through a direct marketing
operation; customers who prefer local agent involvement through a network of
independent agents; and members of other affinity groups through a new
organization that is building from the AARP operation competencies. AARP's
exclusive licensing arrangement continues through the year 2002, thus providing
the Company with an important competitive advantage.
Written premiums increased 3% in 1996 compared to a 4% increase in 1995. Both
years include strong growth in AARP premium which is benefiting from the
favorable expansion of this demographic group, partially offset by a selective
disinvestment in unprofitable states and under-performing agents. AARP premiums
represented 64% of the 1996 Personal operations premium, up from 62% in 1995 and
59% in 1994.
Underwriting results decreased by $89 in 1996, with a 4.3 point increase in the
combined ratio. These results were due to severe catastrophe and winter storm
losses, partially offset by improved automobile profitability resulting from
expanded cost containment initiatives. Underwriting results improved by $35 in
1995 over 1994 with a corresponding 1.8 point improvement in the combined ratio
due to lower catastrophe losses and improved automobile results.
- 13 -
Reinsurance
- -----------
1996 1995 1994
- ----------------------------------------------------------------
Written premiums $ 613 $ 522 $ 481
Underwriting results $ (15) $ (22) $ (7)
Combined ratio 102.8 104.3 101.8
- ----------------------------------------------------------------
The Hartford assumes reinsurance worldwide through its seven Hartford
Reinsurance Company ("HartRe") offices located in Hartford, San Francisco,
Toronto, London, Madrid, Munich and Hong Kong. HartRe primarily writes treaty
reinsurance through professional reinsurance brokers covering various property,
casualty, specialty and marine classes of business.
Written premiums increased 17% in 1996 and 9% in 1995 primarily due to growth in
U.S. casualty and specialty lines. This growth resulted from a combination of
new business opportunities, an increased level of renewals, and continued new
product development in specialty lines, partially offset by a reduction in
domestic and international property and marine rates.
1996 underwriting results increased $7 compared with 1995. Excluding the impact
of the 1995 IRI fire loss described previously, underwriting results decreased
$25 in 1996 due to underwriting losses of $11, resulting from a strategic shift
in the business mix to longer-tailed casualty and specialty lines, catastrophe
and severe winter storm losses of $5 and several large individual risk losses of
$9.
1995 underwriting results decreased $15 compared with 1994 due primarily to
HartRe's participation in the IRI pool which suffered its largest single loss.
HartRe's share of that single loss was $32. Excluding the impact of this loss,
HartRe generated an underwriting gain of $10 and a combined ratio of 97.4 in
1995.
OTHER MISCELLANEOUS EXPENSES
Other miscellaneous expenses, which also include miscellaneous income items,
were $89 in 1996, up from $71 in 1995. This increase was primarily due to
increased debt costs from additional borrowings partially offset by increased
service fee income from third party administration and involuntary pool
servicing contracts. Two major national servicing contracts, entered into in
1996, contributed to this increase in service fee income.
Other miscellaneous expenses for 1995 of $71 increased from $29 in 1994. This
increase was largely attributable to a decrease in service fee income from third
party administration and involuntary pool servicing contracts. The reduction in
service fee income was due to lower servicing carrier allowances caused by the
substantial depopulation of workers' compensation and involuntary pools.
Increased debt costs also impacted other miscellaneous expenses in 1995.
OUTLOOK
Difficult market conditions and intense price competition within the property
and casualty industry show no signs of diminishing in the near term. However,
two major actions were completed in 1996 which management believes will
counterbalance these negative external factors and position the North American
Property & Casualty segment for significant improvement in operating performance
in 1997. First, the adverse impact on earnings from environmental and asbestos
liabilities that had been experienced in prior years was addressed through the
establishment of additional reserves upon completion of a thorough database
review as described in the Environmental and Asbestos Claims section. In
addition, the North American Property & Casualty segment was reorganized to
maximize responsiveness to its customers by grouping market segments and product
lines according to their respective markets and further strengthening an already
strong, results-focused management team. As a result of these actions, as well
as dedication to growing targeted market segments, rigorous expense management
and utilization of alternative distribution channels, management believes the
North American Property & Casualty segment stands poised to successfully
overcome the challenges ahead.
================================================================================
LIFE
================================================================================
OPERATING SUMMARY
1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
Earned premiums and other considerations $ 3,068 $ 2,643 $ 2,116
Net investment income 1,323 1,114 922
Net realized capital gains (losses) -- (4) 1
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL REVENUES 4,391 3,753 3,039
-----------------------------------------------------------------------------------------------------------------------
Benefits, claims and claim adjustment expenses 2,435 1,978 1,909
Amortization of deferred policy acquisition costs 241 193 145
Other expenses 1,337 1,251 764
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL BENEFITS, CLAIMS AND EXPENSES 4,013 3,422 2,818
-----------------------------------------------------------------------------------------------------------------------
OPERATING INCOME 378 331 221
Income tax expense 129 113 71
- ---------------------------------------------------------------------------------------------------------------------------------
NET INCOME 249 218 150
Less: Net realized capital gains (losses), after-tax -- (3) 1
Other charges (2) -- --
- ---------------------------------------------------------------------------------------------------------------------------------
CORE EARNINGS $ 251 $ 221 $ 149
- ---------------------------------------------------------------------------------------------------------------------------------
- 14 -
Core earnings in the Life segment increased $30, or 14%, to $251 in 1996 from
$221 in 1995 primarily reflecting (i) an increase in earnings of $32 in the
Investment Products division principally driven by an increase in total account
value due to sales of individual annuities and stock market appreciation, (ii) a
$7 increase in the Individual Life Insurance division due to growth in
individual life insurance in force and favorable mortality experience, (iii) an
increase in earnings of $13 in the Employee Benefits division principally due to
an increase in group insurance premiums and favorable morbidity experience and
(iv) a decrease in core earnings of $22 in the Corporate Operation division due
primarily to a guaranty fund adjustment of $10 in 1995 resulting from lower than
expected insolvencies in the insurance industry as well as an increase in debt
service costs in 1996.
Core earnings increased $72, or 48%, to $221 in 1995 from $149 in 1994 largely
due to (i) a $30 increase in the Investment Products division principally driven
by an increase in total account value, (ii) an $11 increase in the Individual
Life Insurance division principally due to growth in the inforce block and
favorable mortality experience and expense trends and (iii) a $21 increase in
the Employee Benefits division principally due to an increase in group premiums
and favorable morbidity experience, as well as growth in the COLI block of
business.
The Life segment operates in three principal divisions: Investment Products,
Individual Life Insurance and Employee Benefits as outlined in the table below.
In addition, the Life segment maintains a Corporate Operation through which it
reports net investment income on assets representing surplus not assigned to any
of its business segments and certain other revenue and expenses not specifically
allocable to any of its business segments.
SUMMARY RESULTS BY DIVISION
1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
Core Core Core
Revenues Earnings Revenues Earnings Revenues Earnings
- ---------------------------------------------------------------------------------------------------------------------------------
Investment Products $ 1,018 $ 146 $ 761 $ 114 $ 571 $ 84
Individual Life Insurance 472 44 408 37 391 26
Employee Benefits 2,834 79 2,523 66 2,049 45
Corporate Operation 67 (18) 61 4 28 (6)
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL $ 4,391 $ 251 $ 3,753 $ 221 $ 3,039 $ 149
- ---------------------------------------------------------------------------------------------------------------------------------
The following describes each division, including products and services offered,
and analyzes the above results.
Investment Products
- -------------------
The Investment Products division markets fixed and variable annuities, deferred
compensation plan services for municipal governments and corporations,
structured settlements and other special purpose annuity contracts, investment
management contracts, and mutual funds. The Company was rated the number one
writer of variable annuities for 1996 with a 13% market share according to the
Variable Annuity and Research Data Service.
Revenues increased $257, or 34%, to $1.0 billion in 1996 from $761 in 1995. This
increase was principally the result of a $216 increase in premiums and other
considerations, reflecting a substantial increase in aggregate fees earned due
to the division's growing block of separate account assets. The average separate
account assets of this segment increased to $37.5 billion in 1996 from $26.3
billion in 1995 primarily due to sales of individual annuities of approximately
$10 billion in 1996 and $7 billion in 1995, as well as significant market
appreciation in both 1996 and 1995. In addition, the average general account
assets of this segment increased to $7.7 billion in 1996 from $6.5 billion in
1995 largely as a result of growth in the general account portion of the
individual variable annuity products of the Investment Products division. The
growth in this division in 1996 also resulted in an increase in total benefits,
claims and expenses of $199, or 34%, to $791 in 1996 from $592 in 1995. The 38%
growth in average account value in 1996, coupled with an overall reduction in
individual annuity expenses as a percentage of total individual annuity account
value to 28 basis points in 1996 from 31 basis points in 1995, contributed to
the growth in core earnings of $32, or 28%, to $146 in 1996 from $114 in 1995.
Similar factors generated an increase in 1995, as compared with 1994, in
revenues of $190, or 33%, average general account assets of $1.3 billion, or
26%, average separate account assets of $8.0 billion, or 44%, total benefits,
claims and expenses of $149, or 34%, core earnings of $30, or 36%, and a
reduction in individual annuity expenses as a percentage of total individual
annuity account value to 31 basis points in 1995 from 35 basis points in 1994.
Individual Life Insurance
- -------------------------
Individual Life Insurance products include variable life insurance, universal
life insurance, interest-sensitive whole life insurance and term life policies.
Individual Life Insurance business also includes modified guaranteed life and
traditional whole life.
Revenues increased $64, or 16%, to $472 from $408 in 1995. This increase was
primarily due to a $47 increase in premiums and other considerations, reflecting
an increase in cost of insurance charges and variable life fees applied to a
larger
- 15 -
block of business as insurance in force increased to $52 billion in 1996 from
$48 billion in 1995. Total benefits, claims and expenses increased $54, or 15%,
to $404 in 1996 from $350 in 1995. This increase reflects the increase in the
block of individual life insurance business offset partially by favorable
mortality results. The combination of business growth and favorable mortality
experience resulted in an increase in core earnings of $7, or 19%, to $44 in
1996 from $37 in 1995.
Two other events, along with those mentioned above, influenced the results of
1995 compared with 1994. In 1994, the Life segment assumed $218 of individual
life insurance reserves from the Pacific Standard Life Insurance Company. This
affected both revenues and total benefits, claims and expenses for 1994.
Expenses were also positively influenced by the consolidation of the
professional functions previously performed in Minneapolis, Minnesota into the
Life segment's Simsbury, Connecticut location. The combination of this
acquisition, internal growth, expense management and favorable mortality
experience caused core earnings in this division to increase $11, or 42%, to $37
in 1995 from $26 in 1994.
Employee Benefits
- -----------------
Employee Benefits consists of two areas of operation: Group Insurance and
Specialty Insurance Operations. Through the Group Insurance Operation, the
Company markets group long-term and short-term managed disability, group life,
stop loss, and supplementary medical coverage to employers and
employer-sponsored plans and accidental death and dismemberment, travel and
special risk coverage to associations. The Specialty Insurance Operation unit
consists of the Company's COLI business, life/health reinsurance operations, and
international operations.
Revenues increased $311, or 12%, to $2.8 billion in 1996 from $2.5 billion in
1995. This increase was largely the result of (i) a $162 increase in premiums
and other considerations, reflecting a $226 increase in group insurance premiums
from strong group disability sales and renewals, partially offset by a decline
in leveraged COLI premiums as a result of the Health Insurance Portability and
Accountability Act of 1996 ("HIPA Act of 1996", as discussed below) legislation
and (ii) a $149 increase in net investment income, primarily due to an increase
in COLI account values. Total benefits, claims and expenses increased $295, or
12%, to $2.7 billion in 1996 from $2.4 billion in 1995. This increase generally
reflected an increased block of group disability business and other group
insurance and an increase in the Life segment's COLI block of business,
partially offset by a $41 decrease in dividends to policyholders primarily due
to the elimination of sales of leveraged COLI as a result of the enactment of
the HIPA Act of 1996. In addition, expenses in the group insurance business, as
a percentage of premiums, have declined over the past several years. This trend,
along with favorable mortality and morbidity experience, as well as the factors
mentioned above, resulted in an increase in core earnings in this division of
$13, or 20%, to $79 in 1996 from $66 in 1995.
Sales of leveraged COLI were $867 and $306 in 1995 and 1994, respectively.
Revenues increased $474, or 23%, in 1995, primarily due to a $353 increase
related to COLI premiums. Total benefits, claims and expenses increased $442, or
22%, in 1995 of which $344 related to COLI. The additional growth in the COLI
and group insurance business, expense reductions associated with the decision to
exit the fully insured medical business, and factors similar to those discussed
above for 1996 caused core earnings in this division to increase $21, or 47%, to
$66 in 1995 from $45 in 1994.
OUTLOOK
Management believes that it has developed and implemented strategies to maintain
and enhance its position as a market leader within the financial services
industry, to continue the Life segment's asset growth and to maximize
shareholder value. The Life segment's strong market position in each of its
businesses, coupled with the growth potential management believes exists in its
markets, provides opportunities to increase sales of the Life segment's products
and services as individuals increasingly save and plan for retirement, protect
themselves and their families against disability or death and prepare their
estates for an efficient transfer of wealth between generations.
The HIPA Act of 1996 phases out the deductibility of interest on policy loans
under COLI by 1998, thus eliminating all future sales of leveraged COLI. The
leveraged COLI product has been an important contributor to the Life segment's
profitability in recent years and will continue to contribute to the
profitability of the Life segment in the future, although the level of profit
will decline after 1998. However, the Employee Benefits division has growth
opportunities through variable COLI and other non-qualified deferred
compensation vehicles, reinsurance and international operations. The Company
expects continued growth in core earnings for the Life segment in 1997. See the
Capital Resources and Liquidity section under "Subsequent Events".
- 16 -
================================================================================
INTERNATIONAL
================================================================================
OPERATING SUMMARY
1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
Earned premiums $ 1,342 $ 1,309 $ 1,116
Net investment income 205 183 135
Net realized capital gains 79 48 23
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL REVENUES 1,626 1,540 1,274
-----------------------------------------------------------------------------------------------------------------------
Benefits, claims and claim adjustment expenses 931 901 757
Amortization of deferred policy acquisition costs 284 276 241
Other expenses 201 179 163
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL BENEFITS, CLAIMS AND EXPENSES 1,416 1,356 1,161
-----------------------------------------------------------------------------------------------------------------------
OPERATING INCOME 210 184 113
Income tax expense 71 61 37
- ---------------------------------------------------------------------------------------------------------------------------------
NET INCOME 139 123 76
Less: Net realized capital gains, after-tax 52 32 14
- ---------------------------------------------------------------------------------------------------------------------------------
CORE EARNINGS $ 87 $ 91 $ 62
- ---------------------------------------------------------------------------------------------------------------------------------
The International segment includes direct insurance business written by local
companies in the United Kingdom, namely ITT London & Edinburgh, the Netherlands
and Belgium, Zwolsche Algemeene, and Spain, ITT Ercos. These companies primarily
offer property and casualty products in both personal and commercial lines.
Zwolsche Algemeene and ITT Ercos also offer life products designed to meet the
needs of local customers.
Core earnings in the International segment of $87 in 1996 decreased $4, or 4%,
from 1995, following a $29, or 47%, increase in 1995 over 1994. The decrease in
earnings from 1995 was primarily the result of deteriorating underwriting
results due to heightened competition in the United Kingdom and unfavorable
foreign exchange impacts, partially offset by growth in net investment income.
1996 revenues of $1.6 billion were $86, or 6%, higher than 1995 primarily due to
growth at Zwolsche Algemeene and 1995 results at ITT Ercos only reflecting eight
months of activity due to its acquisition by the Company in May 1995. Growth
over 1995 was dampened by soft market conditions in the United Kingdom.
Additionally, the U.S. dollar strengthened during 1996 compared to 1995,
resulting in unfavorable foreign exchange translation movements during 1996
resulting in approximately $37 and $3 of the decrease in revenues and core
earnings, respectively.
1995 revenues of $1.5 billion and core earnings of $91 were $266, or 21%, and
$29, or 47%, respectively, higher than 1994, the result of significantly
improved investment and underwriting performance, premium growth, and the
acquisition of ITT Ercos. Favorable foreign exchange translation movements
during 1995 accounted for approximately $89 and $2 of the increase in revenues
and core earnings, respectively.
The International segment is organized into the following three business units:
ITT London & Edinburgh, Zwolsche Algemeene and ITT Ercos. In addition, Other
primarily represents home office expenses associated with managing international
operations.
SUMMARY RESULTS BY BUSINESS UNIT
1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
Core Core Core
Revenues Earnings Revenues Earnings Revenues Earnings
- ---------------------------------------------------------------------------------------------------------------------------------
ITT London & Edinburgh $ 1,088 $ 56 $ 1,071 $ 66 $ 945 $ 46
Zwolsche Algemeene 459 32 416 25 328 17
ITT Ercos 78 3 51 2 -- --
Other 1 (4) 2 (2) 1 (1)
- ---------------------------------------------------------------------------------------------------------------------------------
Total $ 1,626 $ 87 $ 1,540 $ 91 $ 1,274 $ 62
- ---------------------------------------------------------------------------------------------------------------------------------
ITT London & Edinburgh
- ----------------------
1996 revenues at ITT London & Edinburgh of $1.1 billion increased $17, or 2%,
over 1995. Core earnings of $56 decreased $10, or 15%, from 1995 primarily the
result of deteriorating underwriting results due to heightened competition in
the United Kingdom, partially offset by growth in net investment income. Also,
strengthening of the U.S. dollar resulted in negative foreign exchange impacts
on revenues of $15 and core earnings of $2. The increase in revenues was due to
improved investment income, partially offset by a shortfall in written premiums
due to the intense competitive climate in the United Kingdom. Personal lines
underperformed the prior year where shortfalls in automobile were partially
offset by improvements in personal credit insurance, including life. Commercial
lines sales were also dampened due to the increasingly competitive market.
- 17 -
1995 revenues at ITT London & Edinburgh of $1.1 billion and core earnings of $66
were $126, or 13%, and $20, or 44%, respectively, higher than 1994. These
increases were due to significant improvement in investment performance, premium
growth and foreign exchange rates, offset somewhat by slightly lower
underwriting results. Commercial lines growth moderated during the year due to a
more competitive market. Personal lines growth was mixed with continued
improvement in automobile and creditor products.
Zwolsche Algemeene
- ------------------
Zwolsche Algemeene's 1996 revenues of $459 and core earnings of $32 improved
$43, or 10%, and $7, or 28%, respectively, compared with 1995. These increases
were due to improved premium growth and stronger underwriting results. Due to
the strengthening U.S. dollar, foreign exchange had an adverse effect of $20 on
revenues and a negligible impact on core earnings. Property and casualty growth
in 1996 was relatively strong in motor as market pricing improved. Performance
was also strong in life savings and mortgage products business.
Zwolsche Algemeene's 1995 revenues of $416 and core earnings of $25 improved
$88, or 27%, and $8, or 47%, respectively, compared with 1994. These increases
were due to improved investment performance, moderate premium growth, stronger
underwriting results and foreign exchange impacts. Property and casualty growth
in 1995 was moderate as market pricing slowly improved. Strong growth in life
savings and pension products was partially offset by lower than expected growth
in mortgage savings product business.
ITT Ercos
- ---------
The Hartford acquired ITT Ercos in May 1995. 1996 revenues at ITT Ercos of $78
exceeded the eight months reported for 1995 by $27. Core earnings of $3 were $1
higher than 1995. During 1996 the company has consolidated its branch offices
into one centralized location and reorganized its national sales organization.
These actions were taken to improve expense competitiveness and service which
will position the company for future growth.
OUTLOOK
The outlook for 1997 for commercial and personal lines at ITT London & Edinburgh
is a continuation of heightened competition. Personal lines should experience
strong growth in homeowners business due to an agreement entered into during
1996 with Nationwide Building Society. This agreement provides exclusive rights
to ITT London & Edinburgh to sell homeowners products to the retail customers of
Nationwide. Continuing competition from direct writing companies and entry by
non-traditional risk bearers into markets such as homeowners is anticipated.
The outlook at Zwolsche Algemeene for 1997 is for moderate written premium
growth in property and casualty due to an increase in competition. Continued
growth is also expected for life operations. Sales expectations of life savings
and pension products in the Netherlands continue to be strong due to their
associated tax advantages and expected continued low interest rate environment.
The Company continues to explore the viability of opportunities in both life and
property and casualty business in the Netherlands in 1997 as the government
continues to review moving certain social security programs into the private
sector.
Relative to ITT Ercos, the outlook in the Spanish market is for moderate growth.
ITT Ercos will build on the improved expense and operational foundation
established in 1996 to expand its presence in both life and non-life business
during 1997.
The International segment continues to explore acquisition opportunities in
Western Europe, Latin America and Asia.
================================================================================
RUNOFF
================================================================================
OPERATING SUMMARY
1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
Earned premiums $ 9 $ 14 $ 17
Net investment income 334 477 596
Net realized capital gains (losses) (220) 29 (3)
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL REVENUES 123 520 610
-----------------------------------------------------------------------------------------------------------------------
Benefits, claims and claim adjustment expenses 582 575 578
Amortization of deferred policy acquisition costs (1) 11 6
Other expenses 49 35 23
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL BENEFITS, CLAIMS AND EXPENSES 630 621 607
------------------------------------------------------------------------------------------------------------------------
OPERATING INCOME (LOSS) (507) (101) 3
Income tax expense (benefit) (171) (35) 1
- ---------------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) (336) (66) 2
Less: Net realized capital gains (losses), after-tax [1] (5) 19 (1)
Other charges (260) -- --
- ---------------------------------------------------------------------------------------------------------------------------------
CORE EARNINGS $ (71) $ (85) $ 3
- ---------------------------------------------------------------------------------------------------------------------------------
[1] 1996 excludes the Closed Book GRC net realized capital losses of $137,
after-tax. This amount is included in other charges.
- 18 -
The Runoff segment consists of operations of The Hartford which have
discontinued writing new and renewal business. The property and casualty
operations of the Runoff segment primarily include First State Insurance Company
and its subsidiaries ("First State") and Fencourt Reinsurance Company, Ltd.
("Fencourt"). The primary focus of these operations is the proper disposition of
claims, resolving disputes and collecting reinsurance proceeds related largely
to business underwritten and reinsured prior to 1985.
The Runoff segment also consists of Closed Book GRC which had no new or renewal
business as of the end of 1994. Substantially all of the products included in
Closed Book GRC are guaranteed investment contracts with guaranteed fixed or
indexed rates for a specific period. Prior to 1996, Closed Book GRC was reported
as a component of the Life segment.
Closed Book GRC results have been negatively affected by lower investment rates
and earnings in the related investment portfolio (primarily consisting of
collateralized mortgage obligations and mortgage backed securities) due to
prepayments experienced in excess of assumed levels in years prior to 1995.
Closed Book GRC was also affected by the interest rate rise in 1994 when the
duration of its assets lengthened relative to that of the liabilities. Due to
the reduced investment earnings and duration mismatch, the portfolio had
insufficient assets to fully fund its liability commitments. During the third
quarter of 1996, the Life segment transferred assets in the amount of $200 to
the Runoff segment to adequately fund Closed Book GRC so that future cash
infusions would be minimal.
Although the Closed Book GRC asset portfolio as a whole is duration matched with
its liabilities, certain investments continue to have a longer maturity than
their corresponding liabilities and will need to be liquidated prior to maturity
in order to meet the specific liability commitments. To protect the existing
value of these investments, the Company entered into various hedge transactions
in late September 1996 which substantially eliminated further fluctuation in
fair value of the investments due to interest rate changes.
The Hartford's accounting policy for impairment of investments requires
recognition of an other than temporary impairment charge on a security if it is
determined that the Company is unable to recover all amounts due under the
contractual obligations of the security. In addition, the Company has
established specific criteria to be used in the impairment evaluation of an
individual portfolio of assets. Specifically, if the asset portfolio is
supporting a runoff operation, is forced to be liquidated prior to maturity to
meet liability commitments, and has a fair value below amortized cost, which
will not materially fluctuate as a result of future interest rate changes, then
an other than temporary impairment has been determined to have occurred and is
recognized. The Company then continues to review the impaired securities for
appropriate valuation.
With the initiation of the hedge transactions, which eliminated the possibility
that the fair value of the Closed Book GRC investments would recover to their
current amortized cost, an other than temporary impairment loss of $(82)
after-tax was determined to have occurred and was recorded in September 1996.
Also, during the third quarter, Closed Book GRC had asset sales resulting in
proceeds of approximately $500 and a realized loss of $(55) after-tax. The asset
sales were undertaken as a result of liquidity needs and favorable market
conditions for certain securities. Other charges of $(32) after-tax were also
incurred in the third quarter.
During the fourth quarter of 1996, an additional other than temporary impairment
loss of $(6) after-tax was determined to have occurred, and has been included in
realized losses.
Other charges primarily consist of a $169 third quarter 1996 charge in the
Closed Book GRC (as discussed previously) and an increase in environmental and
asbestos reserves at First State of $81 as discussed in the Environmental and
Asbestos Claims section.
Revenues decreased 76% in 1996 and 15% in 1995 as a result of a decline in net
investment income for both periods and net realized capital losses for 1996 in
Closed Book GRC. Runoff segment core earnings increased $14 in 1996 over 1995
and decreased $88 in 1995 from the prior year. These results reflect the core
earnings of Closed Book GRC of $(51), $(68) and $1 for 1996, 1995 and 1994,
respectively.
OUTLOOK
Management expects that the net income (loss) from Closed Book GRC in the years
subsequent to 1996 will be immaterial based on current projections for the
performance of the assets and liabilities associated with Closed Book GRC and
expectations regarding future asset sales and the stabilizing effect of the
hedge transactions. However, no assurance can be given that, under certain
unanticipated economic circumstances, further losses in respect of Closed Book
GRC will not occur in the future. Additionally, except for the uncertainties
related to dispute resolution, reinsurance collection, and those discussed in
the Environmental and Asbestos Claims section, management does not anticipate
the future financial performance of the property and casualty operations of the
Runoff segment to have a material effect on the operating results of the
Company.
- 19 -
================================================================================
RESERVES
================================================================================
The Hartford establishes property and casualty reserves to provide for the
estimated costs of paying claims made by policyholders or against policyholders.
These reserves include estimates for both claims that have been reported, and
those that have been incurred, but not yet reported, and include estimates of
all expenses associated with processing and settling these claims. Estimating
the ultimate cost of future claims and claim adjustment expenses is an uncertain
and complex process. This estimation process is based largely on the assumption
that past developments are an appropriate predictor of future events, and
involves a variety of actuarial techniques that analyze experience, trends and
other relevant factors. The uncertainties involved with the reserving process
have become increasingly unpredictable due to a number of complex factors
including social and economic trends and changes in the concepts of legal
liability and damage awards. Accordingly, final claim settlements may vary from
the present estimates, particularly when those payments may not occur until well
into the future.
The Hartford continually reviews its estimated claims and claim adjustment
expense reserves as additional experience and other relevant data become
available and reserve levels are adjusted accordingly. Adjustments to previously
established reserves, if any, will be reflected in the operating results of the
period in which the adjustment is made. In the judgment of management, all
information currently available has been properly considered in the reserves
established for claims and claim adjustment expenses. For a discussion of
environmental and asbestos claims and the uncertainties related to these
reserves, refer to the next section.
In accordance with the insurance laws and regulations under which Life operates,
life insurance subsidiaries of The Hartford establish actuarially determined
reserves to meet their obligations on their outstanding life and disability
insurance contracts, as well as reserves for their universal life and investment
contracts. Reserves for life insurance and disability contracts are based on
mortality and morbidity tables in general use in the United States, modified to
reflect The Hartford's experience. Management believes that these reserves, with
additions from premiums to be received, and with interest on such reserves
compounded annually at certain assumed rates, will be sufficient to meet The
Hartford's policy obligations at their maturities or in the event of an
insured's death. Reserves for universal life insurance and investment products
represent policy account balances before applicable surrender charges.
================================================================================
ENVIRONMENTAL AND ASBESTOS CLAIMS
================================================================================
The Hartford continues to receive claims asserting damages from environmental
exposures and for injuries from asbestos and asbestos-related products, both of
which affect the North American Property & Casualty, International and Runoff
segments. Environmental claims relate primarily to pollution and related
clean-up costs. With regard to these claims, uncertainty exists which impacts
the ability of insurers and reinsurers to estimate the ultimate reserves for
unpaid losses and related settlement expenses. The Hartford finds that
conventional reserving techniques cannot estimate the ultimate cost of these
claims because of inadequate development patterns and inconsistent emerging
legal doctrine. For the majority of environmental claims and many types of
asbestos claims, unlike any other type of contractual claim, there is almost no
agreement or consistent precedent to determine what, if any, coverage exists or
which, if any, policy years and insurers or reinsurers may be liable. Further
uncertainty arises with environmental claims since claims are often made under
policies, the existence of which may be in dispute, the terms of which may have
changed over many years, which may or may not provide for legal defense costs,
and which may or may not contain environmental exclusion clauses that may be
absolute or allow for fortuitous events. Courts in different jurisdictions have
reached disparate conclusions on similar issues and in certain situations have
broadened the interpretation of policy coverage and liability issues. In light
of the extensive claim settlement process for environmental and asbestos claims,
involving comprehensive fact gathering, subject matter expertise and intensive
litigation, The Hartford established an environmental claims facility in 1992 to
defend itself aggressively against unwarranted claims and to minimize costs.
Within the property and casualty insurance industry, progress has been made in
developing sophisticated, alternative methodologies utilizing company experience
and supplemental databases to assess environmental and asbestos liabilities.
Consistent with The Hartford's practice of using the best techniques to estimate
the Company's environmental and asbestos exposures, a study was initiated in
April 1996. The Hartford, utilizing internal staff supplemented by outside legal
and actuarial consultants, completed the study in October 1996.
The study included a review of identified environmental and asbestos exposures
of North American Property & Casualty, U.S. exposures of The Hartford's
International segment and exposures of the Runoff segment, and covered the
Company's Commercial, Personal, and Reinsurance operations. The methodology
utilized a ground up analysis of policy, site and exposure level data for a
representative sample of The Hartford's claims. The results of the evaluation
were extrapolated against the balance of the claim population to estimate the
Company's overall exposure for reported claims.
In addition to estimating liabilities on reported environmental and asbestos
claims, The Hartford estimated reserves for claims incurred but not reported
("IBNR"). The IBNR reserve was estimated using information on reporting patterns
of known insureds, characteristics of insureds such as limits exposed,
attachment points and number of coverage years involved, third party costs, and
closed claims.
Included in The Hartford's analysis of environmental and asbestos exposures was
a review of applicable reinsurance
- 20 -
coverage. Reinsurance coverage applicable to the sample was used to estimate the
reinsurance coverage that applied to the balance of the reported environmental
and asbestos claims and to the IBNR estimates.
An international actuarial firm reviewed The Hartford's approach and concluded
that the way the Company studied its exposures, the thoroughness of its analysis
and the way The Hartford came to its estimates was reasonable and comprehensive.
Upon completion of the study and assessment of the results in October 1996, The
Hartford determined that its environmental and asbestos reserves should be
increased, on an undiscounted basis, by $493 (net of reinsurance) and $292 (net
of reinsurance), respectively.
Reserve activity for both reported and unreported environmental and asbestos
claims, including reserves for legal defense costs, for the years ended December
31, 1996 and 1995, was as follows (net of reinsurance):
ENVIRONMENTAL AND ASBESTOS CLAIMS
CLAIMS AND CLAIM ADJUSTMENT EXPENSES
1996 1995 1994
-------------------------------------------- ------------ -----------
Environmental Asbestos Total Total [1] Total [1]
---------------- -------------- ------------ ------------ -----------
Beginning liability $ 926 $ 410 $ 1,336 $ 1,334 $ 1,311
Claims and claim adjustment expenses incurred 603 322 925 163 145
Claims and claim adjustment expenses paid (124) (35) (159) (161) (122)
Other [2] 34 20 54 -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Ending liability [2] [3] $ 1,439 $ 717 $ 2,156 $ 1,336 $ 1,334
- ---------------------------------------------------------------------------------------------------------------------------------
[1] Prior to December 31, 1995, reserves were not split between environmental
and asbestos exposures.
[2] The 1996 ending liability includes reclassifications of reserves that were
not previously identified as environmental and asbestos.
[3] The ending liabilities are net of reinsurance on reported and unreported
claims of $1,972, $1,939 and $1,463 for 1996, 1995 and 1994, respectively.
Gross of reinsurance, the years ending December 31, 1996 and 1995 reserves
for environmental and asbestos were $2,342 and $1,786 and $1,707 and
$1,568, respectively. The 1995 reinsurance amount includes $440 of ceded
incurred but not reported ("IBNR") claims for which the equivalent 1994
classification has not been identified.
The Hartford's pretax operating earnings have been impacted over the last three
years by incurred environmental and asbestos claims and claim adjustment
expenses as follows: $925 in 1996, $163 in 1995 and $145 in 1994 with all years
reported net of reinsurance.
The Hartford believes that the environmental and asbestos reserves reported at
December 31, 1996 are a reasonable estimate of the ultimate remaining liability
for these claims based upon known facts, current assumptions and The Hartford's
methodologies. Future social, economic, legal or legislative developments may
alter the original intent of policies and the scope of coverage. The Hartford
will continue to evaluate new developments and methodologies as they become
available for use in supplementing the Company's ongoing analysis and review of
its environmental and asbestos exposures. These future reviews may result in a
change in reserves, impacting The Hartford's results of operations in the period
in which the reserve estimates are changed. While the effects of future changes
in facts, legal and other issues could have a material effect on future results
of operations, The Hartford does not expect such changes would have a material
effect on its liquidity or financial condition.
- 21 -
================================================================================
INVESTMENTS
================================================================================
An important element of the financial results of The Hartford is return on
invested assets. The Hartford's investment activities are divided between the
reportable segments of North American Property & Casualty, Life, International,
and Runoff. The investment portfolios for these operations are managed based on
the underlying characteristics and nature of their respective liabilities.
NORTH AMERICAN PROPERTY & CASUALTY
The investment objective of the North American Property & Casualty segment is
the maximization of after-tax income consistent with long-term capital growth
and maintenance of appropriate liquidity to meet corporate and policyholder
obligations. Investment strategies are developed based on a variety of factors
including business needs, regulatory requirements and tax considerations.
During 1996, the North American Property & Casualty segment continued its
strategy of maximizing after-tax income through increased ownership of
tax-exempt municipal bonds. On an after-tax basis, municipal bonds generally
continued to provide significant incremental income over taxable securities. In
1996, net purchases of tax-exempt municipal bonds of $2.0 billion increased
holdings to 55% of total invested assets compared to 44% and 26% as of December
31, 1995 and 1994, respectively. In addition to employing new cash flow to
purchase municipal bonds, lower yielding taxable bonds were sold with proceeds
reallocated to the higher after-tax yielding municipal market.
A supplemental benefit resulting from the purchase of municipal bonds continued
to be the improvement in credit quality. While the bond portfolio has
consistently remained "AA" average quality over many years, municipal bonds
purchased in 1996 had an average rating of "AA+", an improvement on the "AA-"
rating on the taxable bonds sold.
Another strategy employed in 1996, which increased income and provided
diversification, was the purchase of additional high yield securities. The high
yield sector also achieved excellent total return performance in 1996. Holdings
of high yield investments increased to $708, or 6%, of total invested assets
compared to $505, or 4%, at December 31, 1995. Included in December 31, 1996
high yield holdings were $135 in emerging market bonds compared to $60 at
December 31, 1995.
The North American Property & Casualty segment also continued its strategy of
increasing equity exposure. In 1996, $275 of net purchases of common stock
increased holdings to $1.3 billion, or 10%, of total invested assets at year end
compared to $922, or 8%, of total invested assets at year end 1995.
Increased holdings of municipal bonds, high yield securities and common stock
were partially accomplished through the sale of more interest rate sensitive
collateralized mortgage obligations (CMO) and residential mortgage backed
securities (MBS). At December 31, 1996, holdings in CMO and MBS were $868, or
7%, of total invested assets compared to $1.7 billion, or 14%, at December 31,
1995.
Total invested assets were $12.8 billion at December 31, 1996 and were comprised
primarily of fixed maturities of $11.3 billion and other investments of $1.5
billion, primarily equity securities. Real estate investments consisted of $29
of land after the sale of substantially all real estate in 1995. The table below
summarizes fixed maturity holdings by type.
FIXED MATURITIES BY TYPE
- -------------------------------------------------------------------
1996 1995
- -------------------------------------------------------------------
FAIR FAIR
TYPE VALUE PERCENT VALUE PERCENT
- -------------------------------------------------------------------
Corporate $2,160 19.1% $2,427 22.8%
CMO 655 5.8% 1,462 13.7%
Municipal-tax-exempt 7,123 63.2% 5,171 48.5%
Gov't/Gov't agencies-U.S. 15 0.1% 249 2.3%
Asset backed securities ("ABS") 206 1.8% 239 2.2%
Gov't/Gov't agencies-For. 279 2.5% 255 2.4%
MBS-agency 213 1.9% 244 2.3%
Commercial MBS 107 0.9% 14 0.1%
Municipal-taxable 68 0.6% 75 0.7%
Redeemable pref'd stock 47 0.4% -- --
Short-term 419 3.7% 531 5.0%
- -------------------------------------------------------------------
TOTAL FIXED MATURITIES $11,292 100.0% $10,667 100.0%
- -------------------------------------------------------------------
This segment maintains a high quality fixed maturity portfolio. At December 31,
1996, approximately 93% of the fixed maturity portfolio was invested in
investment-grade securities. The table below summarizes fixed maturity holdings
by credit quality.
FIXED MATURITIES BY CREDIT QUALITY
- -----------------------------------------------------------------
1996 1995
- -----------------------------------------------------------------
FAIR FAIR
CREDIT QUALITY VALUE PERCENT VALUE PERCENT
- -----------------------------------------------------------------
AAA $4,296 38.0% $4,570 42.8%
AA 2,538 22.5% 2,137 20.0%
A 1,683 14.9% 1,862 17.5%
BBB 799 7.1% 649 6.1%
Gov't 720 6.4% 252 2.4%
BB & below 581 5.1% 459 4.3%
Not rated 256 2.3% 207 1.9%
Short-term 419 3.7% 531 5.0%
- -----------------------------------------------------------------
TOTAL FIXED MATURITIES $11,292 100.0% $10,667 100.0%
- -----------------------------------------------------------------
The taxable equivalent duration of the December 31, 1996 fixed maturity
portfolio was 5.0 years compared to 4.4 years at December 31, 1995. Duration is
defined as the market price sensitivity of the portfolio to parallel shifts in
the yield curve.
The North American Property & Casualty segment uses a minimal amount of
derivatives in managing its investments. The notional amount of derivatives was
$1 and $14 as of December 31, 1996 and 1995, respectively.
- 22 -
Investment Results
- ------------------
The table below summarizes the North American Property & Casualty segment's
results for the past three years.
1996 1995 1994
---------------------------------------------------------------
Net investment income, before-tax $661 $646 $606
Net investment income, after-tax [1] 531 478 440
Yield on average invested assets,
before-tax [2] 5.52% 5.77% 5.65%
Yield on average invested assets,
after-tax [1] [2] 4.44% 4.28% 4.09%
Net realized capital gains,
before-tax $ 15 $ 29 $ 69
---------------------------------------------------------------
[1] Due to the significant holdings in tax-exempt investments an after-tax net
investment income and after-tax yield are also included.
[2] Represents net investment income (excluding net realized capital gains)
divided by average invested assets at cost (fixed maturities at amortized
cost).
For the year ended December 31, 1996, before-tax net investment income was $661
compared to $646 in 1995, an increase of 2%, while after-tax net investment
income increased 11%. Although before-tax yields on average invested assets
decreased to 5.52% in 1996 from 5.77% in 1995, the after-tax yield increased to
4.44% in 1996 from 4.28% in 1995. The increase in before-tax net investment
income was primarily due to increased ownership of high yield securities,
duration extension of 0.6 years and an increase in invested assets. While
before-tax yield decreased due to an increased allocation to common stocks and
municipal bonds and the sale of taxable bonds, increases in after-tax yield and
income were primarily due to the strategic increase in allocation to tax-exempt
municipal bonds.
For the year ended December 31, 1995, before-tax net investment income was $646
compared to $606 in 1994, an increase of 7%, while after-tax income increased
9%. Before-tax yields on average invested assets increased to 5.77% in 1995 from
5.65% in 1994. The after-tax yield increased to 4.28% in 1995 from 4.09% in
1994. The increases in net investment income and yields were primarily due to
the transition from lower yielding taxable bonds and real estate along with
increased ownership of tax-exempt municipal bonds.
Net realized capital gains declined to $15 in 1996 from $29 in 1995. Included in
1996 activity was the generation of $77 of realized gains in the common stock
portfolios which were partially offset by losses incurred in the sale of lower
yielding taxable bonds and certain real estate writedowns.
Net realized capital gains decreased to $29 in 1995 from $69 in 1994. The
reduction was primarily from the impact of the sale of the majority of the real
estate portfolio along with the sale of the lower yielding taxable bonds, both
at realized losses.
LIFE
The Life segment's investment operations are managed by its investment strategy
group which reports directly to senior management of the Company and consists of
a risk management unit and portfolio management unit. The risk management unit
is responsible for monitoring and managing the segment's asset/liability profile
and establishing investment objectives and guidelines; and, the portfolio
management unit is responsible for determining, within specified risk tolerances
and investment guidelines, the general asset allocation, duration and convexity
and other characteristics of the segment's general account and guaranteed
separate account investment portfolios. The investment staff of The Hartford
executes the strategic investment decisions of the portfolio management unit,
including the identification and purchase of securities that fulfill the
objectives of the investment strategy group.
The primary investment objective of the Life segment general account and
guaranteed separate accounts is to maximize after-tax returns consistent with
acceptable risk parameters (including the management of the interest rate
sensitivity of invested assets to that of policyholder obligations). The segment
is exposed to two primary sources of investment risk: credit risk, relating to
the uncertainty associated with the continued ability of a given obligor to make
timely payments of principal and interest, and interest rate risk, relating to
the market price and/or cash flow variability associated with changes in market
yield curves. Credit risk is managed through industry and issuer diversification
and asset allocation. Interest rate risk is managed as part of the segment's
asset/liability management strategies, including the use of certain hedging
techniques (which may include the use of certain financial derivatives), product
design, such as the use of the market value adjustment feature and surrender
charges, and proactive monitoring and management of certain non-guaranteed
elements of the segment's products (such as the resetting of credited interest
rates for policies that permit such adjustments). For a further discussion of
hedging strategies, including derivatives utilization, see the discussion on
Asset and Liability Management Strategies below, as well as the Notes to
Consolidated Financial Statements.
During 1996, the Life segment continued its objective of managing exposure to
securities that "underperform" in a falling interest rate environment. The
segment concentrated on reducing exposure to CMO and MBS asset sectors, and
re-deployed the funds into public and private corporate bonds, and other
nonresidential asset-backed securities. At December 31, 1996, holdings in CMO
and residential MBS were $1.5 billion, or 12%, of total invested assets
excluding policy loans compared to $2.7 billion, or 23%, at December 31, 1995.
At December 31, 1996, approximately 10.3% of the segment's fixed maturity
portfolio was invested in private placement securities (including Rule 144A
offerings). Private placement securities are generally less liquid than public
securities. However, covenants for private placements are generally designed to
mitigate the impact of such increased liquidity risk. Most of the private
placement securities in the segment's portfolio are rated by rating agencies.
Invested assets, excluding separate accounts, totaled $16.3 billion at December
31, 1996 and were comprised of $12.2 billion of fixed maturities, $3.8 billion
of policy loans, and other investments of $276. Policy loans, which carry a
weighted-average interest rate of 11.9%, as of December 31, 1996, are secured by
the cash value of the life policy. These loans do not mature in a conventional
sense, but expire in conjunction with the related policy liabilities. The table
below summarizes fixed maturity holdings by type.
- 23 -
FIXED MATURITIES BY TYPE
---------------------------------------------------------------
1996 1995
- ------------------------ ------------------- -------------------
FAIR FAIR
TYPE VALUE PERCENT VALUE PERCENT
- ----------------------------------------------------------------
Corporate $6,536 53.7% $5,146 45.0%
CMO 1,050 8.6% 2,071 18.1%
Gov't/Gov't agencies-U.S. 145 1.1% 260 2.3%
ABS 2,216 18.2% 1,782 15.6%
Gov't/Gov't agencies-For. 287 2.4% 223 1.9%
MBS-agency 401 3.3% 673 5.9%
Commercial MBS 1,007 8.3% 348 3.0%
Municipal-taxable 203 1.7% 130 1.1%
Short-term 332 2.7% 817 7.1%
- ----------------------------------------------------------------
TOTAL FIXED MATURITIES $12,177 100.0% $11,450 100.0%
- ----------------------------------------------------------------
The Life segment continued to maintain a high quality fixed maturity portfolio.
As of December 31, 1996, approximately 99.7% of the fixed maturity portfolio was
invested in investment-grade securities. The table below summarizes fixed
maturity holdings by credit quality.
FIXED MATURITIES BY CREDIT QUALITY
- ------------------------------------------------------------------
1996 1995
- ------------------------------------------------------------------
FAIR FAIR
CREDIT QUALITY VALUE PERCENT VALUE PERCENT
- ------------------------------------------------------------------
AAA $2,951 24.3% $3,688 32.2%
AA 1,445 11.9% 1,502 13.1%
A 4,737 38.9% 3,561 31.1%
BBB 2,404 19.7% 1,276 11.1%
Gov't 273 2.2% 523 4.6%
BB & below 35 0.3% 29 0.3%
Not rated -- -- 54 0.5%
Short-term 332 2.7% 817 7.1%
- ------------------------------------------------------------------
TOTAL FIXED MATURITIES $12,177 100.0% $11,450 100.0%
- ------------------------------------------------------------------
The estimated maturities of the fixed and variable rate investments in the
general account, along with the respective yields at December 31, 1996, are
reflected below. Asset-backed securities including CMO and MBS are distributed
to maturity year based on the Company's estimate of the rate of future
prepayments of principal over the remaining lives of the securities. These
estimates are developed using prepayment speeds reported in broker consensus
data and can be expected to vary from actual experience. Expected maturities
differ from contractual maturities due to call or prepayment provisions.
1997 1998 1999 2000 2001 Thereafter Total
- -----------------------------------------------------------------------------------------------------------------------
ASSET-BACKED SECURITIES
Variable Rate*
Amortized cost $ 112 $ 65 $ 84 $ 183 $ 114 $ 675 $1,233
Market value $ 111 $ 85 $ 111 $ 180 $ 112 $ 634 $1,233
Pre-tax yield ** 5.87% 6.67% 6.64% 6.49% 6.72% 6.93% 6.71%
Fixed Rate
Amortized cost 672 466 491 476 331 1,013 3,449
Market value 674 466 490 479 333 999 3,441
Pre-tax yield ** 6.82% 7.04% 6.84% 7.23% 7.20% 7.23% 7.07%
BONDS AND NOTES
Variable Rate *
Amortized cost 52 92 33 91 15 186 469
Market value 52 70 33 92 15 185 447
Pre-tax yield ** 6.41% 5.81% 5.62% 5.97% 5.95% 6.81% 6.30%
Fixed Rate
Amortized cost 925 396 704 737 623 3,592 6,977
Market value 940 397 708 743 624 3,644 7,056
Pre-tax yield ** 6.77% 7.14% 6.69% 6.81% 6.80% 7.22% 7.02%
TOTAL FIXED MATURITIES
Amortized cost $1,761 $1,019 $1,312 $1,487 $1,083 $5,466 $12,128
Market value $1,777 $1,018 $1,342 $1,494 $1,084 $5,462 $12,177
Pre-tax yield ** 6.72% 6.94% 6.72% 6.85% 6.90% 7.17% 6.97%
- -----------------------------------------------------------------------------------------------------------------------
*Variable rate securities are instruments for which the coupon rates move
directly with or based upon an index rate. Included in holdings are
interest-only securities and inverse floaters which represent less than
1% and 2%, respectively, of the Life segment's invested assets.
Interest-only securities, for which cost approximates market, have an
average life of 5.1 years and earn an average yield of 14.70%. Inverse
floaters, for which cost approximates market, have an average life of 4.7
years and earn an average yield of 6.30%. Average yields are based upon
estimated cash flows using prepayment speeds reported in broker consensus
data.
** Pre-tax yield does not reflect yields on derivative instruments
although derivative adjustments are included in fixed maturity amortized
cost and market value.
- -----------------------------------------------------------------------------------------------------------------------
- 24 -
Investment Results
- ------------------
The table below summarizes the Life segment's results for the past three years.
1996 1995 1994
---------------------------------------------------------------
Net investment income, before-tax $1,323 $1,114 $922
Yield on average invested assets,
before-tax [1] 8.51% 8.30% 8.56%
Net realized capital gains
(losses), before-tax -- $(4) $1
---------------------------------------------------------------
[1] Represents net investment income (excluding net realized capital gains
(losses)) divided by average invested assets at cost (fixed maturities at
amortized cost).
For the year ended December 31, 1996, before-tax net investment income totaled
$1.3 billion compared to $1.1 billion in 1995, an increase of 19%. Yields on
average invested assets increased to 8.51% in 1996 from 8.30% in 1995. The
increase in net investment income was primarily due to an increase in policy
loans, new business cash flow invested in fixed maturities and asset mix
changes. The increase in before-tax yield was primarily due to the increase in
policy loan yields; excluding policy loans, the before-tax yield decreased to
7.09% from 7.37% in 1995. The decrease in before-tax yield excluding policy
loans was the result of sales and maturities of higher yielding assets
reinvested at lower average yields.
For the year ended December 31, 1995, before-tax net investment income totaled
$1.1 billion compared to $922 in 1994, an increase of 21%. Before-tax yields on
average invested assets decreased to 8.30% in 1995 from 8.56% in 1994. The
increase in before-tax net investment income was primarily due to an increase in
policy loans and additional new business cash flow invested in fixed maturities.
There were no net realized capital gains (losses) in 1996. Net realized capital
losses decreased to a $(4) loss in 1995 from a $1 gain in 1994. During 1995,
certain mortgage-backed securities were written down to fair value in accordance
with generally accepted accounting principles. These writedowns amounted to
$(45) and were substantially offset by gains generated on the sale of other
fixed maturity investments.
Asset And Liability Management Strategies
- -----------------------------------------
The Life segment employs several risk management tools to quantify and manage
interest rate risk arising from its investments and interest sensitive
liabilities. Management monitors the changes in present value between assets and
liabilities resulting from various interest rate scenarios using integrated
asset/liability measurement systems and a proprietary system that simulates the
impacts of parallel and non-parallel yield curve shifts. Based on this current
and prospective information, management implements risk reducing techniques to
improve the match between assets and liabilities.
Derivatives play an important role in facilitating the management of interest
rate risk, creating opportunities to fund product obligations efficiently,
hedging against risks that affect the value of certain liabilities and adjusting
broad investment risk characteristics when dictated by significant changes in
market risks. As an end user of derivatives, the segment uses a variety of
derivatives, including swaps, caps, floors, forwards and exchange-traded
financial futures and options in order to hedge exposure to price, foreign
currency and/or interest rate risk on anticipated investment purchases or
existing assets and liabilities. The notional amounts of derivative contracts
represent the basis upon which pay and receive amounts are calculated and are
not reflective of credit risk for derivative contracts. Credit risk for
derivative contracts is limited to the amounts calculated to be due to the
Company on such contracts. The Company maintains prudent policies regarding the
financial stability and credit standing of its major counterparties and
typically requires credit enhancement provisions to further limit its credit
risk. Many of these derivative contracts are bilateral agreements that are not
assignable without the consent of the relevant counterparty. Notional amounts
pertaining to derivatives totaled $3.4 billion at December 31, 1996 ($2.7
billion related to life insurance investments and $749 related to life insurance
liabilities) and $4.0 billion at December 31, 1995 ($3.4 billion related to life
insurance investments and $565 related to life insurance liabilities).
Management believes that the use of derivatives allows the Company to sell more
innovative products, capitalize on market opportunities and execute a more
flexible investment strategy for its general account portfolio. The strategies
described below are used by the segment to manage the aforementioned risks
associated with its obligations.
Anticipatory Hedging -- For certain liabilities, the Life segment commits to the
- --------------------
price of the product prior to receipt of the associated premium or deposit. The
segment routinely executes anticipatory hedges to offset the impact of changes
in asset prices arising from interest rate changes, pending the premium or
deposit payment and the resulting purchase of an asset. These hedges involve
taking a long position in interest rate futures or entering into an interest
rate swap with duration characteristics equivalent to the associated liabilities
or anticipated investments. The notional amount of anticipatory hedges as of
December 31, 1996 and 1995 was $392 and $718, respectively.
Liability Hedging -- Several products obligate the Life segment to credit a
- ------------------
return to the contract holder which is indexed to a market rate. In order to
hedge risks associated with these products, the Life segment typically enters
into interest rate swaps to convert the contract rate into a rate that trades in
a more liquid and efficient market. This hedging strategy enables the Life
segment to customize contract terms and conditions to customer objectives and
satisfies the segment's asset/liability matching policy. Additionally, interest
rate swaps are used to convert certain fixed contract rates into floating rates,
thereby allowing them to be appropriately matched against floating rate assets.
The notional amount of derivatives used for liability hedging as of December 31,
1996 and 1995 was $749 and $565, respectively.
Asset Hedging -- To meet the various life policyholder obligations and to
- --------------
provide prudent investment risk diversification, the Life segment may combine
two or more financial instruments to achieve the investment characteristics that
match the associated liability. The use of derivatives in this regard
effectively transfers unwanted investment risks or attributes to others. The
selection of the appropriate derivatives
- 25 -
depends on the investment risk, the liquidity and efficiency of the market, and
the asset and liability characteristics. The notional amount of asset hedges as
of December 31, 1996 and 1995 was $1.5 billion and $1.7 billion, respectively.
Portfolio Hedging -- The Life segment periodically compares the duration and
- ------------------
convexity of its portfolios of assets to their corresponding liabilities, and
enters into portfolio hedges to reduce any difference to acceptable levels.
Portfolio hedges reduce the mismatch between assets and liabilities and offset
the potential cash flow impact caused by interest rate changes. The notional
amount of portfolio hedges as of December 31, 1996 and 1995 was $755 and $1.0
billion, respectively.
Life Insurance Liability Characteristics
- ----------------------------------------
Insurance liabilities, other than non-guaranteed separate accounts, totaled
$27.3 billion, net of ceded reinsurance, at December 31, 1996 and were backed by
$37.0 billion in total assets including investments of $26.7 billion. Matching
of the duration of the investments with respective policyholder obligations is
an explicit objective of the Life segment's management strategy. The segment's
insurance policy liabilities, along with estimated duration periods based upon
internal actuarial assumptions, can be summarized based on investment needs in
the following five categories at December 31, 1996:
ESTIMATED DURATION YEARS [1]
(IN BILLIONS)
- --------------------------------------------------------------------
BALANCE AT LESS OVER
DECEMBER THAN 1 1-5 6-10 10
DESCRIPTION 31, 1996 YEAR YEARS YEARS YEARS
- --------------------------------------------------------------------
Fixed rate asset
accumulation vehicles $10.3 $0.7 $5.9 $3.7 $-
Indexed asset
accumulation vehicles 0.2 0.2 - - -
Interest credited asset
accumulation vehicles 13.6 4.2 5.1 3.7 0.6
Long-term pay out
liabilities 2.7 0.1 0.6 0.8 1.2
Short-term pay out
liabilities 0.5 0.5 - - -
- --------------------------------------------------------------------
TOTAL $27.3 $5.7 $11.6 $8.2 $1.8
- --------------------------------------------------------------------
[1] The duration of liabilities reflects management's assessment of the market
price sensitivity of the liabilities to changes in market interest rates,
and is not necessarily reflective of the projected liabilities' cash flows
under any specific scenario.
Fixed Rate Asset Accumulation Vehicles -- Products in this category require the
- ---------------------------------------
Life segment to pay a fixed rate for a certain period of time. The cash flows
are not interest sensitive because the products are written with a market value
adjustment feature and the liabilities have protection against the early
withdrawal of funds through surrender charges. The primary risk associated with
these products is that the spread between investment return and credited rate
may not be sufficient to earn the segment's targeted return. Product examples
include fixed rate annuities with a market value adjustment and fixed rate
guaranteed investment contracts. Contract duration is reflected above and is
dependent on the policyholder's choice of guarantee period. The weighted average
credited policyholder rate for these policyholder liabilities was 6.60% as of
December 31, 1996.
Indexed Asset Accumulation Vehicles -- Products in this category are similar to
- ------------------------------------
the fixed rate asset accumulation vehicles, but require the Life segment to pay
a rate that is determined by an external index. The amount and/or timing of cash
flows will therefore vary based on the level of the particular index. The
primary risks inherent in these products are similar to the fixed rate asset
accumulation vehicles, with an additional risk that changes in the index may
adversely affect profitability. Product examples include indexed-guaranteed
investment contracts with an estimated duration of up to two years. The weighted
average credited rate for these contracts was 5.78% as of December 31, 1996,
excluding policy loans.
Interest Credited Asset Accumulation Vehicles -- Products in this category
- -------------------------------------------------
credit interest to policyholders, subject to market conditions and minimum
guarantees. Policyholders may surrender at book value but are subject to
surrender charges for an initial period. The primary risks vary depending on the
degree of insurance element contained in the product. Product examples include
universal life contracts and the general account portion of the segment's
variable annuity products. Liability duration is short to intermediate-term and
is reflected in the table above. The average credited rate for these liabilities
was 5.52% as of December 31, 1996, excluding policy loans.
Long-term Pay Out Liabilities -- Products in this category are long-term in
- -------------------------------
nature and may contain significant actuarial (including mortality and morbidity)
pricing risks. The cash flows are not interest sensitive, but do vary based on
the timing and amount of benefit payments. The primary risks associated with
these products are that the benefits will exceed expected actuarial pricing
and/or the investment return will be lower than assumed in pricing. Product
examples include structured settlement contracts, on-benefit annuities (i.e.,
the annuitant is currently receiving benefits thereon) and long-term disability
contracts. Contract duration is generally 6 to 10 years but, at times, exceeds
30 years. Policy liabilities under these contracts are not interest rate
sensitive.
Short-term Pay Out Liabilities -- These liabilities are short-term in nature
- --------------------------------
with a duration of less than one year. The primary risks associated with these
products are determined by the non-investment contingencies such as mortality or
morbidity. Liquidity is of greater concern than for the long-term pay out
liabilities. Products include individual and group term life insurance contracts
and short-term disability contracts.
INTERNATIONAL
Consistent with the investment objectives of the North American Property &
Casualty segment, the investment objectives of the International segment are to
optimize after-tax returns on invested assets and preserve capital, while
meeting obligations to policyholders. The International segment primarily
comprises the investment activities of ITT London & Edinburgh, Zwolsche
Algemeene and ITT Ercos, which are primarily engaged in property and casualty
insurance.
- 26 -
Investments are made in maturities and currencies which reflect the nature of
the liabilities.
Invested assets, excluding separate accounts, were $3.0 billion at December 31,
1996 and were comprised of fixed maturities of $2.5 billion and other
investments of $521, primarily equity securities. The table below summarizes
fixed maturity holdings by type.
FIXED MATURITIES BY TYPE
---------------------------------------------------------------
1996 1995
- ----------------------------------------------------------------
FAIR FAIR
TYPE VALUE PERCENT VALUE PERCENT
- ----------------------------------------------------------------
Corporate $544 21.6% $261 10.8%
Gov't/Gov't agencies-U.S. 121 4.8% 57 2.4%
Gov't/Gov't agencies-For. 1,418 56.2% 1,203 49.8%
Short-term 440 17.4% 893 37.0%
- ------------------------ ---------- -------- --------- ---------
TOTAL FIXED MATURITIES $2,523 100.0% $2,414 100.0%
- ----------------------------------------------------------------
As of December 31, 1996, the fixed maturity portfolio consisted of 100%
investment grade securities with no security rated lower than A. Minimal use is
made of derivatives which, if purchased, are used for hedging market and foreign
exchange risk. The table below summarizes fixed maturity holdings by credit
quality.
FIXED MATURITIES BY CREDIT QUALITY
- -----------------------------------------------------------------
1996 1995
- ----------------------------------------------------------------
FAIR FAIR
CREDIT QUALITY VALUE PERCENT VALUE PERCENT
- ----------------------------------------------------------------
AAA $1,876 74.4% $1,428 59.1%
AA 203 8.0% 89 3.7%
A 4 0.2% 4 0.2%
Short-term 440 17.4% 893 37.0%
- ----------------------------------------------------------------
TOTAL FIXED MATURITIES $2,523 100.0% $2,414 100.0%
- ----------------------------------------------------------------
Investment Results
- ------------------
The table below summarizes the International segment's results for the past
three years.
1996 1995 1994
---------------------------------------------------------------
Net investment income, before-tax $205 $183 $135
Yield on average invested assets,
before-tax [1] 7.05% 7.10% 6.10%
Net realized capital gains, before-tax $79 $48 $23
---------------------------------------------------------------
[1] Represents net investment income (excluding net realized capital gains)
divided by average invested assets at cost (fixed maturities at amortized
cost).
For the year ended December 31, 1996, before-tax net investment income totaled
$205 compared to $183 in 1995, an increase of 12%. Before tax yields on average
invested assets decreased to 7.05% in 1996 from 7.10% in 1995. The change in
income reflected the full year of investment results from ITT Ercos (acquired in
May, 1995), a change in asset composition favoring longer maturities, and a
modest increase in cash flow.
For the year ended December 31, 1995, before-tax net investment income totaled
$183 compared to $135 in 1994, an increase of 36%. Before-tax yields on average
invested assets increased to 7.10% in 1995 from 6.10% in 1994. The increase in
before-tax net investment income was primarily due to increased operating cash
flow and the acquisition of ITT Ercos in May 1995, while the increase in yield
was the result of higher yields in the international bond and equity market.
Net realized capital gains increased to $79 in 1996 from $48 in 1995 due to
increased sales in 1996 of both fixed maturity and equity securities. Net
realized capital gains increased to $48 in 1995 from $23 in 1994, again, the
result of greater sales of fixed maturity and equity securities.
RUNOFF
The primary objective of the Runoff segment is to ensure the full and timely
payment of all runoff liabilities. The ongoing strategy of this segment is to
match closely the interest rate sensitivities of the assets with those of the
liabilities.
Invested assets were $5.5 billion at December 31, 1996 and were mostly comprised
of fixed maturities. The Runoff segment uses derivatives related to the Closed
Book GRC. As of December 31, 1996 and 1995, the Runoff segment had derivatives
with an aggregate notional amount of $7.5 billion and $5.6 billion,
respectively, for asset/liability management purposes. The Company entered into
various hedge transactions related to Closed Book GRC with a notional amount of
$4.0 billion in September and October 1996 which substantially eliminated
further fluctuation in fair value of the Closed Book GRC investments due to
interest rate changes. (For additional information on Closed Book GRC, see the
Runoff section.) The table below summarizes fixed maturity holdings by type.
FIXED MATURITIES BY TYPE
- ----------------------------------------------------------------
1996 1995
- ----------------------------------------------------------------
FAIR FAIR
TYPE VALUE PERCENT VALUE PERCENT
- ----------------------------------------------------------------
Corporate $2,366 43.3% $2,587 39.0%
CMO 1,140 20.8% 1,691 25.5%
Gov't/Gov't agencies-U.S. 259 4.7% 362 5.4%
ABS 625 11.5% 649 9.8%
Gov't/Gov't agencies-For. 146 2.7% 145 2.2%
MBS-agency 37 0.7% 218 3.3%
Commercial MBS 179 3.3% 77 1.1%
Municipal-taxable 85 1.6% 87 1.3%
Short-term 620 11.4% 821 12.4%
- ----------------------------------------------------------------
TOTAL FIXED MATURITIES $5,457 100.0% $6,637 100.0%
- ----------------------------------------------------------------
The Runoff segment maintains a greater than 99% investment grade fixed maturity
portfolio. The table below summarizes fixed maturity holdings by credit quality.
FIXED MATURITIES BY CREDIT QUALITY
- ----------------------------------------------------------------
1996 1995
- ----------------------------------------------------------------
FAIR FAIR
CREDIT QUALITY VALUE PERCENT VALUE PERCENT
- ----------------------------------------------------------------
AAA $1,871 34.2% $2,804 42.2%
AA 679 12.4% 691 10.4%
A 1,722 31.6% 1,615 24.3%
BBB 255 4.7% 357 5.4%
Gov't 296 5.4% 272 4.1%
BB & below 14 0.3% 12 0.2%
Not rated -- -- 65 1.0%
Short-term 620 11.4% 821 12.4%
- ----------------------------------------------------------------
TOTAL FIXED MATURITIES $5,457 100.0% $6,637 100.0%
- ----------------------------------------------------------------
- 27 -
Investment Results
- ------------------
The table below summarizes the Runoff segment's results for the past three
years.
1996 1995 1994
---------------------------------------------------------------
Net investment income, before-tax $334 $477 $596
Yield on average invested assets,
before-tax [1] 5.27% 5.85% 7.13%
Net realized capital gains
(losses), before-tax $(220) $29 $(3)
---------------------------------------------------------------
[1] Represents net investment income (excluding net realized capital gains
(losses)) divided by average invested assets at cost (fixed maturities at
amortized cost).
For the year ended December 31, 1996, before-tax net investment income totaled
$334 compared to $477 in 1995, a decrease of 30%. Before-tax yields on average
invested assets decreased to 5.27% in 1996 from 5.85% in 1995. Before-tax net
investment income decreased primarily due to asset sales and maturities in the
Closed Book GRC. The decrease in yield was primarily the result of sales and
maturities of higher yielding securities in the Closed Book GRC.
For the year ended December 31, 1995, before-tax net investment income totaled
$477 compared to $596 in 1994, a decrease of 20%. Before-tax yields on average
invested assets decreased to 5.85% in 1995 from 7.13% in 1994. The decrease in
before-tax net investment income was primarily the result of sales and
maturities of higher yielding securities and hedge costs in the Closed Book GRC.
The decrease in yield resulted primarily from impact related to prepayments and
hedge costs associated with the Closed Book GRC.
Net realized capital losses were $220 in 1996 compared to a $29 gain in 1995,
primarily due to Closed Book GRC. (For additional information regarding Closed
Book GRC see the Runoff section.) Net realized capital gains increased to $29 in
1995 from a $3 loss in 1994 primarily due to gains taken in Fencourt.
RISK MANAGEMENT
The Hartford has a disciplined approach to managing the risks arising from its
assets and liabilities. Portfolio management is organized to bring together
portfolios with similar investment criteria and objectives, group common styles
and provide more consistent investment management. All investment activity,
including setting policy and defining acceptable risk levels and counterparty
qualifications, is subject to the regular review and approval by The Hartford's
Finance Committee. The Hartford has a stringent investment credit policy that
focuses on credit quality, limits credit concentrations, encourages
diversification and requires frequent creditworthiness reviews. The Company has
established exposure limits, diversification standards and review procedures for
all credit risk whether borrower, issuer or counterparty. The Hartford analyzes
interest rate risk using various models including a proprietary, multi-scenario
cash flow projection model that forecasts liabilities and their supporting
investments, including derivatives.
The Investment division has a compliance function to affirm that derivatives
transactions meet Company policy, are effectively hedging identified risks, and
remain appropriately correlated. All derivatives strategies satisfy at least one
of the following objectives: to hedge risk arising from interest rate, price or
foreign exchange rate volatility; to manage liquidity; or to control transaction
costs. The Company's derivatives counterparty exposure policy establishes
market-based credit limits, favors long-term financial stability and
creditworthiness, and typically requires credit enhancement/credit risk reducing
agreements. To initiate contracts, counterparties must generally be rated A-/A3
or better by rating agencies. Credit risk is measured as the amount owed to The
Hartford based on current market conditions. Payment obligations between The
Hartford and its counterparties are netted and quantified monthly. Collateral is
pledged/held to the extent the current value of derivatives exceed exposure
thresholds. As of December 31, 1996, the Company's counterparty exposure, net of
$17 collateral held, was $27.
SEPARATE ACCOUNT PRODUCTS
Separate account products are those for which a separate investment and
liability account is maintained on behalf of the policyholder. Separate accounts
reflect two categories of risk assumption: non-guaranteed separate accounts
totaling $39.9 billion, wherein the policyholder assumes substantially all the
risk and reward, and guaranteed separate accounts totaling $10.6 billion,
wherein The Hartford contractually guarantees either a minimum return or account
value to the policyholder. Investment strategy varies by fund choice, as
outlined in the fund prospectus or separate account plan of operations.
Non-guaranteed products include variable annuities and variable life contracts.
Guaranteed separate account products primarily consist of modified guaranteed
individual annuity and modified guaranteed life insurance, and generally include
market value adjustment provisions to mitigate the disintermediation risk upon
surrenders.
Additional investment risk is hedged using a variety of derivatives which
totaled $86 and $133 in carrying value and $2.4 billion and $2.7 billion in
notional amounts at December 31, 1996 and 1995, respectively. For a further
discussion of strategies, including derivative utilization, see the previous
discussion on Asset and Liability Management Strategies as well as the Notes to
Consolidated Financial Statements.
- 28 -
================================================================================
CAPITAL RESOURCES AND LIQUIDITY
================================================================================
Capital resources and liquidity represent the overall financial strength of The
Hartford and its ability to generate strong cash flows from each of the business
segments and borrow funds at competitive rates to meet operating and growth
needs. The capital structure of The Hartford consists of debt and equity,
summarized as follows:
1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
Short-term debt $ 500 $ 886 $ 902
Long-term debt 1,032 1,022 596
Company obligated mandatorily redeemable preferred securities of subsidiary
trusts holding solely parent junior subordinated debentures ("QUIPS") 1,000 -- --
Subsidiary preferred stock -- -- 86
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL DEBT $ 2,532 $ 1,908 $ 1,584
-----------------------------------------------------------------------------------------------------------------------
Equity excluding unrealized gain (loss), net of tax $ 4,168 $ 4,457 $ 4,403
Unrealized gain (loss), net of tax 352 245 (1,219)
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY $ 4,520 $ 4,702 $ 3,184
-----------------------------------------------------------------------------------------------------------------------
TOTAL CAPITALIZATION EXCLUDING UNREALIZED GAIN (LOSS), NET OF TAX $ 6,700 $ 6,365 $ 5,987
-----------------------------------------------------------------------------------------------------------------------
Debt to equity excluding unrealized gain (loss), net of tax 61% 43% 36%
Debt to capitalization excluding unrealized gain (loss), net of tax 38% 30% 26%
- ---------------------------------------------------------------------------------------------------------------------------------
CAPITALIZATION
The Hartford's total capitalization excluding unrealized gain (loss), net of
tax, increased by $335 in 1996. This change was a result of additional net
borrowings totaling $624, partially offset by a net loss of $99 and dividends
declared of $188 on The Hartford common stock.
In 1995, total capitalization excluding unrealized gain (loss), net of tax,
increased by $378 from 1994 as a result of earnings of $559, additional net
borrowings of $410 and capital contributions of $250, partially offset by
dividends declared of $779 on The Hartford common stock held by ITT prior to
December 20, 1995 and redemption of subsidiary preferred stock totaling $86.
DEBT
Total debt in 1996 increased $624 compared to a $410 increase in the prior year.
The Hartford used the proceeds of these additional borrowings to fund the
insurance operations of its subsidiaries, and in 1995, to partially repay
outstanding commercial paper and other short-term debt, redeem subsidiary
preferred stock and pay dividends.
As of December 31, 1996, The Hartford had an unsecured aggregate $2.0 billion
credit facility with twenty-nine participating banks which is comprised of a
$1.5 billion five year revolving credit facility and a $500 short-term credit
facility. This facility is available for general corporate purposes and to
provide additional support to the Company's existing commercial paper program.
At December 31, 1996, there were no outstanding borrowings under the facility.
On February 10, 1997, Hartford Life, Inc. ("HLI"), a wholly-owned subsidiary of
The Hartford, entered into a $1.3 billion unsecured short-term credit facility
with four banks.
During 1996, The Hartford expanded its commercial paper program by increasing
the maximum allowable outstanding amount of unsecured short-term commercial
paper notes from $1.0 billion to $2.0 billion.
In connection with a shelf registration statement filed with and declared
effective by the Securities and Exchange Commission ("SEC") in 1995, The
Hartford registered for sale up to an aggregate $1.0 billion of debt securities
and preferred stock. In 1995, the Company issued and sold $500 in senior debt
securities. The intended use of the proceeds from the sale of such securities
has been and will continue to be primarily for the repayment and/or replacement
of outstanding commercial paper and other short-term debt. This reflects The
Hartford's strategy of managing its capital within acceptable ranges of
volatility and financial ratings while achieving the lowest long-run cost of
capital that is reasonably possible. On October 2, 1996, this shelf registration
statement was amended for an additional $1.25 billion of securities, making an
aggregate of $1.75 billion available for sale. The amended registration
statement also expanded the type of securities which could be offered under this
shelf registration statement by including provisions for the offering of common
stock, depositary shares, warrants, stock purchase contracts, stock purchase
units and junior subordinated deferrable interest debentures of the Company,
preferred securities of any of the Hartford Trusts (referred to below) and
guarantees by the Company with respect to the preferred securities of any of the
Hartford Trusts. After the issuance of QUIPS on October 30, 1996 discussed
below, The Hartford had $1.25 billion remaining on this shelf registration at
December 31, 1996.
On January 19, 1996, The Hartford and several wholly-owned special purpose
trusts ("Hartford Trusts") formed by The Hartford filed with the SEC a shelf
registration statement for the potential offering and sale of $500 of debt
securities and preferred stock, including up to an aggregate $500 Junior
Subordinated Deferrable Interest Debentures of The Hartford and Preferred
Securities of the Hartford Trusts which were issued as discussed below. (For
additional information, see Notes 5 and 6 of Notes to Consolidated Financial
Statements.)
- 29 -
COMPANY OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF SUBSIDIARY
TRUSTS HOLDING SOLELY PARENT JUNIOR SUBORDINATED DEBENTURES ("QUIPS")
On February 28, 1996, Hartford Capital I, a subsidiary trust, issued 20,000,000
Series A, 7.7% Cumulative Quarterly Income Preferred Securities. The proceeds
from the sale of these securities were used to acquire $500 of Junior
Subordinated Deferrable Interest Debentures from The Hartford. The Hartford used
the proceeds from the sale of such debentures for the partial repayment of
outstanding commercial paper and short-term bank indebtedness. (For additional
information, see Note 6 of Notes to Consolidated Financial Statements.)
On October 30, 1996, Hartford Capital II, a subsidiary trust, issued 20,000,000,
Series B, 8.35% Cumulative Quarterly Income Preferred Securities. The proceeds
from the sale of these securities were used to acquire $500 of Junior
Subordinated Deferrable Interest Debentures from The Hartford. The Hartford used
the proceeds from the sale of such debentures for general corporate purposes.
(For additional information, see Note 6 of Notes to Consolidated Financial
Statements.)
SUBSIDIARY PREFERRED STOCK
During 1995, Hartford Fire Insurance Company ("Hartford Fire"), a wholly-owned
subsidiary of The Hartford, redeemed $86 of its Class A Preferred Stock - Series
2.
DIVIDENDS
In 1996, The Hartford declared $188 and paid $140 in dividends to shareholders.
In 1995, The Hartford paid dividends to ITT consisting of cash of $384 and
non-cash of $395 prior to the Distribution.
On October 17, 1996, The Hartford declared a dividend on its common stock of
$0.40 per share payable on January 2, 1997 to all shareholders of record as of
November 29, 1996.
In 1997, The Hartford expects to continue paying quarterly dividends on its
common stock of $0.40 per share. Dividend decisions will be based on, and
affected by, a number of factors, including the operating results and financial
requirements of The Hartford on a stand-alone basis and the impact of the
regulatory restrictions discussed in the Liquidity Requirements section below.
RATINGS
The following table summarizes The Hartford's significant U.S. member companies'
financial ratings from the major independent rating organizations as of February
10, 1997:
A.M. DUFF STANDARD
BEST & & POOR'S MOODY'S
PHELPS
- ----------------------------------------------------------------
INSURANCE RATINGS:
Hartford Fire A+ AA AA Aa3
Hartford Life A+ AA+ AA Aa3
Hartford Life & Accident A+ AA+ AA --
ITT Hartford Life &
Annuity A+ AA+ AA --
- ----------------------------------------------------------------
OTHER RATINGS:
ITT Hartford Group, Inc.:
Senior debt -- A+ A A2
Commercial paper -- D-1 A-1 P-1
Hartford Capital I and
II quarterly income
preferred securities -- A A- A2
- ----------------------------------------------------------------
On February 10, 1997, Standard & Poor's reaffirmed its claims-paying ability
ratings and various other ratings of The Hartford group of companies. On
September 24, 1996, Standard & Poor's announced that it had reduced the
claims-paying ability ratings and various other ratings of The Hartford group of
companies. In announcing the rating change, Standard & Poor's stated that the
action was based primarily on increased concern with the overall strength of The
Hartford's consolidated capital, partially offset by a superior business
position within the markets that The Hartford operates.
On January 23, 1997, Moody's Investors Service announced that it downgraded
various ratings of The Hartford and its subsidiaries, including the financial
strength ratings of The Hartford's insurance subsidiaries, and the ratings
assigned to the quarterly income preferred securities of Hartford Capital I and
Hartford Capital II. Moody's indicated that the action reflected The Hartford's
financial leverage, the remaining risks as to adequacy of loss reserves related
to the Company's environmental and asbestos exposures, and the continuing
intense competition in The Hartford's ongoing business segments.
On February 10, 1997, ratings from Duff & Phelps were reaffirmed for The
Hartford's significant U.S. member companies. On February 10, 1997, A.M. Best
placed the ratings of The Hartford's significant member companies under review
with developing implications.
LIQUIDITY REQUIREMENTS
The liquidity requirements of The Hartford have been and will continue to be met
by funds from operations as well as the issuance of commercial paper, debt
securities and bank borrowings. The principal sources of funds are premiums and
investment income as well as maturities and sales of invested assets. The
Hartford is a holding company which receives operating cash flow in the form of
dividends from its subsidiaries, enabling it to service debt and pay business
expenses.
Dividends to ITT Hartford Group, Inc. from its subsidiaries are restricted. The
payment of dividends by Connecticut-domiciled insurers is limited under the
insurance holding
- 30 -
company laws of Connecticut. Hartford Fire adheres to these laws which require
notice to and approval by the state insurance commissioner for the declaration
or payment of any dividend, which together with other dividends or distributions
made within the preceding twelve months, exceeds the greater of (i) 10% of the
insurer's policyholder surplus as of December 31 of the preceding year or (ii)
net income (or net gain from operations, if such company is a life insurance
company) for the twelve-month period ending on the thirty-first day of December
last preceding, in each case determined under statutory insurance accounting
policies. In addition, if any dividend of a Connecticut-domiciled insurer
exceeds the insurer's earned surplus, it requires the prior approval of the
Connecticut Insurance Commissioner. For this reason, any statutory dividend
which may be paid to ITT Hartford Group, Inc. by its insurance subsidiaries in
1997 requires prior approval.
The insurance holding company laws of the other jurisdictions in which The
Hartford's insurance subsidiaries are incorporated (or deemed commercially
domiciled) generally contain similar (although in certain instances somewhat
more restrictive) limitations on the payment of dividends.
The primary uses of funds are to pay claims, policy benefits, operating expenses
and commissions, and to purchase new investments. In addition, The Hartford
carries a significant short-term investment position and accordingly does not
anticipate selling intermediate and long-term fixed maturity investments to meet
any liquidity needs. For a discussion of the Company's investment objectives and
strategies, see Investments section.
DISTRIBUTION AGREEMENT
As part of the Distribution Agreement entered into by The Hartford, ITT
Destinations, Inc., and ITT Industries, Inc. ("the former ITT subsidiaries"),
provisions were outlined addressing the disposition of shared liabilities. A
shared liability is defined as a liability arising out of, or related to,
business conducted by ITT prior to the Distribution that was not otherwise
specifically related to one of the former ITT subsidiaries. Under the
Distribution Agreement, responsibility for shared liabilities shall be borne
equally by each of the former ITT subsidiaries, including related attorney's
fees and other out-of-pocket expenses. As of December 31, 1996, all known
liabilities covered by this agreement have been accrued.
TAX ALLOCATION AGREEMENT
ITT and The Hartford have entered into a Tax Allocation Agreement whereby The
Hartford will pay a share of ITT's consolidated tax liability for the tax years
that The Hartford was included in ITT's consolidated federal income tax return.
The Tax Allocation Agreement provides for the attribution to specific companies
of any state, local and foreign taxes related to periods prior to December 20,
1995.
RISK-BASED CAPITAL
The National Association of Insurance Commissioners ("NAIC") adopted regulations
establishing minimum capitalization requirements based on risk-based capital
("RBC") formulas for both property and casualty companies (effective December
31, 1994) and life companies (effective December 31, 1993). The requirements
consist of formulas which identify companies that are undercapitalized and
require specific regulatory actions. RBC is calculated for property and casualty
companies after adjusting capital for certain underwriting, asset, credit and
off-balance sheet risks. The RBC formula for life companies establishes capital
requirements relating to insurance, business, asset and interest rate risks. As
of December 31, 1996, each of The Hartford's insurance subsidiaries within the
North American Property & Casualty and Life segments have more than sufficient
capital to meet the NAIC's RBC requirements.
CASH FLOW
1996 1995 1994
- ----------------------------------------------------------------
Cash provided by operating
activities $ 994 $ 1,094 $ 823
Cash used for investing
activities $ (1,035) $ (1,597) $ (3,336)
Cash provided by financing
activities $ 59 $ 533 $ 2,509
Cash - end of year $ 112 $ 95 $ 55
- ----------------------------------------------------------------
During 1996, cash provided by operating activities decreased from the prior year
due primarily to increased policy acquisition costs related to strong growth in
the Life segment. During 1995, cash provided by operating activities improved
over 1994 due to increased revenues and collections on reinsurance recoverables.
The changes in cash provided by both investing and financing activities between
years were primarily due to declines in investment-type contracts written in the
Life segment coupled with increases in investment-type contract maturities
resulting in cash (used) provided of $(390), $530 and $2,584 for the years ended
December 31, 1996, 1995 and 1994, respectively. These funds, along with cash
reserves, were invested in securities held by The Hartford. Operating cash flows
in each of the last three years have been more than adequate to meet liquidity
requirements.
SUBSEQUENT EVENTS
On February 10, 1997, HLI filed a registration statement with the Securities and
Exchange Commission relating to an initial public offering of up to 20% of HLI
common stock. HLI is the holding company parent of The Hartford's significant
life insurance and related subsidiaries. Management intends to use the proceeds
from the offering to reduce certain debt outstanding, to fund growth
initiatives, and for other general corporate purposes. Management of The
Hartford believes the offering will strengthen the Company's financial position
and flexibility. If and when the offering is completed, The Hartford's current
intent is to continue to beneficially own at
- 31 -
least 80% of HLI, but it is under no contractual obligation to do so.
On February 14, 1997, HLI filed a shelf registration statement for the issuance
and sale of up to $1.0 billion in the aggregate of senior debt securities,
subordinated debt securities and preferred stock of HLI ("the HLI securities").
HLI intends to use the proceeds from any offering for the repayment of debt,
including outstanding commercial paper and other third party indebtedness and
the satisfaction of other obligations, for working capital, capital
expenditures, investments in or loans to subsidiaries and for other general
corporate purposes.
================================================================================
REGULATORY INITIATIVES
================================================================================
LEGISLATIVE INITIATIVES
Although the Federal government does not directly regulate the insurance
business, Federal initiatives often have an impact on the insurance industry in
a variety of ways. Legislation has not been introduced in the current Congress
but has in recent sessions which, if enacted, would result in substantially
greater Federal regulation of the property and casualty and life insurance
industries. Current and proposed Federal measures which may significantly affect
the life insurance business include medical testing for insurability, tax law
changes affecting the tax treatment of life insurance products and its impact on
the relative desirability of various personal investment vehicles and proposed
legislation to prohibit the use of gender in determining insurance and pension
rates and benefits. Such measures which may significantly impact the property
and casualty industry include possible modifications to the Superfund program,
the tax laws governing property and casualty insurance companies, Federal
catastrophe fund legislation and tort reform proposals.
INSOLVENCY FUND
In all states, insurers licensed to transact certain classes of insurance are
required to become members of an insolvency fund. In most states, in the event
of the insolvency of an insurer writing any such class of insurance in the
state, all members of the fund are assessed to pay certain claims of the
insolvent insurer. A particular state's fund assesses its members based on their
respective written premiums in the state for the classes of insurance in which
the insolvent insurer is engaged. Assessments are generally limited for any year
to one or two percent of premiums written per year depending on the state. Such
assessments paid by The Hartford approximated $14 in 1996, $15 in 1995 and $23
in 1994.
================================================================================
EFFECT OF INFLATION
================================================================================
The rate of inflation as measured by the change in the average consumer price
index has not had a material effect on the revenues or operating results of The
Hartford during the three most recent fiscal years.
- 32 -
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Consolidated Financial Statements and Schedules elsewhere herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE HARTFORD
Certain of the information called for by Item 10 is set forth in the definitive
proxy statement for the 1997 annual meeting of shareholders (the "Proxy
Statement") filed or to be filed by The Hartford with the Securities and
Exchange Commission within 120 days after the end of the last fiscal year
covered by this Form 10-K under the caption "Item 1. Election of Directors -
Directors and Nominees" and "The Board of Directors and Its Committees - Section
16(a) Beneficial Ownership Reporting Compliance" and is incorporated herein by
reference. Additional information required by Item 10 regarding The Hartford's
executive officers is set forth in Item 1 of this Form 10-K under the caption
"Executive Officers of The Hartford" and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information called for by Item 11 is set forth in the Proxy Statement under
the captions "Compensation of Executive Officers" and "The Board of Directors
and its Committees - Directors' Compensation" and is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information called for by Item 12 is set forth in the Proxy Statement under
the caption "Stock Ownership of Directors, Executive Officers and Certain
Shareholders" and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as a part of this report:
1. Consolidated Financial Statements. See Index to Consolidated Financial
Statements elsewhere herein.
2. Consolidated Financial Statement Schedules. See Index to Consolidated
Financial Statement Schedules elsewhere herein.
3. Exhibits. See Exhibit Index elsewhere herein.
(b) On October 18, 1996, The Hartford filed a Form 8-K, reporting under Item 5,
Other Events, a press release announcing third quarter losses due to asbestos
and environmental and Closed Book GRC charges, and the election of Ramani Ayer
as the Company's next chairman.
(c) See Item 14(a)(3).
(d) See Item 14(a)(2).
- 33 -
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
Page(s)
Report of Management F-1
Report of Independent Public Accountants F-2
Consolidated Statements of Income for the three years ended
December 31, 1996 F-3
Consolidated Balance Sheets as of December 31, 1996 and 1995 F-4
Consolidated Statements of Stockholders' Equity for the three
years ended December 31, 1996 F-5
Consolidated Statements of Cash Flows for the three years
ended December 31, 1996 F-6
Notes to Consolidated Financial Statements F-7-26
Summary of Investments - Other Than Investments in Affiliates S-1
Supplementary Condensed Financial Statements S-2-3
Supplementary Insurance Information S-4
Reinsurance S-5
Valuation and Qualifying Accounts S-6
Supplemental Information Concerning Property and Casualty
Insurance Operations S-7
REPORT OF MANAGEMENT
The management of ITT Hartford Group, Inc. ("The Hartford") is responsible for
the preparation and integrity of information contained in the accompanying
consolidated financial statements and other sections of the Annual Report. The
financial statements are prepared in accordance with generally accepted
accounting principles, and, where necessary, include amounts that are based on
management's informed judgments and estimates. Management believes these
statements present fairly The Hartford's financial position and results of
operation, and, that any other information contained in the Annual Report is
consistent with the financial statements.
Management has made available The Hartford's financial records and related data
to Arthur Andersen LLP, independent public accountants, in order for them to
perform an audit of The Hartford's consolidated financial statements. Their
report appears on page F-2.
An essential element in meeting management's financial responsibilities is The
Hartford's system of internal controls. These controls, which include accounting
controls and the internal auditing program, are designed to provide reasonable
assurance that assets are safeguarded, and transactions are properly authorized,
executed and recorded. The controls, which are documented and communicated to
employees in the form of written codes of conduct and policies and procedures,
provide for careful selection of personnel and for appropriate division of
responsibility. Management continually monitors for compliance, while The
Hartford's internal auditors independently assess the effectiveness of the
controls and make recommendations for improvement. Also, Arthur Andersen LLP
took into consideration The Hartford's system of internal controls in
determining the nature, timing and extent of its audit tests.
Another important element is management's recognition of its responsibility for
fostering a strong, ethical climate, thereby ensuring that The Hartford's
affairs are transacted according to the highest standards of personal and
professional conduct. The Hartford has a long-standing reputation of integrity
in business conduct and utilizes communication and education to create and
fortify a strong compliance culture.
The Audit Committee of the Board of Directors of The Hartford, composed of
non-employee directors, meets periodically with the external and internal
auditors to evaluate the effectiveness of work performed by them in discharging
their respective responsibilities and to assure their independence and free
access to the Committee.
F-1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO ITT HARTFORD GROUP, INC.:
We have audited the accompanying Consolidated Balance Sheets of ITT Hartford
Group, Inc. ("The Hartford") (a Delaware corporation) and subsidiaries as of
December 31, 1996 and 1995, and the related Consolidated Statements of Income,
Stockholders' Equity and Cash Flows for each of the three years in the period
ended December 31, 1996. These consolidated financial statements and the
schedules referred to below are the responsibility of The Hartford's management.
Our responsibility is to express an opinion on these financial statements and
the schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of The Hartford and
subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.
As discussed in Note 1 of Notes to Consolidated Financial Statements, The
Hartford adopted new accounting standards promulgated by the Financial
Accounting Standards Board, changing its method of accounting, effective January
1, 1994, for certain investments in debt and equity securities. The Hartford
also changed, effective January 1, 1994, its method used to discount certain
workers' compensation liabilities.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedules listed in the Index to
Consolidated Financial Statements and Schedules are presented for the purpose of
complying with the Securities and Exchange Commission's rules and are not part
of the basic financial statements. These schedules have been subjected to the
auditing procedures applied in the audits of the basic financial statements and,
in our opinion, fairly state in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
Hartford, Connecticut
February 10, 1997
F-2
ITT HARTFORD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the years ended December 31,
-------------------------------------
(In millions, except for per share data) 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------
REVENUES
Earned premiums $ 10,076 $ 9,628 $ 8,753
Net investment income 2,523 2,420 2,259
Net realized capital gains (losses) (126) 102 90
- ---------------------------------------------------------------------------------------------------------------------
TOTAL REVENUES 12,473 12,150 11,102
----------------------------------------------------------------------------------------------------------------
BENEFITS, CLAIMS AND EXPENSES
Benefits, claims and claim adjustment expenses 8,942 7,769 7,314
Amortization of deferred policy acquisition costs 1,678 1,658 1,513
Other expenses 2,171 1,981 1,423
- ---------------------------------------------------------------------------------------------------------------------
TOTAL BENEFITS, CLAIMS AND EXPENSES 12,791 11,408 10,250
----------------------------------------------------------------------------------------------------------------
OPERATING INCOME (LOSS) (318) 742 852
Income tax expense (benefit) (219) 180 214
Dividends on subsidiary preferred stock -- (3) (6)
- ---------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGES (99) 559 632
Cumulative effect of accounting changes, net of tax expense of 7 -- -- 12
- ---------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ (99) $ 559 $ 644
----------------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE
Income (loss) before cumulative effect of accounting changes $ (0.84) $ 4.77 $ 5.40
Cumulative effect of accounting changes -- -- 0.10
- ---------------------------------------------------------------------------------------------------------------------
Net income (loss) $ (0.84) $ 4.77 $ 5.50
- ---------------------------------------------------------------------------------------------------------------------
Weighted average common shares outstanding (1) 117.3 117.1 117.1
- ---------------------------------------------------------------------------------------------------------------------
Cash dividends declared per share $ 1.60 -- --
- ---------------------------------------------------------------------------------------------------------------------
(1) Actual number of weighted average common shares outstanding at December 31,
1995 of 117.1 is retroactively presented for the years ended December 31,
1995 and 1994.
The accompanying Notes to Consolidated Financial Statements are an integral
part of the above statements.
F-3
ITT HARTFORD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of December 31,
-------------------------------
(In millions, except for share data) 1996 1995
- --------------------------------------------------------------------------------------------------------------------------
ASSETS
Investments
- -----------
Fixed maturities, available for sale, at fair value (amortized cost of $31,178
and $30,892) $ 31,449 $ 31,168
Equity securities, available for sale, at fair value (cost of $1,581 and $1,192) 1,865 1,342
Policy loans, at outstanding balance 3,839 3,380
Other investments, at cost 486 785
- --------------------------------------------------------------------------------------------------------------------------
Total investments 37,639 36,675
Cash 112 95
Premiums receivable and agents' balances 1,797 1,890
Reinsurance recoverables 11,229 11,801
Deferred policy acquisition costs 3,535 2,945
Deferred income tax 1,480 1,150
Other assets 2,596 2,451
Separate account assets 50,452 36,848
- --------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 108,840 $ 93,855
====================================================================================================================
LIABILITIES
Future policy benefits, unpaid claims and claim adjustment expenses
Property and casualty $ 18,303 $ 17,536
Life 4,371 3,894
Other policy claims and benefits payable 22,220 22,770
Unearned premiums 2,797 2,766
Short-term debt 500 886
Long-term debt 1,032 1,022
Company obligated mandatorily redeemable preferred securities of subsidiary trusts
holding solely parent junior subordinated debentures 1,000 --
Other liabilities 3,645 3,431
Separate account liabilities 50,452 36,848
- --------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 104,320 89,153
====================================================================================================================
STOCKHOLDERS' EQUITY
Common stock - authorized 200,000,000, issued 119,194,412 and
118,762,331 shares, par value $0.01 1 1
Treasury stock - 1,638,000 shares (30) (30)
Capital surplus 1,642 1,636
Cumulative translation adjustments 40 48
Unrealized gain on securities, net of tax 352 245
Retained earnings 2,515 2,802
- --------------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 4,520 4,702
====================================================================================================================
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 108,840 $ 93,855
====================================================================================================================
The accompanying Notes to Consolidated Financial Statements are an integral part
of the above statements.
F-4
ITT HARTFORD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In millions) Shares
Amounts (in thousands)
------------------------------------------- ------------------------------
1996 1995 1994 1996 1995
------------------------------------------- ------------------------------
COMMON STOCK AND CAPITAL SURPLUS
Balance, beginning of year $ 1,637 $ 1,357 $ 1,357 118,762 --
The Hartford Distribution: [1]
Issuance of common stock in connection
with the Distribution -- -- -- -- 117,069
Common stock issued to a subsidiary of
the Company -- 30 -- -- 1,408
Other -- -- -- -- 230
Other 6 250 -- 432 55
- ---------------------------------------------------------------------------------------------------------------------------------
Balance, end of year 1,643 1,637 1,357 119,194 118,762
- ---------------------------------------------------------------------------------------------------------------------------------
TREASURY STOCK
Balance, beginning of year (30) -- -- (1,638) --
Common stock issued to a subsidiary of
the Company -- (30) -- -- (1,408)
Other -- -- -- -- (230)
- ---------------------------------------------------------------------------------------------------------------------------------
Balance, end of year (30) (30) -- (1,638) (1,638)
- ---------------------------------------------------------------------------------------------------------------------------------
CUMULATIVE TRANSLATION ADJUSTMENTS
Balance, beginning of year 48 24 (28)
Translation adjustments (8) 24 52
- ---------------------------------------------------------------------------------------------------------------------------------
Balance, end of year 40 48 24
- ---------------------------------------------------------------------------------------------------------------------------------
UNREALIZED GAIN (LOSS) ON SECURITIES, NET OF TAX
Balance, beginning of year 245 (1,219) 78
Net change in unrealized gains (losses) on
investment securities, net of tax [2] 107 1,464 (1,297)
- ---------------------------------------------------------------------------------------------------------------------------------
Balance, end of year 352 245 (1,219)
- ---------------------------------------------------------------------------------------------------------------------------------
RETAINED EARNINGS
Balance, beginning of year 2,802 3,022 2,605
Net income (loss) (99) 559 644
Dividends declared on common stock (188) (779) (227)
- ---------------------------------------------------------------------------------------------------------------------------------
Balance, end of year 2,515 2,802 3,022
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKHOLDERS' EQUITY AND COMMON $ 4,520 $ 4,702 $ 3,184 117,556 117,124
SHARES OUTSTANDING
=================================================================================================================================
[1] For information regarding The Hartford Distribution, see Note 2 of Notes to
Consolidated Financial Statements.
[2] The 1994 change in unrealized loss on securities, net of tax, includes a
gain of $303 due to the adoption of SFAS No. 115 as discussed in Note 1(b)
of Notes to Consolidated Financial Statements.
The accompanying Notes to Consolidated Financial Statements are an integral part
of the above statements.
F-5
ITT HARTFORD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31,
------------------------------------
(In millions) 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income (loss) $ (99) $ 559 $ 644
Cumulative effect of accounting changes -- -- (12)
- -----------------------------------------------------------------------------------------------------------------------------
Income (loss) before cumulative effect of accounting changes (99) 559 632
ADJUSTMENTS TO NET INCOME (LOSS)
Depreciation and amortization 81 85 80
Net realized capital (gains) losses 126 (102) (90)
Change in receivables, payables and accruals (38) (45) (67)
Accrued and deferred taxes (449) (56) (125)
Increase in liabilities for future policy benefits, unpaid claims and claim
adjustment expenses and unearned premiums 968 804 610
Increase in deferred policy acquisition costs (589) (413) (484)
Decrease in reinsurance recoverables and other related assets 611 320 241
Other, net 383 (58) 26
- -----------------------------------------------------------------------------------------------------------------------------
CASH PROVIDED BY OPERATING ACTIVITIES 994 1,094 823
=============================================================================================================================
INVESTING ACTIVITIES
Purchase of investments (33,424) (43,153) (41,777)
Sale of investments 14,602 14,759 15,702
Maturity of investments 17,856 26,873 22,815
Additions to plant, property and equipment (69) (76) (76)
- -----------------------------------------------------------------------------------------------------------------------------
CASH USED FOR INVESTING ACTIVITIES (1,035) (1,597) (3,336)
=============================================================================================================================
FINANCING ACTIVITIES
Short-term debt, net (386) (142) 516
Long-term debt, net -- 552 13
Net proceeds from issuance of company obligated mandatorily redeemable
preferred securities of subsidiary trusts holding solely parent junior
subordinated debentures 969 -- --
Dividends paid (140) -- --
Investments, advances and dividends to ITT Industries, Inc. -- (314) (427)
Net receipts from (disbursements for) investment and universal life-type contracts
credited to (charged from) policyholder accounts (390) 530 2,584
Redemption of subsidiary preferred stock -- (86) (177)
Other, net 6 (7) --
- -----------------------------------------------------------------------------------------------------------------------------
CASH PROVIDED BY FINANCING ACTIVITIES 59 533 2,509
=============================================================================================================================
Foreign exchange rate effect on cash (1) 10 (2)
=============================================================================================================================
Increase (decrease) in cash 17 40 (6)
Cash - beginning of year 95 55 61
- -----------------------------------------------------------------------------------------------------------------------------
CASH - END OF YEAR $ 112 $ 95 $ 55
=============================================================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
- -------------------------------------------------
NET CASH PAID DURING THE YEAR FOR:
Income taxes $ 170 $ 302 $ 317
Interest $ 142 $ 95 $ 74
NONCASH FINANCING ACTIVITIES:
Capital contribution $ -- $ 180 $ --
Dividends paid $ -- $ 395 $ --
The accompanying Notes to Consolidated Financial Statements are an integral part
of the above statements.
F-6
ITT HARTFORD GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN MILLIONS EXCEPT PER SHARE DATA UNLESS OTHERWISE STATED)
1. SIGNIFICANT ACCOUNTING POLICIES
(a) BASIS OF PRESENTATION
ITT Hartford Group, Inc. together with its consolidated subsidiaries ("The
Hartford" or the "Company") provide property and casualty and life insurance to
both individual and commercial customers in the United States and
internationally.
In June 1995, the Board of Directors of ITT Industries, Inc. (the
"Corporation"), formerly ITT Corporation ("ITT"), approved the distribution to
holders of the Corporation's common stock of all outstanding shares of common
stock of The Hartford on a pro rata basis (see Note 2). The Hartford became a
publicly traded company that includes the insurance businesses of the former
ITT. For purposes of these financial statements, all references to The Hartford
include the assets, liabilities and results of operations of First State
Insurance Company and its subsidiaries ("First State") and Fencourt Reinsurance
Company, Ltd., which were transferred to The Hartford prior to the distribution
(see Note 2).
These financial statements present the financial position, results of operations
and cash flows of The Hartford as if it were a separate entity for all periods
presented. The Corporation's historical basis in the assets and liabilities of
certain companies, that were previously not a part of The Hartford, has been
carried over and included in the accompanying financial statements as if such
companies had been transferred for all periods presented, in a manner similar to
pooling of interest accounting. All material intercompany transactions and
balances between The Hartford, its subsidiaries and affiliates have been
eliminated. The consolidated financial statements are prepared on the basis of
generally accepted accounting principles which differ materially from the
accounting prescribed by various insurance regulatory authorities.
The preparation of financial statements, in conformity with generally accepted
accounting principles, requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
The most significant estimates include those used in determining deferred policy
acquisition costs and the liability for future policy benefits, unpaid claims
and claim adjustment expenses. Although some variability is inherent in these
estimates, management believes the amounts provided are adequate.
Certain reclassifications have been made to prior year financial information to
conform to current year presentation.
(b) CHANGES IN ACCOUNTING PRINCIPLES
On November 14, 1996, the Emerging Issues Task Force ("EITF") reached a
consensus on Issue No. 96-12, "Recognition of Interest Income and Balance Sheet
Classification of Structured Notes". This Issue requires companies to record
income on certain structured securities on a retrospective interest method. The
Company adopted EITF No. 96-12 for structured securities acquired after November
14, 1996. Adoption of EITF No. 96-12 did not have a material effect on the
Company's financial condition or results of operations.
In June 1996, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishment of Liabilities" which is
effective for transfers and servicing of financial assets and extinguishments of
liabilities occurring after December 31, 1996. This statement established
criteria for determining whether transferred assets should be accounted for as
sales or secured borrowings. Subsequently, in December 1996, the FASB issued
SFAS No. 127, "Deferral of Effective Date of Certain Provisions of FASB
Statement No. 125, which defers the effective date of certain provisions of SFAS
No. 125 for one year. Adoption of SFAS No. 125 is not expected to have a
material effect on the Company's financial condition or results of operations.
Effective January 1, 1996, The Hartford adopted SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of
". This statement establishes accounting standards for the impairment of
long-lived assets, certain identifiable intangibles, and goodwill related to
those assets to be held and used and for long-lived assets and certain
identifiable intangibles to be disposed of. Adoption of SFAS No. 121 did not
have a material effect on the Company's financial condition or results of
operations.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation", which is effective in 1996 for calendar year end companies. As
permitted by SFAS No. 123, The Hartford continues to measure compensation costs
of employee stock option plans using the intrinsic value method prescribed by
Accounting Principles Board Opinion No. 25 and has made pro forma disclosures of
net income and earnings per share as if the fair value method prescribed by SFAS
No. 123 had been applied. For additional information, see Note 8.
Effective January 1, 1994, The Hartford adopted SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." The standard requires, among
other things, that securities be classified as "held-to-maturity", "available
for sale" or "trading" based on the company's intentions with respect to the
ultimate disposition of the security and its ability to effect those intentions.
The classification determines the appropriate accounting carrying value (cost
basis or fair value)
F-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(b) CHANGES IN ACCOUNTING PRINCIPLES (CONTINUED)
and, in the case of fair value, whether the adjustment impacts Stockholders'
Equity directly or is reflected in the Consolidated Statements of Income.
Investments in equity securities had previously been and continue to be recorded
at fair value with the corresponding impact included in Stockholders' Equity.
Under SFAS No. 115, The Hartford's fixed maturities are classified as available
for sale and accordingly, these investments are reflected at fair value with the
corresponding impact included as a component of Stockholders' Equity designated
"unrealized gain (loss) on securities, net of tax". At December 31, 1996, the
net unrealized gain on securities, net of tax of $190, was $352 including a net
unrealized gain pertaining to equity securities of $186. EITF Issue No. 93-18
prescribes specific accounting treatment with respect to mortgage-backed
interest-only investments. EITF Issue No. 93-18 reached the conclusion that the
measure of impairment of these instruments should be changed from undiscounted
cash flows to fair value. Accordingly, the amortized cost basis of such
instruments, that were determined to have other-than-temporary impairment losses
at the time of the initial adoption of SFAS No. 115, was written down to fair
value and reflected as a cumulative effect of accounting change of $(30)
after-tax as of January 1, 1994 in the accompanying Consolidated Statements of
Income.
Effective January 1, 1994, The Hartford elected to change its method of
discounting to present value certain workers' compensation reserves, principally
for permanently disabled claimants. This change involved discounting these
reserves at a market interest rate as compared to previously used statutory
rates ranging from 3 to 3.5 percent. The market rate, which approximated 7
percent at January 1, 1994, represents the rate of return The Hartford could
receive on risk-free investments with maturities comparable to the duration of
the claim liabilities. This accounting change resulted in a $42 after-tax
cumulative effect benefit which is reflected in the accompanying Consolidated
Statements of Income. The total amount of the reserve discount was $472 and $451
at December 31, 1996 and 1995, respectively.
The Hartford's cash flows were not impacted by these changes in accounting
principles.
(c) PROPERTY AND CASUALTY INSURANCE OPERATIONS
Policy acquisition costs, representing commissions, premium taxes and certain
other underwriting expenses, are deferred and amortized over policy terms.
Estimates of future revenues, including net investment income and tax benefits,
are compared to estimates of future costs, including amortization of policy
acquisition costs, to determine if business currently in force is expected to
result in a net loss. No revenue deficiencies have been determined in the
periods presented.
The Hartford establishes reserves to provide for the estimated costs of paying
claims made by policyholders or against policyholders. These reserves include
estimates for both claims that have been reported and those that have been
incurred but not yet reported to The Hartford and include estimates of all
expenses associated with processing and settling these claims. This estimation
process is primarily based on historical experience and involves a variety of
actuarial techniques which analyze trends and other relevant factors. A
reconciliation of liabilities for unpaid claims and claim adjustment expenses
and a table depicting the historical development of the liabilities for unpaid
claims and claim adjustment expenses follows:
December 31,
----------------------------
1996 1995 1994
----------------------------
BEGINNING LIABILITIES FOR UNPAID
CLAIMS AND CLAIM ADJUSTMENT
EXPENSES-GROSS $17,536 $17,435 $17,284
Reinsurance recoverables 4,939 5,317 5,339
- -------------------------------------------------------------------
BEGINNING LIABILITIES FOR UNPAID
CLAIMS AND CLAIM ADJUSTMENT
EXPENSES-NET 12,597 12,118 11,945
ADD PROVISION FOR UNPAID CLAIMS
AND CLAIM ADJUSTMENT EXPENSES
Current year 5,075 5,041 4,841
Prior years (1) 1,049 254 55
- -------------------------------------------------------------------
TOTAL PROVISION FOR UNPAID CLAIMS
AND CLAIM ADJUSTMENT EXPENSES 6,124 5,295 4,896
- -------------------------------------------------------------------
LESS PAYMENTS
Current year 2,082 1,905 1,891
Prior years 2,797 3,032 2,832
- -------------------------------------------------------------------
TOTAL PAYMENTS 4,879 4,937 4,723
- -------------------------------------------------------------------
Foreign currency translation 47 6 65
Cumulative effect of accounting
changes (2) -- -- (65)
ITT Ercos (3) -- 34 --
Other reclassifications -- 81 --
- -------------------------------------------------------------------
ENDING LIABILITIES FOR UNPAID
CLAIMS AND CLAIM ADJUSTMENT
EXPENSES-NET 13,889 12,597 12,118
Reinsurance recoverables 4,414 4,939 5,317
- -------------------------------------------------------------------
ENDING LIABILITIES FOR UNPAID
CLAIMS AND CLAIM ADJUSTMENT
EXPENSES-GROSS $18,303 $17,536 $17,435
===================================================================
[1] See Note 14(b) Environmental and Asbestos Claims. Excludes the effects of
foreign exchange adjustments.
[2] Refer to Note 1(b) above for further discussion of the accounting changes
involving the discounting of reserves.
[3] Represents beginning balances for liabilities for unpaid claims and claim
adjustment expenses of ITT Ercos, a subsidiary acquired during 1995.
The Company has an exposure to catastrophe losses which can be caused by
significant events including hurricanes, severe winter storms, earthquakes,
windstorms and fires. The frequency and severity of catastrophes are
unpredictable and the exposure to a catastrophe is a function of both the total
amount insured in an area affected by the event and the severity of the event.
Catastrophes generally impact limited geographic areas; however, certain events
may produce significant damage in
F-8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(c) PROPERTY AND CASUALTY INSURANCE OPERATIONS (CONTINUED)
heavily populated areas. The Company generally seeks to reduce its exposure to
catastrophe losses through individual risk selection and the purchase of
catastrophe reinsurance.
(d) LIFE INSURANCE OPERATIONS
Life insurance revenues are comprised of life insurance premiums which are
recognized when due from policyholders, accident and health premiums which are
recognized when earned and policyholder charges on universal life-type and
investment contracts. Realized capital gains and losses on security transactions
associated with the Company's immediate participation guaranteed contracts are
excluded from revenues and deferred, since under the terms of the contracts the
realized gains and losses will be credited to policyholders in future years as
they are entitled to receive them. Policy acquisition costs, including
commissions and certain underwriting expenses associated with acquiring
business, are deferred and amortized over the estimated lives of the contracts,
generally 20 years. Generally, acquisition costs are deferred and amortized
using the retrospective deposit method. Under the retrospective deposit method,
acquisition costs are amortized in proportion to the present value of expected
gross profits from surrender charges, investment, mortality and expense margins.
Actual gross profits can vary from management's estimates resulting in increases
or decreases in the rate of amortization. Management periodically updates these
estimates, when appropriate, and evaluates the recoverability of the deferred
acquisition cost asset. When appropriate, management revises its assumptions on
the estimated gross profits of these contracts and the cumulative amortization
for the books of business are reestimated and readjusted by a cumulative charge
or credit to income.
Liabilities for future policy benefits are computed by the net level premium
method using interest assumptions ranging from 3% to 11% and withdrawal,
mortality and morbidity assumptions appropriate at the time the policies were
issued. Health reserves are stated at amounts determined by estimates on
individual cases and estimates of unreported claims based on past experience.
Liabilities for universal life-type and investment contracts are stated at
policyholder account values before surrender charges.
The Company maintains separate account assets and liabilities which are reported
at fair value. Separate account assets are segregated from other investments,
and investment income and gains and losses accrue directly to the policyholders.
Separate accounts reflect two categories of risk assumption: non-guaranteed
separate accounts, wherein the policyholder assumes the investment risk, and
guaranteed separate account assets, wherein the Company contractually guarantees
either a minimum return or account value to the policyholder.
(e) FOREIGN CURRENCY TRANSLATION
Foreign currency translation gains and losses are reflected in Stockholders'
Equity. Balance sheet accounts are translated at the exchange rates in effect at
each year end and income statement accounts are translated at the average rates
of exchange prevailing during the year. The national currencies of the
international operations are generally their functional currencies.
(f) INVESTMENTS
The Hartford's investments in fixed maturities include bonds and commercial
paper which are classified as "available for sale" and accordingly are carried
at fair value with the after-tax difference from cost reflected as a component
of Stockholders' Equity designated "unrealized gain (loss) on securities, net of
tax". Equity securities, which include common and non-redeemable preferred
stocks, are carried at fair value with the after-tax difference from cost
reflected in Stockholders' Equity. Fair value for fixed maturities and equity
securities approximate those quotations published by applicable stock exchanges
or received from other reliable sources. Net realized capital gains and losses,
after deducting life and pension policyholders' share, are reported as a
component of revenue and are determined on a specific identification basis.
Policy loans are carried at outstanding balance which approximates fair value.
The Company's accounting policy for impairment requires recognition of an other
than temporary impairment charge on a security if it is determined that the
company is unable to recover all amounts due under the contractual obligations
of the security. In addition, the Company has established specific criteria to
be used in the impairment evaluation of an individual portfolio of assets.
Specifically, if the asset portfolio is supporting a runoff operation, is forced
to be liquidated prior to maturity to meet liability commitments, and has a fair
value below amortized cost, which will not materially fluctuate as a result of
future interest rate changes, then an other than temporary impairment has been
determined to have occurred and is recognized. The Company then continues to
review the impaired securities for appropriate valuation on an ongoing basis.
During 1996, it was determined that a portfolio of assets within the closed book
of guaranteed rate contract business ("Closed Book GRC") was impaired. With the
initiation of certain hedge transactions, which eliminated the possibility that
the fair value of the Closed Book GRC investments would recover to their current
amortized cost, an other than temporary impairment loss of $88 after-tax was
determined to have occurred and was recorded.
(g) DERIVATIVE FINANCIAL INSTRUMENTS
The Hartford uses a variety of derivative financial instruments including swaps,
caps, floors, forwards and exchange traded financial futures and options as part
of an overall risk management strategy. These instruments are used as a means of
hedging exposure to price, foreign currency and/or interest rate risk on planned
investment purchases or existing assets and
F-9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(g) DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)
liabilities. The Hartford does not hold or issue derivative financial
instruments for trading purposes. The Hartford's accounting for derivative
financial instruments used to manage risk is in accordance with the concepts
established in SFAS No. 80, "Accounting for Futures Contracts", SFAS No. 52 ,
"Foreign Currency Translation", American Institute of Certified Public
Accountants Statement of Position 86-2, "Accounting for Options" and various
EITF pronouncements. Written options are used, in all cases in conjunction with
other assets and derivatives as part of the Company's asset and liability
management strategy. Derivative instruments are carried at values consistent
with the asset or liability being hedged. Derivatives used to hedge fixed
maturities or equities are carried at fair value with the after-tax difference
from cost reflected in Stockholders' Equity. Derivatives used to hedge other
invested assets or liabilities are carried at cost.
Derivatives must be designated at inception as a hedge and measured for
effectiveness both at inception and on an ongoing basis. The Hartford's minimum
correlation threshold for hedge designation is 80%. If correlation, which is
assessed monthly and measured based on a rolling three month average, falls
below 80%, hedge accounting will be terminated. Derivatives used to create a
synthetic asset must meet synthetic accounting criteria including designation at
inception and consistency of terms between the synthetic and the instrument
being replicated. Synthetic instrument accounting, consistent with industry
practice, provides that the synthetic asset is accounted for like the financial
instrument it is intended to replicate. Derivatives which fail to meet risk
management criteria are marked to market with the impact reflected in the
Consolidated Statements of Income.
Gains or losses on financial futures contracts entered into in anticipation of
the future receipt of product cash flows are deferred and, at the time of the
ultimate purchase, reflected as a basis adjustment to the purchased asset. Gains
or losses on futures used in invested asset risk management are deferred and
adjusted into the basis of the hedged asset when the contract futures are
closed, except for futures used in duration hedging which are deferred and basis
adjusted on a quarterly basis. The basis adjustments are amortized into net
investment income over the remaining asset life.
Open forward commitment contracts are marked to market through Stockholders'
Equity. Such contracts are recorded at settlement by recording the purchase of
the specified securities at the previously committed price. Gains or losses
resulting from the termination of the forward commitment contracts before the
delivery of the securities are recognized immediately in the Consolidated
Statements of Income as a component of net investment income.
The cost of options entered into as part of a risk management strategy are basis
adjusted to the underlying asset or liability and amortized over the remaining
life of the hedge. Gains or losses on expiration or termination are adjusted
into the basis of the underlying asset or liability and amortized over the
remaining asset life.
Interest rate swaps involve the periodic exchange of payments without the
exchange of underlying principal or notional amounts. Net receipts or payments
are accrued and recognized over the life of the swap agreement as an adjustment
to income. Should the swap be terminated, the gain or loss is adjusted into the
basis of the asset or liability and amortized over the remaining life. Should
the hedged asset be sold or liability terminated without terminating the swap
position, any swap gains or losses are immediately recognized in earnings.
Interest rate swaps purchased in anticipation of an asset purchase
("anticipatory transaction") are recognized consistent with the underlying asset
components such that the settlement component is recognized in the Consolidated
Statements of Income while the change in market value is recognized as an
unrealized gain or loss.
Premiums paid on purchased floor or cap agreements and the premium received on
issued cap or floor agreements (used for risk management) are adjusted into the
basis of the applicable asset and amortized over the asset life. Gains or losses
on termination of such positions are adjusted into the basis of the asset or
liability and amortized over the remaining asset life. Net payments are
recognized as an adjustment to income or basis adjusted and amortized depending
on the specific hedge strategy.
Forward exchange contracts and foreign currency swaps are accounted for in
accordance with SFAS No. 52. Changes in the spot rate of instruments designated
as hedges of the net investment in a foreign subsidiary are reflected in the
cumulative translation adjustments component of Stockholders' Equity.
(h) EARNINGS PER SHARE
Earnings per share for the years ended December 31, 1995 and 1994 were
determined based on the actual number of common shares outstanding at December
31, 1995 of 117.1 million.
2. THE DISTRIBUTION
On December 19, 1995, ITT distributed all of the outstanding shares of common
stock of The Hartford to the shareholders of ITT common stock (the
"Distribution" or "Spin-off"). As a result of the Distribution, The Hartford
became an independent publicly-traded company. "Regular Way" trading of The
Hartford common stock securities on the New York Stock Exchange (under the
symbol "HIG") commenced on December 20, 1995. In connection with this
transaction, ITT transferred First State and Fencourt Reinsurance Company, Ltd.,
both of which were wholly-owned companies of ITT, to The Hartford prior to the
Distribution.
The Distribution Agreement entered into by The Hartford, ITT Destinations, Inc.,
and ITT Industries, Inc. ("the former ITT subsidiaries") addressed the
disposition of shared liabilities. A shared liability is defined as a liability
arising out of, or related
F-10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
2. THE DISTRIBUTION (CONTINUED)
to, business conducted by ITT prior to the Distribution that was not otherwise
specifically related to one of the former ITT subsidiaries. Under the
Distribution Agreement, responsibility for shared liabilities generally will be
borne equally by each of the former ITT subsidiaries, including related
attorney's fees and other out-of-pocket expenses. As of December 31, 1996, all
known liabilities covered by this agreement have been accrued.
Additionally, ITT and The Hartford have entered into a Tax Allocation Agreement
whereby The Hartford will pay a share of ITT's consolidated tax liability for
the tax years that The Hartford was included in ITT's consolidated Federal
income tax return. The Tax Allocation Agreement provides for the attribution to
specific companies of any state, local and foreign taxes related to periods
prior to December 20, 1995.
3. INVESTMENTS
For the years ended December 31,
--------------------------------------------------
1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------
(a) COMPONENTS OF NET INVESTMENT INCOME
Interest income $ 2,483 $ 2,384 $ 2,167
Dividends from unaffiliated companies 55 38 47
Real estate income 7 34 62
Other investment income 25 36 79
- -------------------------------------------------------------------------------------------------------------------------
Gross investment income 2,570 2,492 2,355
Less: Investment expenses 47 72 96
- -------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME $ 2,523 $ 2,420 $ 2,259
=========================================================================================================================
(b) COMPONENTS OF NET REALIZED CAPITAL GAINS (LOSSES)
Fixed maturities $ (247) $ 63 $ (24)
Equity securities 135 77 83
Real estate and other (11) (35) 26
Less: Increase (decrease) in liability to policyholders for
realized capital gains 3 3 (5)
- -------------------------------------------------------------------------------------------------------------------------
NET REALIZED CAPITAL GAINS (LOSSES) $ (126) $ 102 $ 90
=========================================================================================================================
(c) UNREALIZED GAINS (LOSSES) ON EQUITY SECURITIES
Gross unrealized gains $ 336 $ 199 $ 118
Gross unrealized losses (52) (49) (103)
- -------------------------------------------------------------------------------------------------------------------------
Net unrealized gains 284 150 15
Deferred income tax expense 98 52 5
- -------------------------------------------------------------------------------------------------------------------------
Net unrealized gains, net of tax 186 98 10
Balance - beginning of year 98 10 78
- -------------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED INVESTMENT GAINS (LOSSES) $ 88 $ 88 $ (68)
=========================================================================================================================
(d) UNREALIZED GAINS (LOSSES) ON FIXED MATURITIES
Gross unrealized gains $ 717 $ 943 $ 228
Gross unrealized losses (446) (667) (2,164)
Unrealized (gains) losses credited to policyholders (13) (51) 46
- -------------------------------------------------------------------------------------------------------------------------
Net unrealized gains (losses) 258 225 (1,890)
Deferred income tax expense (benefit) 92 78 (661)
- -------------------------------------------------------------------------------------------------------------------------
Net unrealized gains (losses), net of tax 166 147 (1,229)
Balance - beginning of year 147 (1,229) 303
- -------------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED INVESTMENT GAINS (LOSSES) $ 19 $ 1,376 $ (1,532)
=========================================================================================================================
F-11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
3. INVESTMENTS (CONTINUED)
(e) FIXED MATURITY INVESTMENTS
As of December 31, 1996
-------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized
Cost Gains Losses Fair Value
- --------------------------------------------------------------------------------------------------------------------------------
BONDS AND NOTES
U. S. gov't and gov't agencies and authorities
(guaranteed and sponsored) $ 389 $ 15 $ (4) $ 400
U. S. gov't and gov't agencies and authorities
(guaranteed and sponsored) - asset-backed 2,992 177 (143) 3,026
States, municipalities and political subdivisions 7,524 143 (38) 7,629
International governments 2,230 82 (6) 2,306
Public utilities 1,228 16 (12) 1,232
All other corporate including international 8,483 190 (150) 8,523
All other corporate - asset-backed 4,814 63 (66) 4,811
Short-term investments 1,812 -- -- 1,812
Certificates of deposit 1,661 29 (27) 1,663
Redeemable preferred stock 45 2 -- 47
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL FIXED MATURITIES $ 31,178 $ 717 $ (446) $ 31,449
================================================================================================================================
As of December 31, 1995
-------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized
Cost Gains Losses Fair Value
- --------------------------------------------------------------------------------------------------------------------------------
BONDS AND NOTES
U. S. gov't and gov't agencies and authorities
(guaranteed and sponsored) $ 947 $ 9 $ (12) $ 944
U. S. gov't and gov't agencies and authorities
(guaranteed and sponsored) - asset-backed 5,521 267 (420) 5,368
States, municipalities and political subdivisions 5,322 148 (11) 5,459
International governments 1,933 79 (5) 2,007
Public utilities 1,295 37 (2) 1,330
All other corporate including international 7,240 263 (134) 7,369
All other corporate - asset-backed 4,031 96 (63) 4,064
Short-term investments 3,065 -- -- 3,065
Certificates of deposit 1,538 44 (20) 1,562
- --------------------------------------------------------------------------------------------------------------------------------
Total fixed maturities $ 30,892 $ 943 $ (667) $ 31,168
================================================================================================================================
The amortized cost and estimated fair value of fixed maturity investments at
December 31, 1996 by maturity are shown to the right. Asset-backed securities,
including MBS and CMO's, are distributed to maturity year based on estimates of
the rate of future prepayments of principal over the remaining lives of the
securities. These estimates are developed using prepayment speeds reported in
broker consensus data and can be expected to vary from actual experience.
Expected maturities differ from contractual maturities due to call or prepayment
provisions.
Amortized
MATURITY Cost Fair Value
- --------------------------------------------------------------
One year or less $ 4,363 $ 4,382
Over one year through five years 10,675 10,789
Over five years through ten years 8,963 9,042
Over ten years 7,177 7,236
- --------------------------------------------------------------
TOTAL $ 31,178 $ 31,449
==============================================================
F-12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
3. INVESTMENTS (CONTINUED)
(e) FIXED MATURITY INVESTMENTS (CONTINUED)
Sales of fixed maturities, excluding short-term fixed maturities, for the years
ended December 31, 1996, 1995 and 1994 resulted in proceeds of $11.3 billion,
$10.7 billion and $10.2 billion, gross gains of $161, $210 and $188 and gross
losses (including writedowns) of $(408), $(147) and $(212), respectively. Sales
of equity security investments for the years ended December 31, 1996, 1995 and
1994 resulted in proceeds of $1.4 billion, $1.7 billion and $1.7 billion, gross
gains of $184, $150 and $135 and gross losses of $(49), $(73) and $(52),
respectively.
(f) CONCENTRATION OF CREDIT RISK
Included in fixed maturity investments at December 31, 1996 and 1995,
respectively, were $39 of Orange County, California Pension Obligation Bonds,
$17 of which were carried in the general account and $22 of which were included
in The Hartford's separate account assets. During 1996, all interest payments
due were received. The bonds were sold in January 1997 for $40.
Excluding U.S. government and government agency investments, The Hartford is not
exposed to any significant credit concentration risk.
(g) FAIR VALUE OF FINANCIAL INSTRUMENTS NOT DISCLOSED ELSEWHERE AS OF DECEMBER
31, 1996 AND 1995
Balance Sheet Items
1996 1995
------------------ -------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
- -----------------------------------------------------------------
Assets
Other investments $4,265 $4,355 $4,066 $4,082
Liabilities
Other policy claims
and benefits payable* 11,707 11,469 12,727 12,767
Short-term debt 500 500 886 886
Long-term debt 1,032 1,044 1,022 1,172
QUIPS ** 1,000 993 -- --
- -----------------------------------------------------------------
* Excludes corporate owned life insurance ("COLI") and universal life insurance
contracts totaling $10.5 billion and $10.0 billion at December 31, 1996 and
1995, respectively.
** Represents company obligated mandatorily redeemable preferred securities of
subsidiary trusts holding solely parent junior subordinated debentures.
The following methods and assumptions were used to estimate the fair value of
each class of financial instrument above for which it is practicable to do so:
policy and mortgage loan carrying amounts approximate fair value; investments in
partnerships and trusts are based on external market valuations from partnership
and trust management; other policy claims and benefits payable are determined by
estimating future cash flows discounted at the current market rate; short-term
debt carrying amounts approximate fair value; and long-term debt, including
QUIPS, is based on external valuation using discounted future cash flows at
current market interest rates.
(h) DERIVATIVE FINANCIAL INSTRUMENTS
The Hartford uses a variety of derivative financial instruments, including
swaps, caps, floors, forwards and exchange traded financial futures and options
in order to hedge exposure to price, foreign currency and/or interest rate risks
on anticipated investment purchases or existing assets and liabilities. Approved
derivatives usage must support at least one of the following objectives: to
manage the risk to the operation arising from price, interest rate and foreign
currency volatility, to manage liquidity, or to control transaction costs. The
notional amounts of derivative contracts represent the basis upon which pay and
receive amounts are calculated and are not reflective of credit risk. Credit
risk for derivative contracts is limited to the amounts calculated to be due to
The Hartford on such contracts. Payment obligations between The Hartford and its
counterparties are typically netted on a quarterly basis. The Hartford has
policies regarding the financial stability and credit standing of its major
counterparties and typically requires credit enhancement provisions to further
limit its credit risk for derivative contracts. Many of these derivative
contracts are bilateral agreements that are not assignable without the consent
of the relevant counterparty. Notional amounts pertaining to derivative
financial instruments totaled $11.1 billion and $9.8 billion ($8.3 billion and
$7.9 billion related to life insurance operations investments, $2.6 billion and
$1.7 billion on life insurance operations liabilities and $200 and $200 related
to variable rate debt) at December 31, 1996 and 1995, respectively.
F-13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
3. INVESTMENTS (CONTINUED)
(h) DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)
A summary of derivatives for The Hartford, segregated by major investment
category, was as follows as of December 31, 1996 and 1995:
1996 Amount Hedged (Notional Amounts)
- ----------------------------------------------------------------------------------------------------------------------------------
Total Purchased Interest Foreign Total
Carrying Issued Caps Caps, Floors Rate Currency Notional
ASSETS HEDGED Value $ Floors (C) & Options (D) Futures (E) Swaps (H) Swaps (F) Amount
- ----------------------------------------------------------------------------------------------------------------------------------
Asset-backed securities (excluding
inverse floaters and anticipatory) $ 7,429 $ 500 $ 2,454 $ -- $ 941 $ -- $ 3,895
Inverse floaters (A) 408 98 856 -- 346 -- 1,300
Anticipatory (G) -- -- -- 287 105 -- 392
Other bonds and notes 21,800 456 748 50 1,265 125 2,644
Short-term investments 1,812 -- -- -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL FIXED MATURITIES 31,449 1,054 4,058 337 2,657 125 8,231
Equity securities, policy loans and
other investments 6,190 -- -- -- 19 -- 19
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS $ 37,639 $ 1,054 $ 4,058 $ 337 $ 2,676 $ 125 $ 8,250
==================================================================================================================================
TOTAL DERIVATIVES - FAIR VALUE (B) $ (10) $ 35 $ -- $ (27) $ (9) $ (11)
==================================================================================================================================
1995 Amount Hedged (Notional Amounts)
- ----------------------------------------------------------------------------------------------------------------------------------
Total Purchased Interest Foreign Total
Carrying Issued Caps Caps, Floors Rate Currency Notional
ASSETS HEDGED Value $ Floors (C) & Options (D) Futures (E) Swaps (H) Swaps (F) Amount
- ----------------------------------------------------------------------------------------------------------------------------------
Asset-backed securities (excluding
inverse floaters and anticipatory) $ 8,543 $ 118 $ 3,433 $ 323 $ 290 $ -- $ 4,164
Inverse floaters (A) 892 560 354 18 681 -- 1,613
Anticipatory (G) (3) -- -- 478 240 -- 718
Other bonds and notes 18,671 33 66 336 798 187 1,420
Short-term investments 3,065 -- -- -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL FIXED MATURITIES 31,168 711 3,853 1,155 2,009 187 7,915
Equity securities, policy loans and
other investments 5,507 -- -- -- 18 -- 18
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS $ 36,675 $ 711 $ 3,853 $ 1,155 $ 2,027 $ 187 $ 7,933
==================================================================================================================================
TOTAL DERIVATIVES - FAIR VALUE (B) $ (32) $ 4 7 $ -- $ (113) $ (24) $ (122)
==================================================================================================================================
(A) Inverse floaters are variations of collateralized mortgage obligations
("CMO's") for which the coupon rates move inversely with an index rate such
as the London interbank offered rate ("LIBOR"). The risk to principal is
considered negligible as the underlying collateral for the securities is
guaranteed or sponsored by government agencies. To address the volatility
risk created by the coupon variability, The Hartford uses a variety of
derivative instruments, primarily interest rate swaps and caps and floors.
(B) The fair value of derivative instruments, including swaps, caps, floors,
futures, options and forward commitments, was determined using a pricing
model which is validated through quarterly comparison to dealer quoted
prices for 1996, and using dealer quoted prices for 1995.
(C) The 1996 data includes issued caps of $433 with a weighted average strike
rate of 8.21% (ranging from 7.0% to 9.5%) and over 93% maturing in 2000
through 2005. In addition, issued floors totaled $621, and had a weighted
average strike rate of 5.16% (ranging from 4.88% to 7.85%) with all of them
maturing by the end of 2005. The 1995 data includes issued caps of $475
with a weighted average strike rate of 8.5% (ranging from 7.0% to 10.4%)
and over 85% maturing in 2000 through 2004. In addition, issued floors
totaled $236, had a weighted average strike rate of 8.1% (ranging from 5.3%
to 10.9%) and mature through 2007 with 76% maturing by 2004.
(D) The 1996 data includes purchased floors of $2.6 billion, purchased options
of $11 and purchased caps of $1.4 billion. The floors had a weighted
average strike rate of 5.77% (ranging from 3.70% to 7.85%) and over 95%
mature in the years 1997 through 2001. The options mature in 1997. The caps
had a weighted average strike rate of 7.68% (ranging from 4.40% to 10.13%)
and over 77% of them mature in the year 1997 through 2001. The 1995 data
includes purchased floors of $2.1 billion and purchased caps of $1.8
billion. The floors had a weighted average strike rate of 5.7% (ranging
from 3.7% to 6.8%) and over 87% mature in 1997 through 1999. The caps had a
weighted average strike rate of 7.6% (ranging from 4.5% to 10.1%) and over
82% mature in 1997 through 2000.
(E) As of December 31, 1996 and 1995, over 71% and 95% , respectively, of the
notional futures contracts expire within one year.
(F) As of December 31, 1996 and 1995, over 42% and 25%, respectively, of
foreign currency swaps expire within one year; the balance mature over the
succeeding 4 to 5 years.
(G) Deferred gains and losses on anticipatory transactions are included in the
carrying value of fixed maturity investments in the Consolidated Balance
Sheets. At the time of the ultimate purchase, they are reflected as a basis
adjustment to the purchased asset. At December 31, 1996, The Hartford had
$5.7 in net deferred gains for futures, interest rate swaps and purchased
options. The Hartford expects to basis adjust the $5.7 of deferred gains in
1997. At December 31, 1995, The Hartford had $12.9 in net deferred gains
for futures, interest rate swaps and purchased options of which $12.6 was
basis adjusted in 1996.
(H) The following tables summarize the maturities of interest rate swaps
outstanding at December 31, 1996 and 1995, and the related weighted average
interest pay rate or receive rate. The variable rates represent spot rates
(primarily 90 day LIBOR).
F-14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENTS (CONTINUED)
(h) DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)
Interest Rate Swaps
- ---------------------------------------------------------------------------------------------------------------------------------
Latest
1996 1997 1998 1999 2000 2001 Thereafter Total Maturity
- ---------------------------------------------------------------------------------------------------------------------------------
PAY FIXED/RECEIVE VARIABLE
Notional value $ -- $ 50 $ 165 $ 35 $ 162 $ 334 $ 746 2016
Weighted average pay rate --% 5.7% 5.8% 5.5% 5.5% 5.6% 5.6%
Weighted average receive rate --% 3.2% 1.5% 6.5% 6.3% 6.7% 5.2%
PAY VARIABLE/RECEIVE FIXED
Notional value $ 86 $ 25 $ 486 $ 74 $ 582 $ 399 $ 1,652 2007
Weighted average pay rate 7.5% --% 6.4% 6.7% 7.0% 6.8% 6.8%
Weighted average receive rate 5.6% --% 5.6% 5.7% 6.2% 5.8% 5.9%
PAY VARIABLE/RECEIVE DIFFERENT VARIABLE
Notional value $ 19 $ 15 $ -- $ 200 $ -- $ 44 $ 278 2007
Weighted average pay rate 5.9% 5.7% --% 6.4% --% 12.9% 7.4%
Weighted average receive rate 3.7% 5.5% --% 5.0% --% 6.4% 5.2%
TOTAL INTEREST RATE SWAPS $ 105 $ 90 $ 651 $ 309 $ 744 $ 777 $ 2,676 2016
TOTAL WEIGHTED AVERAGE PAY RATE 7.2% 5.7% 6.2% 6.4% 6.7% 6.6% 6.5%
TOTAL WEIGHTED AVERAGE RECEIVE RATE 5.2% 3.8% 4.4% 5.4% 6.2% 6.3% 5.6%
- ---------------------------------------------------------------------------------------------------------------------------------
Interest Rate Swaps
- ---------------------------------------------------------------------------------------------------------------------------------
Latest
1995 1996 1997 1998 1999 2000 Thereafter Total Maturity
- ---------------------------------------------------------------------------------------------------------------------------------
PAY FIXED/RECEIVE VARIABLE
Notional value $ 15 $ 50 $ -- $ 453 $ 31 $ 229 $ 778 2004
Weighted average pay rate 5.0% 7.2% --% 8.1% 7.1% 7.8% 7.8%
Weighted average receive rate 5.8% 5.9% --% 5.8% 5.7% 5.9% 5.8%
PAY VARIABLE/RECEIVE FIXED
Notional value $ 120 $ 68 $ 25 $ 25 $ 35 $ 295 $ 568 2007
Weighted average pay rate 5.9% 8.6% 5.9% --% 5.9% 4.3% 5.4%
Weighted average receive rate 2.8% 7.9% 4.0% --% 6.5% 6.7% 5.6%
PAY VARIABLE/RECEIVE DIFFERENT VARIABLE
Notional value $ 161 $ 18 $ 36 $ 12 $ 200 $ 254 $ 681 2004
Weighted average pay rate 5.5% 6.2% 3.7% 3.4% 4.5% 16.3% 5.6%
Weighted average receive rate 6.5% 8.1% 5.6% 5.2% 6.8% 5.9% 6.5%
TOTAL INTEREST RATE SWAPS $ 296 $ 136 $ 61 $ 490 $ 266 $ 778 $ 2,027 2007
TOTAL WEIGHTED AVERAGE PAY RATE 5.6% 7.8% 4.6% 7.6% 5.0% 6.4% 6.5%
TOTAL WEIGHTED AVERAGE RECEIVE RATE 4.9% 7.2% 4.9% 5.4% 6.6% 6.3% 5.9%
- ---------------------------------------------------------------------------------------------------------------------------------
F-15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENTS (CONTINUED)
(h) DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)
In addition, interest rate sensitivity related to certain liabilities in life
insurance operations and variable rate debt in property and casualty insurance
operations (as described in Note 5) was modified primarily through interest rate
swap agreements. The notional amount of the life insurance operations liability
agreements, in which life insurance operations generally pay one variable rate
in exchange for another, was $2.6 billion and $1.7 billion at December 31, 1996
and 1995, respectively. As of December 31, 1996, the weighted average pay rate
was 5.6% and the weighted average receive rate was 6.5%. These agreements mature
A reconciliation between notional amounts at December 31, 1996 and 1995 by
derivative type and strategy is as follows:
December 31, 1995 Maturities/ December 31, 1996
Notional Amount Additions Terminations [2] Notional Amount
- ---------------------------------------------------------------------------------------------------------------
BY DERIVATIVE TYPE
Caps $ 2,284 $ 1,293 $ 1,715 $ 1,862
Floors 2,380 2,184 1,165 3,399
Swaps/ Forwards 3,822 4,299 2,852 5,269
Futures 1,155 3,776 4,594 337
Options -- 14 3 11
- ---------------------------------------------------------------------------------------------------------------
TOTAL [1] $ 9,641 $ 11,566 $ 10,329 $ 10,878
===============================================================================================================
BY STRATEGY
Liability $ 1,708 $ 2,057 $ 1,137 $ 2,628
Anticipatory 718 2,117 2,443 392
Asset 3,051 1,583 2,253 2,381
Portfolio 4,164 5,809 4,496 5,477
- ---------------------------------------------------------------------------------------------------------------
TOTAL [1] $ 9,641 $ 11,566 $ 10,329 $ 10,878
===============================================================================================================
[1] Excludes $200 of swaps related to variable rate debt. For additional
information, see Note 5.
[2] During 1996, the Company had no significant gain or loss on terminations of
hedge positions using derivative financial instruments.
4. INCOME TAX
For the years ended December 31,
--------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------
OPERATING INCOME (LOSS)
U.S. Federal $ (529) $ 599 $ 763
International 211 143 89
- --------------------------------------------------------------------------------------------------------------------------
TOTAL OPERATING INCOME (LOSS) $ (318) $ 742 $ 852
- --------------------------------------------------------------------------------------------------------------------------
INCOME TAX EXPENSE (BENEFIT)
Current - U.S. Federal $ 84 $ 247 $ 227
International 83 64 45
- --------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT 167 311 272
Deferred - U.S. Federal (381) (142) (65)
International (5) 11 7
- --------------------------------------------------------------------------------------------------------------------------
TOTAL DEFERRED (386) (131) (58)
- --------------------------------------------------------------------------------------------------------------------------
TOTAL INCOME TAX EXPENSE (BENEFIT) $ (219) $ 180 $ 214
==========================================================================================================================
F-16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. INCOME TAX (CONTINUED)
Deferred tax assets (liabilities) include the following for the years ended
December 31:
1996 1995
----------------------------------------------------------------------
U.S. Federal International U.S. Federal International
- ---------------------------------------------------------------------------------------------------------------------------------
Discounted loss reserves $ 793 $ 1 $ 751 $ --
Net operating loss carryforwards 154 -- -- --
Employee benefits 138 (10) 137 (7)
Earnings from foreign subsidiaries 123 -- 111 --
Other insurance related items 51 (70) 346 (76)
Reserve for bad debts 26 -- 14 --
Accelerated depreciation 17 (1) 16 --
Unrealized gains (141) (47) (95) (35)
Other 319 3 (130) 1
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL $ 1,480 $ (124) * $ 1,150 $ (117)*
=================================================================================================================================
* Included in other liabilities on the Consolidated Balance Sheets.
No additional provision was made for U.S. taxes payable on undistributed
international earnings amounting to approximately $383 at December 31, 1996,
since these amounts are permanently reinvested.
A reconciliation of the tax provision at the U.S. Federal statutory rate to the
provision (benefit) for income taxes is as follows:
For the years ended December 31,
-------------------------------------------------------------
1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
Tax provision (benefit) at U.S. Federal statutory rate $ (111) $ 260 $ 298
Tax-exempt interest (97) (53) (45)
Foreign tax rate differential (2) (1) (10)
Other (9) (26) (29)
- ---------------------------------------------------------------------------------------------------------------------------------
PROVISION (BENEFIT) FOR INCOME TAX $ (219) $ 180 $ 214
=================================================================================================================================
5. Debt 1996 1995
--------------------------------------------------------------------------------------
Weighted Average Weighted Average
Amount Interest Rate [1] Amount Interest Rate [1]
- ---------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM DEBT
Commercial paper $ 445 6.0% $ 732 5.9%
Bank loans and other short-term debt 55 5.6% 54 5.8%
Current maturities of long-term debt -- -- 100 7.3%
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL SHORT-TERM DEBT $ 500 6.0% $ 886 6.1%
=================================================================================================================================
LONG-TERM DEBT
DOMESTIC
Notes, due 1998 $ 200 8.2% $ 200 8.2%
Notes, due 2001 200 8.3% 200 8.3%
Notes, due 2002 300 6.4% 300 6.4%
Notes, due 2015 198 7.3% 198 7.3%
INTERNATIONAL
Notes, due 2002 134 6.4% 124 6.7%
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL LONG-TERM DEBT $ 1,032 7.3% $ 1,022 7.3%
=================================================================================================================================
[1] Represents the weighted average interest rate at the end of the period.
Weighted average cost of short-term debt does not include cost of interest
rate swaps.
F-17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. DEBT (CONTINUED)
SHORT-TERM DEBT - The Hartford's commercial paper ranks equally with its other
unsecured and unsubordinated indebtedness. Effective December 20, 1996, The
Hartford entered into an unsecured aggregate $2.0 billion credit facility with
twenty-nine banks which is comprised of a $1.5 billion five year revolving
credit facility and a $500 short-term credit facility. This facility is
available for general corporate purposes and to provide additional support to
the Company's commercial paper program. At December 31, 1996, there were no
outstanding borrowings under the facility. On February 10, 1997, Hartford Life,
Inc. ("HLI"), a wholly-owned subsidiary of The Hartford, entered into a $1.3
billion unsecured short-term credit facility with four banks.
During 1996, The Hartford expanded its commercial paper program by increasing
the maximum allowable outstanding amount of unsecured short-term commercial
paper notes from $1.0 billion to $2.0 billion.
LONG-TERM DEBT - The Hartford's long-term debt securities are unsecured
obligations of The Hartford and rank on a parity with all other unsecured and
unsubordinated indebtedness. On October 11, 1995, The Hartford filed with the
Securities and Exchange Commission a shelf registration statement for the
potential offering and sale of up to an aggregate $1.0 billion in debt
securities and preferred stock. On November 3, 1995, the Company issued and sold
$500 in senior debt securities in two tranches ($300 of 6.4% notes due 2002 and
$200 in 7.3% debentures due 2015). On October 2, 1996, this shelf registration
statement was amended for an additional $1.25 billion of securities, making an
aggregate of $1.75 billion available for sale. The amended registration
statement also expanded the type of securities which could be offered under this
shelf registration statement by including provisions for the offering of common
stock, depositary shares, warrants, stock purchase contracts, stock purchase
units and junior subordinated deferrable interest debentures of the Company,
preferred securities of any of the Hartford Trusts (referred to below) and
guarantees by the Company with respect to the preferred securities of any of the
Hartford Trusts. After the issuance of Company Obligated Mandatorily Redeemable
Preferred Securities of Subsidiary Trusts Holding Solely Parent Junior
Subordinated Debentures on October 30, 1996 discussed below, The Hartford had
$1.25 billion remaining on this shelf registration at December 31, 1996.
On January 19, 1996, The Hartford and several wholly-owned special purpose
trusts ("Hartford Trusts") formed by The Hartford filed with the Securities and
Exchange Commission a shelf registration statement for the potential offering
and sale of $500 of debt securities and preferred stock, including up to an
aggregate $500 Junior Subordinated Deferrable Interest Debentures of The
Hartford and Preferred Securities of the Hartford Trusts which were issued as
discussed in Note 6.
Interest rate risk relative to The Hartford's debt portfolios is selectively
managed through interest rate swap agreements. The following table summarizes
the maturities of these interest rate swaps outstanding at December 31, 1996 and
the related weighted average interest pay rates and receive rates.
RECEIVE VARIABLE/PAY
FIXED 1997 Thereafter TOTAL
- -----------------------------------------------------------------
Notional value $200 $-- $200
Weighted average receive
rate 5.87% -- 5.87%[1]
Weighted average pay rate 6.18% -- 6.18%
- -----------------------------------------------------------------
[1] Rate represents six month LIBOR as of December 31, 1996.
The fair value of the interest rate swaps on short-term debt at December 31,
1996 and December 31, 1995 was $(1) and $(3), respectively. Any credit risk
related to these swaps is considered remote.
Interest expense incurred related to short- and long-term debt totaled $108,
$101 and $76 for 1996, 1995 and 1994, respectively.
6. COMPANY OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF SUBSIDIARY
TRUSTS HOLDING SOLELY PARENT JUNIOR SUBORDINATED DEBENTURES
On February 28, 1996, Hartford Capital I, a special purpose Delaware trust
formed by The Hartford, issued 20,000,000 Series A, 7.7% Cumulative Quarterly
Income Preferred Securities ("Series A Preferred Securities"). The proceeds from
the sale of the Series A Preferred Securities were used to acquire $500 of
Junior Subordinated Deferrable Interest Debentures, Series A ("Junior
Subordinated Debentures"), issued by The Hartford. The Hartford used the
proceeds from the sale of such debentures for the partial repayment of
outstanding commercial paper and short-term bank indebtedness.
Series A Preferred Securities represent undivided beneficial interests in the
assets of Hartford Capital I. The Hartford owns all of the beneficial interests
represented by Series A Common Securities of Hartford Capital I. Holders of
Series A Preferred Securities are entitled to receive preferential cumulative
cash distributions accruing from February 28, 1996 and payable quarterly in
arrears commencing March 31, 1996 at the annual rate of 7.7% of the liquidation
amount of $25.00 per Series A Preferred Security. The Series A Preferred
Securities are subject to mandatory redemption upon repayment of the Junior
Subordinated Debentures at maturity or their earlier redemption. Holders of
Series A Preferred Securities have limited voting rights.
The Junior Subordinated Debentures bear interest at the annual rate of 7.7% of
the principal amount, payable quarterly in arrears commencing March 31, 1996,
and mature on February 28, 2016. The Junior Subordinated Debentures are
unsecured and rank junior and subordinate in right of payment to all senior debt
of The Hartford and are effectively subordinated to all existing and future
liabilities of its subsidiaries.
The Hartford has the right to defer payments of interest on the Junior
Subordinated Debentures by extending the interest
F-18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. COMPANY OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF SUBSIDIARY
TRUSTS HOLDING SOLELY PARENT JUNIOR SUBORDINATED DEBENTURES (CONTINUED)
payment period for up to 20 consecutive quarters for each deferral period, up to
the maturity date. During any such period, interest will continue to accrue and
The Hartford may not declare or pay any cash dividends or distributions on The
Hartford's common stock nor make any principal, interest or premium payments on
or repurchase any debt securities that rank pari passu with or junior to the
Junior Subordinated Debentures. In the event of failure to pay interest for 30
consecutive days (subject to the deferral of any due date in the case of an
extension period), the Junior Subordinated Debentures will become due and
payable. The Hartford has guaranteed, on a subordinated basis, all of the
Hartford Capital I obligations under the Series A Preferred Securities,
including, to pay the redemption price and any accumulated and unpaid
distributions to the extent of available funds and upon dissolution, winding up
or liquidation, but only to the extent that Hartford Capital I has funds to make
such payments.
On October 30, 1996, Hartford Capital II, a special purpose Delaware trust
formed by The Hartford, issued 20,000,000 Series B, 8.35% Cumulative Quarterly
Income Preferred Securities ("Series B Preferred Securities"). The material
terms of the Series B Preferred Securities are substantially the same as the
Series A Preferred Securities described above, except for the rate and maturity
date. The Series B Debentures bear interest at the annual rate of 8.35% of the
principal amount payable quarterly in arrears commencing December 31, 1996, and
mature on October 30, 2026. The proceeds from the sale of the Series B Preferred
Securities were used to acquire $500 of Junior Subordinated Deferrable Interest
Debentures, Series B ("Series B Debentures"), issued by The Hartford. The
Hartford used the proceeds from the sale of such debentures for general
corporate purposes.
Interest expense incurred with respect to the Series A Preferred Securities and
Series B Preferred Securities totaled approximately $40 in 1996.
7. PENSION PLANS AND POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFIT PLANS
(a) PENSION PLANS
The Hartford has a number of noncontributory defined benefit pension plans
covering most U.S. and international employees. Plans covering U.S. employees
provide pension benefits that are based on years of service and the employee's
compensation during the last ten years of employment. The Hartford's funding
policy is to contribute annually at an amount between the minimum funding
requirements set forth in the Employee Retirement Income Security Act of 1974
and the maximum amount that can be deducted for U.S. Federal income tax
purposes. Employees of international subsidiaries are covered by various
postemployment benefit arrangements, some of which are considered to be defined
benefit plans for accounting purposes.
The following table sets forth the defined benefit plans' funded status and
amounts recognized in the Consolidated Balance Sheets. International plans
represent an immaterial percentage of total pension assets, liabilities and
expense and, for reporting purposes, are combined with domestic plans.
December 31,
------------------------------------------
1996 1995
- -------------------------------------------------------------------------------------------------------------
ACTUARIAL PRESENT VALUE OF
Vested benefit obligation $ 1,090 $ 994
Accumulated benefit obligation 1,207 1,102
Actuarial present value of projected benefit obligation 1,467 1,423
Plan assets at fair value, primarily listed U.S. stocks and bonds 1,478 1,291
- -------------------------------------------------------------------------------------------------------------
Plan assets in excess of (less than) projected benefit obligation 11 (132)
Unrecognized net loss 10 197
Unrecognized prior service cost 72 27
Unrecognized net obligation at January 1, 1986 9 4
- -------------------------------------------------------------------------------------------------------------
PENSION ASSET $ 102 $ 96
=============================================================================================================
Assumptions used in the accounting for the plans in 1996 and 1995 were:
Benefit discount rate 8.00% 7.50%
Expected long-term rate of return on plan assets 9.75% 9.75%
Rate of increase in compensation levels 4.25% 4.75%
Total pension costs for 1996, 1995 and 1994 include the following components:
For the years ended December 31,
----------------------------------------------------------
1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------
DEFINED BENEFIT PLANS
Service cost - benefits earned during the year $ 56 $ 48 $ 54
Interest cost on projected benefit obligation 104 96 90
Actual return on plan assets (189) (271) (4)
Net amortization (deferral) 80 170 (84)
- -----------------------------------------------------------------------------------------------------------------------------
NET PERIODIC PENSION COST $ 51 $ 43 $ 56
=============================================================================================================================
F-19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. PENSION PLANS AND POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFIT PLANS
(CONTINUED)
(b) INVESTMENT AND SAVINGS PLAN
Prior to the Distribution, employees of The Hartford participated in
ITT's Investment and Savings Plans. As part of the Distribution, the Company
established The Hartford Investment and Savings Plan. Substantially all
employees are eligible to participate in this plan under which designated
contributions, which may be invested in common stock of The Hartford or certain
other investments, are matched, up to 3% of compensation, by the Company. The
cost to The Hartford for the above-mentioned plans was approximately $20, $19
and $19 for 1996, 1995 and 1994, respectively.
(c) POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFIT PLANS
The Hartford provides certain health care and life insurance benefits for
eligible retired employees. A substantial portion of The Hartford's employees
may become eligible for these benefits upon retirement. The Hartford's
contribution for health care benefits will depend upon the retiree's date of
retirement and years of service. In addition, the plan has a defined dollar cap
which limits average Company contributions. The Hartford has prefunded a portion
of the health care and life insurance obligations through trust funds where such
prefunding can be accomplished on a tax effective basis. Postretirement health
care and life insurance expense (benefit) was comprised of the following in
1996, 1995 and 1994:
1996 1995 1994
- ---------------------------------------------------------------
Service cost $ 6 $ 6 $ 7
Interest cost 18 21 20
Return on assets (7) (6) (4)
Net deferral (23) (23) (23)
- ---------------------------------------------------------------
NET PERIODIC BENEFIT $ (6) $ (2) $ --
===============================================================
The following table sets forth the funded status of the postretirement benefit
plans other than pensions, the amounts recognized in The Hartford's balance
sheet at December 31, 1996 and 1995 and the principal weighted average
assumptions inherent in their determination:
1996 1995
- ----------------------------------------------------------------
Accumulated postretirement benefit
obligation $ 252 $ 303
Plan assets at fair value, primarily
listed U.S. stock and bonds 77 73
Accumulated postretirement benefit
obligation in excess of plan assets (175) (230)
Unrecognized net (gain)/loss (24) 35
Unrecognized past service liability (234) (256)
- ----------------------------------------------------------------
LIABILITY RECOGNIZED IN THE
BALANCE SHEET $ (433) $ (451)
- ----------------------------------------------------------------
Discount rate 8.00% 7.50%
Rate of return on invested assets 9.75% 9.75%
Ultimate health care trend rate 6.00% 6.00%
- ----------------------------------------------------------------
The assumed rate of future increases in the per capita cost of health care (the
health care trend rate) was 9.3% for 1996, decreasing ratably to 6.0% in the
year 2001. Increasing the table of health care trend rates by one percent per
year would have the effect of increasing the accumulated postretirement benefit
obligation by $7 and the annual expense by $1. To the extent that the actual
experience differs from the inherent assumptions, the effect will be amortized
over the average future service of the covered active employees.
8. STOCK COMPENSATION PLANS
Prior to the Distribution, certain employees of The Hartford were granted awards
under ITT's stock option incentive plans. Effective December 19, 1995, awards
outstanding under these plans that were held by employees of The Hartford were
offered substitute awards under the 1995 ITT Hartford Incentive Stock Plan (the
"Plan"). For the substitute awards, the number of shares subject to options was
increased and the option exercise price was decreased immediately following the
Distribution to preserve, as closely as possible, the economic value of the
options that existed prior to the Distribution.
Under the Plan, the Company is authorized to issue up to 8,500,000 shares, of
which no more that 5,000,000 shares may be available for incentive stock
options. The Plan contains a formula that determines the maximum number of
shares with respect to which awards may be made in any one year and limits such
amount to 1.5% of the total of the outstanding shares plus treasury shares as
reported in ITT Hartford's Form 10-K for the preceding year plus unused portions
of such limit from prior years. All options granted have an exercise price equal
to the market price of the Company's stock on the date of grant and an option's
maximum term is ten years. Certain options become exercisable upon the
attainment of specified market price appreciation of the Company's common shares
or at seven years after the date of grant, while the remaining options become
exercisable over a three year period commencing with the date of grant.
Additionally, during the fourth quarter of 1996, the Company established the ITT
Hartford Employee Stock Purchase Plan ("ESPP"). Under this plan, eligible
employees of The Hartford may purchase common stock of the Company at a 15%
discount from the lower of the market price at the beginning or end of the
quarterly offering period. The Company may sell up to 2,700,000 shares of stock
to eligible employees under the ESPP, and 39,214 shares were sold in 1996.
The Company applies Accounting Principles Board Opinion No. 25 and related
interpretations in accounting for its stock-based compensation plans.
Accordingly, no compensation cost has been recognized for its stock option plan
and stock purchase plan. Had compensation cost for the Company's two stock-based
compensation plans been determined based on the fair value at
F-20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. STOCK COMPENSATION PLANS (CONTINUED)
the grant dates for awards under those plans consistent with the method of SFAS
No. 123, the Company's net income (loss) and earnings (loss) per share would
have been reduced to the pro forma amounts indicated below:
1996 1995
- ------------------------------------------------------------------
Net income (loss): As reported $ (99) $ 559
Pro forma $(106) $ 556
Earnings (loss) per share: As reported $(0.84) $4.77
Pro forma $(0.90) $4.74
- ------------------------------------------------------------------
Note: The pro forma disclosures are not representative of the effects on net
income and earnings per share in future years.
The fair value of each option grant is estimated on the date of the grant using
the Black-Scholes options-pricing model with the following weighted-average
assumptions used for grants in 1996 and 1995: dividend yield of 2.9% for both
years, expected price variability of 20.8% for both years, risk-free interest
rates of 5.69% and 5.77% for the 1996 grants under 10,000 shares and grants over
10,000 shares, respectively, and 6.28% and 6.31%, respectively, for the 1995
grants; and expected lives of five and six years for both years.
A summary of the status of the Company's option plan as of December 31, 1995 and
1996 and changes during the periods December 19, 1995 through December 31, 1995,
and for the year ended December 31, 1996 are presented below:
1995 ITT HARTFORD INCENTIVE STOCK PLAN
(shares in thousands)
Shares Subject to Stock Option
---------------------------------------------------------------------
Shares Weighted-Average Exercise Price
- ---------------------------------------------------------------------------------------------------------------------------------
Balance transferred at December 19, 1995 [1] 3,370 $35.16
Vested exercises (1) 33.38
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 3,369 35.16
Grants 1,431 52.05
Vested exercises (380) 31.92
Cancellations (Un-vested) (32) 45.86
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 4,388 $40.87
=================================================================================================================================
[1] Includes 1,129 shares issued in 1995.
The weighted-average fair value of The Hartford stock options, calculated using
the Black-Scholes option-pricing model, granted during the years ended December
31, 1996 and 1995 were $11.21 and $10.01, respectively. The weighted-average
fair value of shares sold under the ESPP in 1996 was $16.50.
The following table summarizes information about stock options outstanding and
exercisable (shares in thousands) at December 31, 1996:
Options Outstanding Options Exercisable
--------------------------------------------------------------- ----------------------------------------
Number Outstanding Weighted-Average Weighted-Average Number Weighted-Average
Range of at December 31, 1996 Remaining Exercise Price Exercisable at Exercise Price
Exercise Prices Contractual Life December 31, 1996
- ---------------------------------------------------------------------------------------------------------------------------------
$17.68 - $29.31 290 4.3 $19.08 290 $19.08
32.74 - 43.41 2,686 7.7 37.35 1,678 35.36
46.75 - 57.00 1,401 9.1 51.96 170 52.00
58.25 - 68.50 11 9.8 64.21 -- --
- ---------------------------------------------------------------------------------------------------------------------------------
$17.68 - $68.50 4,388 7.9 $40.87 2,138 $34.47
- ---------------------------------------------------------------------------------------------------------------------------------
F-21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. REINSURANCE
The Hartford cedes insurance to other insurers in order to limit its maximum
loss. Such transfer does not relieve The Hartford of its primary liability. The
Hartford also assumes insurance from other insurers. Failure of reinsurers to
honor their obligations could result in losses to The Hartford. The Hartford
evaluates the financial condition of its reinsurers and monitors concentration
of credit risk.
The effect of reinsurance on property and casualty premiums written and earned
was as follows:
For the years ended December 31,
------------------------------------------
1996 1995 1994
- ------------------------------------------------------------------
PREMIUMS WRITTEN
Direct $ 6,798 $ 6,898 $ 6,786
Assumed 903 825 782
Ceded (795) (803) (829)
- ------------------------------------------------------------------
NET $ 6,906 $ 6,920 $ 6,739
==================================================================
PREMIUMS EARNED
Direct $ 6,850 $ 6,895 $ 6,717
Assumed 878 817 746
Ceded (837) (822) (883)
- ------------------------------------------------------------------
NET $ 6,891 $ 6,890 $ 6,580
==================================================================
Reinsurance cessions which reduce claims and claim expenses incurred were $651,
$678 and $1.0 billion for the years ended December 31, 1996, 1995 and 1994,
respectively.
Life insurance net retained premiums were comprised of the following:
For the years ended December 31,
-------------------------------------
1996 1995 1994
- ------------------------------------------------------------------
Gross premiums $ 3,200 $ 2,447 $ 2,053
Assumed 406 613 336
Ceded (421) (322) (216)
- ------------------------------------------------------------------
NET RETAINED PREMIUMS $ 3,185 $ 2,738 $ 2,173
==================================================================
Life insurance recoveries, which reduce death and other benefits, approximated
$239, $162 and $113 for the years ended December 31, 1996, 1995 and 1994,
respectively.
As of December 31, 1996, the Company had reinsurance recoverables of $3.8
billion from Mutual Benefit Life Assurance Corporation ("Mutual Benefit"),
supported by assets in a security trust of $3.8 billion (including policy loans
of $3.3 billion). The risk of Mutual Benefit becoming insolvent is mitigated by
the reinsurance agreement's requirement that the assets be kept in a security
trust with the Company as sole beneficiary. The Hartford has no other
significant reinsurance-related concentrations of credit risk.
10. TRANSACTIONS WITH AFFILIATES
Prior to the Distribution (see Note 2), The Hartford had substantial dealings
with ITT and its affiliates as described below.
The Hartford and its U.S. subsidiaries were included in ITT's consolidated U.S.
Federal income tax return and received from ITT an income tax benefit computed
in accordance with a tax-sharing arrangement. This arrangement generally
reimbursed The Hartford on a current basis for taxes it would have been refunded
if it had filed a separate U.S. Federal income tax return. The balance due from
ITT as a result of the tax-sharing arrangement was $90 at December 19, 1995 and
$52 at December 31, 1994. The Hartford filed a separate consolidated U.S.
Federal income tax return for the period December 20, 1995 through December 31,
1995 and will continue to file its owned consolidated returns thereafter.
ITT furnished The Hartford with technical, administrative, personnel, financial,
accounting and operating advice and assistance, as well as other services. The
Hartford reimbursed ITT for the cost of such services. These reimbursements
totaled $16 in 1995 and $15 in 1994.
In June 1995, ownership of ITT Lyndon Insurance Company was transferred from ITT
to The Hartford via a capital contribution of $180, representing the net assets
of the company.
In 1995, The Hartford paid common stock dividends to ITT Corporation of $779,
including cash dividends of $384 and non-cash dividends of $395. The non-cash
dividend was primarily Alcatel Alsthom Stock, which represents a portion of the
total ITT holdings in that company.
11. PREFERRED STOCK
During 1995, The Hartford authorized 50,000,000 shares of Preferred Stock, par
value $.01 per share. The Company may not pay any common stock dividends unless
all preferred dividend requirements on Series A Preferred Stock (300,000 shares)
have been met. The holders of Series A Preferred Stock are entitled to
cumulative dividends. The holders of Series A Preferred Stock may not vote
separately as a class, but may vote together as one class with the holders of
shares of common stock. No shares were issued or outstanding at December 31,
1996.
Hartford Fire Insurance Company ("Hartford Fire"), a subsidiary of The Hartford,
had no shares of Class A Preferred Stock - Series 2 outstanding at December 31,
1996. During 1995, 1,700,000 shares were redeemed at $50 per share. Hartford
Fire had no shares of Class E Preferred Stock outstanding. During 1995, 455,333
shares were redeemed at $10 per share.
F-22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. STATUTORY RESULTS
For the years ended December 31,
-------------------------------------
1996 1995 1994
- ------------------------------------------------------------------
STATUTORY NET INCOME (LOSS)
Property and casualty
operations $ (103) $ 428 $ 452
Life operations 190 133 85
- ------------------------------------------------------------------
TOTAL $ 87 $ 561 $ 537
==================================================================
STATUTORY SURPLUS
Property and casualty
operations $ 2,749 $ 2,617 $ 2,123
Life operations 1,448 1,319 1,180
- ------------------------------------------------------------------
TOTAL $ 4,197 $ 3,936 $ 3,303
==================================================================
A significant percentage of the consolidated statutory surplus is permanently
reinvested or is subject to various state and foreign government regulatory
restrictions or other agreements which limit the payment of dividends without
prior approval. Any statutory dividend which may be paid to ITT Hartford Group,
Inc. by its insurance subsidiaries in 1997 requires prior approval.
The domestic insurance subsidiaries of ITT Hartford Group, Inc. prepare their
statutory financial statements in accordance with accounting practices
prescribed by the State of Connecticut Insurance Department. Prescribed
statutory accounting practices include publications of the National Association
of Insurance Commissioners ("NAIC"), as well as state laws, regulations, and
general administrative rules.
13. LEASES AND RENTALS
Total rental expense on operating leases was $110 in 1996, $121 in 1995 and $106
in 1994. Future minimum rental commitments are as follows:
1997 $86
1998 73
1999 65
2000 55
2001 56
Thereafter 280
- ----------------------------------------------------------------
Total $615
================================================================
14. CONTINGENCIES
(a) LITIGATION
The Hartford is involved in various legal actions, some of which involve claims
for substantial amounts. In the opinion of management, the ultimate liability
with respect to such lawsuits is not expected to be material to the consolidated
financial position, results of operations or cash flows of The Hartford.
(b) ENVIRONMENTAL AND ASBESTOS CLAIMS
Historically, The Hartford has found it difficult to estimate ultimate
liabilities related to environmental and asbestos claims due to uncertainties
surrounding these exposures. Within the property and casualty insurance
industry, progress has been made in developing sophisticated, alternative
methodologies utilizing company experience and supplemental databases to assess
environmental and asbestos liabilities. A study which incorporated these
methodologies was initiated by The Hartford in April 1996. The study included a
review of identified environmental and asbestos exposures of the North American
Property & Casualty segment, U.S. exposures of The Hartford's International
segment and exposures of the Runoff segment, and covered the Company's Personal,
Commercial and Reinsurance lines of business. The methodology utilized a ground
up analysis of policy, site and exposure level data for a representative sample
of The Hartford's claims. The results of the evaluation were extrapolated
against the balance of the claim population to estimate the Company's overall
exposure for reported claims. In addition to estimating liabilities on reported
environmental and asbestos claims, The Hartford estimated reserves for claims
incurred but not reported (IBNR). The IBNR reserve was estimated using
information on reporting patterns of known insureds, characteristics of insureds
such as limits exposed, attachment points and number of coverage years involved,
third party costs, and closed claims. Also included in The Hartford's analysis
of environmental and asbestos exposures was a review of applicable reinsurance
coverage. Reinsurance coverage applicable to the sample was used to estimate the
reinsurance coverage that applied to the balance of the reported environmental
and asbestos claims and to the IBNR estimates.
Upon completion of the study and assessment of the results in October 1996, the
Company determined that its environmental and asbestos reserves should be
increased, on an undiscounted basis, by $493 (net of reinsurance) and $292 (net
of reinsurance), respectively, for the year ended December 31, 1996.
The Hartford believes that the environmental and asbestos reserves reported at
December 31, 1996, are a reasonable estimate of the ultimate remaining liability
for these claims based upon known facts, current assumptions and The Hartford's
methodologies. Future social, economic, legal or legislative developments may
continue to expand the original intent of policies and the scope of coverage.
The Hartford will continue to evaluate new developments and methodologies as
they become available for use in supplementing the Company's ongoing analysis
and review of its environmental and asbestos exposures. These future reviews may
result in a change in reserves, impacting The Hartford's results of operations
in the period in which the reserve estimates are changed. While the effects of
future changes in facts, legal and other issues could have a material effect on
future results of operations, The Hartford does not expect such changes would
have a material effect on its liquidity or financial condition.
F-23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. SEPARATE ACCOUNTS
The Hartford maintained separate account assets and liabilities totaling $50.5
billion and $36.8 billion at December 31, 1996 and 1995, respectively, which are
reported at fair value. Separate account assets are segregated from other
investments and net investment income and net realized capital gains and losses
accrue directly to the policyholder. Separate accounts reflect two categories of
risk assumption: non-guaranteed separate accounts totaling $39.9 billion and
$26.4 billion at December 31, 1996 and 1995, respectively, wherein the
policyholder assumes the investment risk, and guaranteed separate accounts
totaling $10.6 billion and $10.4 billion at December 31, 1996 and 1995,
respectively, wherein The Hartford contractually guarantees either a minimum
return or account value to the policyholder. Included in the non-guaranteed
category were policy loans totaling $2.0 billion and $1.7 billion at December
31, 1996 and 1995, respectively. Net investment income (including net realized
capital gains and losses) and interest credited to policyholders on separate
account assets are not reflected in the Consolidated Statements of Income.
Non-guaranteed separate accounts are not subject to claims that arise out of any
other business of The Hartford. Separate account management fees, net of minimum
guarantees, were $538, $387 and $256 in 1996, 1995 and 1994, respectively.
The guaranteed separate accounts include modified guaranteed individual annuity
and modified guaranteed life insurance. The average credited interest rate on
these contracts was 6.6% at December 31, 1996. The assets that support these
liabilities were comprised of $10.3 billion in bonds as of December 31, 1996.
The portfolios are segregated from other investments and are managed so as to
minimize liquidity and interest rate risk. To minimize the risk of
disintermediation associated with early withdrawals, individual annuity and
modified guaranteed life insurance contracts carry a graded surrender charge as
well as a market value adjustment. Additional investment risk is hedged using a
variety of derivatives which totaled $86 in carrying value and $2.4 billion in
notional amounts as of December 31, 1996.
16. SUBSEQUENT EVENT
On February 10, 1997, HLI filed a registration statement with the Securities and
Exchange Commission relating to an initial public offering of up to 20% of HLI
common stock. HLI is the holding company parent of The Hartford's significant
life insurance and related subsidiaries. Management intends to use the proceeds
from the offering to reduce certain debt outstanding, to fund growth
initiatives, and for other general corporate purposes. Management of The
Hartford believes the offering will strengthen the Company's financial position
and flexibility. If and when the offering is completed, The Hartford's current
intent is to continue to beneficially own at least 80% of HLI, but it is under
no contractual obligation to do so.
17. BUSINESS SEGMENT INFORMATION
The Hartford provides insurance and financial services in the United States,
Canada, Western Europe, Latin America and Asia. The Company's ongoing business
segments are North American Property & Casualty, Life and International. The
North American Property & Casualty segment offers insurance coverages including
personal automobile and homeowners, commercial insurance for small, mid-size and
large accounts, specialty risk insurance and reinsurance. The Life segment
markets a variety of insurance and financial services which provides investment
products such as individual variable annuities and market value adjusted fixed
rate annuities, deferred compensation plan services and mutual funds for savings
and retirement needs, life insurance for income protection and estate planning,
and employee benefits products such as group life, group disability and
corporate owned life insurance products. The International segment consists of
European companies offering a variety of insurance products (primarily property
and casualty products in both personal and commercial lines) designed to meet
the needs of local customers.
The following table outlines revenues, operating income and assets by business
segment and geographical segment information.
F-24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
17. BUSINESS SEGMENT INFORMATION (CONTINUED) For the years ended December 31,
-----------------------------------------------------------------
1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
REVENUES
North American P&C $ 6,333 $ 6,337 $ 6,179
Life 4,391 3,753 3,039
International 1,626 1,540 1,274
- ---------------------------------------------------------------------------------------------------------------------------
Ongoing operations 12,350 11,630 10,492
Runoff 123 520 610
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL REVENUES $ 12,473 $ 12,150 $ 11,102
===========================================================================================================================
OPERATING INCOME (LOSS)
North American P&C $ (399) $ 334 $ 464
Life 378 331 221
International 210 184 113
Other -- (6) 51
- ---------------------------------------------------------------------------------------------------------------------------
Ongoing operations 189 843 849
Runoff (507) (101) 3
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL OPERATING INCOME (LOSS) $ (318) $ 742 $ 852
===========================================================================================================================
ASSETS
North American P&C $ 19,262 $ 18,309 $ 17,406
Life 76,266 60,831 42,992
International 5,330 5,109 4,398
Other 2 1 (39)
- ---------------------------------------------------------------------------------------------------------------------------
Ongoing operations 100,860 84,250 64,757
Runoff 7,980 9,605 12,008
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 108,840 $ 93,855 $ 76,765
===========================================================================================================================
GEOGRAPHICAL SEGMENT INFORMATION
REVENUES
North America $ 10,698 $ 10,480 $ 9,696
Western Europe and other 1,775 1,670 1,406
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL REVENUES $ 12,473 $ 12,150 $ 11,102
===========================================================================================================================
OPERATING INCOME (LOSS)
North America $ (567) $ 557 $ 728
Western Europe and other 249 185 124
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL OPERATING INCOME (LOSS) $ (318) $ 742 $ 852
===========================================================================================================================
ASSETS
North America $ 103,025 $ 88,487 $ 72,176
Western Europe and other 5,815 5,368 4,589
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 108,840 $ 93,855 $ 76,765
===========================================================================================================================
F-25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
18. QUARTERLY RESULTS FOR 1996 AND 1995 (UNAUDITED)
Three Months Ended
---------------------------------------------------------------------------------------
March 31, June 30, September 30, December 31,
---------------------------------------------------------------------------------------
1996 1995 1996 1995 1996 1995 1996 1995
- -------------------------------------------------------------------------------------------------------------------------------
Revenues $ 3,278 $ 3,005 $ 3,026 $ 2,914 $ 2,836 $ 3,058 $ 3,333 $ 3,173
Benefits, claims and expenses 3,164 2,808 2,847 2,788 3,701 2,835 3,079 2,977
Income (loss) before cumulative
effect of accounting changes 96 140 143 105 (543) 173 205 141
Net income (loss) $ 96 $ 140 $ 143 $ 105 $ (543) $ 173 $ 205 $ 141
EARNINGS PER SHARE
Income (loss) before cumulative
effect of accounting changes $ 0.82 $ 1.19 $ 1.22 $ 0.90 $ (4.63) $ 1.48 $ 1.75 $ 1.20
Net income (loss) $ 0.82 $ 1.19 $ 1.22 $ 0.90 $ (4.63) 1.48 $ 1.75 $ 1.20
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING [1] 117.2 117.1 117.2 117.1 117.2 117.1 117.3 117.1
- -------------------------------------------------------------------------------------------------------------------------------
[1] In millions of shares; 1995 weighted average common shares outstanding of
117.1 reflects a retroactive presentation of the actual number of shares
outstanding at December 31, 1995.
F-26
ITT HARTFORD GROUP, INC. AND SUBSIDIARIES
SCHEDULE I
SUMMARY OF INVESTMENTS - OTHER THAN INVESTMENTS IN AFFILIATES
(In millions) As of December 31, 1996
----------------------------------------------------------
Amount at which
shown on Balance
Type of Investment Cost Fair Value Sheet
- ------------------------------------------------------------------------------------------------------------------------------
FIXED MATURITIES
Bonds and Notes
U. S. gov't and gov't agencies and authorities
(guaranteed and sponsored) $ 389 $ 400 $ 400
U. S. gov't and gov't agencies and authorities
(guaranteed and sponsored) - asset-backed 2,992 3,026 3,026
States, municipalities and political subdivisions 7,524 7,629 7,629
International governments 2,230 2,306 2,306
Public utilities 1,228 1,232 1,232
All other corporate including international 8,483 8,523 8,523
All other corporate - asset-backed 4,814 4,811 4,811
Short-term investments 1,812 1,812 1,812
Certificates of deposit 1,661 1,663 1,663
Redeemable preferred stock 45 47 47
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL FIXED MATURITIES 31,178 31,449 31,449
- ------------------------------------------------------------------------------------------------------------------------------
EQUITY SECURITIES
Common Stocks
Public utilities 29 33 33
Banks, trusts and insurance companies 127 165 165
Industrial and miscellaneous 1,388 1,626 1,626
Nonredeemable preferred stocks 37 41 41
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL EQUITY SECURITIES 1,581 1,865 1,865
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL FIXED MATURITIES AND EQUITY SECURITIES 32,759 33,314 33,314
- ------------------------------------------------------------------------------------------------------------------------------
REAL ESTATE 60 60 60
OTHER INVESTMENTS
Mortgage loans on real estate 4 4 4
Policy loans 3,839 3,839 3,839
Investments in partnerships and trusts 244 277 244
Futures, options and miscellaneous 178 235 178
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL OTHER INVESTMENTS 4,265 4,355 4,265
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS $ 37,084 $ 37,729 $ 37,639
==============================================================================================================================
S-1
ITT HARTFORD GROUP, INC. AND SUBSIDIARIES
SCHEDULE II
CONDENSED FINANCIAL INFORMATION OF ITT HARTFORD GROUP, INC.
(REGISTRANT)
(In millions) As of December 31,
---------------------------------------
BALANCE SHEETS 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------
ASSETS
Receivables from affiliates $ 44 $ 7
Other assets 205 131
Investment in affiliates 6,740 6,395
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS 6,989 6,533
- ------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term debt 500 886
Long-term debt 898 898
Company obligated mandatorily redeemable preferred securities of subsidiary
trusts holding solely parent junior subordinated debentures 1,000 --
Other liabilities 71 47
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 2,469 1,831
TOTAL STOCKHOLDERS' EQUITY 4,520 4,702
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 6,989 $ 6,533
- ------------------------------------------------------------------------------------------------------------------------------
(In millions)
STATEMENTS OF INCOME For the years ended December 31,
----------------------------------------------------------
1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------
Earnings (loss) of subsidiaries $ (6) $ 619 $ 689
Interest expense (net of interest income) 139 92 69
Other expenses 4 -- --
- ------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAX BENEFIT (149) 527 620
Income tax benefit (50) (32) (24)
- ------------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ (99) $ 559 $ 644
==============================================================================================================================
S-2
ITT HARTFORD GROUP, INC. AND SUBSIDIARIES
SCHEDULE II
CONDENSED FINANCIAL INFORMATION OF ITT HARTFORD GROUP, INC.(CONTINUED)
(REGISTRANT)
(In millions)
CONDENSED STATEMENTS OF CASH FLOWS For the years ended December 31,
---------------------------------------------------------------
1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income (loss) $ (99) $ 559 $ 644
Undistributed earnings of subsidiaries 362 (505) (425)
Change in working capital (87) 133 (47)
- ---------------------------------------------------------------------------------------------------------------------------------
CASH PROVIDED BY OPERATING ACTIVITIES 176 187 172
- ---------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Capital contribution to subsidiary (625) (281) (321)
- ---------------------------------------------------------------------------------------------------------------------------------
CASH USED FOR INVESTING ACTIVITIES (625) (281) (321)
- ---------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Increase (decrease) in debt (386) 408 516
Net proceeds from issuance of company obligated mandatorily
redeemable preferred securities of subsidiary trusts
holding solely parent junior subordinated debentures 969 -- --
Dividends paid (140) -- --
Investments, advances and dividends to ITT Industries, Inc. -- (314) (367)
Other, net 6 -- --
- ---------------------------------------------------------------------------------------------------------------------------------
CASH PROVIDED BY FINANCING ACTIVITIES 449 94 149
- ---------------------------------------------------------------------------------------------------------------------------------
Net change in cash -- -- --
Cash - beginning of year -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
CASH - END OF YEAR $ -- $ -- $ --
=================================================================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
- ------------------------------------------------
NET CASH PAID DURING THE YEAR FOR:
Interest $ 132 $ 86 $ 69
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES:
Capital contribution $ -- $ 180 $ --
Dividends paid $ -- $ 395 $ --
S-3
ITT HARTFORD GROUP, INC. AND SUBSIDIARIES
SCHEDULE III
SUPPLEMENTARY INSURANCE INFORMATION
For the years ended December 31, 1996, 1995 and 1994
(In millions)
Future
Policy
Benefits, Other
Deferred Unpaid Policy
Policy Claims and Claims and Net
Acquisition Claim Unearned Benefits Earned Investment
Segment Costs Adjustment Premiums Payable Premiums Income
Expenses
- ---------------------------------------------------------------------------------------------------------
1996
North American P&C $ 485 $ 12,012 $ 2,077 $ -- $ 5,657 $ 661
Life 2,800 3,986 40 18,672 3,068 1,323
International 250 2,626 680 7 1,342 205
- ---------------------------------------------------------------------------------------------------------
ONGOING OPERATIONS 3,535 18,624 2,797 18,679 10,067 2,189
- ---------------------------------------------------------------------------------------------------------
Runoff -- 4,050 -- 3,541 9 334
- ---------------------------------------------------------------------------------------------------------
CONSOLIDATED OPERATIONS $ 3,535 $ 22,674 $ 2,797 $ 22,220 $ 10,076 $ 2,523
=========================================================================================================
1995
North American P&C $ 490 $ 11,127 $ 2,066 $ -- $ 5,662 $ 646
Life 2,220 3,514 40 17,586 2,643 1,114
International 235 2,715 659 7 1,309 183
Other -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------
ONGOING OPERATIONS 2,945 17,356 2,765 17,593 9,614 1,943
- ---------------------------------------------------------------------------------------------------------
Runoff -- 4,074 1 5,177 14 477
- ---------------------------------------------------------------------------------------------------------
CONSOLIDATED OPERATIONS $ 2,945 $ 21,430 $ 2,766 $ 22,770 $ 9,628 $ 2,420
=========================================================================================================
1994
North American P&C $ 486 $ 10,820 $ 2,075 $ -- $ 5,504 $ 606
Life 1,819 2,864 37 15,050 2,116 922
International 208 2,468 611 1 1,116 135
Other -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------
ONGOING OPERATIONS 2,513 16,152 2,723 15,051 8,736 1,663
- ---------------------------------------------------------------------------------------------------------
Runoff 12 4,435 2 7,257 17 596
- ---------------------------------------------------------------------------------------------------------
CONSOLIDATED OPERATIONS $ 2,525 $ 20,587 $ 2,725 $ 22,308 $ 8,753 $ 2,259
=========================================================================================================
Note: Certain reclassifications have been made to prior year financial
information to conform to current year presentation.
N/A - Not applicable to life insurance pursuant to Regulation S-X.
SCHEDULE III
(CONTINUED)
SUPPLEMENTARY INSURANCE INFORMATION
For the years ended December 31, 1996, 1995 and 1994
(In millions)
Benefits, Amortization
Claims and of Deferred
Net Realized Claim Policy
Capital Adjustment Acquisition Other Net
Segment Gains(Losses) Expenses Costs Expenses Written
Premiums
- -------------------------------------------------------------------------------------------------
1996
North American P&C $ 15 $ 4,994 $ 1,154 $ 584 $ 5,687
Life -- 2,435 241 1,337 N/A
International 79 931 284 201 1,211
- -------------------------------------------------------------------------------------------------
ONGOING OPERATIONS 94 8,360 1,679 2,122 6,898
- -------------------------------------------------------------------------------------------------
Runoff (220) 582 (1) 49 8
- -------------------------------------------------------------------------------------------------
CONSOLIDATED OPERATIONS $ (126) $ 8,942 $ 1,678 $ 2,171 $ 6,906
=================================================================================================
1995
North American P&C $ 29 $ 4,315 $ 1,178 $ 510 $ 5,670
Life (4) 1,978 193 1,251 N/A
International 48 901 276 179 1,237
Other -- -- -- 6 --
- -------------------------------------------------------------------------------------------------
ONGOING OPERATIONS 73 7,194 1,647 1,946 6,907
- -------------------------------------------------------------------------------------------------
Runoff 29 575 11 35 13
- -------------------------------------------------------------------------------------------------
CONSOLIDATED OPERATIONS $ 102 $ 7,769 $ 1,658 $ 1,981 $ 6,920
=================================================================================================
1994
North American P&C $ 69 $ 4,070 $ 1,121 $ 524 $ 5,648
Life 1 1,909 145 764 N/A
International 23 757 241 163 1,079
Other -- -- -- (51) --
- -------------------------------------------------------------------------------------------------
ONGOING OPERATIONS 93 6,736 1,507 1,400 6,727
- -------------------------------------------------------------------------------------------------
Runoff (3) 578 6 23 12
- -------------------------------------------------------------------------------------------------
CONSOLIDATED OPERATIONS $ 90 $ 7,314 $ 1,513 $ 1,423 $ 6,739
=================================================================================================
Note: Certain reclassifications have been made to prior year financial
information to conform to current year presentation.
N/A - Not applicable to life insurance pursuant to Regulation S-X.
S-4
ITT HARTFORD GROUP, INC. AND SUBSIDIARIES
SCHEDULE IV
REINSURANCE
Ceded to Assumed From Percentage of
Gross Amount Other Other Net Amount Amount Assumed
(In millions) Companies Companies to Net
- ----------------------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1996
Life insurance in force $ 312,176 $ 91,474 $ 46,156 $ 266,858 17%
============================================================================================================================
Insurance revenues
Property and casualty insurance $ 6,850 $ 837 $ 878 $ 6,891 13%
Life insurance 2,461 334 184 2,311 8%
Accident and health insurance 739 87 222 874 25%
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL INSURANCE REVENUES $ 10,050 $ 1,258 $ 1,284 $ 10,076 13%
============================================================================================================================
FOR THE YEAR ENDED DECEMBER 31, 1995
Life insurance in force $ 339,291 $ 87,923 $ 18,918 $ 270,286 7%
- ----------------------------------------------------------------------------------------------------------------------------
INSURANCE REVENUES
Property and casualty insurance $ 6,895 $ 822 $ 817 $ 6,890 12%
Life insurance 1,752 256 476 1,972 24%
Accident and health insurance 695 66 137 766 18%
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL INSURANCE REVENUES $ 9,342 $ 1,144 $ 1,430 $ 9,628 15%
============================================================================================================================
FOR THE YEAR ENDED DECEMBER 31, 1994
Life insurance in force $ 246,138 $ 66,709 $ 33,090 $ 212,519 16%
- ----------------------------------------------------------------------------------------------------------------------------
INSURANCE REVENUES
Property and casualty insurance $ 6,717 $ 883 $ 746 $ 6,580 11%
Life insurance 1,422 151 197 1,468 13%
Accident and health insurance 631 65 139 705 20%
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL INSURANCE REVENUES $ 8,770 $ 1,099 $ 1,082 $ 8,753 12%
============================================================================================================================
S-5
ITT HARTFORD GROUP, INC. AND SUBSIDIARIES
SCHEDULE V
VALUATION AND QUALIFYING ACCOUNTS
Charged to
Balance Costs and Translation Write-offs/ Balance
January 1, Expenses Adjustment Payments/Other December 31,
- --------------------------------------------------------------------------------------------------------------------------------
1996
----
Allowance for doubtful accounts $ 104 $ 18 $ -- $ (9) $ 113
Accumulated depreciation of plant,
property and equipment 535 68 2 12 617
1995
----
Allowance for doubtful accounts $ 102 $ 21 $ -- $ (19) $ 104
Accumulated depreciation of plant, 493 60 2 (20) 535
property and equipment
1994
----
Allowance for doubtful accounts $ 84 $ 26 $ -- $ (8) $ 102
Accumulated depreciation of plant,
property and equipment 434 59 5 (5) 493
================================================================================================================================
S-6
ITT HARTFORD GROUP, INC. AND SUBSIDIARIES
SCHEDULE VI
SUPPLEMENTAL INFORMATION CONCERNING PROPERTY
AND CASUALTY INSURANCE OPERATIONS
Discount Claims and Claim Adjustment Expenses Paid Claims and
(In millions) Deducted From Incurred Related to: Claim Adjustment
--------------------------------------
Liabilities (1) Current Year Prior Years Expenses
- --------------------------------------------------------------------------------------------------------------------------------
Years ended December 31,
1996 $ 472 $ 5,075 $ 1,049 $ 4,879
1995 $ 451 $ 5,041 $ 254 $ 4,937
1994 $ 432 $ 4,841 $ 55 $ 4,723
================================================================================================================================
[1] Reserves for permanently disabled claimants, terminated reinsurance
treaties and certain reinsurance contracts have been discounted using the
rate of return The Hartford could receive on risk-free investments of 6.9%,
6.3% and 8.1% for 1996, 1995 and 1994, respectively.
S-7
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
ITT HARTFORD GROUP, INC.
By: /s/ James J. Westervelt
------------------------------------------
James J. Westervelt
Senior Vice President and Group Controller
(Date) March 28, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons in the capacities and on the dates
indicated.
Signature Title Date
--------- ----- ----
/s/ Ramani Ayer Chairman, President, Chief March 28, 1997
- -----------------------
Ramani Ayer Executive Officer and Director
/s/ Lowndes A. Smith Vice Chairman and Director March 28, 1997
- -----------------------
Lowndes A. Smith
/s/ David K. Zwiener Executive Vice President March 28, 1997
- -----------------------
David K. Zwiener and Chief Financial Officer
/s/ James J. Westervelt Senior Vice President March 28, 1997
- -----------------------
James J. Westervelt and Group Controller
/s/ Bette B. Anderson Director March 28, 1997
- -----------------------
Bette B. Anderson
/s/ Rand V. Araskog Director March 28, 1997
- -----------------------
Rand V. Araskog
/s/ Robert A. Burnett Director March 28, 1997
- -----------------------
Robert A. Burnett
/s/ Donald R. Frahm Director March 28, 1997
- -----------------------
Donald R. Frahm
/s/ Arthur A. Hartman Director March 28, 1997
- -----------------------
Arthur A. Hartman
/s/ Paul G. Kirk, Jr. Director March 28, 1997
- -----------------------
Paul G. Kirk, Jr.
/s/ H. Patrick Swygert Director March 28, 1997
- -----------------------
H. Patrick Swygert
/s/ DeRoy C. Thomas Director March 28, 1997
- -----------------------
DeRoy C. Thomas
/s/ Gordon I. Ulmer Director March 28, 1997
- -----------------------
Gordon I. Ulmer
II-1
ITT HARTFORD GROUP, INC.
FORM 10-K
EXHIBITS INDEX
EXHIBIT #
- ---------
3.01 Amended and Restated Certificate of Incorporation of ITT Hartford Group,
Inc. ("The Hartford") was filed as Exhibit 3.01 to The Hartford's Form
10-K for the fiscal year ended December 31, 1995 and is incorporated
herein by reference.
3.02 By-Laws of The Hartford effective October 25, 1995 were filed as Exhibit
3.02 to The Hartford's Form 10-K for the fiscal year ended December 31,
1995 and are incorporated herein by reference.
4.01 Amended and Restated Certificate of Incorporation and By-Laws of The
Hartford (included as Exhibits 3.01 and 3.02 that are incorporated herein
by reference).
4.02 Rights Agreement dated as of November 1, 1995 between The Hartford and
The Bank of New York as Rights agent was filed as Exhibit 4.02 to The
Hartford's Form 10-K for the fiscal year ended December 31, 1995 and is
incorporated herein by reference.
4.03 Form of certificate of the voting powers, preferences and relative
participating, optional and other special rights, qualifications,
limitations or restrictions of Series A Participating Cumulative
Preferred Stock of The Hartford (attached as Exhibit A to the Rights
Agreement that is incorporated by reference as Exhibit 4.02 hereto).
4.04 Form of Right Certificate (attached as Exhibit B to the Rights Agreement
that is incorporated by reference as Exhibit 4.02 hereto).
4.05 Indenture dated as of May 15, 1991 between The Hartford and The Chase
Manhattan Bank (National Association), as trustee, with respect to The
Hartford's 8.20% Notes due October 15, 1998, 7.25% Notes due December 1,
1996, and 8.30% Notes due December 1, 2001 (incorporated by reference to
Exhibit 4(b) to The Hartford's Form 10 filed on May 9, 1991, as amended,
file no. 0-19277).
4.06 Forms of The Hartford's 8.20% Notes due October 15, 1998, 7.25% Notes due
December 1, 1996 and 8.30% Notes due December 1, 2001( included in the
Indenture filed as Exhibit 4.05 hereto).
4.07 Senior Indenture, dated as of October 20, 1995, between The Hartford and
The Chase Manhattan Bank (National Association), as trustee, with respect
to The Hartford's 6.375% Notes Due November 1, 2002 and 7.30% Debentures
Due November 1, 2015 (incorporated by reference to Exhibit 4.08 to The
Hartford's Report on Form 8-K dated November 15, 1995).
4.08 Forms of The Hartford's 6.375% Notes Due November 1, 2002 and 7.30%
Debentures due November 1, 2015 (incorporated by reference to Exhibits
4.09 and 4.10, respectively, of The Hartford's Report on Form 8-K dated
November 15, 1995).
4.09 Junior Subordinated Indenture, dated as of February 28, 1996, between The
Hartford and Wilmington Trust Company, as Trustee, with respect to The
Hartford's 7.70% Junior Subordinated Deferrable Interest Debentures,
Series A, due February 28, 2016 ("Junior Debentures") was filed as
Exhibit 4.09 to The Hartford's Form 10-K for the fiscal year ended
December 31, 1995 and is incorporated herein by reference.
4.10 Supplemental Indenture No. 1 dated as of February 28, 1996 between The
Hartford and Wilmington Trust Company, as Trustee, with respect to the
Junior Debentures, was filed as Exhibit 4.10 to The Hartford's Form 10-K
for the fiscal year ended December 31, 1995 and is incorporated herein by
reference.
4.11 Form of The Hartford's 7.70% Junior Subordinated Deferrable Interest
Debenture, Series A, due February 28, 2016 (included in the indenture
incorporated by reference as Exhibit 4.09 hereto).
4.12 Amended and Restated Trust Agreement dated as of February 28, 1996 of
Hartford Capital I, relating to the 7.70% Cumulative Quarterly Income
Preferred Securities, Series A ("Preferred Securities") was filed as
Exhibit 4.12 to The Hartford's Form 10-K for the fiscal year ended
December 31, 1995 and is incorporated herein by reference.
II-2
EXHIBITS INDEX (CONTINUED)
EXHIBIT #
- ---------
4.13 Agreement as to Expenses and Liabilities dated as of February 28, 1996
between The Hartford and Hartford Capital I was filed as Exhibit 4.13 to
The Hartford's Form 10-K for the fiscal year ended December 31, 1995 and
is incorporated herein by reference.
4.14 Preferred Security Certificate for Hartford Capital I (included as
Exhibit E of the Trust Agreement incorporated by reference as Exhibit
4.12 hereto).
4.15 Guarantee Agreement dated as of February 28, 1996 between The Hartford
and Wilmington Trust, as trustee, relating to The Hartford's guarantee of
the Preferred Securities, was filed as Exhibit 4.15 to The Hartford's
Form 10-K for the fiscal year ended December 31, 1995 and is incorporated
herein by reference.
4.16 Junior Subordinated Indenture, dated as of October 30, 1996, between The
Hartford and Wilmington Trust Company, as Trustee, with respect to The
Hartford's 8.35% Junior Subordinated Deferrable Interest Debentures,
Series B, due October 30, 2026 ("Series B Junior Debentures") is filed
herewith.
4.17 Form of The Hartford's 8.35% Junior Subordinated Deferrable Interest
Debenture, Series B, due October 30, 2026 was filed as Exhibit 4.2 to The
Hartford's Form 8-K dated November 4, 1996, and is incorporated herein by
reference.
4.18 Amended and Restated Trust Agreement dated as of October 30, 1996 of
Hartford Capital II, relating to the 8.35% Cumulative Quarterly Income
Preferred Securities, Series B, ("Series B Preferred Securities") was
filed as Exhibit 4.1 to The Hartford's Form 8-K dated November 4, 1996,
and is incorporated herein by reference.
4.19 Agreement as to Expenses and Liabilities dated as of October 30, 1996
between The Hartford and Hartford Capital II (included as Exhibit D of
Exhibit 4.18 that is incorporated by reference herein).
4.20 Preferred Security Certificate for Hartford Capital II (included as
Exhibit E of Exhibit 4.18 that is incorporated by reference herein).
4.21 Guarantee Agreement dated as of October 30, 1996 between The Hartford and
Wilmington Trust, as trustee, relating to The Hartford's guarantee of the
Series B Preferred Securities, is filed herewith.
10.01 Distribution Agreement among ITT Corporation, ITT Destinations, Inc. and
The Hartford was filed as Exhibit 10.01 to The Hartford's Form 10-K for
the fiscal year ended December 31, 1995 and is incorporated herein by
reference.
10.02 Intellectual Property License Agreement among ITT Corporation, ITT
Destinations, Inc. and The Hartford was filed as Exhibit 10.02 to The
Hartford's Form 10-K for the fiscal year ended December 31, 1995 and is
incorporated herein by reference.
10.03 Tax Allocation Agreement among ITT Corporation, ITT Destinations, Inc.
and The Hartford was filed as Exhibit 10.03 to The Hartford's Form 10-K
for the fiscal year ended December 31, 1995 and is incorporated herein by
reference.
10.04 Form of Trade Name and Service Mark License Agreement between ITT
Corporation and The Hartford was filed as Exhibit 10.04 to The Hartford's
Form 10-K for the fiscal year ended December 31, 1995 and is incorporated
herein by reference.
10.05 License Assignment Agreement among ITT Destinations, Inc., The Hartford
and Nutmeg Insurance Company was filed as Exhibit 10.05 to The Hartford's
Form 10-K for the fiscal year ended December 31, 1995 and is incorporated
herein by reference.
10.06 License Assignment Agreement among ITT Destinations, Inc., Nutmeg
Insurance Company and Hartford Fire Insurance Company was filed as
Exhibit 10.06 to The Hartford's Form 10-K for the fiscal year ended
December 31, 1995 and is incorporated herein by reference.
II-3
EXHIBITS INDEX (CONTINUED)
EXHIBIT #
- ---------
10.7 Employee Benefit Services and Liability Agreement among ITT Corporation,
ITT Destinations, Inc. and The Hartford was filed as Exhibit 10.07 to The
Hartford's Form 10-K for the fiscal year ended December 31, 1995 and is
incorporated herein by reference.
10.08 ITT Hartford Group, Inc. 1996 Restricted Stock Plan for Non-Employee
Directors was filed as Exhibit 10.08 to The Hartford's Form 10-K for the
fiscal year ended December 31, 1995 and is incorporated herein by
reference.
10.09 1995 ITT Hartford Incentive Stock Plan was filed as Exhibit 10.09 to The
Hartford's Form 10-K for the fiscal year ended December 31, 1995 and is
incorporated herein by reference.
10.10 Debt allocation agreement dated as of November 1, 1995 between ITT
Corporation and The Hartford, and related Fourth Supplemental Indenture
dated as of November 1, 1995 among ITT Corporation, The Hartford and
State Street Bank and Trust Company, as successor trustee, were filed as
Exhibit 10.10 to The Hartford's Form 10-K for the fiscal year ended
December 31, 1995 and are incorporated herein by reference.
10.11 Five-Year Competitive Advance and Revolving Credit Facility Agreement
dated as of December 20, 1996 among The Hartford, the Lenders named
therein and The Chase Manhattan Bank as Administrative Agent is filed
herewith.
10.12 364 Day Competitive Advance and Revolving Credit Facility Agreement dated
as of December 20, 1996 among The Hartford, the lenders named therein and
The Chase Manhattan Bank as Administrative Agent is filed herewith.
10.13 (pound)80,000,000 credit facility dated September 29, 1995 among London &
Edinburgh Insurance Group Limited, as borrower, The Hartford, as
guarantor, the managers and banks named therein and The Sumitomo Bank,
Limited, was filed as Exhibit 10.12 to The Hartford's Form 10-K for the
fiscal year ended December 31, 1995 and is incorporated herein by
reference.
10.14 Employment Agreement dated October 24, 1995 between The Hartford and
Ramani Ayer (incorporated herein by reference to Exhibit 10.11 to The
Hartford's Registration Statement on Form 8-A, dated September 18, 1995,
as amended by the Form 8-A/A, dated November 13, 1995).
10.15 Employment Agreement dated October 24, 1995 between The Hartford and
Lowndes A. Smith (incorporated herein by reference to Exhibit 10.12 to
The Hartford's Registration Statement on Form 8-A, dated September 18,
1995, as amended by the Form 8-A/A, dated November 13, 1995).
10.16 1996 ITT Hartford Deferred Restricted Stock Unit Plan is filed herewith.
11.01 Statement Re: Computation of Earnings Per Share is filed herewith.
12.01 Statement Re: Computation of Ratio of Earnings to Fixed Charges is filed
herewith.
21.01 Subsidiaries of ITT Hartford Group, Inc. is filed herewith.
23.01 Consent of Arthur Andersen LLP to the incorporation by reference into The
Hartford's Registration Statements on Forms S-8 and Form S-3 of the
report of Arthur Andersen LLP contained in this Form 10-K on the audited
financial statements, is filed herewith.
27.01 Financial Data Schedule is filed herewith.
II-4
EXHIBIT 4.16
================================================================================
ITT HARTFORD GROUP, INC.
to
WILMINGTON TRUST COMPANY
Trustee
------------------------------
JUNIOR SUBORDINATED INDENTURE
Dated as of October 30, 1996
------------------------------
================================================================================
TABLE OF CONTENTS
-----------------
ARTICLE ONE
Definitions and other Provisions of General Application
-------------------------------------------------------
SECTION 101. Definitions.................................2
SECTION 102. Compliance Certificate and Opinions........12
SECTION 103. Forms of Documents Delivered to
Trustee....................................13
SECTION 104. Acts of Holders............................14
SECTION 105. Notices, Etc. to Trustee and Company.......15
SECTION 106. Notice to Holders; Waiver..................16
SECTION 107. Conflict With Trust Indenture Act..........16
SECTION 108. Effect of Headings and Table of
Contents...................................17
SECTION 109. Successors and Assigns.....................17
SECTION 110. Separability Clause........................17
SECTION 111. Benefits of Indenture......................17
SECTION 112. Governing Law..............................17
SECTION 113. Non-Business Days..........................17
ARTICLE TWO
Security Forms
--------------
SECTION 201. Forms Generally............................18
SECTION 202. Form of Face of Security...................18
SECTION 203. Form of Reverse of Security................24
SECTION 204. Additional Provisions Required in
Global Security............................27
SECTION 205. Form of Trustee's Certificate of
Authentication.............................27
ARTICLE THREE
The Securities
--------------
SECTION 301. Title and Terms............................28
SECTION 302. Denominations..............................31
SECTION 303. Execution, Authentication, Delivery
and Dating.................................31
SECTION 304. Temporary Securities.......................33
SECTION 305. Registration, Transfer and Exchange........34
SECTION 306. Mutilated, Destroyed, Lost and Stolen
Securities.................................36
SECTION 307. Payment of Interest; Interest Rights
Preserved..................................37
SECTION 308. Persons Deemed Owners......................39
SECTION 309. Cancellation...............................39
SECTION 310. Computation of Interest....................39
i
SECTION 311. Deferrals of Interest Payment Dates........39
SECTION 312. Right of Set-Off...........................41
SECTION 313. Agreed Tax Treatment.......................41
SECTION 314. Extension of Stated Maturity;
Adjustment of Stated Maturity Upon an
Exchange...................................41
SECTION 315. CUSIP Numbers..............................42
ARTICLE FOUR
Satisfaction and Discharge
--------------------------
SECTION 401. Satisfaction and Discharge of
Indenture..................................42
SECTION 402. Application of Trust Money.................44
SECTION 403. Satisfaction, Discharge and
Defeasance of Securities of Any
Series.....................................44
ARTICLE FIVE
Remedies
--------
SECTION 501. Events of Default..........................46
SECTION 502. Acceleration of Maturity; Rescission
and Annulment..............................47
SECTION 503. Collection of Indebtedness and Suits
for Enforcement by Trustee.................49
SECTION 504. Trustee May File Proofs of Claim...........50
SECTION 505. Trustee May Enforce Claim Without
Possession of Securities...................51
SECTION 506. Application of Money Collected.............52
SECTION 507. Limitation on Suits........................52
SECTION 508. Unconditional Right of Holders to
Receive Principal, Premium and
Interest...................................53
SECTION 509. Restoration of Rights and Remedies.........54
SECTION 510. Rights and Remedies Cumulative.............54
SECTION 511. Delay or Omission Not Waiver...............54
SECTION 512. Control by Holders.........................54
SECTION 513. Waiver of Past Defaults....................55
SECTION 514. Undertaking for Costs......................56
SECTION 515. Waiver of Stay or Extension Laws...........56
ARTICLE SIX
The Trustee
-----------
SECTION 601. Certain Duties and Responsibilities........57
SECTION 602. Notice of Defaults.........................58
SECTION 603. Certain Rights of Trustee..................59
ii
SECTION 604. Not Responsible for Recitals or
Issuance of Securities.....................60
SECTION 605. May Hold Securities........................60
SECTION 606. Money Held in Trust........................60
SECTION 607. Compensation and Reimbursement.............61
SECTION 608. Disqualification; Conflicting
Interests..................................62
SECTION 609. Corporate Trustee Required;
Eligibility................................62
SECTION 610. Resignation and Removal; Appointment
of Successor...............................63
SECTION 611. Acceptance of Appointment by
Successor..................................64
SECTION 612. Merger, Conversion, Consolidation or
Succession to Business.....................66
SECTION 613. Preferential Collection of Claims
Against Company............................66
SECTION 614. Appointment of Authenticating Agent........67
ARTICLE SEVEN
Holders' Lists and Reports by Trustee and Company
-------------------------------------------------
SECTION 701. Company to Furnish Trustee Names and
Addresses of Holders.......................69
SECTION 702. Preservation of Information,
Communications to Holders..................69
SECTION 703. Reports by Trustee.........................70
SECTION 704. Reports by Company.........................70
ARTICLE EIGHT
Consolidation, Merger, Conveyance, Transfer or Lease
----------------------------------------------------
SECTION 801. Company May Consolidate, Etc., Only
on Certain Terms...........................71
SECTION 802. Successor Corporation Substituted..........72
ARTICLE NINE
Supplemental Indentures
-----------------------
SECTION 901. Supplemental Indentures Without
Consent of Holders.........................73
SECTION 902. Supplemental Indentures with Consent
of Holders.................................74
SECTION 903. Execution of Supplemental Indentures.......76
SECTION 904. Effect of Supplemental Indentures..........77
SECTION 905. Conformity with Trust Indenture Act........77
SECTION 906. Reference in Securities to
Supplemental Indentures....................77
iii
ARTICLE TEN
Covenants
---------
SECTION 1001. Payment of Principal, Premium and
Interest...................................77
SECTION 1002. Maintenance of Office or Agency............77
SECTION 1003. Money for Security Payments to be
Held in Trust..............................78
SECTION 1004. Payment of Taxes and Other Claims..........80
SECTION 1005. Statement as to Compliance.................80
SECTION 1006. Waiver of Certain Covenants................81
SECTION 1007. Additional Sums............................81
SECTION 1008. Additional Covenants.......................82
ARTICLE ELEVEN
Redemption of Securities
------------------------
SECTION 1101. Applicability of This Article..............83
SECTION 1102. Election to Redeem; Notice to Trustee......83
SECTION 1103. Selection of Securities to be
Redeemed...................................84
SECTION 1104. Notice of Redemption.......................84
SECTION 1105. Deposit of Redemption Price................85
SECTION 1106. Payment of Securities Called for
Redemption.................................85
SECTION 1107. Company's Right of Redemption..............86
ARTICLE TWELVE
Sinking Funds
-------------
SECTION 1201. Applicability of Article...................88
SECTION 1202. Satisfaction of Sinking Fund Payments
with Securities............................88
SECTION 1203. Redemption of Securities for Sinking
Fund.......................................89
ARTICLE THIRTEEN
Subordination of Securities
---------------------------
SECTION 1301. Securities Subordinate to Senior Debt......91
SECTION 1302. Payment Over of Proceeds Upon
Dissolution, Etc...........................91
SECTION 1303. Prior Payment to Senior Debt Upon
Acceleration of Securities.................93
SECTION 1304. No Payment When Senior Debt in
Default....................................94
SECTION 1305. Payment Permitted If No Default............95
SECTION 1306. Subrogation to Rights of Holders of
Senior Debt................................95
iv
SECTION 1307. Provisions Solely to Define Relative
Rights.....................................96
SECTION 1308. Trustee to Effectuate Subordination........96
SECTION 1309. No Waiver of Subordination Provisions......96
SECTION 1310. Notice to Trustee..........................97
SECTION 1311. Reliance on Judicial Order or
Certificate of Liquidating Agent...........97
SECTION 1312. Trustee Not Fiduciary for Holders of
Senior Debt................................98
SECTION 1313. Rights of Trustee as Holder of Senior
Debt; Preservation of Trustee's
Rights.....................................98
SECTION 1314. Article Applicable to Paying Agents........98
SECTION 1315. Certain Conversions or Exchanges
Deemed Payment.............................98
Annex A -- Form of Trust Agreement
Annex B -- Form of Amended and Restated Trust Agreement
Annex C -- Form of Guarantee Agreement
v
ITT HARTFORD GROUP, INC.
Reconciliation and tie between the Trust Indenture Act of 1939
(including cross-references to provisions of Sections 310 to and including 317
which, pursuant to Section 318(c) of the Trust Indenture Act of 1939, as amended
by the Trust Reform Act of 1990, are a part of and govern the Indenture whether
or not physically contained therein) and the Junior Subordinated Indenture,
dated as of February 28, 1996.
Trust Indenture
Act Section Indenture Section
(S) 310 (a)(1), (2) and (5).....................................609
(a)(3).......................................Not Applicable
(a)(4).......................................Not Applicable
(b).....................................................608
........................................................610
(c)..........................................Not Applicable
(S) 311 (a)..................................................613(a)
(b)..................................................613(b)
(b)(2)............................................703(a)(2)
..................................................703(a)(2)
(S) 312 (a).....................................................701
.....................................................702(a)
(b)..................................................702(b)
(c)..................................................702(c)
(S) 313 (a)..................................................703(a)
(b)..................................................703(b)
(c)..........................................703(a), 703(b)
(d)..................................................703(c)
(S) 314 (a)(1), (2) and (3).....................................704
(a)(4).................................................1006
(b)..........................................Not Applicable
(c)(1)..................................................102
(c)(2)..................................................102
(c)(3).......................................Not Applicable
(d)..........................................Not Applicable
(e).....................................................102
(f)..........................................Not Applicable
(S) 315 (a)..................................................601(a)
(b).....................................................602
..................................................703(a)(6)
(c)..................................................601(b)
(d)..................................................601(c)
(d)(1)............................................601(a)(1)
(d)(2)............................................601(c)(2)
(d)(3)............................................601(c)(3)
(e).....................................................514
(S) 316 (a).....................................................101
(a)(1)(A)...............................................512
(a)(1)(B)...............................................513
(a)(2).................................. ....Not Applicable
(b).....................................................508
(c)..................................................104(f)
(S) 317 (a)(1)..................................................503
(a)(2)..................................................504
(b)....................................................1003
(S) 318 (a).....................................................107
Note: This reconciliation and tie shall not, for any purpose, be deemed to be a
part of the Junior Subordinated Indenture.
JUNIOR SUBORDINATED INDENTURE, dated as of October 30, 1996 between ITT
HARTFORD GROUP, INC., a Delaware corporation (hereinafter called the "Company")
having its principal office at Hartford Plaza, Hartford, Connecticut 06115, and
Wilmington Trust Company, a Delaware banking corporation duly organized and
existing under the laws of the State of Delaware, as Trustee (hereinafter called
the "Trustee").
RECITALS OF THE COMPANY
The Company has duly authorized the execution and delivery of this
Indenture to provide for the issuance from time to time of its unsecured junior
subordinated debt securities in series (hereinafter called the "Securities") of
substantially the tenor hereinafter provided, including, without limitation,
Securities issued to evidence loans made to the Company of the proceeds from the
issuance from time to time by one or more business trusts (each a "Hartford
Trust", and collectively, the "Hartford Trusts") of preferred trust interests in
such Trusts (the "Preferred Securities") and common interests in such Trusts
(the "Common Securities"), and to provide the terms and conditions upon which
the Securities are to be authenticated, issued and delivered.
All things necessary to make the Securities, when executed by the Company
and authenticated and delivered hereunder and duly issued by the Company, the
valid obligations of the Company, and to make this Indenture a valid agreement
of the Company, in accordance with their and its terms, have been done.
NOW THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the Securities
by the Holders thereof, it is mutually covenanted and agreed, for the equal and
proportionate benefit of all Holders of the Securities or of any series thereof,
as follows:
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
-------------------------------------------------------
SECTION 101. Definitions.
-----------
For all purposes of this Indenture, except as otherwise expressly provided
or unless the context otherwise requires:
(1) The terms defined in this Article have the meanings assigned to them in
this Article, and include the plural as well as the singular;
(2) All other terms used herein which are defined in the Trust Indenture
Act, either directly or by reference therein, have the meanings assigned to them
therein;
(3) All accounting terms not otherwise defined herein have the meanings
assigned to them in accordance with generally accepted accounting principles,
and the term "generally accepted accounting principles" with respect to any
computation required or permitted hereunder shall mean such accounting
principles which are generally accepted at the date or time of such computation;
provided, that when two or more principles are so generally accepted, it shall
- --------
mean that set of principles consistent with those in use by the Company; and
(4) The words "herein," "hereof" and "hereunder" and other words of similar
import refer to this Indenture as a whole and not to any particular Article,
Section or other subdivision.
Certain terms, used principally in Article Six, are defined in that
Article.
"Act" when used with respect to any Holder has the meaning specified in
---
Section 104.
"Additional Interest" means the interest, if any, that shall accrue on any
-------------------
interest on the Securities of any series that is in arrears for more than one
interest payment period or not paid during any Extension Period, which in either
case shall accrue at the rate per annum specified or determined as specified in
such Security.
2
"Additional Sums" has the meaning specified in Section 1007.
---------------
"Additional Taxes" means the sum of additional taxes, duties and other
----------------
governmental charges to which a Hartford Trust has become subject from time to
time as a result of a Tax Event.
"Affiliate" of any specified Person means any other Person directly or
---------
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person; provided, however, that an Affiliate of the
-------- -------
Company shall not be deemed to include any Hartford Trust to which Securities
have been issued. For the purposes of this definition, "control" when used with
respect to any specified Person means the power to direct the management and
policies of such Person, directly or indirectly, whether through the ownership
of voting securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Authenticating Agent" means any Person authorized by the Trustee pursuant
--------------------
to Section 614 to act on behalf of the Trustee to authenticate Securities of one
or more series.
"Board of Directors" means either the board of directors of the Company or
------------------
any committee of that board duly authorized to act hereunder.
"Board Resolution" means a copy of a resolution certified by the Secretary
----------------
or an Assistant Secretary of the Company to have been duly adopted by the Board
of Directors, or such committee of the Board of Directors or officers of the
Company to which authority to act on behalf of the Board of Directors has been
delegated, and to be in full force and effect on the date of such certification,
and delivered to the Trustee.
"Business Day" means any day other than (i) a Saturday or Sunday or (ii) a
------------ - --
day on which banking institutions in The City of New York are authorized or
required by law or executive order to remain closed or (iii) a day on which the
---
Corporate Trust Office of the Trustee, or, with respect to the Securities of a
series issued to a Hartford Trust, the principal office of the Property Trustee
under the related Trust Agreement, is closed for business.
3
"Commission" means the Securities and Exchange Commission, as from time to
----------
time constituted, created under the Securities Exchange Act of 1934, or if at
any time after the execution of this instrument such Commission is not existing
and performing the duties now assigned to it under the Trust Indenture Act, then
the body performing such duties on such date.
"Common Securities" has the meaning specified in the first recital of this
-----------------
Indenture.
"Company" means the Person named as the "Company" in the first paragraph of
-------
this instrument until a successor corporation shall have become such pursuant to
the applicable provisions of this Indenture, and thereafter "Company" shall mean
such successor corporation.
"Company Request" and "Company Order" mean, respectively, the written
--------------- -------------
request or order signed in the name of the Company by the Chairman and Chief
Executive Officer, President or a Vice President, and by the Treasurer, an
Associate Treasurer, an Assistant Treasurer, the Controller, the Secretary or an
Assistant Secretary of the Company, and delivered to the Trustee.
"Corporate Trust Office" means the principal office of the Trustee at which
----------------------
at any particular time its corporate trust business shall be administered.
"Corporation" includes corporations, associations, companies and business
-----------
trusts.
"Current Value" has the meaning specified in Section 1107.
-------------
"Debt" means, with respect to any Person, whether recourse is to all or a
----
portion of the assets of such Person and whether or not contingent, (i) every
-
obligation of such Person for money borrowed; (ii) every obligation of such
--
Person evidenced by bonds, debentures, notes or other similar instruments,
including obligations incurred in connection with the acquisition of property,
assets or businesses; (iii) every reimbursement obligation of such Person with
---
respect to letters of credit, bankers' acceptances or similar facilities issued
for the account of such Person; (iv) every obligation of such Person issued or
--
assumed as the deferred purchase price of property or services (but excluding
trade accounts payable or accrued liabilities arising in the ordinary course of
business);
4
(v) every capital lease obligation of such Person; and (vi) every obligation of
- --
the type referred to in clauses (i) through (v) of another Person and all
dividends of another Person the payment of which, in either case, such Person
has guaranteed or is responsible or liable, directly or indirectly, as obligor
or otherwise.
"Defaulted Interest" has the meaning specified in Section 307.
------------------
"Depositary" means, with respect to the Securities of any series issuable
----------
or issued in whole or in part in the form of one or more Global Securities, the
Person designated as Depositary by the Company pursuant to Section 301 with
respect to such series (or any successor thereto).
"Discounted Remaining Fixed Amount Payments" has the meaning specified in
------------------------------------------
Section 1107.
"Discounted Swap Equivalent Payments" has the meaning specified in Section
-----------------------------------
1107.
"Dollar" means the currency of the United States of America as at the time
------
of payment is legal tender for the payment of public and private debts.
"Event of Default" unless otherwise specified in the supplemental indenture
----------------
creating a series of Securities, has the meaning specified in Article Five.
"Extension Period" has the meaning specified in Section 311.
----------------
"Foreign Currency" means any currency issued by the government of one or
----------------
more countries other than the United States of America or by any recognized
confederation or association of such governments.
"Global Security" means a Security in the form prescribed in Section 204
---------------
evidencing all or part of a series of Securities, issued to the Depositary or
its nominee for such series, and registered in the name of such Depositary or
its nominee.
"Government Obligations" means, with respect to the Securities of any
----------------------
series, securities which are (i) direct obligations of the United States of
America or (ii) obligations of a Person controlled or supervised by and acting
as an agency or instrumentality of the United States
5
of America the payment of which is unconditionally guaranteed by the United
States of America and which, in either case, are full faith and credit
obligations of the United States of America and are not callable or redeemable
at the option of the issuer thereof and shall also include a depository receipt
issued by a bank (as defined in Section 3(a)(2) of the Securities Act of 1933,
as amended) as custodian with respect to any such Government Obligation or a
specific payment of interest on or principal of any such Government Obligation
held by such custodian for the account of the holder of such depository receipt;
provided that (except as required by law) such custodian is not authorized to
- --------
make any deduction from the amount payable to the holder of such depository
receipt from any amount received by the custodian in respect of the Government
Obligation or the specific payment of interest on or principal of the Government
Obligation evidenced by such depository receipt.
"Hartford Guarantee" means the guarantee by the Company of distributions on
------------------
the Preferred Securities of a Hartford Trust to the extent provided in the
Guarantee Agreement, substantially in the form attached hereto as Annex C, or
substantially in such form as may be specified as contemplated by Section 301
with respect to the Securities of any series, in each case as amended from time
to time.
"Hartford Trust" has the meaning specified in the first recital of this
--------------
Indenture.
"Holder" means a Person in whose name a Security is registered in the
------
Securities Register.
"Junior Subordinated Payment" has the meaning specified in Section 1302.
---------------------------
"Indenture" means this instrument as originally executed or as it may from
---------
time to time be supplemented or amended by one or more indentures supplemental
hereto entered into pursuant to the applicable provisions hereof and shall
include the terms of each particular series of Securities established as
contemplated by Section 301.
"Interest Payment Date" means as to each series of Securities the Stated
---------------------
Maturity of an installment of interest on such Securities.
6
"Interest Rate" means the rate of interest specified or determined as
-------------
specified in each Security as being the rate of interest payable on such
Security.
"Investment Company Event" means, in respect of a Hartford Trust, the
------------------------
occurrence of a change in law or regulation or a change in interpretation or
application of law or regulation by any legislative body, court, governmental
agency or regulatory authority (a "Change in 1940 Act Law") to the effect that
such Hartford Trust is or will be considered an "investment company" that is
required to be registered under the 1940 Act, which Change in 1940 Act Law
becomes effective on or after the date of original issuance of the Preferred
Securities of such Hartford Trust.
"Lien" means any mortgage, pledge, lien, security interest or other
----
encumbrance.
"Maturity" when used with respect to any Security means the date on which
--------
the principal of such Security becomes due and payable as therein or herein
provided, whether at the Stated Maturity or by declaration of acceleration, call
for redemption or otherwise.
"1940 Act" means the Investment Company Act of 1940, as amended.
--------
"Notice of Default" has the meaning specified in Section 501(3).
-----------------
"Officers' Certificate" means a certificate signed by the Chairman and
---------------------
Chief Executive Officer, President or a Vice President, and by the Treasurer, an
Associate Treasurer, an Assistant Treasurer, the Controller, the Secretary or an
Assistant Secretary of the Company, and delivered to the Trustee.
"Opinion of Counsel" means a written opinion of counsel, who may be counsel
------------------
for the Company.
"Original Issue Date" means the date of issuance specified as such in each
-------------------
Security.
"Original Issue Discount Security" means any security which provides for an
--------------------------------
amount less than the principal amount thereof to be due and payable upon a
declaration of acceleration of the Maturity thereof pursuant to Section 502.
7
"Outstanding" means, as of the date of determination, all Securities
-----------
theretofore authenticated and delivered under this Indenture, except:
(i) Securities theretofore canceled by the Trustee or delivered to the
Trustee for cancellation;
(ii) Securities for whose payment money in the necessary amount has been
theretofore deposited with the Trustee or any Paying Agent in trust for the
Holders of such Securities; and
(iii) Securities in substitution for or in lieu of which other
Securities have been authenticated and delivered or which have been paid
pursuant to Section 306, unless proof satisfactory to the Trustee is
presented that any such Securities are held by Holders in whose hands such
Securities are valid, binding and legal obligations of the Company;
provided, however, that in determining whether the Holders of the requisite
- -------- -------
principal amount of Outstanding Securities have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, Securities owned
by the Company or any other obligor upon the Securities or any Affiliate of the
Company or such other obligor shall be disregarded and deemed not to be
outstanding, except that, in determining whether the Trustee shall be protected
in relying upon any such request, demand, authorization, direction, notice,
consent or waiver, only Securities which the Trustee knows to be so owned shall
be so disregarded. Securities so owned which have been pledged in good faith may
be regarded as Outstanding if the pledgee establishes to the satisfaction of the
Trustee the pledgee's right so to act with respect to such Securities and that
the pledgee is not the Company or any other obligor upon the Securities or any
Affiliate of the Company or such other obligor. Upon request of the Trustee, the
Company shall furnish to the Trustee promptly an Officers' Certificate listing
and identifying all Securities, if any, known by the Company to be owned or held
by or for the account of the Company, or any other obligor on the Securities or
any Affiliate of the Company or such obligor, and, subject to the provisions of
Section 601, the Trustee shall be entitled to accept such Officers' Certificate
as conclusive evidence of the facts therein set forth and of the fact that all
Securities not listed therein are Outstanding for the purpose of any such
determination.
8
"Paying Agent" means the Trustee or any Person authorized by the Company to
------------
pay the principal of or interest on any Securities on behalf of the Company.
"Person" means any individual, corporation, partnership, joint venture,
------
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"Place of Payment" means, with respect to the Securities of any series, the
----------------
place or places where the principal of (and premium, if any) and interest on the
Securities of such series are payable pursuant to Section 301 or 311.
"Predecessor Security" of any particular Security means every previous
--------------------
Security evidencing all or a portion of the same debt as that evidenced by such
particular Security; and, for the purposes of this definition, any security
authenticated and delivered under Section 306 in lieu of a lost, destroyed or
stolen Security shall be deemed to evidence the same debt as the lost, destroyed
or stolen Security.
"Preferred Securities" has the meaning specified in the first recital of
--------------------
this Indenture.
"Proceeding" has the meaning specified in Section 1302.
----------
"Property Trustee" means, in respect of any Hartford Trust, the commercial
----------------
bank or trust company identified as the "Property Trustee" in the related Trust
Agreement, solely in its capacity as Property Trustee of such Hartford Trust
under such Trust Agreement and not in its individual capacity, or its successor
in interest in such capacity, or any successor property trustee appointed as
therein provided.
"Regular Record Date" for the interest payable on any Interest Payment Date
-------------------
with respect to the Securities of a series means, unless otherwise provided
pursuant to Section 301 with respect to Securities of a series, the date which
is fifteen days next preceding such Interest Payment Date (whether or not a
Business Day).
"Responsible Officer" when used with respect to the Trustee means any
-------------------
officer of the Trustee assigned by the
9
Trustee from time to time to administer its corporate trust matters.
"Restricted Subsidiary" means a Subsidiary which is incorporated in any
---------------------
state of the United States or in the District of Columbia and which is a
regulated insurance company principally engaged in one or more of the property,
casualty and life insurance businesses, provided that no such Subsidiary shall
--------
be a Restricted Subsidiary if (i) the total assets of such Subsidiary are less
-
than 10% of the total assets of the Company and its consolidated Subsidiaries
(including such Subsidiary), in each case as set forth on the most recent fiscal
year-end balance sheets of such Subsidiary and the Company and its consolidated
Subsidiaries, respectively, and computed in accordance with generally accepted
accounting principles, or (ii) in the judgment of the Board of Directors, as
--
evidenced by a Board Resolution, such Subsidiary is not material to the
financial condition of the Company and its consolidated Subsidiaries taken as a
whole.
"Securities" or "Security" means any debt securities or debt security, as
---------- --------
the case may be, authenticated and delivered under this Indenture.
"Securities Register" and "Securities Registrar" have the respective
------------------- --------------------
meanings specified in Section 305.
"Senior Debt" means the principal of (and premium, if any) and interest, if
-----------
any (including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to the Company whether or not such
claim for post-petition interest is allowed in such proceeding), on Debt,
whether incurred on or prior to the date of this Indenture or thereafter
incurred, unless, in the instrument creating or evidencing the same or pursuant
to which the same is outstanding, it is provided that such obligations are not
superior in right of payment to the Securities or to other Debt which is pari
----
passu with, or subordinated to, the Securities, provided, however, that Senior
- ----- -------- -------
Debt shall not be deemed to include (a) the 7.70% Junior Subordinated Deferrable
-
Interest Debentures, Series A, Due February 28, 2015, of the Company, (b) any
-
Debt of the Company which when incurred and without respect to any election
under Section 1111(b) of the Bankruptcy Reform Act of 1978, was without recourse
to the Company, (c) any Debt of the Company to any of its Subsidiaries, (d) Debt
- -
to any employee of the Company, (e) any liability for taxes, (f) Debt or other
- -
monetary obligations to trade creditors
10
created or assumed by the Company or any of its Subsidiaries in the ordinary
course of business in connection with the obtaining of goods, materials or
services and (g) the Securities.
-
"Special Event" means a Tax Event or an Investment Company Event.
-------------
"Special Record Date" for the payment of any Defaulted Interest means a
-------------------
date fixed by the Trustee pursuant to Section 307.
"Stated Maturity" when used with respect to any Security or any installment
---------------
of principal thereof or interest thereon means the date specified in such
Security as the fixed date on which the principal of such Security or such
installment of interest is due and payable.
"Subsidiary" means any corporation of which at the time of determination
----------
the Company and/or one or more Subsidiaries owns or controls directly or
indirectly more than 50% of the outstanding shares of voting stock. For purposes
of this definition, "voting stock" means stock which has voting power for the
election of directors, whether at all times or only so long as no senior class
of stock has such voting power by reason of any contingency.
"Tax Event" means the receipt by a Hartford Trust of an Opinion of Counsel
---------
experienced in such matters to the effect that, as a result of any amendment to,
or change (including any announced prospective change) in, the laws (or any
regulations thereunder) of the United States or any political subdivision or
taxing authority thereof or therein affecting taxation, or as a result of any
official administrative pronouncement or judicial decision interpreting or
applying such laws or regulations, which amendment or change is effective or
such pronouncement or decision is announced on or after the date of issuance of
the Preferred Securities of such Hartford Trust, there is more than an
insubstantial risk that (i) the Hartford Trust is, or will be within 90 days of
-
the date thereof, subject to United States Federal income tax with respect to
income received or accrued on the corresponding series of Securities, (ii)
--
interest payable by the Company on the corresponding series of Securities is
not, or within 90 days of the date thereof, will not be, deductible, in whole or
in part, for United States Federal income tax purposes or (iii) the Hartford
---
Trust is, or will be within 90 days of the date thereof, subject to more than
11
a de minimis amount of other taxes, duties or other governmental charges.
-- -------
"Trust Agreement" means the Trust Agreement substantially in the form
---------------
attached hereto as Annex A, as amended by the form of Amended and Restated Trust
Agreement substantially in the form attached hereto as Annex B, or substantially
in such form as may be specified as contemplated by Section 301 with respect to
the Securities of any series, in each case as amended from time to time.
"Trustee" means the Person named as the "Trustee" in the first paragraph of
-------
this instrument until a successor Trustee shall have become such pursuant to the
applicable provisions of this Indenture, and thereafter "Trustee" shall mean or
include each Person who is then a Trustee hereunder and, if at any time there is
more than one such Person, "Trustee" as used with respect to the Securities of
any series shall mean the Trustee with respect to Securities of that series.
"Trust Indenture Act" means the Trust Indenture Act of 1939 (15 U.S.C.
-------------------
(S)(S) 77aaa-77bbb), as amended and as in effect on the date as of this
Indenture, except as provided in Section 905.
"Vice President" when used with respect to the Company, means any vice
--------------
president, whether or not designated by a number or a word or words added before
or after the title "vice president."
SECTION 102. Compliance Certificate and Opinions.
-----------------------------------
Upon any application or request by the Company to the Trustee to take any
action under any provision of this Indenture, the Company shall furnish to the
Trustee an Officers' Certificate stating that all conditions precedent
(including covenants, compliance with which constitutes a condition precedent),
if any, provided for in this Indenture relating to the proposed action have been
complied with and an Opinion of Counsel stating that in the opinion of such
counsel all such conditions precedent (including covenants compliance with which
constitute a condition precedent), if any, have been complied with, except that
in the case of any such application or request as to which the furnishing of
such documents is specifically required by any provision of this Indenture
relating to such particular application or
12
request, no additional certificate or opinion need be furnished.
Every certificate or opinion with respect to compliance with a condition or
covenant provided for in this Indenture (other than the certificates provided
pursuant to Section 1006) shall include:
(1) a statement that each individual signing such certificate or opinion
has read such covenant or condition and the definitions herein relating
thereto;
(2) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of each such individual, he has
made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or condition
has been complied with; and
(4) a statement as to whether, in the opinion of each such individual,
such condition or covenant has been complied with.
SECTION 103. Forms of Documents Delivered to Trustee.
---------------------------------------
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to matters upon which his certificate or opinion is based are
erroneous. Any such certificate or Opinion of Counsel may be
13
based, insofar as it relates to factual matters, upon a certificate or opinion
of, or representations by, an officer or officers of the Company stating that
the information with respect to such factual matters is in the possession of the
Company, unless such counsel knows, or in the exercise of reasonable care should
know, that the certificate or opinion or representations with respect to such
matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
SECTION 104. Acts of Holders
---------------
(a) Any request, demand, authorization, direction, notice, consent, waiver
or other action provided by this Indenture to be given to or taken by Holders
may be embodied in and evidenced by one or more instruments of substantially
similar tenor signed by such Holders in person or by an agent duly appointed in
writing; and, except as herein otherwise expressly provided, such action shall
become effective when such instrument or instruments is or are delivered to the
Trustee, and, where it is hereby expressly required, to the Company. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Holders signing
such instrument or instruments. Proof of execution of any such instrument or of
a writing appointing any such agent shall be sufficient for any purpose of this
Indenture and (subject to Section 601) conclusive in favor of the Trustee and
the Company and any agent of the Trustee or the Company, if made in the manner
provided in this Section.
(b) The fact and date of the execution by any Person of any such instrument
or writing may be proved by the affidavit of a witness of such execution or by
the certificate of any notary public or other officer authorized by law to take
acknowledgments of deeds, certifying that the individual signing such instrument
or writing acknowledged to him the execution thereof. Where such execution is by
a Person acting in other than his individual capacity, such certificate or
affidavit shall also constitute sufficient proof of his authority.
14
(c) The fact and date of the execution by any Person of any such instrument
or writing, or the authority of the Person executing the same, may also be
proved in any other manner which the Trustee deems sufficient and in accordance
with such reasonable rules as the Trustee may determine.
(d) The ownership of Securities shall be proved by the Securities
Register.
(e) Any request, demand, authorization, direction, notice, consent, waiver
or other action by the Holder of any Security shall bind every future Holder of
the same Security and the Holder of every Security issued upon the transfer
thereof or in exchange therefor or in lieu thereof in respect of anything done
or suffered to be done by the Trustee or the Company in reliance thereon,
whether or not notation of such action is made upon such Security.
(f) The Company may, but shall not be obligated to, fix a record date for
the purpose of determining the Holders entitled to take any action under this
Indenture by vote or consent. Except as otherwise provided herein, such record
date shall be the later of 30 days prior to the first solicitation of such
consent or vote or the date of the most recent list of Securityholders furnished
to the Trustee pursuant to Section 701 prior to such solicitation. If a record
date is fixed, those persons who were Securityholders at such record date (or
their duly designated proxies), and only those persons, shall be entitled to
take such action by vote or consent or to revoke any vote or consent previously
given, whether or not such persons continue to be Holders after such record
date, provided, however, that unless such vote or consent is obtained from the
-------- -------
Holders (or their duly designated proxies) of the requisite principal amount of
Outstanding Securities prior to the date which is the 120th day after such
record date, any such vote or consent previously given shall automatically and
without further action by any Holder be canceled and of no further effect.
SECTION 105. Notices, Etc. to Trustee and Company.
------------------------------------
Any request, demand, authorization, direction, notice, consent, waiver or
Act of Holders or other document provided or permitted by this Indenture to be
made upon, given or furnished to, or filed with,
15
(1) the Trustee by any Holder or by the Company shall be sufficient for
every purpose hereunder if made, given, furnished or filed in writing to or with
the Trustee at its Corporate Trust office, or
(2) the Company by the Trustee or by any Holder shall be sufficient for
every purpose (except as otherwise provided in Section 501 hereof) hereunder if
in writing and mailed, first class, postage prepaid, to the Company addressed to
it at the address of its principal office specified in the first paragraph of
this instrument or at any other address previously furnished in writing to the
Trustee by the Company.
SECTION 106. Notice to Holders; Waiver.
-------------------------
Where this Indenture provides for notice to Holders of any event, such
notice shall be sufficiently given (unless otherwise herein expressly provided)
if in writing and mailed, first class postage prepaid, to each Holder affected
by such event, at the address of such Holder as it appears in the Securities
Register, not later than the latest date, and not earlier than the earliest
date, prescribed for the giving of such notice. In any case where notice to
Holders is given by mail, neither the failure to mail such notice, nor any
defect in any notice so mailed, to any particular Holder shall affect the
sufficiency of such notice with respect to other Holders. Where this Indenture
provides for notice in any manner, such notice may be waived in writing by the
Person entitled to receive such notice, either before or after the event, and
such waiver shall be the equivalent of such notice. Waivers of notice by Holders
shall be filed with the Trustee, but such filing shall not be a condition
precedent to the validity of any action taken in reliance upon such waiver.
SECTION 107. Conflict With Trust Indenture Act.
---------------------------------
If any provision of this Indenture limits, qualifies or conflicts with the
duties imposed by any of Sections 310 to 317, inclusive, of the Trust Indenture
Act through operation of Section 318(c) thereof, such imposed duties shall
control.
16
SECTION 108. Effect of Headings and Table of Contents.
----------------------------------------
The Article and Section headings herein and the Table of Contents are for
convenience only and shall not affect the construction hereof.
SECTION 109. Successors and Assigns.
----------------------
All covenants and agreements in this Indenture by the Company shall bind
its successors and assigns, whether so expressed or not.
SECTION 110. Separability Clause.
-------------------
In case any provision in this Indenture or in the Securities shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
SECTION 111. Benefits of Indenture.
---------------------
Nothing in this Indenture or in the Securities, express or implied, shall
give to any Person, other than the parties hereto, any Paying Agent and their
successors and assigns and the Holders of the Securities, any benefit or any
legal or equitable right, remedy or claim under this Indenture.
SECTION 112. Governing Law.
-------------
This Indenture and the Securities shall be governed by and construed in
accordance with the laws of the State of New York.
SECTION 113. Non-Business Days.
-----------------
In any case where any Interest Payment Date or Stated Maturity of any
Security shall not be a Business Day, then (notwithstanding any other provision
of this Indenture or the Securities) payment of interest or principal need not
be made on such date, but may be made on the next succeeding Business Day and no
interest shall accrue for the period from and after such Interest Payment Date
or Stated Maturity, as the case may be, until the next succeeding Business Day,
in each case with the same force and effect as if made on the Interest Payment
Date or at the Stated Maturity, except that, if such Business Day is in the next
17
succeeding calendar year, such payment shall be made on the immediately
preceding Business Day.
ARTICLE TWO
SECURITY FORMS
--------------
SECTION 201. Forms Generally.
---------------
The Securities of each series and the Trustee's certificate of
authentication shall be in substantially the forms set forth in this Article, or
in such other form or forms as shall be established by or pursuant to a Board
Resolution or in one or more indentures supplemental hereto, in each case with
such appropriate insertions, omissions, substitutions and other variations as
are required or permitted by this Indenture and may have such letters, numbers
or other marks of identification and such legends or endorsements placed thereon
as may be required to comply with applicable tax laws or the rules of any
securities exchange or as may, consistently herewith, be determined by the
officers executing such securities, as evidenced by their execution of the
Securities. If the form of Securities of any series is established by action
taken pursuant to a Board Resolution, a copy of an appropriate record of such
action shall be certified by the Secretary or an Assistant Secretary of the
Company and delivered to the Trustee at or prior to the delivery of the Company
Order contemplated by Section 303 with respect to the authentication and
delivery of such Securities.
The Trustee's certificates of authentication shall be substantially in
the form set forth in this Article.
The definitive Securities shall be printed, lithographed or engraved
or produced by any combination of these methods, if required by any securities
exchange on which the Securities may be listed, on a steel engraved border or
steel engraved borders or may be produced in any other manner permitted by the
rules of any securities exchange on which the Securities may be listed, all as
determined by the officers executing such Securities, as evidenced by their
execution of such securities.
SECTION 202. Form of Face of Security.
------------------------
[If the Security is a Global Security, insert -- This Security is a
Global Security within the meaning of the Indenture hereinafter referred to and
is registered in the
18
name of The Depository Trust Company (the "Depository") or a nominee of the
Depository. This Security is exchangeable for Securities registered in the name
of a person other than the Depository or its nominee only in the limited
circumstances described in the Indenture and no transfer of this Security (other
than a transfer of this Security as a whole by the Depository to a nominee of
the Depository or by a nominee of the Depository to the Depository or another
nominee of the Depository) may be registered except in limited circumstances.
Unless this Security is presented by an authorized representative of
The Depository Trust Company (55 Water Street, New York) to ITT Hartford Group,
Inc. or its agent for registration of transfer, exchange or payment, and any
Security issued is registered in the name of Cede & Co. or such other name as
requested by an authorized representative of The Depository Trust Company and
any payment hereon is made to Cede & Co., ANY TRANSFER, PLEDGE OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY A PERSON IS WRONGFUL inasmuch as the registered
owner hereof, Cede & Co., has an interest herein.]
If the Security is an Original Issue Discount Security, insert -- This
Security was issued with original issue discount for United States Federal
income tax purposes. For further information, please contact [name, title and
address or telephone number of a representative of the Company].
ITT HARTFORD GROUP, INC.
(Title of Security)
No. __________ $_____________
ITT HARTFORD GROUP, INC., a corporation organized and existing under
the laws of Delaware (hereinafter called the "Company", which term includes any
successor corporation under the Indenture hereinafter referred to), for value
received, hereby promises to pay to _______________, or registered assigns, the
principal sum of __________________ Dollars on ________________________,[;
provided that the Company may (i) change the maturity date upon the occurrence
-
of an exchange of the Securities for the Trust Securities subject to certain
conditions set forth in Section 314 of the Indenture, which changed maturity
date shall in no case be earlier than , or later than , and (ii) extend
--
the maturity date subject to certain conditions specified in Section 314 of the
Indenture, which extended maturity date
19
shall in no case be later than ,]. The Company further promises to pay interest
on said principal sum from ______, ___ or from the most recent interest payment
date (each such date, an "Interest Payment Date") on which interest has been
paid or duly provided for, [monthly] [quarterly] [semi-annually] [if applicable,
insert-(subject to deferral as set forth herein)] in arrears on [insert
applicable Interest Payment Dates] of each year, commencing ______, ___, at the
rate of ___% per annum, until the principal hereof shall have become due and
payable, [if applicable, insert- plus Additional Interest, if any,] until the
principal hereof is paid or duly provided for or made available for payment [if
applicable, insert- and on any overdue principal and (without duplication and to
the extent that payment of such interest is enforceable under applicable law) on
any overdue installment of interest at the rate of ___% per annum, compounded
[monthly] [quarterly] [annually]. The amount of interest payable for any period
will be computed on the basis of twelve 30-day months and a 360-day year. The
amount of interest payable for any partial period shall be computed on the basis
of the number of days elapsed in a 360-day year of twelve 30-day months. In the
event that any date on which interest is payable on this Security is not a
Business Day, then a payment of the interest payable on such date will be made
on the next succeeding day which is a Business Day (and without any interest or
other payment in respect of any such delay), except that, if such Business Day
is in the next succeeding calendar year, such payment shall be made on the
immediately preceding Business Day, in each case with the same force and effect
as if made on the date the payment was originally payable. A "Business Day"
-------- ---
shall mean any day other than a day on which banking institutions in the City of
New York are authorized or required by law or executive order to remain closed
or a day on which the Corporate Trust Office of the Trustee [if applicable,
insert-, or the principal office of the Property Trustee under the Trust
Agreement hereinafter referred to for Hartford Capital __,] is closed for
business. The interest installment so payable, and punctually paid or duly
provided for, on any Interest Payment Date will, as provided in the Indenture,
be paid to the Person in whose name this Security (or one or more Predecessor
Securities, as defined in the Indenture) is registered at the close of business
on the Regular Record Date for such interest installment, which shall be the
[[insert Regular Record Dates] (whether or not a Business Day)] [close of
business on the Business Day] next preceding such Interest Payment Date. Any
such interest installment not so punctually paid or duly provided for shall
forthwith cease to be payable to the Holder on
20
such Regular Record Date and may either be paid to the Person in whose name this
Security (or one or more Predecessor Securities) is registered at the close of
business on a Special Record Date for the payment of such Defaulted Interest to
be fixed by the Trustee, notice whereof shall be given to Holders of Securities
of this series not less than 10 days prior to such Special Record Date, or be
paid at any time in any other lawful manner not inconsistent with the
requirements of any securities exchange on which the Securities of this series
may be listed, and upon such notice as may be required by such exchange, all as
more fully provided in said Indenture.
[If applicable, insert- The Company shall have the right at any time
during the term of this Security, from time to time, to extend the interest
payment period of such Security for up to __ consecutive [months] [quarters]
with respect to each deferral period (each an "Extension Period"), during which
----------------
periods the Company shall have the right to make partial payments of interest on
any Interest Payment Date, and at the end of which the Company shall pay all
interest then accrued and unpaid (together with Additional Interest thereon to
the extent permitted by applicable law); provided that during any such
--------
Extension Period, the Company will not, and will not permit any Subsidiary of
the Company to (i) declare or pay any dividends or distributions or redeem,
-
purchase, acquire or make a liquidation payment with respect to, any of the
Company's outstanding capital stock or (ii) make any payment of principal,
--
interest or premium, if any, on or repay, repurchase or redeem any debt security
that ranks pari passu with or junior in interest to this Security or make any
---- -----
guarantee payments with respect to the foregoing (other than (a) dividends or
-
distributions in common stock of the Company, (b) redemptions or purchases of
-
any rights pursuant to the Company's Rights Plan, or any successor to such
Rights Plan, and the declaration of a dividend of such rights in the future, and
(c) payments under any Hartford Guarantee (as defined in the Indenture)). Prior
-
to the termination of any such Extension Period, the Company may further extend
the interest payment period, provided that such Extension Period together with
--------
all such previous and further extensions of such Extension Period, shall not
exceed __ consecutive [months] [quarters] or extend beyond the Maturity of this
Security. Upon the termination of any such Extension Period and upon the payment
of all accrued and unpaid interest and any Additional Interest then due, the
Company may select a new Extension Period, subject to the above requirements. No
interest shall be due and
21
payable during an Extension Period except at the end thereof. The Company shall
give the Holder of this Security and the Trustee notice of its selection of an
Extension Period at least one Business Day prior to the Interest Payment Date
[if applicable, insert- the earlier of (i) the date the Distributions on the
-
Preferred Securities are payable or (ii) the date the Administrative Trustees
--
are required to give notice to the New York Stock Exchange or other applicable
self-regulatory organization or to holders of such Preferred Securities of the
record date or the date such Distributions are payable, but in any event not
less than one Business Day prior to such record date.
Payment of the principal of (and premium, if any) and interest on this
Security will be made at the office or agency of the Company maintained for that
purpose in the United States, in such coin or currency of the United States of
America as at the time of payment is legal tender for payment of public and
private debts [if applicable, insert-; provided, however, that at the option of
-------- -------
the Company payment of interest may be made (i) by check mailed to the address
-
of the Person entitled thereto as such address shall appear in the Securities
Register or (ii) by wire transfer in immediately available funds at such place
--
and to such account as may be designated by the Person entitled thereto as
specified in the Securities Register].
The indebtedness evidenced by this Security is, to the extent provided
in the Indenture, subordinate and subject in right of payments to the prior
payment in full of all Senior Debt, and this Security is issued subject to the
provisions of the Indenture with respect thereto. Each Holder of this Security,
by accepting the same, (a) agrees to and shall be bound by such provisions, (b)
- -
authorizes and directs the Trustee on his behalf to take such actions as may be
necessary or appropriate to effectuate the subordination so provided and (c)
-
appoints the Trustee his attorney-in-fact for any and all such purposes. Each
Holder hereof, by his acceptance hereof, waives all notice of the acceptance of
the subordination provisions contained herein and in the Indenture by each
holder of Senior Debt, whether now outstanding or hereafter incurred, and waives
reliance by each such holder upon said provisions.
Reference is hereby made to the further provisions of this Security
set forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
22
Unless the certificate of authentication hereon has been executed by
the Trustee referred to on the reverse hereof by manual signature, this Security
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.
Dated:
ITT HARTFORD GROUP, INC.
By:__________________________
[Chairman and Chief Executive
Officer, President or Vice President]
Attest:
- ----------------------------------
[Secretary or Assistant Secretary]
23
SECTION 203. Form of Reverse of Security.
---------------------------
This Security is one of a duly authorized issue of securities of the
Company, (herein called the "Securities"), issued and to be issued in one or
----------
more series under a Junior Subordinated Indenture, dated as of October 30, 1996
(herein called the "Indenture"), between the Company and Wilmington Trust
---------
Company, as Trustee (herein called the "Trustee", which term includes any
-------
successor trustee under the Indenture), to which Indenture and all indentures
supplemental thereto reference is hereby made for a statement of the respective
rights, limitations of rights, duties and immunities thereunder of the Trustee,
the Company and the Holders of the Securities, and of the terms upon which the
Securities are, and are to be, authenticated and delivered. This Security is one
of the series designated on the face hereof[, limited in aggregate principal
amount to $___________].
All terms used in this Security that are defined in the Indenture [if
applicable, insert- or in the Trust Agreement, dated _________, 1996, as amended
(the "Trust Agreement"), among ITT Hartford Group, Inc. as Depositor, and the
Trustees named therein, for Hartford Capital __,] shall have the meanings
assigned to them in the Indenture [if applicable, insert- or the Trust
Agreement, as the case may be].
[If applicable, insert- The Company may, at its option, subject to the
terms and conditions of Article Eleven of the Indenture, redeem this Security on
any Interest Payment date with respect thereto in whole at any time or in part
from time to time, without premium or penalty, at a redemption price equal to
the accrued and unpaid interest [if applicable, insert-, including Additional
Interest, if any,] to the date fixed for redemption, plus the greater of (a) the
-
principal amount thereof and (b) an amount equal to [for Securities bearing
-
interest at a fixed rate: the Discounted Remaining Fixed Amount Payments] [for
Securities bearing interest determined by a floating rate: the Discounted Swap
Equivalent Payments].
[If applicable, insert- If a Special Event in respect of a Hartford Trust
shall occur and be continuing, the Company may, at its option, redeem the
corresponding series of Securities on any Interest Payment Date falling within
90 days of the occurrence of such Special Event, in
24
whole but not in part, subject to the provisions of Section 1107 and the other
provisions of Article Eleven of the Indenture. The redemption price for any
Security so redeemed shall be equal to 100% of the principal amount thereof plus
accrued and unpaid interest, including Additional Interest, if any, to the date
fixed for redemption.]
In the event of redemption of this Security in part only, a new Security
or Securities of this series for the unredeemed portion hereof will be issued in
the name of the Holder hereof upon the cancellation hereof.
[If the Security is not an Original Issue Discount Security, - If an
Event of Default with respect to Securities of this series shall occur and be
continuing, the principal of the Securities of this series may be declared due
and payable in the manner, with the effect and subject to the conditions
provided in the Indenture.]
[If the Security is an Original Issue Discount Security, - If an Event of
Default with respect to Securities of this series shall occur and be continuing,
an amount of principal of the Securities of this series may be declared due and
payable in the manner, with the effect and subject to the conditions provided in
the Indenture. Such amounts shall be equal to - insert formula for determining
the amount. Upon payment (i) of the amount of principal so declared due and
-
payable and (ii) of interest on any overdue principal and overdue interest (in
--
each case to the extent that the payment of such interest shall be legally
enforceable), all of the Company's obligations in respect of the payment of the
principal of and interest, if any, on the Securities of this series shall
terminate.]
The Indenture contains provisions for satisfaction, discharge and
defeasance at any time of the entire indebtedness of this Security upon
compliance by the Company with certain conditions set forth in the Indenture.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Securities of each series to be
affected under the Indenture at any time by the Company and the Trustee with the
consent of the Holders of a majority in principal amount of the Securities of
each series at the time Outstanding of each series to be affected. The Indenture
also contains provisions permitting Holders of
25
specified percentages in principal amount of the Securities of each series at
the time Outstanding, on behalf of the Holders of all Securities of such series,
to waive compliance by the Company with certain provisions of the Indenture and
certain past defaults under the Indenture and their consequences. Any such
consent or waiver by the Holder of this Security shall be conclusive and binding
upon such Holder and upon all future Holders of this Security and of any
Security issued upon the registration of transfer hereof or in exchange herefor
or in lieu hereof, whether or not notation of such consent or waiver is made
upon this Security.
No reference herein to the Indenture and no provision of this Security or
of the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of (and premium, if any) and
interest on this Security at the times, place and rate, and in the coin or
currency, herein prescribed.
As provided in the Indenture and subject to certain limitations therein
set forth, the transfer of this Security is registrable in the Securities
Register, upon surrender of this Security for registration of transfer at the
office or agency of the Company maintained under Section 1002 of the Indenture
duly endorsed by, or accompanied by a written instrument of transfer in form
satisfactory to the Company and the Securities Registrar duly executed by, the
Holder hereof or his attorney duly authorized in writing, and thereupon one or
more new Securities of this series, of authorized denominations and for the same
aggregate principal amount, will be issued to the designated transferee or
transferees. No service charge shall be made for any such registration of
transfer or exchange, but the Company may require payment of a sum sufficient to
cover any tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Security for registration of transfer,
the Company, the Trustee and any agent of the Company or the Trustee may treat
the Person in whose name this Security is registered as the owner hereof for all
purposes, whether or not this Security be overdue, and neither the Company, the
Trustee nor any such agent shall be affected by notice to the contrary.
The Securities of this series are issuable only in registered form
without coupons in denominations of $____ and any integral multiple thereof. As
provided in the
26
Indenture and subject to certain limitations therein set forth, Securities of
this series are exchangeable for a like aggregate principal amount of Securities
of such series of a different authorized denomination, as requested by the
Holder surrendering the same.
[If applicable, insert- The Company and, by its acceptance of this
Security or a beneficial interest therein, the Holder of, and any Person that
acquires a beneficial interest in, this Security agree that for United States
Federal, state and local tax purposes it is intended that this Security
constitute indebtedness.]
THE INDENTURE AND THIS SECURITY SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICTS OF
LAWS PRINCIPLES THEREOF.
SECTION 204. Additional Provisions Required in Global Security.
-------------------------------------------------
Any Global Security issued hereunder shall, in addition to the provisions
contained in Sections 202 and 203 bear a legend in substantially the following
form:
"This Security is a Global Security within the meaning of the Indenture
hereinafter referred to and is registered in the name of a Depositary or a
nominee of a Depositary. This Security is exchangeable for Securities registered
in the name of a person other than the Depositary or its nominee only in the
limited circumstances described in the Indenture and may not be transferred
except as a whole by the Depositary to a nominee of the Depositary or by a
nominee of the Depositary to the Depositary or another nominee of the
Depositary."
SECTION 205. Form of Trustee's Certificate of Authentication.
-----------------------------------------------
This is one of the Securities referred to in the within mentioned
Indenture.
-------------------------
as Trustee
By: ____________________
Authorized Officer
27
ARTICLE THREE
THE SECURITIES
--------------
SECTION 301. Title and Terms.
---------------
The aggregate principal amount of Securities which may be authenticated
and delivered under this Indenture is unlimited.
The Securities may be issued in one or more series. There shall be
established in or pursuant to a Board Resolution, and set forth in an Officers'
Certificate, or established in one or more indentures supplemental hereto, prior
to the issuance of Securities of a series:
(a) the title of the Securities of such series, which shall distinguish the
Securities of the series from all other Securities;
(b) the limit, if any, upon the aggregate principal amount of the Securities
of such series which may be authenticated and delivered under this Indenture
(except for Securities authenticated and delivered upon registration of transfer
of, or in exchange for, or in lieu of, other Securities of the series pursuant
to Section 304, 305, 306, 906 or 1106); provided, however, that the authorized
-------- -------
aggregate principal amount of such series may be increased above such amount by
a Board Resolution to such effect;
(c) the Stated Maturity or Maturities on which the principal of the
Securities of such series is payable or the method of determination thereof;
(d) the rate or rates, if any, at which the Securities of such series shall
bear interest, if any, the rate or rates and extent to which Additional
Interest, if any, shall be payable in respect of any Securities of such series,
the Interest Payment Dates on which such interest shall be payable, the right,
pursuant to Section 311 or as otherwise set forth therein, of the Company to
defer or extend an Interest Payment Date, and the Regular Record Date for the
interest payable on any Interest Payment Date or the method by which any of the
foregoing shall be determined;
(e) the place or places where the principal of (and premium, if any) and
interest on the Securities of
28
such series shall be payable, the place or places where the Securities of such
series may be presented for registration of transfer or exchange, and the place
or places where notices and demands to or upon the Company in respect of the
Securities of such series may be made;
(f) the period or periods within or the date or dates on which, if any, the
price or prices at which and the terms and conditions upon which the Securities
of such series may be redeemed, in whole or in part, at the option of the
Company;
(g) the obligation or the right, if any, of the Company to redeem, repay or
purchase the Securities of such series pursuant to any sinking fund,
amortization or analogous provisions or at the option of a Holder thereof and
the period or periods within which, the price or prices at which, the currency
or currencies (including currency unit or units) in which and the other terms
and conditions upon which Securities of the series shall be redeemed, repaid or
purchased, in whole or in part, pursuant to such obligation;
(h) the denominations in which any Securities of such series shall be
issuable, if other than denominations of $25 and any integral multiple thereof;
(i) if other than Dollars, the currency or currencies (including currency unit
or units) in which the principal of (and premium, if any) and interest, if any,
on the Securities of the series shall be payable, or in which the Securities of
the series shall be denominated;
(j) the additions, modifications or deletions, if any, in the Events of
Default or covenants of the Company set forth herein with respect to the
Securities of such series;
(k) if other than the principal amount thereof, the portion of the principal
amount of Securities of such series that shall be payable upon declaration of
acceleration of the Maturity thereof;
(l) the additions or changes, if any, to this Indenture with respect to the
Securities of such series as shall be necessary to permit or facilitate the
issuance of the Securities of such series in bearer
29
form, registrable or not registrable as to principal, and with or without
interest coupons;
(m) any index or indices used to determine the amount of payments of principal
of and premium, if any, on the Securities of such series or the manner in which
such amounts will be determined;
(n) the issuance of a temporary Global Security representing all of the
Securities of such series and exchange of such temporary Global Security for
definitive Securities of such series;
(o) whether the Securities of the series shall be issued in whole or in part
in the form of one or more Global Securities and, in such case, the Depositary
for such Global Securities, which Depositary shall be a clearing agency
registered under the Securities Exchange Act of 1934, as amended;
(p) the appointment of any Paying Agent or Agents for the Securities of such
series;
(q) the terms of any right to convert or exchange Securities of such series
into any other securities or property of the Company, and the additions or
changes, if any, to this Indenture with respect to the Securities of such series
to permit or facilitate such conversion or exchange;
(r) the form or forms of the Trust Agreement, Amended and Restated Trust
Agreement and Guarantee Agreement, if different from the forms attached hereto
as Annexes A, B and C, respectively;
(s) the relative degree, if any, to which the Securities of the series shall
be senior to or be subordinated to other series of Securities in right of
payment, whether such other series of Securities are Outstanding or not; and
(t) any other terms of the Securities of such series (which terms shall not be
inconsistent with the provisions of this Indenture).
All Securities of any one series shall be substantially identical except
as to denomination and except as may otherwise be provided herein or in or
pursuant to such Board
30
Resolution and set forth in such Officers' Certificate or in any such indenture
supplemental hereto.
If any of the terms of the series are established by action taken
pursuant to a Board Resolution, a copy of an appropriate record of such action
shall be certified by the Secretary or an Assistant Secretary of the Company and
delivered to the Trustee at or prior to the delivery of the Officers'
Certificate setting forth the terms of the series.
SECTION 302. Denominations.
-------------
The Securities of each series shall be in registered form without coupons
and shall be issuable in denominations of $25 and any integral multiple thereof,
unless otherwise specified as contemplated by Section 301.
SECTION 303. Execution, Authentication, Delivery and Dating.
----------------------------------------------
The Securities shall be executed on behalf of the Company by its
President or one of its Vice Presidents under its corporate seal reproduced or
impressed thereon and attested by its Secretary or one of its Assistant
Secretaries. The signature of any of these officers on the Securities may be
manual or facsimile.
Securities bearing the manual or facsimile signatures of individuals who
were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Securities or did not
hold such offices at the date of such Securities. At any time and from time to
time after the execution and delivery of this Indenture, the Company may deliver
Securities executed by the Company to the Trustee for authentication. Securities
may be authenticated on original issuance from time to time and delivered
pursuant to such procedures acceptable to the Trustee ("Procedures") as may be
specified from time to time by Company Order. Procedures may authorize
authentication and delivery pursuant to oral instructions of the Company or a
duly authorized agent, which instructions shall be promptly confirmed in
writing.
Prior to the delivery of a Security in any such form to the Trustee for
authentication, the Company shall deliver to the Trustee the following:
31
(a) A Company Order requesting the Trustee's authentication and delivery of
all or a portion of the Securities of such series, and if less than all, setting
forth procedures for such authentication;
(b) The Board Resolution by or pursuant to which such form of Security has
been approved, and the Board Resolution, if any, by or pursuant to which the
terms of the Securities of such series have been approved, and, if pursuant to a
Board Resolution, an Officers' Certificate describing the action taken;
(c) An Officers' Certificate dated the date such certificate is delivered to
the Trustee, stating that all conditions precedent provided for in this
Indenture relating to the authentication and delivery of Securities in such form
and with such terms have been complied with; and
(d) An Opinion of Counsel stating that (i) the form of such Securities has
-
been duly authorized and approved in conformity with the provisions of this
Indenture; (ii) the terms of such Securities have been duly authorized and
--
determined in conformity with the provisions of this Indenture, or, if such
terms are to be determined pursuant to Procedures, when so determined such terms
shall have been duly authorized and determined in conformity with the provisions
of this Indenture; and (iii) Securities in such form when completed
---
by appropriate insertions and executed and delivered by the Company to the
Trustee for authentication in accordance with this Indenture, authenticated and
delivered by the Trustee in accordance with this Indenture within the
authorization as to aggregate principal amount established from time to time by
the Board of Directors and sold in the manner specified in such opinion of
Counsel, will be the legal, valid and binding obligations of the Company
entitled to the benefits of this Indenture, subject to applicable bankruptcy,
reorganization, insolvency and similar laws generally affecting creditors'
rights, to general equitable principles except as enforcement thereof may be
limited by (A) requirements that a claim with respect to any Securities
-
denominated other than in Dollars (or a Foreign Currency or currency unit
judgment in respect of such claim) be converted into Dollars at a rate of
exchange prevailing on a date determined pursuant to applicable law or (B)
governmental authority to limit, delay or prohibit -
32
the making of payments in Foreign Currencies or currency units or payments
outside the United States and subject to such other qualifications as such
counsel shall conclude do not materially affect the rights of Holders of such
Securities;
provided, however, that the Trustee shall be entitled to receive the documents
- -------- -------
referred to in Clauses (b), (c) and (d) above only at or prior to the first
- - -
request of the Company to the Trustee to authenticate Securities of such series.
Each Security shall be dated the date of its authentication.
No Security shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose, unless there appears on such Security a
certificate of authentication substantially in the form provided for herein
executed by the Trustee by the manual signature of one of its authorized
officers, and such certificate upon any Security shall be conclusive evidence,
and the only evidence, that such Security has been duly authenticated and
delivered hereunder.
SECTION 304. Temporary Securities.
--------------------
Pending the preparation of definitive Securities of any series, the
Company may execute, and upon Company Order the Trustee shall authenticate and
deliver, temporary Securities which are printed, lithographed, typewritten,
mimeographed or otherwise produced, in any denomination, substantially of the
tenor of the definitive Securities of such series in lieu of which they are
issued and with such appropriate insertions, omissions, substitutions and other
variations as the officers executing such Securities may determine, as evidenced
by their execution of such Securities.
If temporary Securities of any series are issued, the Company will cause
definitive Securities of such series to be prepared without unreasonable delay.
After the preparation of definitive Securities, the temporary Securities shall
be exchangeable for definitive Securities upon surrender of the temporary
Securities at the office or agency of the Company designated for that purpose
without charge to the Holder. Upon surrender for cancellation of any one or more
temporary Securities, the Company shall execute and the Trustee shall
authenticate and deliver in
33
exchange therefor a like principal amount of definitive Securities of the same
series of authorized denominations having the same Original Issue Date and
Stated Maturity and having the same terms as such temporary Securities. Until so
exchanged, the temporary Securities shall in all respects be entitled to the
same benefits under this Indenture as definitive Securities.
SECTION 305. Registration, Transfer and Exchange.
-----------------------------------
The Company shall cause to be kept at the Corporate Trust Office of the
Trustee a register in which, subject to such reasonable regulations as it may
prescribe, the Company shall provide for the registration of Securities and of
transfers of Securities. Such register is herein sometimes referred to as the
"Securities Register." The Trustee is hereby appointed "Securities Registrar"
for the purpose of registering Securities and transfers of Securities as herein
provided.
Upon surrender for registration of transfer of any Security at the office
or agency of the Company designated for that purpose the Company shall execute,
and the Trustee shall authenticate and deliver, in the name of the designated
transferee or transferees, one or more new Securities of the same series of any
authorized denominations, of a like aggregate principal amount, of the same
original Issue Date and Stated Maturity and having the same terms.
At the option of the Holder, Securities may be exchanged for other
Securities of the same series of any authorized denominations, of a like
aggregate principal amount, of the same Original Issue Date and Stated Maturity
and having the same terms, upon surrender of the Securities to be exchanged at
such office or agency. Whenever any securities are so surrendered for exchange,
the Company shall execute, and the Trustee shall authenticate and deliver, the
Securities which the Holder making the exchange is entitled to receive.
All Securities issued upon any transfer or exchange of Securities shall
be the valid obligations of the Company, evidencing the same debt, and entitled
to the same benefits under this Indenture, as the Securities surrendered upon
such transfer or exchange.
Every Security presented or surrendered for transfer or exchange shall
(if so required by the Company or
34
the Securities Registrar) be duly endorsed, or be accompanied by a written
instrument of transfer in form satisfactory to the Company and the Securities
Registrar, duly executed by the Holder thereof or his attorney duly authorized
in writing.
No service charge shall be made to a Holder for any transfer or exchange
of Securities, but the Company may require payment of a sum sufficient to cover
any tax or other governmental charge that may be imposed in connection with any
transfer or exchange of Securities.
Notwithstanding any of the foregoing, any Global Security of a series
shall be exchangeable pursuant to this Section 305 for Securities registered in
the names of Persons other than the Depositary for such Security or its nominee
only if (i) such Depositary notifies the Company that it is unwilling or unable
-
to continue as Depositary for such Global Security or if at any time such
Depositary ceases to be a clearing agency registered under the Securities
Exchange Act of 1934, as amended, (ii) the Company executes and delivers to the
--
Trustee a Company Order that such Global Security shall be so exchangeable or
(iii) there shall have occurred and be continuing an Event of Default with
- ----
respect to the Securities of such series. Any Global Security that is
exchangeable pursuant to the preceding sentence shall be exchangeable for
Securities registered in such names as such Depositary shall direct.
Notwithstanding any other provision in this Indenture, a Global Security
may not be transferred except as a whole by the Depositary with respect to such
Global Security to a nominee of such Depositary or by a nominee of such
Depositary to such Depositary or another nominee of such Depositary.
Neither the Company nor the Trustee shall be required, pursuant to the
provisions of this Section, (a) to issue, transfer or exchange any Security of
-
any series during a period beginning at the opening of business 15 days before
the day of selection for redemption of Securities pursuant to Article Eleven and
ending at the close of business on the day of mailing of notice of redemption or
(b) to transfer or exchange any Security so selected for redemption in whole
-
or in part, except, in the case of any Security to be redeemed in part, any
portion thereof not to be redeemed.
35
SECTION 306. Mutilated, Destroyed, Lost and Stolen Securities.
------------------------------------------------
If any mutilated Security is surrendered to the Trustee together with
such security or indemnity as may be required by the Company or the Trustee to
save each of them harmless, the Company shall execute and the Trustee shall
authenticate and deliver in exchange therefor a new Security of the same issue
and series of like tenor and principal amount, having the same Original Issue
Date and Stated Maturity and bearing the same Interest Rate as such mutilated
Security, and bearing a number not contemporaneously outstanding.
If there shall be delivered to the Company and to the Trustee (i)
-
evidence to their satisfaction of the destruction, loss or theft of any
Security, and (ii) such security or indemnity as may be required by them to save
--
each of them harmless, then, in the absence of notice to the Company or the
Trustee that such Security has been acquired by a bona fide purchaser, the
issuing Company shall execute and upon its request the Trustee shall
authenticate and deliver, in lieu of any such destroyed, lost or stolen
Security, a new Security of the same issue and series of like tenor and
principal amount, having the same Original Issue Date and Stated Maturity and
bearing the same Interest Rate as such destroyed, lost or stolen Security, and
bearing a number not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Security has become
or is about to become due and payable, the Company in its discretion may,
instead of issuing a new Security, pay such Security.
Upon the issuance of any new Security under this Section, the Company may
require the payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto and any other expenses (including
the fees and expenses of the Trustee) connected therewith.
Every new Security issued pursuant to this Section in lieu of any
destroyed, lost or stolen Security shall constitute an original additional
contractual obligation of the Company, whether or not the destroyed, lost or
stolen Security shall be at any time enforceable by anyone, and shall be
entitled to all the benefits of this Indenture equally and proportionately with
any and all other Securities duly issued hereunder.
36
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities.
SECTION 307. Payment of Interest; Interest Rights Preserved.
----------------------------------------------
Interest on any Security of any series which is payable, and is
punctually paid or duly provided for, on any Interest Payment Date, shall be
paid to the Person in whose name that Security (or one or more Predecessor
Securities) is registered at the close of business on the Regular Record Date
for such interest in respect of Securities of such series, except that, unless
otherwise provided in the Securities of such series, interest payable on the
Stated Maturity of a Security shall be paid to the Person to whom principal is
paid. The initial payment of interest on any Security of any series which is
issued between a Regular Record Date and the related Interest Payment Date shall
be payable as provided in such Security or in the Board Resolution pursuant to
Section 301 with respect to the related series of Securities.
Any interest on any Security which is payable, but is not timely paid or
duly provided for, on any Interest Payment Date for Securities of such series
(herein called "Defaulted Interest"), shall forthwith cease to be payable to the
registered Holder on the relevant Regular Record Date by virtue of having been
such Holder, and such Defaulted Interest may be paid by the Company, at its
election in each case, as provided in Clause (1) or (2) below:
(1) The Company may elect to make payment of any Defaulted Interest to the
Persons in whose names the Securities of such series in respect of which
interest is in default (or their respective Predecessor Securities) are
registered at the close of business on a Special Record Date for the payment of
such Defaulted Interest, which shall be fixed in the following manner. The
Company shall notify the Trustee in writing of the amount of Defaulted Interest
proposed to be paid on each Security and the date of the proposed payment, and
at the same time the Company shall deposit with the Trustee an amount of money
equal to the aggregate amount proposed to be paid in respect of such Defaulted
Interest or shall make arrangements satisfactory to the Trustee for such deposit
prior to the date of the proposed payment, such money when deposited to be held
37
in trust for the benefit of the Persons entitled to such Defaulted Interest as
in this Clause provided. Thereupon the Trustee shall fix a Special Record Date
for the payment of such Defaulted Interest which shall be not more than 15 days
and not less than 10 days prior to the date of the proposed payment and not less
than 10 days after the receipt by the Trustee of the notice of the proposed
payment. The Trustee shall promptly notify the Company of such Special Record
Date and, in the name and at the expense of the Company, shall cause notice of
the proposed payment of such Defaulted Interest and the Special Record Date
therefor to be mailed, first class, postage prepaid, to each Holder of a
Security of such series at the address of such Holder as it appears in the
Securities Register not less than 10 days prior to such Special Record Date. The
Trustee may, in its discretion, in the name and at the expense of the Company,
cause a similar notice to be published at least once in a newspaper, customarily
published in the English language on each Business Day and of general
circulation in the Borough of Manhattan, The City of New York, but such
publication shall not be a condition precedent to the establishment of such
Special Record Date. Notice of the proposed payment of such Defaulted Interest
and the Special Record Date therefor having been mailed as aforesaid, such
Defaulted Interest shall be paid to the Persons in whose names the Securities of
such series (or their respective Predecessor Securities) are registered on such
Special Record Date and shall no longer be payable pursuant to the following
Clause (2).
(2) The Company may make payment of any Defaulted Interest in any other lawful
manner not inconsistent with the requirements of any securities exchange on
which the Securities of the series in respect of which interest is in default
may be listed and, upon such notice as may be required by such exchange (or by
the Trustee if the Securities are not listed), if, after notice given by the
Company to the Trustee of the proposed payment pursuant to this Clause, such
payment shall be deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section, each Security
delivered under this Indenture upon transfer of or in exchange for or in lieu of
any other Security shall carry the rights to interest accrued and unpaid, and to
accrue, which were carried by such other Security.
38
SECTION 308. Persons Deemed Owners.
---------------------
The Company, the Trustee and any agent of the Company or the Trustee may
treat the Person in whose name any Security is registered as the owner of such
Security for the purpose of receiving payment of principal of and (subject to
Section 307) interest on such Security and for all other purposes whatsoever,
whether or not such Security be overdue, and neither the Company, the Trustee
nor any agent of the Company or the Trustee shall be affected by notice to the
contrary.
SECTION 309. Cancellation.
------------
All Securities surrendered for payment, redemption, transfer or exchange
shall, if surrendered to any Person other than the Trustee, be delivered to the
Trustee, and any such Securities and Securities surrendered directly to the
Trustee for any such purpose shall be promptly canceled by it. The Company may
at any time deliver to the Trustee for cancellation any Securities previously
authenticated and delivered hereunder which the Company may have acquired in any
manner whatsoever, and all Securities so delivered shall be promptly canceled by
the Trustee. No Securities shall be authenticated in lieu of or in exchange for
any Securities canceled as provided in this Section, except as expressly
permitted by this Indenture. All canceled Securities shall be destroyed by the
Trustee and the Trustee shall deliver to the Company a certificate of such
destruction.
SECTION 310. Computation of Interest.
-----------------------
Except as otherwise specified as contemplated by Section 301 for
Securities of any series, interest on the Securities of each series shall be
computed on the basis of a 360-day year of twelve 30-day months and interest on
the Securities of each series for any partial period shall be computed on the
basis of the number of days elapsed in a 360-day year of twelve 30-day months.
SECTION 311. Deferrals of Interest Payment Dates.
-----------------------------------
If specified as contemplated by Section 301 with respect to the
Securities of a particular series, the Company shall have the right, at any time
during the term of such series, from time to time to extend the interest
39
payment period for such Securities for such period or periods as may be
specified as contemplated by Section 301 (each, an "Extension Period") during
----------------
which periods the Company shall have the right to make partial payments of
interest on any Interest Payment Date, and at the end of such Extension Period
the Company shall pay all interest then accrued and unpaid thereon (together
with Additional Interest thereon, if any, at the rate specified for the
Securities of such series to the extent permitted by applicable law), provided,
--------
however, that during any such Extension Period, the Company shall not, and
- -------
shall cause any Subsidiary not to, (i) declare or pay any dividends or
-
distributions on, or redeem, purchase, acquire or make a liquidation payment
with respect to, any of the Company's capital stock, or (ii) make any payment of
--
principal, interest or premium, if any, on or repay, repurchase or redeem any
debt securities that rank pari passu with or junior in interest to the
---- -----
Securities of such series or make any guarantee payments with respect to the
foregoing (other than (a) dividends or distributions in common stock of the
-
Company (b) redemptions or purchases of any rights pursuant to the Company's
-
Rights Plan, or any successor to such Rights Plan, and the declaration of a
dividend of such rights in the future, and (c) payments under any Hartford
-
Guarantee). Prior to the termination of any such Extension Period, the Company
may further extend the interest payment period, provided that such Extension
--------
Period together with all such previous and further extensions of such Extension
Period shall not exceed the period or periods so specified or extend beyond the
Maturity of such Securities. Upon termination of any Extension Period and upon
the payment of all accrued and unpaid interest and any Additional Interest then
due, the Company may select a new Extension Period, subject to the above
requirements. No interest shall be due and payable during an Extension Period,
except at the end thereof. The Company shall give the Holders of the Securities
of such series and the Trustee notice of its selection of such Extension Period
at least one Business Day prior to the Interest Payment Date or, with respect to
the Securities of a series issued to a Hartford Trust, prior to the earlier of
(i) the date the Distributions on the Preferred Securities of such Hartford
-
Trust are payable or (ii) the date the Administrative Trustees of such Hartford
--
Trust are required to give notice to the New York Stock Exchange or other
applicable self-regulatory organization or to holders of such Preferred
Securities of the record date or the date such Distributions are payable, but in
any event not less than one Business Day prior to such record date.
40
The Trustee shall promptly give notice of the Company's selection of such
Extension Period to the Holders of the outstanding Securities of such series.
SECTION 312. Right of Set-Off.
----------------
With respect to the Securities of a series issued to a Hartford Trust,
notwithstanding anything to the contrary in the Indenture, the Company shall
have the right to set-off any payment it is otherwise required to make
thereunder in respect of any such Security to the extent the Company has
theretofore made, or is concurrently on the date of such payment making, a
payment under the Hartford Guarantee relating to such Security or a payment to
any holder of a corresponding series of Preferred Securities in connection with
a suit instituted pursuant to Section 508.
SECTION 313. Agreed Tax Treatment.
--------------------
Each Security issued hereunder shall provide that the Company and, by its
acceptance of a Security or a beneficial interest therein, the Holder of, and
any Person that acquires a beneficial interest in, such Security agree that for
United States Federal, state and local tax purposes it is intended that such
Security constitute indebtedness.
SECTION 314. Extension of Stated Maturity; Adjustment of Stated
--------------------------------------------------
Maturity Upon an Exchange.
-------------------------
If specified as contemplated by Section 202 with respect to the
Securities of a particular series, the Company shall have the right to (a)
-
change the Maturity Date of the Securities of such series upon the liquidation
of a Hartford Trust and the exchange of such Securities for the Preferred
Securities of such Hartford Trust and (b) extend the Stated Maturity for the
-
Securities of such series; provided, that at the time any election to extend the
Maturity Date is made and at the time of such extension, (i) the Company is not
-
in bankruptcy, otherwise insolvent or in liquidation, (ii) the Company is not in
--
default in the payment of any interest or principal on the Securities of such
series and no deferred interest payments thereon have accrued, (iii) the
---
applicable Hartford Trust is not in arrears on payments of Distributions on its
Preferred Securities and no deferred Distributions thereon are accumulated, (iv)
--
the Securities are rated not less than BBB- by Standard & Poor's Ratings
Services or Baa3 by Moody's Investors Service, Inc. or the equivalent by any
other
41
nationally recognized statistical rating organization and (v) the extended
-
Stated Maturity is no later than the 49th anniversary of the initial issuance
of the Preferred Securities of the applicable Hartford Trust; provided, further,
that, if the Company exercises its right to liquidate the Hartford Trust and
exchange the Securities of such series for the Preferred Securities of such
Hartford Trust as specified in clause (a) above, any changed Stated Maturity of
-
the Securities of such series shall be no earlier than the date that is five
years after the issuance of the Preferred Securities and no later than the date
30 years (plus an extended term of up to an additional 19 years if the
above-referenced conditions are satisfied) after the date of the initial
issuance of the Preferred Securities of the applicable Hartford Trust.
SECTION 315. CUSIP Numbers.
--------------
The Company in issuing the Securities may use "CUSIP" numbers (if then
generally in use), and, if so, the Trustee shall use "CUSIP" numbers in notices
of redemption as a convenience to Holders; provided that any such notice may
state that no representation is made as to the correctness of such numbers
either as printed on the Securities or as contained in any notice of a
redemption and that reliance may be placed only on the other identification
numbers printed on the Securities, and any such redemption shall not be affected
by any defect in or omission of such numbers.
ARTICLE FOUR
SATISFACTION AND DISCHARGE
--------------------------
SECTION 401. Satisfaction and Discharge of Indenture.
---------------------------------------
This Indenture shall cease to be of further effect (except as to (i) any
-
surviving rights of transfer, substitution and exchange of Securities, (ii)
--
rights hereunder of Holders to receive payments of principal of (and premium, if
any) and interest on the Securities and other rights, duties and obligations of
the Holders as beneficiaries hereof with respect to the amounts, if any, so
deposited with the Trustee and (iii) the rights and obligations of the Trustee
---
hereunder), and the Trustee, on demand of and at the expense of the Company,
shall execute proper instruments acknowledging satisfaction and discharge of
this Indenture, when
42
(1) either
(A) all Securities theretofore authenticated and delivered (other than (i)
-
Securities which have been destroyed, lost or stolen and which have been
replaced or paid as provided in Section 306 and (ii) Securities for whose
--
payment money has theretofore been deposited in trust or segregated and held in
trust by the Company and thereafter repaid to the Company or discharged from
such trust, as provided in Section 1003) have been delivered to the Trustee for
cancellation; or
(B) all such Securities not theretofore delivered to the Trustee for
cancellation
(i) have become due and payable, or
(ii) will become due and payable at their Stated Maturity within one
year of the date of deposit, and the Company, in the case of (i) or (ii)
above, has deposited or caused to be deposited with the Trustee as trust funds
in trust for such purpose an amount in the currency or currencies in which the
Securities of such series are payable sufficient to pay and discharge the
entire indebtedness on such Securities not theretofore delivered to the
Trustee for cancellation, for principal (and premium, if any) and interest
(including any Additional Interest) to the date of such deposit (in the case
of Securities which have become due and payable) or to the Stated Maturity;
(2) the Company has paid or caused to be paid all other sums payable
hereunder by the Company; and
(3) the Company has delivered to the Trustee an Officers' Certificate and an
Opinion of Counsel each stating that all conditions precedent herein provided
for relating to the satisfaction and discharge of this Indenture have been
complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 607 and, if money shall
have been deposited with the Trustee pursuant to subclause (B) of clause (1) of
this Section, the obligations of the Trustee under Section 402 and the last
paragraph of Section 1003 shall survive.
43
SECTION 402. Application of Trust Money.
--------------------------
Subject to the provisions of the last paragraph of Section 1003, all
money deposited with the Trustee pursuant to Section 401 or money or Government
Obligations deposited with the Trustee pursuant to Section 403, or received by
the Trustee in respect of Government Obligations deposited with the Trustee
pursuant to Section 403, shall be held in trust and applied by it, in accordance
with the provisions of the Securities and this Indenture, to the payment, either
directly or through any Paying Agent (including the Company acting as its own
Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of
the principal (and premium, if any) and interest for whose payment such money or
obligations have been deposited with or received by the Trustee; provided,
--------
however, such moneys need not be segregated from other funds except to the
- -------
extent required by law.
SECTION 403. Satisfaction, Discharge and Defeasance of Securities of
-------------------------------------------------------
Any Series.
----------
Unless otherwise provided in the Board Resolution adopted pursuant to
Section 301 establishing the terms of the Securities of any series, the Company
shall be deemed to have paid and discharged the entire indebtedness on all the
Outstanding Securities of any such series and the Trustee, at the expense of the
Company, shall execute proper instruments acknowledging satisfaction and
discharge of such indebtedness, when
(1) with respect to all Outstanding Securities of such series,
(A) the Company has irrevocably deposited or caused to be irrevocably
deposited with the Trustee as trust funds in trust for such purpose an amount
sufficient to pay and discharge the entire indebtedness on all Outstanding
Securities of such series for principal (and premium, if any) and interest
(including any Additional Interest) to the Stated Maturity or any Redemption
Date as contemplated by the penultimate paragraph of this Section 403, as the
case may be; or
(B) the Company has irrevocably deposited or caused to be irrevocably
deposited with the Trustee as obligations in trust for such purpose an amount of
Government Obligations as will, in the written opinion
44
of independent public accountants delivered to the Trustee, together with
predetermined and certain income to accrue thereon, without consideration of any
reinvestment thereof, be sufficient to pay and discharge when due the entire
indebtedness on all Outstanding Securities of such series for principal (and
premium, if any) and interest (including any Additional Interest) to the Stated
Maturity or any Redemption Date as contemplated by the penultimate paragraph of
this Section 403, as the case may be; and
(2) the Company has paid or caused to be paid all other sums payable with
respect to the Outstanding Securities of such series; and
(3) the Company has delivered to the Trustee an Officers' Certificate and an
Opinion of Counsel, each stating that all conditions precedent herein provided
for relating to the satisfaction and discharge of the entire indebtedness on all
Outstanding Securities of any such series have been complied with.
Any deposits with the Trustee referred to in Section 403(i) above shall
be irrevocable and shall be made under the terms of an escrow trust agreement in
form and substance reasonably satisfactory to the Trustee. If any Outstanding
Securities of such series are to be redeemed prior to their Stated Maturity,
whether pursuant to any optional redemption provisions or in accordance with any
mandatory sinking fund requirement, the applicable escrow trust agreement shall
provide therefor and the Company shall make such arrangements as are
satisfactory to the Trustee for the giving of notice of redemption by the
Trustee in the name, and at the expense, of the Company. If the Securities of
such series are not to become due and payable at their Stated Maturity or upon
call for redemption within one year of the date of deposit, then the Company
shall give, not later than the date of such deposit, notice of such deposit to
the Holders of Securities of such series.
Upon the satisfaction of the conditions set forth in this Section 403
with respect to all the Outstanding Securities of any series, the terms and
conditions of such series, including the terms and conditions with respect
thereto set forth in this Indenture, shall no longer be binding upon, or
applicable to, the Company; provided, that the Company shall not be discharged
--------
from any payment obligations in respect of Securities of such series which are
deemed not to be Outstanding under clause (iii) of the
45
definition thereof if such obligations continue to be valid obligations of the
Company under applicable law.
ARTICLE FIVE
REMEDIES
--------
SECTION 501. Events of Default.
-----------------
"Event of Default", wherever used herein with respect to the Securities
of any series, means any one of the following events (whatever the reason for
such Event of Default and whether it shall be voluntary or involuntary or be
effected by operation of law or pursuant to any judgment, decree or order of any
court or any order, rule or regulation of any administrative or governmental
body):
(1) default in the payment of any interest upon any Security of that
series, including any Additional Interest in respect thereof, when it
becomes due and payable, and continuance of such default for a period of 30
days (subject to the deferral of any due date in the case of an Extension
Period); or
(2) default in the payment of the principal of (or premium, if any, on)
any Security of that series at its Maturity; or
(3) default in the performance, or breach, of any covenant or warranty of
the Company in this Indenture (other than a covenant or warranty a default
in whose performance or whose breach is elsewhere in this Section
specifically dealt with), and continuance of such default or breach for a
period of 90 days after there has been given, by registered or certified
mail, to the Company by the Trustee or to the Company and the Trustee by the
Holders of at least 25% in principal amount of the Outstanding Securities of
that series a written notice specifying such default or breach and requiring
it to be remedied; or
(4) the entry of a decree or order by a court having jurisdiction in the
premises adjudging the Company a bankrupt or insolvent, or approving as
properly filed a petition seeking reorganization, arrangement, adjustment or
composition of or in respect of the Company under any applicable Federal or
State bankruptcy, insolvency, reorganization or other similar law, or
appointing a receiver, liquidator, assignee, trustee,
46
sequestrator (or other similar official) of the Company or of any
substantial part of its property or ordering the winding up or liquidation
of its affairs, and the continuance of any such decree or order unstayed and
in effect for a period of 60 consecutive days; or
(5) the institution by the Company of proceedings to be adjudicated a
bankrupt or insolvent, or the consent by it to the institution of bankruptcy
or insolvency proceedings against it, or the filing by it of a petition or
answer or consent seeking reorganization or relief under any applicable
Federal or State bankruptcy, insolvency, reorganization or other similar
law, or the consent by it to the filing of any such petition or to the
appointment of a receiver, liquidator, assignee, trustee, sequestrator (or
other similar official) of the Company or of any substantial part of its
property, or the making by it of an assignment for the benefit of creditors,
or the admission by it in writing of its inability to pay its debts
generally as they become due and its willingness to be adjudicated a
bankrupt, or the taking of corporate action by the Company in furtherance of
any such action; or
(6) any other Event of Default with respect to Securities of that
series.
SECTION 502. Acceleration of Maturity; Rescission and Annulment.
--------------------------------------------------
If an Event of Default with respect to Securities of any series at the
time Outstanding occurs and is continuing, then and in every such case the
Trustee or the Holders of not less than 25% in principal amount of the
Outstanding Securities of that series may declare the principal amount (or, if
the Securities of that series are Original Issue Discount Securities, such
portion of the principal amount as may be specified in the terms of that series)
of all the Securities of that series to be due and payable immediately, by a
notice in writing to the Company (and to the Trustee if given by Holders),
provided that, in the case of the Securities of a series issued to a Hartford
- --------
Trust, if upon an Event of Default, the Trustee or the Holders of not less than
25% in principal amount of the Outstanding Securities of that series fail to
declare the principal of all the Securities of that series to be immediately due
and payable, the holders of at least 25% in aggregate liquidation amount of the
corresponding series of Preferred Securities then outstanding shall have such
right
47
by a notice in writing to the Company and the Trustee; and upon any such
declaration such principal amount (or specified amount) of and the accrued
interest (including any Additional Interest) on all the Securities of such
series shall become immediately due and payable, provided that the payment of
--------
principal and interest (including any Additional Interest) on such Securities
shall remain subordinated to the extent provided in Article Thirteen.
At any time after such a declaration of acceleration with respect to
Securities of any series has been made and before a judgment or decree for
payment of the money due has been obtained by the Trustee as hereinafter in this
Article provided, the Holders of a majority in principal amount of the
Outstanding Securities of that series, by written notice to the Company and the
Trustee, may rescind and annul such declaration and its consequences if:
(1) the Company has paid or deposited with the Trustee a sum sufficient
to pay
(A) all overdue installments of interest (including any Additional
Interest) on all Securities of that series,
(B) the principal of (and premium, if any, on) any Securities of that
series which have become due otherwise than by such declaration of acceleration
and interest thereon at the rate borne by the Securities,
(C) to the extent that payment of such interest is lawful, interest upon
overdue installments of interest at the rate borne by the Securities, and
(D) all sums paid or advanced by the Trustee hereunder and the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel; and
(2) all Events of Default with respect to Securities of that series,
other than the non-payment of the principal of Securities of that series which
has become due solely by such acceleration, have been cured or waived as
provided in Section 513.
No such rescission shall affect any subsequent default or impair any
right consequent thereon.
48
Upon receipt by the Trustee of written notice declaring such an
acceleration, or rescission and annulment thereof, with respect to Securities of
a series all or part of which is represented by a Global Security, a record date
shall be established for determining Holders of Outstanding Securities of such
series entitled to join in such notice, which record date shall be at the close
of business on the day the Trustee receives such notice. The Holders on such
record date, or their duly designated proxies, and only such Persons, shall be
entitled to join in such notice, whether or not such Holders remain Holders
after such record date; provided, that, unless such declaration of acceleration,
--------
or rescission and annulment, as the case may be, shall have become effective by
virtue of the requisite percentage having joined in such notice prior to the day
which is 90 days after such record date, such notice of declaration of
acceleration, or rescission and annulment, as the case may be, shall
automatically and without further action by any Holder be canceled and of no
further effect. Nothing in this paragraph shall prevent a Holder, or a proxy of
a Holder, from giving, after expiration of such 90-day period, a new written
notice of declaration of acceleration, or rescission and annulment thereof, as
the case may be, that is identical to a written notice which has been canceled
pursuant to the proviso to the preceding sentence, in which event a new record
-------
date shall be established pursuant to the provisions of this Section 502.
SECTION 503. Collection of Indebtedness and Suits for Enforcement by
-------------------------------------------------------
Trustee.
-------
The Company covenants that if:
(1) default is made in the payment of any installment of interest
(including any Additional Interest) on any Security when such interest
becomes due and payable and such default continues for a period of 30 days,
or
(2) default is made in the payment of the principal of (and premium,
if any, on) any Security at the Maturity thereof,
the Company will, upon demand of the Trustee, pay to it, for the benefit of the
Holders of such Securities, the whole amount then due and payable on such
Securities for principal, including any sinking fund payment or analogous
obligations (and premium, if any) and interest (including any Additional
Interest), including, to the extent that
49
payment of such interest shall be lawful, interest on any overdue principal (and
premium if any) and on any overdue installments of interest (including any
Additional Interest) at the rate borne by the Securities; and, in addition
thereto, all amounts owing the Trustee under Section 607.
If the Company fails to pay such amounts forthwith upon such demand, the
Trustee, in its own name and as trustee of an express trust, may institute a
judicial proceeding for the collection of the sums so due and unpaid, and may
prosecute such proceeding to judgment or final decree, and may enforce the same
against the Company or any other obligor upon the Securities and collect the
moneys adjudged or decreed to be payable in the manner provided by law out of
the property of the Company or any other obligor upon the Securities, wherever
situated.
If an Event of Default with respect to Securities of any series occurs
and is continuing, the Trustee may in its discretion proceed to protect and
enforce its rights and the rights of the Holders of Securities of such series by
such appropriate judicial proceedings as the Trustee shall deem most effectual
to protect and enforce any such rights, whether for the specific enforcement of
any covenant or agreement in this Indenture or in aid of the exercise of any
power granted herein, or to enforce any other proper remedy.
SECTION 504. Trustee May File Proofs of Claim.
--------------------------------
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Company or any other obligor upon the
Securities or the property of the Company or of such other obligor or their
creditors,
(a) the Trustee (irrespective of whether the principal of the Securities
of any series shall then be due and payable as therein expressed or by
declaration or otherwise and irrespective of whether the Trustee shall have
made any demand on the Company for the payment of overdue principal (and
premium, if any) or interest (including any Additional Interest)) shall be
entitled and empowered, by intervention in such proceeding or otherwise,
(i) to file and prove a claim for the whole amount of principal
(and premium, if any) and interest (including any Additional Interest)
owing
50
and unpaid in respect to the Securities and to file such other papers or
documents as may be necessary or advisable and to take any and all
actions as are authorized under the Trust Indenture Act in order to have
the claims of the Holders and any predecessor to the Trustee under
Section 607 and of the Holders allowed in any such judicial proceedings;
and
(ii) and in particular, the Trustee shall be authorized to
collect and receive any moneys or other property payable or deliverable
on any such claims and to distribute the same in accordance with Section
506; and
(b) any custodian, receiver, assignee, trustee, liquidator, sequestrator
(or other similar official) in any such judicial proceeding is hereby
authorized by each Holder to make such payments to the Trustee for
distribution in accordance with Section 506, and in the event that the
Trustee shall consent to the making of such payments directly to the Holders,
to pay to the Trustee any amount due to it and any predecessor Trustee under
Section 607.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Securities
or the rights of any Holder thereof, or to authorize the Trustee to vote in
respect of the claim of any Holder in any such proceeding.
SECTION 505. Trustee May Enforce Claim Without Possession of
-----------------------------------------------
Securities.
----------
All rights of action and claims under this Indenture or the Securities
may be prosecuted and enforced by the Trustee without the possession of any of
the Securities or the production thereof in any proceeding relating thereto, and
any such proceeding instituted by the Trustee shall be brought in its own name
as trustee of an express trust, and any recovery of judgment shall, after
provision for the payment of all the amounts owing the Trustee and any
predecessor Trustee under Section 607, its agents and counsel, be for the
ratable benefit of the Holders of the Securities in respect of which such
judgment has been recovered.
51
SECTION 506. Application of Money Collected.
------------------------------
Any money or property collected or to be applied by the Trustee with
respect to a series of Securities pursuant to this Article shall be applied in
the following order, at the date or dates fixed by the Trustee and, in case of
the distribution of such money or property on account of principal (or premium,
if any) or interest (including any Additional Interest), upon presentation of
the Securities and the notation thereon of the payment if only partially paid
and upon surrender thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee and any predecessor
Trustee under Section 607;
SECOND: To the payment of the amounts then due and unpaid upon such
series of Securities for principal (and premium, if any) and interest (including
any Additional Interest), in respect of which or for the benefit of which such
money has been collected, ratably, without preference or priority of any kind,
according to the amounts due and payable on such series of Securities for
principal (and premium, if any) and interest (including any Additional
Interest), respectively; and
THIRD: The balance, if any, to the Person or Persons entitled thereto.
SECTION 507. Limitation on Suits.
-------------------
No Holder of any Securities of any series shall have any right to
institute any proceeding, judicial or otherwise, with respect to this Indenture
or for the appointment of a receiver, assignee, trustee, liquidator,
sequestrator (or other similar official) or for any other remedy hereunder,
unless:
(1) such Holder has previously given written notice to the Trustee of a
continuing Event of Default with respect to the Securities of that series;
(2) the Holders of not less than 25% in principal amount of the
Outstanding Securities of that series shall have made written request to the
Trustee to institute proceedings in respect of such Event of Default in its
own name as Trustee hereunder;
52
(3) such Holder or Holders have offered to the Trustee reasonable
indemnity against the costs, expenses and liabilities to be incurred in
compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice, request and
offer of indemnity has failed to institute any such proceeding; and
(5) no direction inconsistent with such written request has been given to
the Trustee during such 60-day period by the Holders of a majority in
principal amount of the Outstanding Securities of that series;
it being understood and intended that no one or more of such Holders shall have
any right in any manner whatever by virtue of, or by availing of, any provision
of this Indenture to affect, disturb or prejudice the rights of any other
Holders of Securities, or to obtain or to seek to obtain priority or preference
over any other of such Holders or to enforce any right under this Indenture,
except in the manner herein provided and for the equal and ratable benefit of
all such Holders.
SECTION 508. Unconditional Right of Holders to Receive Principal,
----------------------------------------------------
Premium and Interest.
--------------------
Notwithstanding any other provision in this Indenture, the Holder of any
Security shall have the right which is absolute and unconditional to receive
payment of the principal of (and premium, if any) and (subject to Section 307)
interest (including any Additional Interest) on such Security on the respective
Stated Maturities expressed in such Security and to institute suit for the
enforcement of any such payment, and such right shall not be impaired without
the consent of such Holder. In the case of Securities of a series issued to a
Hartford Trust, any holder of the corresponding series of Preferred Securities
shall have the right upon the occurrence of an Event of Default described in
Section 501(1) or 501(2) hereof, to institute a suit directly against the
Company for enforcement of payment to such Holder of principal of (premium, if
any) and (subject to Section 307) interest (including any Additional Interest)
on the Securities having a principal amount equal to the aggregate liquidation
preference of the Preferred Securities of the corresponding series held by such
Holder.
53
SECTION 509. Restoration of Rights and Remedies.
----------------------------------
If the Trustee or any Holder has instituted any proceeding to enforce any
right or remedy under this Indenture and such proceeding has been discontinued
or abandoned for any reason, or has been determined adversely to the Trustee or
to such Holder, then and in every such case the Company, the Trustee and the
Holders shall, subject to any determination in such proceeding, be restored
severally and respectively to their former positions hereunder, and thereafter
all rights and remedies of the Trustee and the Holders shall continue as though
no such proceeding had been instituted.
SECTION 510. Rights and Remedies Cumulative.
------------------------------
Except as otherwise provided in the last paragraph of Section 306, no
right or remedy herein conferred upon or reserved to the Trustee or to the
Holders is intended to be exclusive of any other right or remedy, and every
right and remedy shall, to the extent permitted by law, be cumulative and in
addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
SECTION 511. Delay or Omission Not Waiver.
----------------------------
Except as otherwise provided in the last paragraph of Section 306, no
delay or omission of the Trustee or of any Holder of any Security to exercise
any right or remedy accruing upon any Event of Default shall impair any such
right or remedy or constitute a waiver of any such Event of Default or an
acquiescence therein.
Every right and remedy given by this Article or by law to the Trustee or
to the Holders may be exercised from time to time, and as often as may be deemed
expedient, by the Trustee or by the Holders, as the case may be.
SECTION 512. Control by Holders.
------------------
The Holders of a majority in principal amount of the Outstanding
Securities of any series shall have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee or
54
exercising any trust or power conferred on the Trustee, with respect to the
Securities of such series, provided that:
--------
(1) such direction shall not be in conflict with any rule of law or
with this Indenture,
(2) the Trustee may take any other action deemed proper by the Trustee
which is not inconsistent with such direction, and
(3) subject to the provisions of Section 601, the Trustee shall have the
right to decline to follow such direction if the Trustee in good faith shall,
by a Responsible Officer or Officers of the Trustee, determine that the
proceeding so directed would be unjustly prejudicial to the Holders not
joining in any such direction or would involve the Trustee in personal
liability.
Upon receipt by the Trustee of any written notice directing the time,
method or place of conducting any such proceeding or exercising any such trust
or power, with respect to Securities of a series all or part of which is
represented by a Global Security, a record date shall be established for
determining Holders of Outstanding Securities of such series entitled to join in
such notice, which record date shall be at the close of business on the day the
Trustee receives such notice. The Holders on such record date, or their duly
designated proxies, and only such Persons, shall be entitled to join in such
notice, whether or not such Holders remain Holders after such record date;
provided, that, unless the Holders of a majority in principal amount of the
- --------
Outstanding Securities of such series shall have joined in such notice prior to
the day which is 90 days after such record date, such notice shall automatically
and without further action by any Holder be canceled and of no further effect.
Nothing in this paragraph shall prevent a Holder, or a proxy of a Holder, from
giving, after expiration of such 90-day period, a new notice identical to a
notice which has been canceled pursuant to the proviso to the preceding
-------
sentence, in which event a new record date shall be established pursuant to the
provisions of this Section 512.
SECTION 513. Waiver of Past Defaults.
-----------------------
The Holders of not less than a majority in principal amount of the
Outstanding Securities of any series may on behalf of the Holders of all the
Securities of such
55
series waive any past default hereunder with respect to such series and its
consequences, except a default:
(1) in the payment of the principal of (or premium, if any) or interest
(including any Additional Interest) on any Security of such series, or
(2) in respect of a covenant or provision hereof which under Article Nine
cannot be modified or amended without the consent of the Holder of each
Outstanding Security of such series affected.
Upon any such waiver, such default shall cease to exist, and any Event of
Default arising therefrom shall be deemed to have been cured, for every purpose
of this Indenture; but no such waiver shall extend to any subsequent or other
default or impair any right consequent thereon.
SECTION 514. Undertaking for Costs.
---------------------
All parties to this Indenture agree, and each Holder of any Security by
his acceptance thereof shall be deemed to have agreed, that any court may in its
discretion require, in any suit for the enforcement of any right or remedy under
this Indenture, or in any suit against the Trustee for any action taken or
omitted by it as Trustee, the filing by any party litigant in such suit of an
undertaking to pay the costs of such suit, and that such court may in its
discretion assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in such suit, having due regard to the merits and
good faith of the claims or defenses made by such party litigant; but the
provisions of this Section shall not apply to any suit instituted by the
Trustee, to any suit instituted by any Holder, or group of Holders, holding in
the aggregate more than 10% in principal amount of the Outstanding Securities of
any series, or to any suit instituted by any Holder for the enforcement of the
payment of the principal of (or premium, if any) or interest (including any
Additional Interest) on any Security on or after the respective Stated
Maturities expressed in such Security.
SECTION 515. Waiver of Stay or Extension Laws.
--------------------------------
The Company covenants (to the extent that it may lawfully do so) that it
will not at any time insist upon, or plead, or in any manner whatsoever claim or
take the benefit or advantage of, any stay or extension law wherever enacted,
now or at any time hereafter in force, which may affect the
56
covenants or the performance of this Indenture; and the Company (to the extent
that it may lawfully do so) hereby expressly waives all benefit or advantage of
any such law, and covenants that it will not hinder, delay or impede the
execution of any power herein granted to the Trustee, but will suffer and permit
the execution of every such power as though no such law had been enacted.
ARTICLE SIX
THE TRUSTEE
-----------
SECTION 601. Certain Duties and Responsibilities.
-----------------------------------
(a) Except during the continuance of an Event of Default,
(1) the Trustee undertakes to perform such duties and only such duties as
are specifically set forth in this Indenture, and no implied covenants or
obligations shall be read into this Indenture against the Trustee; and
(2) in the absence of bad faith on its part, the Trustee may conclusively
rely, as to the truth of the statements and the correctness of the opinions
expressed therein, upon certificates or opinions furnished to the Trustee and
conforming to the requirements of this Indenture; but in the case of any such
certificates or opinions which by any provisions hereof are specifically
required to be furnished to the Trustee, the Trustee shall be under a duty to
examine the same to determine whether or not they conform to the requirements
of this Indenture.
(b) In case an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in their exercise, as a
prudent person would exercise or use under the circumstances in the conduct of
his own affairs.
(c) No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act, or its own willful misconduct except that
57
(1) this Subsection shall not be construed to limit the effect of
Subsection (a) of this Section;
(2) the Trustee shall not be liable for any error of judgment made in
good faith by a Responsible Officer, unless it shall be proved that the
Trustee was negligent in ascertaining the pertinent facts; and
(3) the Trustee shall not be liable with respect to any action taken or
omitted to be taken by it in good faith in accordance with the direction of
Holders pursuant to Section 512 relating to the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred upon the Trustee, under this
Indenture with respect to the Securities of such series.
(d) No provision of this Indenture shall require the Trustee to expend or
risk its own funds or otherwise incur any financial liability in the performance
of any of its duties hereunder, or in the exercise of any of its rights or
powers, if there shall be reasonable grounds for believing that repayment of
such funds or adequate indemnity against such risk or liability is not
reasonably assured to it.
(e) Whether or not therein expressly so provided, every provision of this
Indenture relating to the conduct or affecting the liability of or affording
protection to the Trustee shall be subject to the provisions of this Section.
SECTION 602. Notice of Defaults.
------------------
Within 90 days after actual knowledge by a Responsible Officer of the
Trustee of the occurrence of any default hereunder with respect to the
Securities of any series, the Trustee shall transmit by mail to all Holders of
Securities of such series, as their names and addresses appear in the Securities
Register, notice of such default hereunder known to the Trustee, unless such
default shall have been cured or waived; provided, however, that, except in the
-------- -------
case of a default in the payment of the principal of (or premium, if any) or
interest (including any Additional Interest) on any Security of such series, the
Trustee shall be protected in withholding such notice if and so long as the
board of directors, the executive committee or a trust committee of directors
and/or Responsible Officers of the Trustee in good faith determines that the
withholding of such notice is in the interests of the Holders of Securities
58
of such series; and provided, further, that, in the case of any default of the
-------- -------
character specified in Section 501(3), no such notice to Holders of Securities
of such series shall be given until at least 30 days after the occurrence
thereof. For the purpose of this Section, the term "default" means any event
which is, or after notice or lapse of time or both would become, an Event of
Default with respect to Securities of such series.
SECTION 603. Certain Rights of Trustee.
-------------------------
Subject to the provisions of Section 601:
(a) the Trustee may rely and shall be protected in acting or refraining
from acting upon any resolution, certificate, statement, instrument, opinion,
report, notice, request, direction, consent, order, bond, debenture, Security or
other paper or document believed by it to be genuine and to have been signed or
presented by the proper party or parties;
(b) any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request or Company Order and any resolution
of the Board of Directors may be sufficiently evidenced by a Board Resolution;
(c) whenever in the administration of this Indenture the Trustee shall
deem it desirable that a matter be proved or established prior to taking,
suffering or omitting any action hereunder, the Trustee (unless other evidence
be herein specifically prescribed) may, in the absence of bad faith on its part,
rely upon an Officers' Certificate;
(d) the Trustee may consult with counsel and the advice of such counsel
or any Opinion of Counsel shall be full and complete authorization and
protection in respect of any action taken, suffered or omitted by it hereunder
in good faith and in reliance thereon;
(e) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction of
any of the Holders pursuant to this Indenture, unless such Holders shall have
offered to the Trustee reasonable security or indemnity against the costs,
expenses and liabilities which might be incurred by it in compliance with such
request or direction;
59
(f) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, indenture,
Security or other paper or document, but the Trustee in its discretion may make
such inquiry or investigation into such facts or matters as it may see fit, and,
if the Trustee shall determine to make such inquiry or investigation, it shall
be entitled to examine the books, records and premises of the Company,
personally or by agent or attorney; and
(g) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by it
hereunder.
SECTION 604. Not Responsible for Recitals or Issuance of Securities.
------------------------------------------------------
The recitals contained herein and in the Securities, except the Trustee's
certificates of authentication, shall be taken as the statements of the Company,
and the Trustee assumes no responsibility for their correctness. The Trustee
makes no representations as to the validity or sufficiency of this Indenture or
of the Securities. The Trustee shall not be accountable for the use or
application by the Company of the Securities or the proceeds thereof.
SECTION 605. May Hold Securities.
-------------------
The Trustee, any Paying Agent, Securities Registrar or any other agent of
the Company, in its individual or any other capacity, may become the owner or
pledgee of Securities and, subject to Sections 608 and 613, may otherwise deal
with the Company with the same rights it would have if it were not Trustee,
Paying Agent, Securities Registrar or such other agent.
SECTION 606. Money Held in Trust.
-------------------
Money held by the Trustee in trust hereunder need not be segregated from
other funds except to the extent required by law. The Trustee shall be under no
liability for interest on any money received by it hereunder except as otherwise
agreed with the Company.
60
SECTION 607. Compensation and Reimbursement.
------------------------------
The Company agrees
(1) to pay to the Trustee from time to time reasonable compensation for
all services rendered by it hereunder in such amounts as the Company and the
Trustee shall agree from time to time (which compensation shall not be limited
by any provision of law in regard to the compensation of a trustee of an express
trust);
(2) to reimburse the Trustee upon its request for all reasonable
expenses, disbursements and advances incurred or made by the Trustee in
accordance with any provision of this Indenture (including the reasonable
compensation and the expenses and disbursements of its agents and counsel),
except any such expense, disbursement or advance as may be attributable to its
negligence or bad faith; and
(3) to indemnify the Trustee for, and to hold it harmless against, any
loss, liability or expense (including the reasonable compensation and the
expenses and disbursements of its agents and counsel) incurred without
negligence or bad faith, arising out of or in connection with the acceptance or
administration of this trust or the performance of its duties hereunder,
including the costs and expenses of defending itself against any claim or
liability in connection with the exercise or performance of any of its powers or
duties hereunder. This indemnification shall survive the termination of this
Agreement.
To secure the Company's payment obligations in this Section, the Company
and the Holders agree that the Trustee shall have a lien prior to the Securities
on all money or property held or collected by the Trustee. Such lien shall
survive the satisfaction and discharge of this Indenture.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 501(4) or (5) occurs, the expenses and the
compensation for the services are intended to constitute expenses of
administration under any Bankruptcy Reform Act of 1978 or a successor statute.
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SECTION 608. Disqualification; Conflicting Interests.
---------------------------------------
The Trustee for the Securities of any series issued hereunder shall be
subject to the provisions of Section 310(b) of the Trust Indenture Act. Nothing
herein shall prevent the Trustee from filing with the Commission the application
referred to in the second to last paragraph of Section 310(b) of the Trust
Indenture Act.
SECTION 609. Corporate Trustee Required; Eligibility.
---------------------------------------
There shall at all times be a Trustee hereunder which shall be
(a) a corporation organized and doing business under the laws of the
United States of America or of any State, Territory or the District of
Columbia, authorized under such laws to exercise corporate trust powers and
subject to supervision or examination by Federal, State, Territorial or
District of Columbia authority, or
(b) a corporation or other Person organized and doing business under the
laws of a foreign government that is permitted to act as Trustee pursuant to
a rule, regulation or order of the Commission, authorized under such laws to
exercise corporate trust powers, and subject to supervision or examination by
authority of such foreign government or a political subdivision thereof
substantially equivalent to supervision or examination applicable to United
States institutional trustees,
in either case having a combined capital and surplus of at least $50,000,000,
subject to supervision or examination by Federal or State authority. If such
corporation publishes reports of condition at least annually, pursuant to law or
to the requirements of the aforesaid supervising or examining authority, then,
for the purpose of this Section, the combined capital and surplus of such
corporation shall be deemed to be its combined capital and surplus as set forth
in its most recent report of condition so published. If at any time the Trustee
shall cease to be eligible in accordance with the provisions of this Section, it
shall resign immediately in the manner and with the effect hereinafter specified
in this Article. Neither the Company nor any Person directly or indirectly
controlling, controlled by or
62
under common control with the Company shall serve as Trustee for the Securities
of any series issued hereunder.
SECTION 610. Resignation and Removal; Appointment of Successor.
-------------------------------------------------
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee under Section 611.
(b) The Trustee may resign at any time with respect to the Securities of
one or more series by giving written notice thereof to the Company. If an
instrument of acceptance by a successor Trustee shall not have been delivered to
the Trustee within 30 days after the giving of such notice of resignation, the
resigning Trustee may petition any court of competent jurisdiction for the
appointment of a successor Trustee with respect to the Securities of such
series.
(c) The Trustee may be removed at any time with respect to the Securities
of any series by Act of the Holders of a majority in principal amount of the
Outstanding Securities of such series, delivered to the Trustee and to the
Company.
(d) If at any time:
(1) the Trustee shall fail to comply with Section 608 after written
request therefor by the Company or by any Holder who has been a bona fide
Holder of a Security for at least six months, or
(2) the Trustee shall cease to be eligible under Section 609 and shall
fail to resign after written request therefor by the Company or by any such
Holder, or
(3) the Trustee shall become incapable of acting or shall be adjudged a
bankrupt or insolvent or a receiver of the Trustee or of its property shall
be appointed or any public officer shall take charge or control of the
Trustee or of its property or affairs for the purpose of rehabilitation,
conservation or liquidation,
then, in any such case, (i) the Company by Board Resolution may remove the
-
Trustee, or (ii) subject to Section 514, any
--
63
Holder who has been a bona fide Holder of a Security for at least six months
may, on behalf of himself and all others similarly situated, petition any court
of competent jurisdiction for the removal of the Trustee and the appointment of
a successor Trustee.
(e) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of Trustee for any cause with
respect to the Securities of one or more series, the Company, by a Board
Resolution, shall promptly appoint a successor Trustee with respect to the
Securities of that or those series. If, within one year after such resignation,
removal or incapability, or the occurrence of such vacancy, a successor Trustee
with respect to the Securities of any series shall be appointed by Act of the
Holders of a majority in principal amount of the Outstanding Securities of such
series delivered to the Company and the retiring Trustee, the successor Trustee
so appointed shall, forthwith upon its acceptance of such appointment, become
the successor Trustee with respect to the Securities of such series and
supersede the successor Trustee appointed by the Company. If no successor
Trustee with respect to the Securities of any series shall have been so
appointed by the Company or the Holders and accepted appointment in the manner
hereinafter provided, any Holder who has been a bona fide Holder of a Security
for at least six months may, subject to Section 514, on behalf of himself and
all others similarly situated, petition any court of competent jurisdiction for
the appointment of a successor Trustee with respect to the Securities of such
series.
(f) The Company shall give notice of each resignation and each removal of
the Trustee with respect to the Securities of any series and each appointment of
a successor Trustee with respect to the Securities of any series by mailing
written notice of such event by first-class mail, postage prepaid, to the
Holders of Securities of such series as their names and addresses appear in the
Securities Register. Each notice shall include the name of the successor Trustee
with respect to the Securities of such series and the address of its Corporate
Trust Office.
SECTION 611. Acceptance of Appointment by Successor.
--------------------------------------
(a) In case of the appointment hereunder of a successor Trustee with
respect to all Securities, every such successor Trustee so appointed shall
execute, acknowledge and deliver to the Company and to the retiring Trustee an
64
instrument accepting such appointment, and thereupon the resignation or removal
of the retiring Trustee shall become effective and such successor Trustee,
without any further act, deed or conveyance, shall become vested with all the
rights, powers, trusts and duties of the retiring Trustee; but, on the request
of the Company or the successor Trustee, such retiring Trustee shall, upon
payment of its charges, execute and deliver an instrument transferring to such
successor Trustee all the rights, powers and trusts of the retiring Trustee and
shall duly assign, transfer and deliver to such successor Trustee all property
and money held by such retiring Trustee hereunder.
(b) In case of the appointment hereunder of a successor Trustee with
respect to the Securities of one or more (but not all) series, the Company, the
retiring Trustee and each successor Trustee with respect to the Securities of
one or more series shall execute and deliver an indenture supplemental hereto
wherein each successor Trustee shall accept such appointment and which (1) shall
-
contain such provisions as shall be necessary or desirable to transfer and
confirm to, and to vest in, each successor Trustee all the rights, powers,
trusts and duties of the retiring Trustee with respect to the Securities of that
or those series to which the appointment of such successor Trustee relates, (2)
-
if the retiring Trustee is not retiring with respect to all Securities, shall
contain such provisions as shall be deemed necessary or desirable to confirm
that all the rights, powers, trusts and duties of the retiring Trustee with
respect to the Securities of that or those series as to which the retiring
Trustee is not retiring shall continue to be vested in the retiring Trustee, and
(3) shall add to or change any of the provisions of this Indenture as shall be
-
necessary to provide for or facilitate the administration of the trusts
hereunder by more than one Trustee, it being understood that nothing herein or
in such supplemental indenture shall constitute such Trustees co-trustees of the
same trust and that each such Trustee shall be trustee of a trust or trusts
hereunder separate and apart from any trust or trusts hereunder administered by
any other such Trustee and upon the execution and delivery of such supplemental
indenture the resignation or removal of the retiring Trustee shall become
effective to the extent provided therein and each such successor Trustee,
without any further act, deed or conveyance, shall become vested with all the
rights, powers, trusts, and duties of the retiring Trustee with respect to the
Securities of that or those series to which the appointment of such successor
Trustee relates; but, on request of the Company or any
65
successor Trustee, such retiring Trustee shall duly assign, transfer and deliver
to such successor Trustee all property and money held by such retiring Trustee
hereunder with respect to the Securities of that or those series to which the
appointment of such successor Trustee relates.
(c) Upon request of any such successor Trustee, the Company shall execute
any and all instruments for more fully and certainly vesting in and confirming
to such successor Trustee all rights, powers and trusts referred to in paragraph
(a) or (b) of this Section, as the case may be.
(d) No successor Trustee shall accept its appointment unless at the time
of such acceptance such successor Trustee shall be qualified and eligible under
this Article.
SECTION 612. Merger, Conversion, Consolidation or Succession to
--------------------------------------------------
Business.
--------
Any corporation into which the Trustee may be merged or converted or with
which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all of the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder,
provided such corporation shall be otherwise qualified and eligible under this
Article, without the execution or filing of any paper or any further act on the
part of any of the parties hereto. In case any Securities shall have been
authenticated, but not delivered, by the Trustee then in office, any successor
by merger, conversion or consolidation to such authenticating Trustee may adopt
such authentication and deliver the Securities so authenticated, and in case any
Securities shall not have been authenticated, any successor to the Trustee may
authenticate such Securities either in the name of any predecessor Trustee or in
the name of such successor Trustee, and in all cases the certificate of
authentication shall have the full force which it is provided anywhere in the
Securities or in this Indenture that the certificate of the Trustee shall have.
SECTION 613. Preferential Collection of Claims Against Company.
-------------------------------------------------
If and when the Trustee shall be or become a creditor of the Company (or
any other obligor upon the Securities), the Trustee shall be subject to the
provisions
66
of the Trust Indenture Act regarding the collection of claims against the
Company (or any such other obligor).
SECTION 614. Appointment of Authenticating Agent.
-----------------------------------
The Trustee may appoint an Authenticating Agent or Agents with respect to
one or more series of Securities which shall be authorized to act on behalf of
the Trustee to authenticate Securities of such series issued upon original issue
and upon exchange, registration of transfer or partial redemption thereof, and
Securities so authenticated shall be entitled to the benefits of this Indenture
and shall be valid and obligatory for all purposes as if authenticated by the
Trustee hereunder. Wherever reference is made in this Indenture to the
authentication and delivery of Securities by the Trustee or the Trustee's
certificate of authentication, such reference shall be deemed to include
authentication and delivery on behalf of the Trustee by an Authenticating Agent.
Each Authenticating Agent shall be acceptable to the Company and shall at all
times be a corporation organized and doing business under the laws of the United
States of America, or of any State, Territory or the District of Columbia,
authorized under such laws to act as Authenticating Agent, having a combined
capital and surplus of not less than $50,000,000 and subject to supervision or
examination by Federal or State authority. If such Authenticating Agent
publishes reports of condition at least annually, pursuant to law or to the
requirements of said supervising or examining authority, then for the purposes
of this Section the combined capital and surplus of such Authenticating Agent
shall be deemed to be its combined capital and surplus as set forth in its most
recent report of condition so published. If at any time an Authenticating Agent
shall cease to be eligible in accordance with the provisions of this Section,
such Authenticating Agent shall resign immediately in the manner and with the
effect specified in this Section.
Any corporation into which an Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which such Authenticating Agent
shall be a party, or any corporation succeeding to all or substantially all of
the corporate trust business of an Authenticating Agent shall be the successor
Authenticating Agent hereunder, provided such corporation shall be otherwise
eligible under this Section, without the execution
67
or filing of any paper or any further act on the part of the Trustee or the
Authenticating Agent.
An Authenticating Agent may resign at any time by giving written notice
thereof to the Trustee and to the Company. The Trustee may at any time terminate
the agency of an Authenticating Agent by giving written notice thereof to such
Authenticating Agent and to the Company. Upon receiving such a notice of
resignation or upon such a termination, or in case at any time such
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, the Trustee may appoint a successor Authenticating
Agent which shall be acceptable to the Company and shall give notice of such
appointment in the manner provided in Section 106 to all Holders of Securities
of the series with respect to which such Authenticating Agent will serve. Any
successor Authenticating Agent upon acceptance of its appointment hereunder
shall become vested with all the rights, powers and duties of its predecessor
hereunder, with like effect as if originally named as an Authenticating Agent.
No successor Authenticating Agent shall be appointed unless eligible under the
provision of this Section.
The Trustee agrees to pay to each Authenticating Agent from time to time
reasonable compensation for its services under this Section, and the Trustee
shall be entitled to be reimbursed for such payments, subject to the provisions
of Section 607.
If an appointment with respect to one or more series is made pursuant to
this Section, the Securities of such series may have endorsed thereon, in
addition to the Trustee's certificate of authentication, an alternative
certificate of authentication in the following form:
68
This is one of the Securities referred to in the within mentioned
Indenture.
------------------------------
------------------------------
As Trustee
By: _________________________
As Authenticating Agent
By: _________________________
Authorized Officer
ARTICLE SEVEN
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
-------------------------------------------------
SECTION 701. Company to Furnish Trustee Names and Addresses of
-------------------------------------------------
Holders.
-------
The Company will furnish or cause to be furnished to the Trustee.
(a) semi-annually, not more than 15 days after February 15 and August 15,
a list, in such form as the Trustee may reasonably require, of the names and
addresses of the Holders as of such February 1 and August 1, and
(b) at such other times as the Trustee may request in writing, within 30
days after the receipt by the Company of any such request, a list of similar
form and content as of a date not more than 15 days prior to the time such list
is furnished, excluding from any such list names and addresses received by the
Trustee in its capacity as Securities Registrar.
SECTION 702. Preservation of Information, Communications to Holders.
------------------------------------------------------
(a) The Trustee shall preserve, in as current a form as is reasonably
practicable, the names and addresses of Holders contained in the most recent
list furnished to the Trustee as provided in Section 701 and the names and
addresses of Holders received by the Trustee in its capacity as Securities
Registrar. The Trustee may destroy any list
69
furnished to it as provided in Section 701 upon receipt of a new list so
furnished.
(b) The rights of Holders to communicate with other Holders with respect
to their rights under this Indenture or under the Securities, and the
corresponding rights and privileges of the Trustee, shall be as provided in the
Trust Indenture Act.
(c) Every Holder of Securities, by receiving and holding the same, agrees
with the Company and the Trustee that neither the Company nor the Trustee nor
any agent of either of them shall be held accountable by reason of the
disclosure of information as to the names and addresses of the Holders made
pursuant to the Trust Indenture Act.
SECTION 703. Reports by Trustee.
------------------
(a) The Trustee shall transmit to Holders such reports concerning the
Trustee and its actions under this Indenture as may be required pursuant to the
Trust Indenture Act, at the times and in the manner provided pursuant thereto.
(b) Reports so required to be transmitted at stated intervals of not more
than 12 months shall be transmitted no later than July 15 in each calendar year,
commencing with the first July 15 after the first issuance of Securities under
this Indenture.
(c) A copy of each such report shall, at the time of such transmission to
Holders, be filed by the Trustee with each stock exchange upon which the
Securities are listed and also with the Commission. The Company will notify the
Trustee whenever the Securities are listed on any stock exchange.
SECTION 704. Reports by Company.
------------------
The Company shall file with the Trustee and with the Commission, and
transmit to Holders, such information, documents and other reports, and such
summaries thereof, as may be required pursuant to the Trust Indenture Act at the
times and in the manner provided in the Trust Indenture Act; provided that any
--------
such information, documents or reports required to be filed with the Commission
pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934
shall be filed with the Trustee within 15 days after the same is required to be
filed with the Commission. Not-
70
withstanding that the Company may not be required to remain subject to the
reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the Company shall continue to file with the Commission and provide the
Trustee and Holders with the annual reports and the information, documents and
other reports which are specified in Sections 13 and 15(d) of the Securities
Exchange Act of 1934. The Company also shall comply with the other provisions of
Trust Indenture Act Section 314(a).
ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
----------------------------------------------------
SECTION 801. Company May Consolidate, Etc., Only on Certain Terms.
----------------------------------------------------
The Company shall not consolidate with or merge into any other
corporation or convey, transfer or lease its properties and assets substantially
as an entirety to any Person, and no Person shall consolidate with or merge into
the Company or convey, transfer or lease its properties and assets substantially
as an entirety to the Company, unless:
(1) in case the Company shall consolidate with or merge into another
corporation or convey, transfer or lease its properties and assets substantially
as an entirety to any Person, the corporation formed by such consolidation or
into which the Company is merged or the Person which acquires by conveyance or
transfer, or which leases, the properties and assets of the Company
substantially as an entirety shall be a corporation organized and existing under
the laws of the United States of America or any State or the District of
Columbia, and shall expressly assume, by an indenture supplemental hereto,
executed and delivered to the Trustee, in form satisfactory to the Trustee, the
due and punctual payment of the principal of (and premium, if any) and interest
(including any Additional Interest) on all the Securities and the performance of
every covenant of this Indenture on the part of the Company to be performed or
observed;
(2) immediately after giving effect to such transaction, no Event of
Default, and no event which, after notice or lapse of time, or both, would
become an Event of Default, shall have happened and be continuing;
71
(3) in the case of the Securities of a series issued to a Hartford Trust,
such consolidation, merger, conveyance, transfer or lease is permitted under the
related Trust Agreement and Hartford Guarantee and does not give rise to any
breach or violation of the related Trust Agreement or Hartford Guarantee; and
(4) the Company has delivered to the Trustee an Officers' Certificate and
an opinion of Counsel each stating that such consolidation, merger, conveyance,
transfer or lease and any such supplemental indenture complies with this Article
and that all conditions precedent herein provided for relating to such
transaction have been complied with; and the Trustee, subject to Section 601,
may rely upon such Officers' Certificate and opinion of Counsel as conclusive
evidence that such transaction complies with this Section 801.
SECTION 802. Successor Corporation Substituted.
---------------------------------
Upon any consolidation or merger by the Company with or into any other
corporation, or any conveyance, transfer or lease by the Company of its
properties and assets substantially as an entirety to any Person in accordance
with Section 801, the successor corporation formed by such consolidation or into
which the Company is merged or to which such conveyance, transfer or lease is
made shall succeed to, and be substituted for, and may exercise every right and
power of, the Company under this Indenture with the same effect as if such
successor corporation had been named as the Company herein; and in the event of
any such conveyance, transfer or lease the Company shall be discharged from all
obligations and covenants under the Indenture and the Securities and may be
dissolved and liquidated.
Such successor corporation may cause to be signed, and may issue either
in its own name or in the name of the Company, any or all of the Securities
issuable hereunder which theretofore shall not have been signed by the Company
and delivered to the Trustee; and, upon the order of such successor corporation
instead of the Company and subject to all the terms, conditions and limitations
in this Indenture prescribed, the Trustee shall authenticate and shall deliver
any Securities which previously shall have been signed and delivered by the
officers of the Company to the Trustee for authentication pursuant to such
provisions and any Securities which such successor corporation thereafter shall
72
cause to be signed and delivered to the Trustee on its behalf for the purpose
pursuant to such provisions. All the Securities so issued shall in all respects
have the same legal rank and benefit under this Indenture as the Securities
theretofore or thereafter issued in accordance with the terms of this Indenture
as though all of such Securities had been issued at the date of the execution
hereof.
In case of any such consolidation, merger, sale, conveyance or lease,
such changes in phraseology and form may be made in the Securities thereafter to
be issued as may be appropriate.
ARTICLE NINE
SUPPLEMENTAL INDENTURES
-----------------------
SECTION 901. Supplemental Indentures Without Consent of Holders.
--------------------------------------------------
Without the consent of any Holders, the Company, when authorized by a
Board Resolution, and the Trustee, at any time and from time to time, may enter
into one or more indentures supplemental hereto, in form satisfactory to the
Trustee, for any of the following purposes:
(1) to evidence the succession of another Person to the Company, and the
assumption by any such successor of the covenants of the Company herein and in
the Securities contained; or
(2) to convey, transfer, assign, mortgage or pledge any property to or
with the Trustee or to surrender any right or power herein conferred upon the
Company; or
(3) to establish the form or terms of Securities of any series as
permitted by Sections 201 or 301; or
(4) to add to the covenants of the Company for the benefit of the Holders
of all or any series of Securities (and if such covenants are to be for the
benefit of less than all series of Securities, stating that such covenants are
expressly being included solely for the benefit of such series) or to surrender
any right or power herein conferred upon the Company; or
(5) to add any additional Events of Default; or
73
(6) to change or eliminate any of the provisions of this Indenture,
provided that any such change or elimination shall become effective only when
- --------
there is no Security Outstanding of any series created prior to the execution of
such supplemental indenture which is entitled to the benefit of such provision;
or
(7) to cure any ambiguity, to correct or supplement any provision herein
which may be inconsistent with any other provision herein, or to make any other
provisions with respect to matters or questions arising under this Indenture,
provided that such action pursuant to this clause (7) shall not materially
- --------
adversely affect the interest of the Holders of Securities of any series or, in
the case of the Securities of a series issued to a Hartford Trust and for so
long as any of the corresponding series of Preferred Securities shall remain
outstanding, the holders of such Preferred Securities; or
(8) to evidence and provide for the acceptance of appointment hereunder
by a successor Trustee with respect to the Securities of one or more series and
to add to or change any of the provisions of this Indenture as shall be
necessary to provide for or facilitate the administration of the trusts
hereunder by more than one Trustee, pursuant to the requirements of Section
611(b); or
(9) to comply with the requirements of the Commission in order to effect
or maintain the qualification of this Indenture under the Trust Indenture Act.
SECTION 902. Supplemental Indentures with Consent of Holders.
-----------------------------------------------
With the consent of the Holders of not less than a majority in principal
amount of the Outstanding Securities of each series affected by such
supplemental indenture, by Act of said Holders delivered to the Company and the
Trustee, the Company, when authorized by a Board Resolution, and the Trustee may
enter into an indenture or indentures supplemental hereto for the purpose of
adding any provisions to or changing in any manner or eliminating any of the
provisions of this Indenture or of modifying in any manner the rights of the
Holders of Securities of such series under this Indenture; provided, however,
-------- -------
that no such supplemental
74
indenture shall, without the consent of the Holder of each Outstanding Security
affected thereby,
(1) except to the extent permitted by Section 311 or as otherwise specified as
contemplated by Section 301 with respect to the extension of the interest
payment period of the Securities of any series, change the Stated Maturity of
the principal of, or any instalment of interest (including any Additional
Interest) on, any Security, or reduce the principal amount thereof or the rate
of interest thereon or reduce any premium payable upon the redemption thereof,
or reduce the amount of principal of an Original Issue Discount Security that
would be due and payable upon a declaration of acceleration of the Maturity
thereof pursuant to Section 502, or change the place of payment where, or the
coin or currency in which, any Security or interest thereon is payable, or
impair the right to institute suit for the enforcement of any such payment on or
after the Stated Maturity thereof (or, in the case of redemption, on or after
the date fixed for redemption thereof), or
(2) reduce the percentage in principal amount of the Outstanding Securities of
any series, the consent of whose Holders is required for any such supplemental
indenture, or the consent of whose Holders is required for any waiver (of
compliance with certain provisions of this Indenture or certain defaults
hereunder and their consequences) provided for in this Indenture, or
(3) modify any of the provisions of this Section, Section 513 or Section 1006,
except to increase any such percentage or to provide that certain other
provisions of this Indenture cannot be modified or waived without the consent of
the Holder of each Security affected thereby; or
(4) modify the provisions in Article Thirteen of this Indenture with respect
to the subordination of Outstanding Securities of any series in a manner adverse
to the Holders thereof;
provided that, in the case of the Securities of a series issued to a Hartford
- --------
Trust, so long as any of the corresponding series of Preferred Securities
remains outstanding, no such amendment shall be made that adversely affects the
holders of such Preferred Securities, and no termination of this Indenture shall
occur, and no waiver of
75
any Event of Default or compliance with any covenant under this Indenture shall
be effective, without the prior consent of the holders of at least a majority of
the aggregate liquidation preference of such Preferred Securities then
outstanding unless and until the principal (and premium, if any) of the
Securities of such series and all accrued and unpaid interest (including any
Additional Interest) thereon have been paid in full; and provided further that
in the case of the Securities of a series issued to a Hartford Trust, so long as
any of the corresponding series of Preferred Securities remain outstanding, no
amendment shall be made to Section 508 of this Indenture without the prior
consent of the holders of each Preferred Security then outstanding unless and
until the principal (and premium, if any) of the Securities of such series and
all accrued and (subject to Section 307) unpaid interest (including any
Additional Interest) thereon have been paid in full.
A supplemental indenture that changes or eliminates any covenant or other
provision of this Indenture that has expressly been included solely for the
benefit of one or more particular series of Securities, or which modifies the
rights of the Holders of Securities of such series with respect to such covenant
or other provision, shall be deemed not to affect the rights under this
Indenture of the Holders of Securities of any other series.
It shall not be necessary for any Act of Holders under this Section to
approve the particular form of any proposed supplemental indenture, but it shall
be sufficient if such Act shall approve the substance thereof.
SECTION 903. Execution of Supplemental Indentures.
------------------------------------
In executing or accepting the additional trusts created by any
supplemental indenture permitted by this Article or the modifications thereby of
the trusts created by this Indenture, the Trustee shall be entitled to receive,
and (subject to Section 601) shall be fully protected in relying upon, an
Officers' Certificate and an Opinion of Counsel stating that the execution of
such supplemental indenture is authorized or permitted by this Indenture, and
that all conditions precedent have been complied with. The Trustee may, but
shall not be obligated to, enter into any such supplemental indenture which
affects the Trustee's own rights, duties or immunities under this Indenture or
otherwise.
76
SECTION 904. Effect of Supplemental Indentures.
---------------------------------
Upon the execution of any supplemental indenture under this Article, this
Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Securities theretofore or thereafter authenticated and delivered hereunder
shall be bound thereby.
SECTION 905. Conformity with Trust Indenture Act.
-----------------------------------
Every supplemental indenture executed pursuant to this Article shall
conform to the requirements of the Trust Indenture Act as then in effect.
SECTION 906. Reference in Securities to Supplemental Indentures.
--------------------------------------------------
Securities authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall if required by
the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so determine,
new Securities of any series so modified as to conform, in the opinion of the
Trustee and the Board of Directors, to any such supplemental indenture may be
prepared and executed by the Company and authenticated and delivered by the
Trustee in exchange for Outstanding Securities of such series.
ARTICLE TEN
COVENANTS
---------
SECTION 1001. Payment of Principal, Premium and Interest.
------------------------------------------
The Company covenants and agrees for the benefit of each series of
securities that it will duly and punctually pay the principal of (and premium,
if any) and interest on the Securities of that series in accordance with the
terms of such Securities and this Indenture.
SECTION 1002. Maintenance of Office or Agency.
-------------------------------
The Company will maintain in each Place of Payment for any series, an
office or agency where Securities of that series may be presented or surrendered
for payment and an
77
office or agency where Securities may be surrendered for transfer or exchange
and where notices and demands to or upon the Company in respect of the
Securities and this Indenture may be served. The Company initially appoints the
Trustee, acting through its Corporate Trust Office, as its agent for said
purposes. The Company will give prompt written notice to the Trustee of any
change in the location of any such office or agency. If at any time the Company
shall fail to maintain such office or agency or shall fail to furnish the
Trustee with the address thereof, such presentations, surrenders, notices and
demands may be made or served at the Corporate Trust Office of the Trustee, and
the Company hereby appoints the Trustee as its agent to receive all such
presentations, surrenders, notices and demands.
The Company may also from time to time designate one or more other
offices or agencies where the Securities may be presented or surrendered for any
or all of such purposes, and may from time to time rescind such designations;
provided, however, that no such designation or rescission shall in any manner
- -------- -------
relieve the Company of its obligation to maintain an office or agency in each
Place of Payment for Securities of any series for such purposes. The Company
will give prompt written notice to the Trustee of any such designation and any
change in the location of any such office or agency.
SECTION 1003. Money for Security Payments to be Held in Trust.
-----------------------------------------------
If the Company shall at any time act as its own Paying Agent with respect
to any series of Securities, it will, on or before each due date of the
principal of (and premium, if any) or interest on any of the Securities of such
series, segregate and hold in trust for the benefit of the Persons entitled
thereto a sum sufficient to pay the principal (and premium, if any) or interest
so becoming due until such sums shall be paid to such Persons or otherwise
disposed of as herein provided, and will promptly notify the Trustee of its
failure so to act.
Whenever the Company shall have one or more Paying Agents, it will, prior
to each due date of the principal of or interest on any Securities, deposit with
a Paying Agent a sum sufficient to pay the principal (and premium, if any) or
interest so becoming due, such sum to be held in trust for the benefit of the
Persons entitled to such principal and premium (if any) or interest, and (unless
such Paying Agent
78
is the Trustee) the Company will promptly notify the Trustee of its failure so
to act.
The Company will cause each Paying Agent other than the Trustee to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section, that
such Paying Agent will:
(1) hold all sums held by it for the payment of the principal of (and
premium, if any) or interest on Securities in trust for the benefit of the
Persons entitled thereto until such sums shall be paid to such Persons or
otherwise disposed of as herein provided;
(2) give the Trustee notice of any default by the Company (or any other
obligor upon the Securities) in the making of any payment of principal (and
premium, if any) or interest;
(3) at any time during the continuance of any such default, upon the
written request of the Trustee, forthwith pay to the Trustee all sums so held in
trust by such Paying Agent; and
(4) comply with the provisions of the Trust Indenture Act applicable to
it as a Paying Agent.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held in
trust by the Company or such Paying Agent, such sums to be held by the Trustee
upon the same trusts as those upon which such sums were held by the Company or
such Paying Agent; and, upon such payment by the Company or any Paying Agent to
the Trustee, such Paying Agent shall be released from all further liability with
respect to such money.
Any money deposited with the Trustee or any Paying Agent, or then held by
the Company, in trust for the payment of the principal of (and premium, if any)
or interest on any Security and remaining unclaimed for two years after such
principal (and premium, if any) or interest has become due and payable shall
(unless otherwise required by mandatory provision of applicable escheat or
abandoned or unclaimed property law) be paid on Company Request to the Company,
or (if then held by the Company) shall (unless otherwise required by mandatory
provision of applicable escheat or
79
abandoned or unclaimed property law) be discharged from such trust; and the
Holder of such Security shall thereafter, as an unsecured general creditor, look
only to the Company for payment thereof, and all liability of the Trustee or
such Paying Agent with respect to such trust money, and all liability of the
Company as trustee thereof, shall thereupon cease; provided, however, that the
-------- -------
Trustee or such Paying Agent, before being required to make any such repayment,
may at the expense of the Company cause to be published once, in a newspaper
published in the English language, customarily published on each Business Day
and of general circulation in the Borough of Manhattan, The City of New York,
notice that such money remains unclaimed and that, after a date specified
therein, which shall not be less than 30 days from the date of such publication,
any unclaimed balance of such money then remaining will be repaid the Company.
SECTION 1004. Payment of Taxes and Other Claims.
---------------------------------
The Company will pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (1) all taxes, assessments and
-
governmental charges levied or imposed upon the Company or any Restricted
Subsidiary or upon the income, profits or property of the Company or any
Restricted Subsidiary, and (2) all lawful claims for labor, materials and
-
supplies which, if unpaid, might by law become a lien upon the property of the
Company or any Restricted Subsidiary; provided, however, that the Company shall
-------- -------
not be required to pay or discharge or cause to be paid or discharged any such
tax, assessment, charge or claim whose amount, applicability or validity is
being contested in good faith by appropriate proceedings.
SECTION 1005. Statement as to Compliance.
--------------------------
The Company shall deliver to the Trustee, within 120 days after the end
of each calendar year of the Company ending after the date hereof, an Officers'
Certificate covering the preceding calendar year, stating whether or not to the
best knowledge of the signers thereof the Company is in default in the
performance, observance or fulfillment of or compliance with any of the terms,
provisions, covenants and conditions of this Indenture, and if the Company shall
be in default, specifying all such defaults and the nature and status thereof of
which they may have knowledge. For the purpose of this Section 1005, compliance
shall be determined without regard to any grace period or requirement of notice
provided pursuant to the terms of this Indenture.
80
SECTION 1006. Waiver of Certain Covenants.
---------------------------
The Company may omit in any particular instance to comply with any
covenant or condition set forth in Section 1004 or as specified as contemplated
by Section 301 with respect to the Securities of any series, if before or after
the time for such compliance the Holders of at least a majority in principal
amount of the Outstanding Securities of such series shall, by Act of such
Holders, either waive such compliance in such instance or generally waive
compliance with such covenant or condition, but no such waiver shall extend to
or affect such covenant or condition except to the extent so expressly waived,
and, until such waiver shall become effective, the obligations of the Company in
respect of any such covenant or condition shall remain in full force and effect.
SECTION 1007. Additional Sums.
---------------
In the case of the Securities of a series issued to a Hartford Trust,
except as otherwise specified as contemplated by Section 301, in the event that
(i) a Hartford Trust is the Holder of all of the Outstanding Securities of such
-
series, (ii) a Tax Event in respect of such Hartford Trust shall have occurred
--
and be continuing and (iii) the Company shall not have (i) redeemed the
--- -
Securities of such series pursuant to Section 1107(b) or (ii) terminated such
--
Hartford Trust pursuant to section 902(b) of the related Trust Agreement, the
Company shall pay to such Hartford Trust (and its permitted successors or
assigns under the related Trust Agreement) for so long as such Hartford Trust
(or its permitted successor or assignee) is the registered holder of any
Securities of such series, such additional amounts as may be necessary in order
that the amount of distributions (including any Additional Amounts (as defined
in the Trust Agreement)) then due and payable by such Hartford Trust on the
related Preferred Securities and Common Securities that at any time remain
outstanding in accordance with the terms thereof shall not be reduced as a
result of any Additional Taxes (the "Additional Sums"); provided that, if this
--------------- --------
Indenture has not been qualified under the Trust Indenture Act, the Company
shall be required to pay such Additional Sums until this Indenture is so
qualified. Whenever in this Indenture or the Securities there is a reference in
any context to the payment of principal of or interest on the Securities, such
mention shall be deemed to include mention of the payments of the Additional
Sums provided for in this paragraph to the extent that, in such context,
Additional Sums are, were or
81
would be payable in respect thereof pursuant to the provisions of this paragraph
and express mention of the payment of Additional Sums (if applicable) in any
provisions hereof shall not be construed as excluding Additional Sums in those
provisions hereof where such express mention is not made, provided, however,
--------
that the extension of an interest payment period pursuant to Section 311 or the
Securities shall not extend the payment of any Additional Sums that may be due
and payable during such interest payment period.
SECTION 1008. Additional Covenants.
--------------------
The Company covenants and agrees with each Holder of Securities of a
series issued to a Hartford Trust that it will not, and it will not permit any
Subsidiary of the Company to, (a) declare or pay any dividends or distributions
-
on, or redeem, purchase, acquire or make a liquidation payment with respect to,
any shares of the Company's capital stock, or (b) make any payment of principal,
-
interest or premium, if any, on or repay, repurchase or redeem any debt
securities that rank pari passu with or junior to the Securities of such series
---- -----
or make any guarantee payments with respect to the foregoing (other than (a)
-
dividends or distributions in common stock of the Company, (b) redemptions or
-
purchases of any rights pursuant to the Company's Rights Plan, or any successor
to such Rights Plan, and the declaration of a dividend of such rights in the
future, and (c) payments under any Hartford Guarantee) if at such time (i) there
- -
shall have occurred any event of which the Company has actual knowledge that (a)
-
with the giving of notice or the lapse of time or both, would constitute an
Event of Default hereunder and (b) in respect of which the Company shall not
-
have taken reasonable steps to cure, (ii) the Company shall be in default with
--
respect to its payment of any obligations under the related Hartford Guarantee
or (iii) the Company shall have given notice of its selection of an Extension
---
Period as provided herein and shall not have rescinded such notice, or such
period, or any extension thereof, shall be continuing.
The Company also covenants with each Holder of Securities of a series
issued to a Hartford Trust (i) to maintain directly or indirectly 100% ownership
-
of the Common Securities of such Hartford Trust; provided, however, that any
-------- -------
permitted successor of the Company hereunder may succeed to the Company's
ownership of such Common Securities, (ii) not to voluntarily terminate, wind-up
--
or liquidate such Hartford Trust, except (a) in connection with a distribution
-
of the Securities of such series to the holders of Preferred
82
Securities in liquidation of such Hartford Trust or (b) in connection with
-
certain mergers, consolidations or amalgamations permitted by the related Trust
Agreement and (iii) to use its reasonable efforts, consistent with the terms and
---
provisions of such Trust Agreement, to cause such Hartford Trust to remain a
business trust and not to be classified as an association taxable as a
corporation for United States federal income tax purposes.
ARTICLE ELEVEN
REDEMPTION OF SECURITIES
------------------------
SECTION 1101. Applicability of This Article.
-----------------------------
Redemption of Securities (whether by operation of a sinking fund or
otherwise) as permitted or required by any form of Security issued pursuant to
this Indenture shall be made in accordance with such form of Security and this
Article; provided, however, that if any provision of any such form of Security
-------- -------
shall conflict with any provision of this Article, the provision of such form of
Security shall govern. Except as otherwise set forth in the form of Security for
such series, each Security shall be subject to partial redemption only in the
amount of $25 or, in the case of the Securities of a series issued to a Hartford
Trust, $25, or integral multiples thereof.
SECTION 1102. Election to Redeem; Notice to Trustee.
-------------------------------------
The election of the Company to redeem any Securities shall be evidenced
by or pursuant to a Board Resolution. In case of any redemption at the election
of the Company of less than all of the Securities of any particular series and
having the same terms, the Company shall, not less than 30 nor more than 60 days
prior to the date fixed for redemption (unless a shorter notice shall be
satisfactory to the Trustee), notify the Trustee of such date and of the
principal amount of Securities of that series to be redeemed. In the case of any
redemption of Securities prior to the expiration of any restriction on such
redemption provided in the terms of such Securities, the Company shall furnish
the Trustee with an Officers' Certificate and an Opinion of Counsel evidencing
compliance with such restriction.
83
SECTION 1103. Selection of Securities to be Redeemed.
--------------------------------------
If less than all the Securities of a particular series and having the
same terms are to be redeemed, the Trustee shall select, not more than 60 days
prior to the date fixed for redemption, in such manner as in its sole discretion
it shall deem appropriate and fair, the Securities or portions thereof of such
series to be redeemed. The Trustee shall promptly notify the Company in writing
of the Securities selected for partial redemption and the principal amount
thereof to be redeemed. For all purposes of this Indenture, unless the context
otherwise requires, all provisions relating to the redemption of Securities
shall relate, in the case of any Security redeemed or to be redeemed only in
part, to the portion of the principal amount of such Security which has been or
is to be redeemed. If the Company shall so direct, Securities registered in the
name of the Company, any Affiliate or any Subsidiary thereof shall not be
included in the Securities selected for redemption.
SECTION 1104. Notice of Redemption.
--------------------
Notice of redemption shall be given by first-class mail, postage prepaid,
mailed not later than the thirtieth day, and not earlier than the sixtieth day,
prior to the date fixed for redemption, to each Holder of Securities to be
redeemed, at the address of such Holder as it appears in the Securities
Register.
With respect to Securities of each series to be redeemed, each notice of
redemption shall state:
(a) the date fixed for redemption for Securities of such series;
(b) the redemption price at which Securities of such series are to be
redeemed;
(c) if less than all Outstanding Securities of such particular series and
having the same terms are to be redeemed, the identification (and, in the case
of partial redemption, the respective principal amounts) of the particular
Securities to be redeemed;
(d) that on the date fixed for redemption, the redemption price at which
such Securities are to be redeemed will become due and payable upon each such
Security or
84
portion thereof, and that interest thereon, if any, shall cease to accrue on and
after said date;
(e) the place or places where such Securities are to be surrendered for
payment of the redemption price at which such Securities are to be redeemed; and
(f) that the redemption is for a sinking fund, if such is the case.
Notice of redemption of Securities to be redeemed at the election of the
Company shall be given by the Company or, at the Company's request, by the
Trustee in the name and at the expense of the Company. The notice if mailed in
the manner herein provided shall be conclusively presumed to have been duly
given, whether or not the Holder receives such notice. In any case, a failure to
give such notice by mail or any defect in the notice to the Holder of any
Security designated for redemption as a whole or in part shall not affect the
validity of the proceedings for the redemption of any other Security.
SECTION 1105. Deposit of Redemption Price.
---------------------------
Prior to the redemption date specified in the notice of redemption given
as provided in Section 1104, the Company will deposit with the Trustee or with
one or more paying agents an amount of money sufficient to redeem on the
redemption date all the Securities so called for redemption at the applicable
redemption price.
SECTION 1106. Payment of Securities Called for Redemption.
-------------------------------------------
If any notice of redemption has been given as provided in Section 1104,
the Securities or portion of Securities with respect to which such notice has
been given shall become due and payable on the date and at the place or places
stated in such notice at the applicable redemption price. On presentation and
surrender of such Securities at a place of payment in said notice specified, the
said securities or the specified portions thereof shall be paid and redeemed by
the Company at the applicable redemption price.
Upon presentation of any Security redeemed in part only, the Company
shall execute and the Trustee shall authenticate and deliver to the Holder
thereof, at the expense of the Company, a new Security or Securities of the
85
same series, of authorized denominations, in aggregate principal amount equal to
the unredeemed portion of the Security so presented and having the same Original
Issue Date, Stated Maturity and terms. If a Global Security is so surrendered,
such new Security will also be a new Global Security.
SECTION 1107. Company's Right of Redemption.
-----------------------------
(a) Unless otherwise specified as contemplated by Section 301 with
respect to the Securities of a particular series and notwithstanding any
additional redemption rights that may be so specified, the Company may, at its
option, redeem the Securities of any series on any Interest Payment Date with
respect thereto after their date of issuance in whole at any time or in part
from time to time, subject to the provisions of this clause (a) and the other
provisions of this Article Eleven. Unless otherwise specified as contemplated by
Section 301 with respect to the Securities of a particular series, the
redemption price for any Security so redeemed pursuant to this clause (a) shall
equal any accrued and unpaid interest, including any Additional Interest, to the
date fixed for redemption, plus the greater of (a) the principal amount thereof
-
and (b) an amount equal to (i) in respect of the Securities of any series
- -
bearing interest at a fixed rate, the Discounted Remaining Fixed Amount Payments
or (ii) in respect of the Securities of any series bearing interest determined
--
by reference to a floating rate, the Discounted Swap Equivalent Payments. The
Company shall not redeem the Securities in part unless all accrued and unpaid
interest (including any Additional Interest) has been paid in full on all
Securities Outstanding for all interest periods terminating on or prior to the
date fixed for redemption. For purposes of this clause (a), the following terms
shall have the meanings set forth below:
"Discounted Remaining Fixed Amount Payments" means, in respect of a
------------------------------------------
Security of any series bearing interest at a fixed rate, an amount equal to the
sum of the Current Values of the amounts of interest and principal that would
have been payable by the Company pursuant to the terms of such Security on each
Interest Payment Date after the date fixed for redemption pursuant to this
Section 1107 and at the Stated Maturity of the final payment of principal
thereof (taking into account any required sinking fund payments but otherwise
assuming that the Company had not redeemed such Security prior to such Stated
Maturity).
86
"Current Value" means, in respect of any amount, the present value of
-------------
that amount on the date fixed for redemption pursuant to this Section 1107 after
discounting that amount on a basis corresponding to the interest period of the
Securities to be redeemed from the originally scheduled date for payment on the
basis of the Treasury Rate, all computed in accordance with generally accepted
financial practice.
"Treasury Rate" means a per annum rate (expressed as a decimal and, in
-------------
the case of United States Treasury bills, converted to a per annum yield)
determined on the date fixed for redemption pursuant to this Section 1107 to be
the per annum rate equal to the semiannual bond equivalent yield to maturity
adjusted, in the case of Securities having monthly or quarterly Interest Payment
Dates, to reflect monthly or quarterly compounding in accordance with generally
accepted financial practice for United States Treasury securities maturing at
the Stated Maturity of the final payment of principal of any series of
Securities redeemed pursuant to this Section 1107, as determined (i) by
-
reference to the weekly average yield to maturity for United States Treasury
securities maturing on such Stated Maturity as reported in the most recent
Statistical Release H.15(519) of the Board of Governors of the Federal Reserve,
or (ii) if no such weekly average yield is so reported, by interpolation between
--
the most recent weekly average yields to maturity for two series of United
States Treasury securities, (a) one maturing as close as possible to, but
-
earlier than, such Stated Maturity and (b) the other maturing as close as
-
possible to, but later than, such Stated Maturity, in each case as published in
the most recent Statistical Release H.15(519) of the Board of Governors of the
Federal Reserve.
(b) In the case of the Securities of a series issued to a Hartford Trust,
except as otherwise specified as contemplated by Section 301, if a Special Event
in respect of such Hartford Trust shall occur and be continuing, the Company
may, at its option, redeem the Securities of such series on any Interest Payment
Date falling within 90 days of the occurrence of such Special Event, in whole
but not in part, subject to the provisions of this clause (b) and the other
provisions of this Article Eleven. The redemption price for any Security so
redeemed pursuant to this clause (b) shall be equal to 100% of the principal
amount of such Securities then Outstanding plus accrued and unpaid interest,
including any Additional Interest, to the date fixed for redemption.
87
ARTICLE TWELVE
SINKING FUNDS
-------------
SECTION 1201. Applicability of Article.
------------------------
The provisions of this Article shall be applicable to any sinking fund
for the retirement of Securities of any series except as otherwise specified as
contemplated by Section 301 for such Securities.
The minimum amount of any sinking fund payment provided for by the terms
of any Securities of any series is herein referred to as a "mandatory sinking
fund payment", and any sinking fund payment in excess of such minimum amount
which is permitted to be made by the terms of such Securities of any series is
herein referred to as an "optional sinking fund payment". If provided for by the
terms of any Securities of any series, the cash amount of any sinking fund
payment may be subject to reduction as provided in Section 1202. Each sinking
fund payment shall be applied to the redemption of Securities of any series as
provided for by the terms of such Securities.
SECTION 1202. Satisfaction of Sinking Fund Payments with Securities.
-----------------------------------------------------
In lieu of making all or any part of a mandatory sinking fund payment
with respect to any Securities of a series in cash, the Company may at its
option, at any time no more than 16 months and no less than 30 days prior to the
date on which such sinking fund payment is due, deliver to the Trustee
Securities of such series (together with the unmatured Coupons, if any,
appertaining thereto) theretofore purchased or otherwise acquired by the
Company, except Securities of such series that have been redeemed through the
application of mandatory or optional sinking fund payments pursuant to the terms
of the Securities of such series, accompanied by a Company Order instructing the
Trustee to credit such obligations and stating that the Securities of such
series were originally issued by the Company by way of bona fide sale or other
negotiation for value; provided that the Securities to be so credited have not
--------
been previously so credited. The Securities to be so credited shall be received
and credited for such purpose by the Trustee at the redemption price for such
Securities, as specified in the Securities so to be redeemed, for redemption
through operation of the sinking fund and the
88
amount of such sinking fund payment shall be reduced accordingly.
SECTION 1203. Redemption of Securities for Sinking Fund.
-----------------------------------------
Not less than 60 days prior to each sinking fund payment date for any
series of Securities, the Company will deliver to the Trustee an Officers'
Certificate specifying the amount of the next ensuing sinking fund payment for
such Securities pursuant to the terms of such Securities, the portion thereof,
if any, which is to be satisfied by payment of cash in the currency in which the
Securities of such series are payable (except as provided pursuant to Section
301) and the portion thereof, if any, which is to be satisfied by delivering and
crediting Securities pursuant to Section 1202 and will also deliver to the
Trustee any Securities to be so delivered. Such Certificate shall be irrevocable
and upon its delivery the Company shall be obligated to make the cash payment or
payments therein referred to, if any, on or before the succeeding sinking fund
payment date. In the case of the failure of the Company to deliver such
Certificate (or, as required by this Indenture, the Securities and coupons, if
any, specified in such Certificate), the sinking fund payment due on the
succeeding sinking fund payment date for such series shall be paid entirely in
cash and shall be sufficient to redeem the principal amount of the Securities of
such series subject to a mandatory sinking fund payment without the right to
deliver or credit securities as provided in Section 1202 and without the right
to make the optional sinking fund payment with respect to such series at such
time.
Any sinking fund payment or payments (mandatory or optional) made in cash
plus any unused balance of any preceding sinking fund payments made with respect
to the Securities of any particular series shall be applied by the Trustee (or
by the Company if the Company is acting as its own Paying Agent) on the sinking
fund payment date on which such payment is made (or, if such payment is made
before a sinking fund payment date, on the sinking fund payment date immediately
following the date of such payment) to the redemption of Securities of such
series at the redemption price specified in such Securities with respect to the
sinking fund. Any sinking fund moneys not so applied or allocated by the Trustee
(or by the Company if the Company is acting as its own Paying Agent, segregated
and held in trust as provided in Section 1003) for such series and together with
such payment (or such amount so segregated)
89
shall be applied in accordance with the provisions of this Section 1203. Any and
all sinking fund moneys with respect to the Securities of any particular series
held by the Trustee (or if the Company is acting as its own Paying Agent,
segregated and held in trust as provided in Section 1003) on the last sinking
fund payment date with respect to Securities of such series and not held for the
payment or redemption of particular Securities of such series shall be applied
by the Trustee (or by the Company if the Company is acting as its own Paying
Agent), together with other moneys, if necessary, to be deposited (or
segregated) sufficient for the purpose, to the payment of the principal of the
Securities of such series at Maturity. The Trustee shall select the Securities
to be redeemed upon such sinking fund payment date in the manner specified in
Section 1103 and cause notice of the redemption thereof to be given in the name
of and at the expense of the Company in the manner provided in Section 1104.
Such notice having been duly given, the redemption of such Securities shall be
made upon the terms and in the manner stated in Section 1106. On or before each
sinking fund payment date, the Company shall pay to the Trustee (or, if the
Company is acting as its own Paying Agent, the Company shall segregate and hold
in trust as provided in Section 1003) in cash a sum in the currency in which
Securities of such series are payable (except as provided pursuant to Section
301) equal to the principal and any interest accrued to the redemption date for
Securities or portions thereof to be redeemed on such sinking fund payment date
pursuant to this Section 1203.
Neither the Trustee nor the Company shall redeem any Securities of a
series with sinking fund moneys or mail any notice of redemption of Securities
of such series by operation of the sinking fund for such series during the
continuance of a default in payment of interest, if any, on any Securities of
such series or of any Event of Default (other than an Event of Default occurring
as a consequence of this paragraph) with respect to the securities of such
series, except that if the notice of redemption shall have been provided in
accordance with the provisions hereof, the Trustee (or the Company if the
Company is then acting as its own Paying Agent) shall redeem such Securities if
cash sufficient for that purpose shall be deposited with the Trustee (or
segregated by the Company) for that purpose in accordance with the terms of this
Article Twelve. Except as aforesaid, any moneys in the sinking fund for such
series at the time when any such default or Event of Default shall occur and any
moneys thereafter paid into such sinking fund
90
shall, during the continuance of such default or Event of Default, be held as
security for the payment of the Securities and coupons, if any, of such series;
provided, however, that in case such default or Event of Default shall
- -------- -------
have been cured or waived herein, such moneys shall thereafter be applied on the
next sinking fund payment date for the Securities of such series on which such
moneys may be applied pursuant to the provisions of this Section 1203.
ARTICLE THIRTEEN
SUBORDINATION OF SECURITIES
---------------------------
SECTION 1301. Securities Subordinate to Senior Debt.
-------------------------------------
The Company covenants and agrees, and each Holder of a Security, by its
acceptance thereof, likewise covenants and agrees, that, to the extent and in
the manner hereinafter set forth in this Article, the payment of the principal
of (and premium, if any) and interest (including any Additional Interest) on
each and all of the Securities are hereby expressly made subordinate and subject
in right of payment to the prior payment in full of all amounts then due and
payable in respect of all Senior Debt.
SECTION 1302. Payment Over of Proceeds Upon Dissolution, Etc.
----------------------------------------------
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Company (each such event, if any, herein
sometimes referred to as a "Proceeding"), then the holders of Senior Debt shall
be entitled to receive payment in full of principal of (and premium, if any) and
interest, if any, on such Senior Debt, or provision shall be made for such
payment in cash or cash equivalents or otherwise in a manner satisfactory to the
holders of Senior Debt, before the Holders of the Securities are entitled to
receive or retain any payment or distribution of any kind or character, whether
in cash, property or securities (including any payment or distribution which may
be payable or deliverable by reason of the payment of any other Debt of the
Company (including any series of the Securities) subordinated to the payment of
the Securities, such payment or distribution being hereinafter referred to as a
"Junior Subordinated Payment"), on account of principal of (or premium, if any)
or interest (including any Additional Interest) on the
91
Securities or on account of the purchase or other acquisition of Securities by
the Company or any Subsidiary and to that end the holders of Senior Debt shall
be entitled to receive, for application to the payment thereof, any payment or
distribution of any kind of character, whether in cash, property or securities,
including any Junior Subordinated Payment, which may be payable or deliverable
in respect of the Securities in any such Proceeding.
In the event that, notwithstanding the foregoing provisions of this
Section, the Trustee or the Holder of any Security shall have received any
payment or distribution of assets of the Company of any kind or character,
whether in cash, property or securities, including any Junior Subordinated
Payment, before all Senior Debt is paid in full or payment thereof is provided
for in cash or cash equivalents or otherwise in a manner satisfactory to the
holders of Senior Debt, and if such fact shall, at or prior to the time of such
payment or distribution, have been made known to the Trustee or, as the case may
be, such Holder, then and in such event such payment or distribution shall be
paid over or delivered forthwith to the trustee in bankruptcy, receiver,
liquidating trustee, custodian, assignee, agent or other Person making payment
or distribution of assets of the Company for application to the payment of all
Senior Debt remaining unpaid, to the extent necessary to pay all Senior Debt in
full, after giving effect to any concurrent payment or distribution to or for
the holders of Senior Debt.
For purposes of this Article only, the words "any payment or distribution
of any kind or character, whether in cash, property or securities" shall not be
deemed to include shares of stock of the Company as reorganized or readjusted,
or securities of the Company or any other corporation provided for by a plan of
reorganization or readjustment which securities are subordinated in right of
payment to all then outstanding Senior Debt to substantially the same extent as
the Securities are so subordinated as provided in this Article. The
consolidation of the Company with, or the merger of the Company into, another
Person or the liquidation or dissolution of the Company following the sale of
all or substantially all of its properties and assets as an entirety to another
Person or the liquidation or dissolution of the Company following the sale of
all or substantially all of its properties and assets as an entirety to another
Person upon the terms and conditions set forth in Article Eight shall not be
deemed a Proceeding for the purposes of this Section if the Person formed by
such consolidation or into which the Company is merged or the
92
Person which acquires by sale such properties and assets as an entirety, as the
case may be, shall, as a part of such consolidation, merger, or sale comply with
the conditions set forth in Article Eight.
SECTION 1303. Prior Payment to Senior Debt Upon Acceleration of
-------------------------------------------------
Securities.
----------
In the event that any Securities are declared due and payable before
their Stated Maturity, then and in such event the holders of the Senior Debt
outstanding at the time such Securities so become due and payable shall be
entitled to receive payment in full of all amounts due on or in respect of such
Senior Debt (including any amounts due upon acceleration), or provision shall be
made for such payment in cash or cash equivalents or otherwise in a manner
satisfactory to the holders of Senior Debt, before the Holders of the Securities
are entitled to receive any payment or distribution of any kind or character,
whether in cash, properties or securities (including any Junior Subordinated
Payment) by the Company on account of the principal of (or premium, if any) or
interest (including any Additional Interest) on the Securities or on account of
the purchase or other acquisition of Securities by the Company or any
Subsidiary; provided, however, that nothing in this Section shall prevent the
-------- -------
satisfaction of any sinking fund payment in accordance with this Indenture or as
otherwise specified as contemplated by Section 301 for the Securities of any
series by delivering and crediting pursuant to Section 1202 or as otherwise
specified as contemplated by Section 301 for the Securities of any series
Securities which have been acquired (upon redemption or otherwise) prior to such
declaration of acceleration.
In the event that, notwithstanding the foregoing, the Company shall make
any payment to the Trustee or the Holder of any Security prohibited by the
foregoing provisions of this Section, and if such fact shall, at or prior to the
time of such payment, have been made known to the Trustee or, as the case may
be, such Holder, then and in such event such payment shall be paid over and
delivered forthwith to the Company.
The provisions of this Section shall not apply to any payment with
respect to which Section 1302 would be applicable.
93
SECTION 1304. No Payment When Senior Debt in Default.
--------------------------------------
(a) In the event and during the continuation of any default in the
payment of principal of (or premium, if any) or interest on any Senior Debt, or
in the event that any event of default with respect to any Senior Debt shall
have occurred and be continuing and shall have resulted in such Senior Debt
becoming or being declared due and payable prior to the date on which it would
otherwise have become due and payable, unless and until such event of default
shall have been cured or waived or shall have ceased to exist and such
acceleration shall have been rescinded or annulled, or (b) in the event any
judicial proceeding shall be pending with respect to any such default in payment
or such event or default, then no payment or distribution of any kind or
character, whether in cash, properties or securities (including any Junior
Subordinated Payment) shall be made by the Company on account of principal of
(or premium, if any) or interest (including any Additional Interest), if any, on
the Securities or on account of the purchase or other acquisition of Securities
by the Company or any Subsidiary; provided, however, that nothing in this
-------- -------
Section shall prevent the satisfaction of any sinking fund payment in accordance
with this Indenture or as otherwise specified as contemplated by Section 301 for
the Securities of any series by delivering and crediting pursuant to Section
1202 or as otherwise specified as contemplated by Section 301 for the Securities
of any series Securities which have been acquired (upon redemption or otherwise)
prior to such default in payment or event of default.
In the event that, notwithstanding the foregoing, the Company shall make
any payment to the Trustee or the Holder of any Security prohibited by the
foregoing provisions of this Section, and if such fact shall, at or prior to the
time of such payment, have been made known to the Trustee or, as the case may
be, such Holder, then and in such event such payment shall be paid over and
delivered forthwith to the Company.
The provisions of this Section shall not apply to any payment with
respect to which Section 1302 would be applicable.
94
SECTION 1305. Payment Permitted If No Default.
-------------------------------
Nothing contained in this Article or elsewhere in this Indenture or in
any of the Securities shall prevent (a) the Company, at any time except during
-
the pendency of any Proceeding referred to in Section 1302 or under the
conditions described in Sections 1303 and 1304, from making payments at any time
of principal of (and premium, if any) or interest on the Securities, or (b) the
-
application by the Trustee of any money or Government Obligations deposited with
it hereunder to the payment of or on account of the principal of (and premium,
if any) or interest (including any Additional Interest) on the Securities or the
retention of such payment by the Holders, if, at the time of such application by
the Trustee, it did not have knowledge that such payment would have been
prohibited by the provisions of this Article.
SECTION 1306. Subrogation to Rights of Holders of Senior Debt.
-----------------------------------------------
Subject to the payment in full of all Senior Debt, or the provision for
such payment in cash or cash equivalents or otherwise in a manner satisfactory
to the holders of Senior Debt, the Holders of the Securities shall be subrogated
to the extent of the payments or distributions made to the holders of such
Senior Debt pursuant to the provisions of this Article (equally and ratably with
the holders of all indebtedness of the Company which by its express terms is
subordinated to Senior Debt of the Company to substantially the same extent as
the Securities are subordinated to the Senior Debt and is entitled to like
rights of subrogation by reason of any payments or distributions made to holders
of such Senior Debt) to the rights of the holders of such Senior Debt to receive
payments and distributions of cash, property and securities applicable to the
Senior Debt until the principal of (and premium, if any) and interest on the
Securities shall be paid in full. For purposes of such subrogation or
assignment, no payments or distributions to the holders of the Senior Debt of
any cash, property or securities to which the Holders of the Securities or the
Trustee would be entitled except for the provisions of this Article, and no
payments over pursuant to the provisions of this Article to the holders of
Senior Debt by Holders of the Securities or the Trustee, shall, as among the
Company, its creditors other than holders of Senior Debt, and the Holders of the
Securities, be deemed to be a payment or distribution by the Company to or on
account of the Senior Debt.
95
SECTION 1307. Provisions Solely to Define Relative Rights.
-------------------------------------------
The provisions of this Article are and are intended solely for the
purpose of defining the relative rights of the Holders of the Securities on the
one hand and the holders of Senior Debt on the other hand. Nothing contained in
this Article or elsewhere in this Indenture or in the Securities is intended to
or shall (a) impair, as between the Company and the Holders of the Securities,
-
the obligations of the Company, which are absolute and unconditional, to pay to
the Holders of the Securities the principal of (and premium, if any) and
interest (including any Additional Interest) on the Securities as and when the
same shall become due and payable in accordance with their terms; or (b) affect
-
the relative rights against the Company of the Holders of the Securities and
creditors of the Company other than their rights in relation to the holders of
Senior Debt; or (c) prevent the Trustee or the Holder of any Security from
-
exercising all remedies otherwise permitted by applicable law upon default under
this Indenture including, without limitation, filing and voting claims in any
Proceeding, subject to the rights, if any, under this Article of the holders of
Senior Debt to receive cash, property and securities otherwise payable or
deliverable to the Trustee or such Holder.
SECTION 1308. Trustee to Effectuate Subordination.
-----------------------------------
Each Holder of a Security by his or her acceptance thereof authorizes and
directs the Trustee on his or her behalf to take such action as may be necessary
or appropriate to acknowledge or effectuate the subordination provided in this
Article and appoints the Trustee his or her attorney-in-fact for any and all
such purposes.
SECTION 1309. No Waiver of Subordination Provisions.
-------------------------------------
No right of any present or future holder of any Senior Debt to enforce
subordination as herein provided shall at any time in any way be prejudiced or
impaired by any act or failure to act on the part of the Company or by any act
or failure to act, in good faith, by any such holder, or by any noncompliance by
the Company with the terms, provisions and covenants of this Indenture,
regardless of any knowledge thereof that any such holder may have or be
otherwise charged with.
96
SECTION 1310. Notice to Trustee.
-----------------
The Company shall give prompt written notice to the Trustee of any fact
known to the Company which would prohibit the making of any payment to or by the
Trustee in respect of the Securities. Notwithstanding the provisions of this
Article or any other provision of this Indenture, the Trustee shall not be
charged with knowledge of the existence of any facts which would prohibit the
making of any payment to or by the Trustee in respect of the Securities, unless
and until the Trustee shall have received written notice thereof from the
Company or a holder of Senior Debt or from any trustee, agent or representative
therefor (whether or not the facts contained in such notice are true); provided,
--------
however, that if the Trustee shall not have received the notice provided for in
- -------
this Section at least two Business Days prior to the date upon which by the
terms hereof any monies may become payable for any purpose (including, without
limitation, the payment of the principal of (and premium, if any) or interest
(including any Additional Interest) on any Security), then, anything herein
contained to the contrary notwithstanding, the Trustee shall have full power and
authority to receive such monies and to apply the same to the purpose for which
they were received and shall not be affected by any notice to the contrary which
may be received by it within two Business Days prior to such date.
SECTION 1311. Reliance on Judicial Order or Certificate of Liquidating
--------------------------------------------------------
Agent.
-----
Upon any payment or distribution of assets of the Company referred to in
this Article, the Trustee, subject to the provisions of Article Six, and the
Holders of the Securities shall be entitled to rely upon any order or decree
entered by any court of competent jurisdiction in which such Proceeding is
pending, or a certificate of the trustee in bankruptcy, receiver, liquidating
trustee, custodian, assignee for the benefit of creditors, agent or other Person
making such payment or distribution, delivered to the Trustee or to the Holders
of Securities, for the purpose of ascertaining the Persons entitled to
participate in such payment or distribution, the holders of the Senior Debt and
other indebtedness of the Company, the amount thereof or payable thereon, the
amount or amounts paid or distributed thereon and all other facts pertinent
thereto or to this Article.
97
SECTION 1312. Trustee Not Fiduciary for Holders of Senior Debt.
------------------------------------------------
The Trustee, in its capacity as trustee under this Indenture, shall not
be deemed to owe any fiduciary duty to the holders of Senior Debt and shall not
be liable to any such holders if it shall in good faith mistakenly pay over or
distribute to Holders of Securities or to the Company or to any other Person
cash, property or securities to which any holders of Senior Debt shall be
entitled by virtue of this Article or otherwise.
SECTION 1313. Rights of Trustee as Holder of Senior Debt; Preservation
--------------------------------------------------------
of Trustee's Rights.
--------------------
The Trustee in its individual capacity shall be entitled to all the
rights set forth in this Article with respect to any Senior Debt which may at
any time be held by it, to the same extent as any other holder of Senior Debt,
and nothing in this Indenture shall deprive the Trustee of any of its rights as
such holder.
SECTION 1314. Article Applicable to Paying Agents.
-----------------------------------
In case at any time any Paying Agent other than the Trustee shall have
been appointed by the Company and be then acting hereunder, the term "Trustee"
as used in this Article shall in such case (unless the context otherwise
requires) be construed as extending to and including such Paying Agent within
its meaning as fully for all intents and purposes as if such Paying Agent were
named in this Article in addition to or in place of the Trustee.
SECTION 1315. Certain Conversions or Exchanges Deemed Payment.
-----------------------------------------------
For the purposes of this Article only, (a) the issuance and delivery of
-
junior securities upon conversion or exchange of Securities shall not be deemed
to constitute a payment or distribution on account of the principal of (or
premium, if any) or interest (including any Additional Interest) on Securities
or on account of the purchase or other acquisition of Securities, and (b) the
-
payment, issuance or delivery of cash, property or securities (other than junior
securities) upon conversion or exchange of a Security shall be deemed to
constitute payment on account of the principal of such security. For the
purposes of this
98
Section, the term "junior securities" means (i) shares of any stock of any class
-
of the Company and (ii) securities of the Company which are subordinated in
--
right of payment to all Senior Debt which may be outstanding at the time of
issuance or delivery of such securities to substantially the same extent as, or
to a greater extent than, the Securities are so subordinated as provided in this
Article.
* * * *
This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, and their respective corporate seals to be hereunto affixed and
attested, all as of the day and year first above written.
ITT HARTFORD GROUP, INC.
By:/s/ J. Richard Garrett
---------------------------
J. Richard Garrrett
Attest:
/s/ Michael O'Halloran
- ----------------------------
Michael O'Halloran
WILMINGTON TRUST COMPANY, as Property Trustee
By:/s/ W. Chris Sponenberg
--------------------------
W. Chris Sponenberg
99
State of Connecticut :
: ss. Hartford
County of Hartford :
On the 30th day of October, 1996 before me personally came J.
Richard Garrett, to me known, who being duly sworn, did depose and say that
he/she is Vice President and Treasurer of The Chase Manhattan Bank (National
Association), a national banking association described in and which executed the
foregoing instrument; that he knows the seal of said association; that the seal
affixed to said instrument is such corporate seal; that it was so affixed by
authority of the Board of Directors of said association, and that he signed his
name thereto by like authority.
/s/ Mary Anne Elsner
----------------------------
Notary Public
My Commission Expires: April 30, 2000
State of Delaware :
: ss.
County of New Castle :
On the 28th day of October, 1996 before me personally came W. Chris
Sponenberg , to me known, who being duly sworn, did depose and say that he/she
is Asst. Secretary and Senior Financial Services Officer of The Chase Manhattan
Bank (National Association), a national banking association described in and
which executed the foregoing instrument; that he knows the seal of said
association; that the seal affixed to said instrument is such corporate seal;
that it was so affixed by authority of the Board of Directors of said
association, and that he signed his name thereto by like authority.
/s/ Scott E. Kreps
----------------------------
Notary Public
My Commission Expires: April 20, 1998
100
State of New York :
: ss.
County of New York :
On the _____ day of _________, ___ before me personally came __________,
to me known, who being duly sworn, did depose and say that he/she is ______ of
ITT Hartford Group, Inc., one of the corporations described in and which
executed the foregoing instrument; that he knows the seal of said corporation;
that the seal affixed to said instrument is such corporate seal; that it was so
affixed by authority of the Board of Directors of said corporation, and that he
signed his name thereto by like authority.
----------------------------
Notary Public
My Commission Expires:
101
Exhibit 4.21
- --------------------------------------------------------------------------------
GUARANTEE AGREEMENT
Between
ITT Hartford Group, Inc.
(as Guarantor)
and
Wilmington Trust Company
(as Trustee)
dated as of
October 30, 1996
- --------------------------------------------------------------------------------
CROSS-REFERENCE TABLE*
Section of Section of
Trust Indenture Act Guarantee
of 1939, as amended Agreement
- ------------------- ---------
310(a)........................................................... 401(a)
310(b)........................................................... 401(c), 208
310(c)........................................................... Inapplicable
311(a)........................................................... 202(b)
311(b)........................................................... 202(b)
311(c)........................................................... Inapplicable
312(a)........................................................... 202(a)
312(b)........................................................... 202(b)
313 ........................................................... 203
314(a)........................................................... 204
314(b)........................................................... Inapplicable
314(c)........................................................... 205
314(d)........................................................... Inapplicable
314(e)........................................................... 101, 205, 302
314(f)........................................................... 201, 302
315(a)........................................................... 301(d)
315(b)........................................................... 207
315(c)........................................................... 301
315(d)........................................................... 301(d)
316(a)........................................................... 101, 206, 504
316(b)........................................................... 503
316(c)........................................................... 802
317(a)........................................................... Inapplicable
317(b)........................................................... Inapplicable
318(a)........................................................... 201(b)
318(b)........................................................... 201
318(c)........................................................... 201(a)
___________________
* This cross-Reference Table does not constitute part of the Guarantee
Agreement and shall not affect the interpretation of any of its terms or
provisions.
TABLE OF CONTENTS
-----------------
Page
----
ARTICLE I
DEFINITIONS
SECTION 101. Definitions...................................................2
ARTICLE II
TRUST INDENTURE ACT
SECTION 201. Trust Indenture Act; Application..............................6
SECTION 202. List of Holders...............................................6
SECTION 203. Reports by the Guarantee Trustee..............................7
SECTION 204. Periodic Reports to Guarantee Trustee.........................7
SECTION 205. Evidence of Compliance with Conditions Precedent..............7
SECTION 206. Events of Default; Waiver.....................................7
SECTION 207. Event of Default; Notice......................................8
SECTION 208. Conflicting Interests.........................................8
ARTICLE III
POWERS, DUTIES AND RIGHTS OF THE GUARANTEE TRUSTEE
SECTION 301. Powers and Duties of the Guarantee Trustee....................8
SECTION 302. Certain Rights of Guarantee Trustee...........................11
SECTION 303. Indemnity.....................................................13
ARTICLE IV
GUARANTEE TRUSTEE
SECTION 401. Guarantee Trustee; Eligibility................................13
SECTION 402. Appointment, Removal and Resignation of the
Guarantee Trustee................................................14
ARTICLE V
GUARANTEE
SECTION 501. Guarantee.....................................................15
SECTION 502. Waiver of Notice and Demand...................................15
SECTION 503. Obligations Not Affected......................................15
SECTION 504. Rights of Holders.............................................16
SECTION 505. Guarantee of Payment..........................................17
SECTION 506. Subrogation...................................................17
SECTION 507. Independent Obligations.......................................18
ARTICLE VI
COVENANTS AND SUBORDINATION
SECTION 601. Subordination.................................................18
SECTION 602. Pari Passu Guarantees.........................................18
i
Page
----
ARTICLE VII
TERMINATION
SECTION 701. Termination...................................................18
ARTICLE VIII
MISCELLANEOUS
SECTION 801. Successors and Assigns........................................19
SECTION 802. Amendments....................................................19
SECTION 803. Notices.......................................................19
SECTION 804. Benefit.......................................................20
SECTION 805. Interpretation................................................20
SECTION 806. GOVERNING LAW.................................................21
ii
GUARANTEE AGREEMENT
-------------------
This GUARANTEE AGREEMENT, dated as of October 30, 1996, is
executed and delivered by ITT Hartford Group, Inc., a Delaware corporation (the
"Guarantor"), and Wilmington Trust Company, a Delaware banking corporation
organized under the laws of the State of Delaware, as trustee (the "Guarantee
Trustee"), for the benefit of the Holders (as defined herein) from time to time
of the Preferred Securi ties (as defined herein) of Hartford Capital II, a
Delaware statutory business trust (the "Issuer").
WHEREAS, pursuant to an Amended and Restated Trust Agreement
(the "Trust Agreement"), dated as of October 30, 1996 among the Issuer Trustees
named therein, the Guarantor, as Depositor, and the Holders from time to time of
undivided beneficial interests in the assets of the Issuer, the Issuer is
issuing up to $500,000,000 aggregate liquidation preference of its 8.35%
Preferred Securities, Series B liquidation preference $25 per preferred
security) (the "Preferred Securities") representing preferred undivided
beneficial interests in the assets of the Issuer and having the terms set forth
in the Trust Agreement;
WHEREAS, the Preferred Securities will be issued by the Issuer
and the proceeds thereof, together with the proceeds from the issuance of the
Issuer's Common Securities (as defined below), will be used to purchase the
Debentures (as defined in the Trust Agreement) of the Guarantor which will be
deposited with Wilmington Trust Company, as Property Trustee under the Trust
Agreement, as trust assets; and
WHEREAS, as incentive for the Holders to purchase Preferred
Securities the Guarantor desires irrevocably and unconditionally to agree, to
the extent set forth herein, to pay to the Holders of the Preferred Securities
the Guarantee Payments (as defined herein) and to make certain other payments on
the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the purchase by each
Holder of Preferred Securities, which purchase the Guarantor hereby agrees shall
benefit the Guarantor, the Guarantor executes and delivers this Guarantee
Agreement for the benefit of the Holders from time to time of the Preferred
Securities.
ARTICLE I
DEFINITIONS
SECTION 101. Definitions.
-----------
As used in this Guarantee Agreement, the terms set forth below
shall, unless the context otherwise requires, have the following meanings.
Capitalized or otherwise defined terms used but not otherwise defined herein
shall have the meanings assigned to such terms in the Trust Agreement as in
effect on the date hereof.
"Affiliate" of any specified Person means any other Person
directly or indirectly controlling or con trolled by or under direct or indirect
common control with such specified Person, provided, however, that an Affiliate
of the Guarantor shall not be deemed to include the Issuer. For the purposes of
this definition, "control" when used with respect to any specified Person means
the power to direct the management and policies of such Person, directly or
indirectly, whether through the ownership of voting securities, by contract or
otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"Common Securities" means the securities representing common
beneficial interests in the assets of the Issuer.
"Debt" means, with respect to any Person, whether recourse is
to all or a portion of the assets of such Person and whether or not contingent,
(i) every obligation of such Person for money borrowed; (ii) every obligation of
such Person evidenced by bonds, debentures, notes or other similar instruments,
including obligations incurred in connection with the acquisition of property,
assets or businesses; (iii) every reimbursement obligation of such Person with
respect to letters of credit, bankers' acceptances or similar facilities issued
for the account of such Person; (iv) every obligation of such Person issued or
assumed as the deferred purchase price of property or ser vices (but excluding
trade accounts payable or accrued liabilities arising in the ordinary course of
business); (v) every capital lease obligation of such Person; and (vi) every
obligation of the type referred to in clauses (i) through (v) of another Person
and all dividends of another Person the payment of which, in either case, such
Person has guaranteed or is responsible or liable, directly or indirectly, as
obligor or otherwise.
2
"Event of Default" means a default by the Guarantor on any of
its payment or other obligations under this Guarantee Agreement; provided,
however, that, except with respect to a default in payment of any Guarantee
Payments, the Guarantor shall have received notice of default and shall not have
cured such default within 60 days after receipt of such notice.
"Guarantee Payments" means the following payments or
distributions, without duplication, with respect to the Preferred Securities, to
the extent not paid or made by or on behalf of the Issuer: (i) any accrued and
unpaid Distributions (as defined in the Trust Agreement) required to be paid on
the Preferred Securities, to the extent the Issuer shall have funds on hand
available therefor, (ii) the re demption price, including all accrued and unpaid
Distribu tions to the date of redemption (the "Redemption Price"), with respect
to the Preferred Securities called for redemp tion by the Issuer to the extent
the Issuer shall have funds on hand available therefor, and (iii) upon a
voluntary or involuntary termination, winding-up or liquidation of the Issuer,
unless Debentures are distributed to the Holders, the lesser of (a) the
aggregate of the liquidation preference of $25 per Preferred Security plus
accrued and unpaid Distributions on the Preferred Securities to the date of
payment to the extent the Issuer shall have funds on hand available to make such
payment and (b) the amount of assets of the Issuer remaining available for
distribution to Holders in liquidation of the Issuer (in either case, the
"Liquidation Distribution").
"Guarantee Trustee" means Wilmington Trust Company, until a
Successor Guarantee Trustee has been appointed and has accepted such appointment
pursuant to the terms of this Guarantee Agreement and thereafter means each such
Successor Guarantee Trustee.
"Holder" means any holder, as registered on the books and
records of the Issuer, of any Preferred Securities; provided, however, that in
-------- -------
determining whether the holders of the requisite percentage of Preferred
Securities have given any request, notice, consent or waiver hereunder, "Holder"
shall not include the Guarantor, the Guarantee Trustee or any Affiliate of the
Guarantor or the Guarantee Trustee.
"Indenture" means the Junior Subordinated Indenture dated as
of October 30, 1996, as supplemented and
3
amended between the Guarantor and Wilmington Trust Company, as trustee.
"List of Holders" has the meaning specified in
Section 202(a).
"Majority in liquidation preference of the Securities" means,
except as provided by the Trust Indenture Act, a vote by the Holder(s), voting
separately as a class, of more than 50% of the liquidation preference of all
then outstanding Preferred Securities issued by the Issuer.
"Officers' Certificate" means, with respect to any Person, a
certificate signed by the Chairman and Chief Executive Officer, President or a
Vice President, and by the Treasurer, an Associate Treasurer, an Assistant
Treasurer, the Controller, the Secretary or an Assistant Secretary of such
Person, and delivered to the Guarantee Trustee. Any Officers' Certificate
delivered with respect to compliance with a condition or covenant provided for
in this Guarantee Agreement shall include:
(a) a statement that each officer signing the Officers'
Certificate has read the covenant or condi tion and the definitions
relating thereto;
(b) a brief statement of the nature and scope of
the examination or investigation undertaken by each
officer in rendering the Officers' Certificate;
(c) a statement that each such officer has made such
examination or investigation as, in such officer's opinion, is
necessary to enable such officer to express an informed opinion as to
whether or not such covenant or condition has been complied with; and
(d) a statement as to whether, in the opinion of
each such officer, such condition or covenant has been
complied with.
"Person" means a legal person, including any individual,
corporation, estate, partnership, joint venture, association, joint stock
company, limited liability company, trust, unincorporated association, or
government or any agency or political subdivision thereof, or any other entity
of whatever nature.
"Responsible Officer" means, with respect to the Guarantee
Trustee, any Senior Vice President, any Vice
4
President, any Assistant Vice President, the Secretary, any Assistant Secretary,
the Treasurer, any Assistant Treasurer, any Trust Officer or Assistant Trust
Officer or any other officer of the Corporate Trust Department of the Guarantee
Trustee customarily performing functions similar to those performed by any of
the above designated officers and also means, with respect to a particular
corporate trust matter, any other officer to whom such matter is referred
because of that officer's knowledge of and familiarity with the particular
subject.
"Senior Debt" means the principal of (and premium, if any) and
interest, if any (including interest accruing on or after the filing of any
petition in bankruptcy or for reorganization relating to the Guarantor whether
or not such claim for post-petition interest is allowed in such proceeding), on
Debt, whether incurred on or prior to the date of this Guarantee or thereafter
incurred, unless, in the instrument creating or evidencing the same or pursuant
to which the same is outstanding, it is provided that such obligations are not
superior in right of payment to the Guarantee or to other Debt which is pari
passu with, or subordinated to, the Guarantee; provided, however, that Senior
Debt shall not be deemed to include (a) any Debt of the Guarantor which when
incurred and without respect to any election under Section 1111(b) of the
Bankruptcy Reform Act of 1978, was without recourse to the Company, (b) any Debt
of the Guarantor to any of its Subsidiaries, (c) Debt to any employee of the
Guarantor, (d) any liability for taxes, (e) Debt or other monetary obligations
to trade creditors created or assumed by the Guarantor or any of its
Subsidiaries in the ordinary course of business in connection with the obtaining
of goods, materials or services and (f) Debt issued under the Indenture and (g)
the Guarantee.
"Successor Guarantee Trustee" means a successor Guarantee
Trustee possessing the qualifications to act as Guarantee Trustee under Section
401.
"Trust Indenture Act" means the Trust Indenture
Act of 1939, as amended.
5
ARTICLE II
TRUST INDENTURE ACT
SECTION 201. Trust Indenture Act; Application.
--------------------------------
(a) This Guarantee Agreement is subject to the provisions
of the Trust Indenture Act that are required to be
part of this Guarantee Agreement and shall, to the
extent applicable, be governed by such provisions.
(b) If and to the extent that any provision of this
Guarantee Agreement limits, qualifies or conflicts
with the duties imposed by Sections 310 to 317,
inclusive, of the Trust Indenture Act, such imposed
duties shall control.
SECTION 202. List of Holders.
---------------
(a) The Guarantor shall furnish or cause to be
furnished to the Guarantee Trustee (a)
semiannually, on or before February 15 and
August 15 of each year, a list, in such form
as the Guarantee Trustee may reasonably
require, of the names and addresses of the
Holders ("List of Holders") as of a date not
more than 15 days prior to the delivery
thereof, and (b) at such other times as the
Guarantee Trustee may request in writing,
within 30 days after the receipt by the
Guarantor of any such request, a List of
Holders as of a date not more than 15 days
prior to the time such list is furnished, in
each case to the extent such information is
in the possession or control of the Guarantor
and is not identical to a previously supplied
list of Holders or has not otherwise been
received by the Guarantee Trustee in its
capacity as such. The Guarantee Trustee may
destroy any List of Holders previously given
to it on receipt of a new List of Holders.
(b) The Guarantee Trustee shall comply with its
obligations under Section 311(a), Section
311(b) and Section 312(b) of the Trust
Indenture Act.
6
SECTION 203. Reports by the Guarantee Trustee.
--------------------------------
Within 60 days after July 1 of each year, the Guarantee
Trustee shall provide to the Holders such reports as are required by Section 313
of the Trust Indenture Act, if any, in the form and in the manner provided by
Section 313 of the Trust Indenture Act. The Guarantee Trustee shall also comply
with the requirements of Section 313(d) of the Trust Indenture Act.
SECTION 204. Periodic Reports to Guarantee
-----------------------------
Trustee.
-------
The Guarantor shall provide to the Guarantee Trustee, the
Securities and Exchange Commission and the Holders such documents, reports and
information, if any, as required by Section 314 of the Trust Indenture Act and
the compliance certificate required by Section 314 of the Trust Indenture Act in
the form, in the manner and at the times required by Section 314 of the Trust
Indenture Act.
SECTION 205. Evidence of Compliance with Conditions
--------------------------------------
Precedent.
---------
The Guarantor shall provide to the Guarantee Trustee such
evidence of compliance with such conditions precedent, if any, provided for in
this Guarantee Agreement that relate to any of the matters set forth in Section
314(c) of the Trust Indenture Act. Any certificate or opinion required to be
given by an officer pursuant to Section 314(c)(1) may be given in the form of an
Officers' Certificate.
SECTION 206. Events of Default; Waiver.
-------------------------
The Holders of a Majority in liquidation preference of the
Preferred Securities may, by vote, on behalf of the Holders, waive any past
Event of Default and its consequences. Upon such waiver, any such Event of
Default shall cease to exist, and any Event of Default arising therefrom shall
be deemed to have been cured, for every purpose of this Guarantee Agreement, but
no such waiver shall extend to any subsequent or other default or Event of
Default or impair any right consequent therefrom.
7
SECTION 207. Event of Default; Notice.
------------------------
(a) The Guarantee Trustee shall, within 90 days
after the occurrence of an Event of Default,
transmit by mail, first class postage
prepaid, to the Holders, notices of all
Events of Default known to the Guarantee
Trustee, unless such defaults have been cured
before the giving of such notice, provided,
that, except in the case of a default in the
payment of a Guarantee Payment, the Guarantee
Trustee shall be protected in withholding
such notice if and so long as the Board of
Directors, the executive committee or a trust
committee of directors and/or Responsible
Officers of the Guarantee Trustee in good
faith determines that the withholding of such
notice is in the interests of the Holders.
(b) The Guarantee Trustee shall not be deemed to have
knowledge of any Event of Default unless the
Guarantee Trustee shall have received written notice,
or a Responsible Officer charged with the
administration of the Trust Agreement shall have
obtained written notice, of such Event of Default.
SECTION 208. Conflicting Interests.
---------------------
The Trust Agreement shall be deemed to be specifically
described in this Guarantee Agreement for the purposes of clause (i) of the
first proviso contained in Section 310(b) of the Trust Indenture Act.
ARTICLE III
POWERS, DUTIES AND RIGHTS OF THE GUARANTEE TRUSTEE
SECTION 301. Powers and Duties of the Guarantee
----------------------------------
Trustee.
-------
(a) This Guarantee Agreement shall be held by
the Guarantee Trustee for the benefit of the
Holders, and the Guarantee Trustee shall not
transfer this Guarantee Agreement to any
Person except a Holder exercising his or her
rights pursuant to Section 504(iv) or to a
Successor Guarantee Trustee on acceptance by
such Successor Guarantee Trustee of its
8
appointment to act as Successor Guarantee Trustee.
The right, title and interest of the Guarantee
Trustee shall automatically vest in any Successor
Guarantee Trustee, upon acceptance by such Successor
Guarantee Trustee of its appointment hereunder, and
such vesting and cessation of title shall be
effective whether or not conveyancing documents have
been executed and delivered pursuant to the
appointment of such Successor Guarantee Trustee.
(b) If an Event of Default has occurred and is
continuing, the Guarantee Trustee shall enforce this
Guarantee Agreement for the benefit of the Holders.
(c) The Guarantee Trustee, before the
occurrence of any Event of Default and after
the curing of all Events of Default that may
have occurred, shall undertake to perform
only such duties as are specifically set
forth in this Guarantee Agreement, and no
implied covenants shall be read into this
Guarantee Agreement against the Guarantee
Trustee. In case an Event of Default has
occurred (that has not been cured or waived
pursuant to Section 206), the Guarantee
Trustee shall exercise such of the rights and
powers vested in it by this Guarantee
Agreement, and use the same degree of care
and skill in its exercise thereof, as a
prudent person would exercise or use under
the circumstances in the conduct of his or
her own affairs.
(d) No provision of this Guarantee Agreement shall be
construed to relieve the Guarantee Trustee from
liability for its own negligent action, its own
negligent failure to act or its own willful
misconduct, except that:
(i) prior to the occurrence of any Event of Default and after
the curing or waiving of all such Events of Default that may have
occurred:
(A) the duties and obligations of the Guarantee
Trustee shall be determined solely by the express provisions
of this Guarantee Agreement,
9
and the Guarantee Trustee shall not be liable except for the
performance of such duties and obligations as are specifically
set forth in this Guarantee Agreement; and
(B) in the absence of bad faith on the part of the
Guarantee Trustee, the Guarantee Trustee may conclusively
rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon any certificates or
opinions furnished to the Guarantee Trustee and con forming to
the requirements of this Guarantee Agreement; but in the case
of any such certifi cates or opinions that by any provision
hereof or of the Trust Indenture Act are specifically required
to be furnished to the Guarantee Trustee, the Guarantee
Trustee shall be under a duty to examine the same to determine
whether or not they conform to the requirements of this
Guarantee Agreement;
(ii) the Guarantee Trustee shall not be liable for any error
of judgment made in good faith by a Responsible Officer of the
Guarantee Trustee, unless it shall be proved that the Guarantee Trustee
was negligent in ascertaining the pertinent facts upon which such
judgment was made;
(iii) the Guarantee Trustee shall not be liable with respect
to any action taken or omitted to be taken by it in good faith in
accordance with the direction of the Holders of not less than a
Majority in liquidation preference of the Preferred Securities relating
to the time, method and place of conducting any proceeding for any
remedy available to the Guarantee Trustee, or exercising any trust or
power conferred upon the Guarantee Trustee under this Guarantee
Agreement; and
(iv) no provision of this Guarantee Agreement shall require
the Guarantee Trustee to expend or risk its own funds or otherwise
incur personal financial liability in the performance of any of its
duties or in the exercise of any of its rights or powers, if the
Guarantee Trustee shall have reasonable grounds for believing that the
repayment of such funds or liability is not reasonably assured to it
under the terms of this Guarantee Agreement or adequate indemnity
against such risk or liability is not reasonably assured to it.
10
SECTION 302. Certain Rights of Guarantee
---------------------------
Trustee.
-------
(a) Subject to the provisions of Section 301:
(i) The Guarantee Trustee may rely and shall be fully
protected in acting or refraining from acting upon any resolution,
certificate, statement, instrument, opinion, report, notice, request,
direction, consent, order, bond, debenture, note, other evidence of
indebtedness or other paper or document believed by it to be genuine
and to have been signed, sent or presented by the proper party or
parties.
(ii) Any direction or act of the Guarantor contemplated by
this Guarantee Agreement shall be sufficiently evidenced by an
Officers' Certificate unless otherwise prescribed herein.
(iii) Whenever, in the administration of this Guarantee
Agreement, the Guarantee Trustee shall deem it desirable that a matter
be proved or established before taking, suffering or omitting to take
any action hereunder, the Guarantee Trustee (unless other evidence is
herein specifically prescribed) may, in the absence of bad faith on its
part, request and rely upon an Officers' Certificate which, upon
receipt of such request from the Guarantee Trustee, shall be promptly
delivered by the Guarantor.
(iv) The Guarantee Trustee may consult with legal counsel,
and the written advice or opinion of such legal counsel with respect to
legal matters shall be full and complete authorization and protection
in respect of any action taken, suffered or omitted to be taken by it
hereunder in good faith and in accordance with such advice or opinion.
Such legal counsel may be legal counsel to the Guarantor or any of its
Affiliates and may be one of its employees. The Guarantee Trustee shall
have the right at any time to seek instructions concerning the
administration of this Guarantee Agreement from any court of competent
jurisdiction.
(v) The Guarantee Trustee shall be under no obligation to
exercise any of the rights or powers vested in it by this Guarantee
Agreement at the request or direction of any Holder, unless such Holder
shall have provided to the Guarantee Trustee such adequate security and
indemnity as would satisfy a reasonable
11
person in the position of the Guarantee Trustee, against the costs,
expenses (including attorneys' fees and expenses) and liabilities that
might be incurred by it in complying with such request or direction,
including such reasonable advances as may be requested by the
Guarantee Trustee; provided that, nothing contained in this Section
302(a)(v) shall be taken to relieve the Guarantee Trustee, upon the
occurrence of an Event of Default, of its obligation to exercise the
rights and powers vested in it by this Guarantee Agreement.
(vi) The Guarantee Trustee shall not be bound to make any
investigation into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice, request,
direction, consent, order, bond, debenture, note, other evidence of
indebtedness or other paper or document, but the Guarantee Trustee, in
its discretion, may make such further inquiry or investigation into
such facts or matters as it may see fit.
(vii) The Guarantee Trustee may execute any of the trusts or
powers hereunder or perform any duties hereunder either directly or by
or through its agents or attorneys, and the Guarantee Trustee shall not
be responsible for any misconduct or negligence on the part of any such
agent or attorney appointed with due care by it hereunder.
(viii) Whenever in the administration of this Guarantee
Agreement the Guarantee Trustee shall deem it desirable to receive
instructions with respect to enforcing any remedy or right or taking
any other action hereunder, the Guarantee Trustee (A) may request
instructions from the Holders, (B) may refrain from enforcing such
remedy or right or taking such other action until such instructions are
received, and (C) shall be protected in acting in accordance with such
instructions.
(b) No provision of this Guarantee Agreement
shall be deemed to impose any duty or
obligation on the Guarantee Trustee to
perform any act or acts or exercise any
right, power, duty or obligation conferred or
imposed on it in any jurisdiction in which it
shall be illegal, or in which the Guarantee
Trustee shall be unqualified or incompetent
in accordance with applicable law, to perform
12
any such act or acts or to exercise any such right,
power, duty or obligation. No permissive power or
authority available to the Guarantee Trustee shall be
construed to be a duty to act in accordance with such
power and authority.
SECTION 303. Indemnity.
---------
The Guarantor agrees to indemnify the Guarantee Trustee for,
and to hold it harmless against, any loss, liability or expense incurred without
negligence or bad faith on the part of the Guarantee Trustee, arising out of or
in connection with the acceptance or administration of this Guarantee Agreement,
including the costs and expenses of defending itself against any claim or
liability in connection with the exercise or performance of any of its powers
or duties hereunder. The Guarantee Trustee will not claim or exact any lien or
charge on any Guarantee Payments as a result of any amount due to it under this
Guarantee Agreement.
ARTICLE IV
GUARANTEE TRUSTEE
SECTION 401. Guarantee Trustee; Eligibility.
------------------------------
(a) There shall at all times be a Guarantee
Trustee which shall:
(i) not be an Affiliate of the Guarantor; and
(ii) be a Person that is eligible pursuant to the Trust
Indenture Act to act as such and has a combined capital and surplus of
at least 50 million U.S. dollars ($50,000,000), and shall be a
corporation meeting the requirements of Section 310(c) of the Trust
Indenture Act. If such corporation publishes reports of condition at
least annually, pursuant to law or to the requirements of the
supervising or examining authority, then, for the purposes of this
Section and to the extent permitted by the Trust Indenture Act, the
combined capital and surplus of such corporation shall be deemed to be
its combined capital and surplus as set forth in its most recent report
of condition so published.
12
(b) If at any time the Guarantee Trustee shall cease to
be eligible to so act under Section 401(a), the
Guarantee Trustee shall immediately resign in the
manner and with the effect set out in Section 402(c).
(c) If the Guarantee Trustee has or shall acquire any
"conflicting interest" within the meaning of Section
310(b) of the Trust Indenture Act, the Guarantee
Trustee and Guarantor shall in all respects comply
with the provisions of Section 310(b) of the Trust
Indenture Act.
SECTION 402. Appointment, Removal and Resignation of the
-------------------------------------------
Guarantee Trustee.
------------------
(a) Subject to Section 402(b), the Guarantee
Trustee may be appointed or removed without
cause at any time by the Guarantor.
(b) The Guarantee Trustee shall not be removed until a
Successor Guarantee Trustee has been appointed and
has accepted such appointment by written instrument
executed by such Successor Guarantee Trustee and
delivered to
the Guarantor.
(c) The Guarantee Trustee appointed hereunder
shall hold office until a Successor Guarantee
Trustee shall have been appointed or until
its removal or resignation. The Guarantee
Trustee may resign from office (without need
for prior or subsequent accounting) by an
instrument in writing executed by the
Guarantee Trustee and delivered to the
Guarantor, which resignation shall not take
effect until a Successor Guarantee Trustee
has been appointed and has accepted such
appointment by instrument in writing executed
by such Successor Guarantee Trustee and
delivered to the Guarantor and the resigning
Guarantee Trustee.
(d) If no Successor Guarantee Trustee shall have been
appointed and accepted appointment as provided in
this Section 402 within 60 days after delivery to the
Guarantor of an instrument of resignation, the
resigning
14
Guarantee Trustee may petition, at the expense of the
Guarantor, any court of competent jurisdiction for
appointment of a Successor Guarantee Trustee. Such
court may thereupon, after prescribing such notice,
if any, as it may deem proper, appoint a Successor
Guarantee Trustee.
ARTICLE V
GUARANTEE
SECTION 501. Guarantee.
---------
The Guarantor irrevocably and unconditionally agrees to pay in
full to the Holders the Guarantee Payments (without duplication of amounts
theretofore paid by or on behalf of the Issuer), as and when due, regardless of
any defense, right of set-off or counterclaim which the Issuer may have or
assert. The Guarantor's obligation to make a Guarantee Payment may be satisfied
by direct payment of the required amounts by the Guarantor to the Holders or by
causing the Issuer to pay such amounts to the Holders.
SECTION 502. Waiver of Notice and Demand.
---------------------------
The Guarantor hereby waives notice of acceptance of the
Guarantee Agreement and of any liability to which it applies or may apply,
presentment, demand for payment, any right to require a proceeding first against
the Guarantee Trustee, Issuer or any other Person before proceeding against the
Guarantor, protest, notice of nonpayment, notice of dishonor, notice of
redemption and all other notices and demands.
SECTION 503. Obligations Not Affected.
------------------------
The obligations, covenants, agreements and duties of the
Guarantor under this Guarantee Agreement shall in no way be affected or impaired
by reason of the happening from time to time of any of the following:
(a) the release or waiver, by operation of law or otherwise,
of the performance or observance by the Issuer of any express or
implied agreement, covenant, term or condition relating to the
Preferred Securities to be performed or observed by the Issuer;
15
(b) the extension of time for the payment by the Issuer of
all or any portion of the Distributions (other than an extension of
time for payment of Distributions that results from the extension of
any interest payment period on the Debentures as so provided in the
Indenture), Redemption Price, Liquidation Distribution or any other
sums payable under the terms of the Preferred Securities or the
extension of time for the performance of any other obligation under,
arising out of, or in connection with, the Preferred Securities;
(c) any failure, omission, delay or lack of diligence on the
part of the Holders to enforce, assert or exercise any right,
privilege, power or remedy conferred on the Holders pursuant to the
terms of the Preferred Securities, or any action on the part of the
Issuer granting indulgence or extension of any kind;
(d) the voluntary or involuntary liquidation, dissolution,
sale of any collateral, receivership, insolvency, bankruptcy,
assignment for the benefit of creditors, reorganization, arrangement,
composition or readjustment of debt of, or other similar proceedings
affecting, the Issuer or any of the assets of the Issuer;
(e) any invalidity of, or defect or deficiency
in, the Preferred Securities;
(f) the settlement or compromise of any obligation guaranteed
hereby or hereby incurred; or
(g) any other circumstance whatsoever that might otherwise
constitute a legal or equitable discharge or defense of a guarantor, it
being the intent of this Section 503 that the obligations of the
Guarantor hereunder shall be absolute and unconditional under any and
all circumstances.
There shall be no obligation of the Holders to give notice to, or obtain the
consent of, the Guarantor with respect to the happening of any of the foregoing.
SECTION 504. Rights of Holders.
-----------------
The Guarantor expressly acknowledges that: (i) this Guarantee
Agreement will be deposited with the Guarantee Trustee to be held for the
benefit of the Holders;
16
(ii) the Guarantee Trustee has the right to enforce this Guarantee Agreement on
behalf of the Holders; (iii) the Holders of a Majority in liquidation preference
of the Preferred Securities have the right to direct the time, method and place
of conducting any proceeding for any remedy available to the Guarantee Trustee
in respect of this Guarantee Agreement or exercising any trust or power
conferred upon the Guarantee Trustee under this Guarantee Agreement; and (iv)
any Holder may institute a legal proceeding directly against the Guarantor to
enforce its rights under this Guarantee Agreement, without first instituting a
legal proceeding against the Guarantee Trustee, the Issuer or any other Person.
SECTION 505. Guarantee of Payment.
--------------------
This Guarantee Agreement creates a guarantee of payment and
not of collection. This Guarantee Agreement will not be discharged except by
payment of the Guarantee Payments in full (without duplication of amounts
theretofore paid by the Issuer) or upon distribution of Debentures to Holders as
provided in the Trust Agreement.
SECTION 506. Subrogation.
-----------
The Guarantor shall be subrogated to all (if any) rights of
the Holders against the Issuer in respect of any amounts paid to the Holders by
the Guarantor under this Guarantee Agreement and shall have the right to waive
pay ment by the Issuer pursuant to Section 501; provided, however, that the
Guarantor shall not (except to the extent required by mandatory provisions of
law) be entitled to enforce or exercise any rights which it may acquire by way
of subrogation or any indemnity, reimbursement or other agreement, in all cases
as a result of payment under this Guarantee Agreement, if, at the time of any
such payment, any amounts are due and unpaid under this Guarantee Agreement. If
any amount shall be paid to the Guarantor in violation of the preceding
sentence, the Guarantor agrees to hold such amount in trust for the Holders and
to pay over such amount to the Holders.
SECTION 507. Independent Obligations.
-----------------------
The Guarantor acknowledges that its obligations hereunder are
independent of the obligations of the Issuer with respect to the Preferred
Securities and that the Guarantor shall be liable as principal and as debtor
hereunder to make Guarantee Payments pursuant to the terms of this
17
Guarantee Agreement notwithstanding the occurrence of any event referred to in
subsections (a) through (g), inclusive, of Section 503 hereof.
ARTICLE VI
COVENANTS AND SUBORDINATION
SECTION 601. Subordination.
-------------
This Guarantee Agreement will constitute an unsecured
obligation of the Guarantor and will rank subordinate and junior in right of
payment to all Senior Debt of the Guarantor.
SECTION 602. Pari Passu Guarantees.
---------------------
This Guarantee Agreement shall rank pari passu with any
similar Guarantee Agreements issued by the Guarantor on behalf of the holders
of Preferred Securities issued by Hartford Capital II, Hartford Capital III and
Hartford Capital IV.
ARTICLE VII
TERMINATION
SECTION 701. Termination.
-----------
This Guarantee Agreement shall terminate and be of no further
force and effect upon (i) full payment of the Redemption Price of all Preferred
Securities, (ii) the distribution of Debentures to the Holders in ex change for
all of the Preferred Securities or (iii) full payment of the amounts payable in
accordance with the Trust Agreement upon liquidation of the Issuer.
Notwithstanding the foregoing, this Guarantee Agreement will continue to be
effective or will be reinstated, as the case may be, if at any time any Holder
must restore payment of any sums paid with respect to Preferred Securities or
this Guarantee Agreement.
18
ARTICLE VIII
------------
MISCELLANEOUS
SECTION 801. Successors and Assigns.
----------------------
All guarantees and agreements contained in this Guarantee
Agreement shall bind the successors, assigns, receivers, trustees and
representatives of the Guarantor and shall inure to the benefit of the Holders
of the Preferred Securities then outstanding. Except in connection with a
consolidation, merger or sale involving the Guarantor that is permitted under
Article Eight of the Indenture and pursu ant to which the assignee agrees in
writing to perform the Guarantor's obligations hereunder, the Guarantor shall
not assign its obligations hereunder.
SECTION 802. Amendments.
----------
Except with respect to any changes which do not adversely
affect the rights of the Holders in any material respect (in which case no
consent of the Holders will be required), this Guarantee Agreement may only be
amended with the prior approval of the Holders of not less than a Majority in
liquidation preference of all the out standing Preferred Securities. The
provisions of Article VI of the Trust Agreement concerning meetings of the
Holders shall apply to the giving of such approval.
SECTION 803. Notices.
-------
Any notice, request or other communication required or
permitted to be given hereunder shall be in writ ing, duly signed by the party
giving such notice, and delivered, telecopied or mailed by first class mail as
follows:
(a) if given to the Guarantor, to the address set forth below
or such other address as the Guarantor may give notice of to the
Holders:
ITT Hartford Group, Inc.
Hartford Plaza
Hartford, Connecticut 06115
Facsimile No.: (860) 547-5966
Attention: Treasurer
(b) if given to the Issuer, in care of the Guarantee Trustee,
at the Issuer's (and the Guarantee Trustee's) address set forth below
or such other
19
address as the Guarantee Trustee on behalf of the
Issuer may give notice to the Holders:
Hartford Capital II
c/o ITT Hartford Group, Inc.
Hartford Plaza
Hartford, Connecticut 06115
Facsimile No: (860) 547-5966
Attention: Treasurer
with a copy to:
Wilmington Trust Company
1105 Market Street
Wilmington, Delaware
Facsimile No.: (302) 651-8882
Attention: Corporate Trust Department
(c) if given to any Holder, at the address set
forth on the books and records of the Issuer.
All notices hereunder shall be deemed to have been given when
received in person, telecopied with receipt confirmed, or mailed by first class
mail, postage prepaid, except that if a notice or other document is refused
delivery or cannot be delivered because of a changed address of which no notice
was given, such notice or other document shall be deemed to have been delivered
on the date of such refusal or inability to deliver.
SECTION 804. Benefit.
-------
This Guarantee Agreement is solely for the benefit of the
Holders and is not separately transferable from the Preferred Securities.
SECTION 805. Interpretation.
--------------
In this Guarantee Agreement, unless the context otherwise
requires:
(a) capitalized terms used in this Guarantee Agreement but not
defined in the preamble hereto have the respective meanings assigned to
them in Section 101;
20
(b) a term defined anywhere in this Guarantee
Agreement has the same meaning throughout;
(c) all references to "the Guarantee Agreement" or "this
Guarantee Agreement" are to this Guarantee Agreement as modified,
supplemented or amended from time to time;
(d) all references in this Guarantee Agreement to Articles
and Sections are to Articles and Sections of this Guarantee Agreement
unless otherwise specified;
(e) a term defined in the Trust Indenture Act has the same
meaning when used in this Guarantee Agreement unless otherwise defined
in this Guarantee Agreement or unless the context otherwise requires;
(f) a reference to the singular includes the
plural and vice versa; and
(g) the masculine, feminine or neuter genders used herein
shall include the masculine, feminine and neuter genders.
SECTION 806. GOVERNING LAW.
-------------
THIS GUARANTEE AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT
REGARD TO THE CONFLICT OF LAW PRINCIPLES THEREOF.
This instrument may be executed in any number of counterparts,
each of which so executed shall be deemed to be an original, but all such
counterparts shall together constitute but one and the same instrument.
21
THIS GUARANTEE AGREEMENT is executed as of the day and year
first above written.
ITT HARTFORD GROUP, INC.
By: /s/ J. Richard Garrett
----------------------------------------
Name: J. Richard Garrett
Title: Vice President and Treasurer
WILMINGTON TRUST COMPANY, as
Guarantee Trustee
By: /s/ W. Chris Sponenberg
----------------------------------------
Name: W. Chris Sponenberg
Title: Senior Financial Services Officer
22
EXHIBIT 10.11
FIVE-YEAR COMPETITIVE ADVANCE AND
REVOLVING CREDIT FACILITY AGREEMENT
among
ITT HARTFORD GROUP, INC.
THE LENDERS NAMED HEREIN
and
THE CHASE MANHATTAN BANK,
as Administrative Agent
Dated as of December 20, 1996
6700-488
TABLE OF CONTENTS
Article Section Page
- ------- ------- ----
I. DEFINITIONS
1.01. Defined Terms ...................................... 1
1.02. Terms Generally .................................... 15
II. THE CREDITS
2.01. Commitments......................................... 15
2.02. Loans .............................................. 16
2.03. Competitive Bid Procedure .......................... 17
2.04. Standby and Local Currency Borrowing Procedure...... 19
2.05. Conversion and Continuation of Standby Loans ....... 19
2.06. Fees ............................................... 20
2.07. Repayment of Loans; Evidence of Debt ............... 21
2.08. Interest on Loans .................................. 21
2.09. Default Interest ................................... 22
2.10. Alternate Rate of Interest ......................... 22
2.11. Termination and Reduction of Commitments............ 23
2.12. Prepayment ......................................... 23
2.13. Reserve Requirements; Change in Circumstances....... 23
2.14. Change in Legality ................................. 25
2.15. Indemnity .......................................... 25
2.16. Pro Rata Treatment ................................. 26
2.17. Sharing of Setoffs ................................. 26
2.18. Payments ........................................... 27
2.19. Taxes .............................................. 27
2.20. Duty to Mitigate; Assignment of Commitments
Under Certain Circumstances...................... 29
2.21. Terms of Local Currency Facilities.................. 30
2.22. Currency Fluctuations, Etc.......................... 31
III. REPRESENTATIONS AND WARRANTIES
3.01. Organization; Powers ............................... 33
3.02. Authorization ...................................... 33
3.03. Enforceability ..................................... 33
3.04. Governmental Approvals ............................. 33
3.05. Financial Statements ............................... 33
3.06. Litigation; Compliance with Laws.................... 34
3.07. Federal Reserve Regulations......................... 34
3.08. Investment Company Act; Public Utility Holding
Company Act ..................................... 34
3.09. Use of Proceeds..................................... 34
CONTENTS, P. 2
Article Section Page
- ------- ------- ----
3.10. Full Disclosure; No Material Misstatements ......... 34
3.11. Taxes .............................................. 35
3.12. Employee Pension Benefit Plans ..................... 35
IV. CONDITIONS OF LENDING
4.01. All Borrowings ..................................... 35
4.02. Effective Date ..................................... 35
4.03. First Borrowing by Each Borrowing Subsidiary........ 36
V. COVENANTS
5.01. Existence........................................... 37
5.02. Business and Properties . .......................... 37
5.03. Financial Statements, Reports, Etc.................. 37
5.04. Insurance . . . . ................................. 38
5.05. Obligations and Taxes .............................. 38
5.06. Litigation and Other Notices ....................... 38
5.07. Maintaining Records; Access to Properties
and Inspections................................. 38
5.08. Employee Benefits................................... 39
5.09. Use of Proceeds..................................... 39
5.10. Risk-Based Capital Ratio............................ 39
5.11. Consolidations, Mergers, and Sales of Assets........ 39
5.12. Limitations on Liens ............................... 39
5.13. Limitations on Sale and Leaseback Transactions...... 41
5.14. Consolidated Total Debt to Consolidated
Total Capitalization............................ 41
5.15. Limitations on Dividends and Advances by
Subsidiaries..................................... 41
5.16. Minimum Consolidated Statutory Surplus.............. 41
VI. EVENTS OF DEFAULT.......................................... 41
VII. GUARANTEE ............................................... 43
VIII. THE ADMINISTRATIVE AGENT .................................. 45
IX. MISCELLANEOUS
9.01. Notices............................................. 47
9.02. Survival of Agreement .............................. 47
9.03. Binding Effect ..................................... 47
9.04. Successors and Assigns ............................. 48
9.05. Expenses; Indemnity ................................ 50
9.06. Applicable Law ..................................... 50
9.07. Waivers; Amendment ................................. 50
9.08. Entire Agreement ................................... 51
9.09. Severability ....................................... 51
9.10. Counterparts ....................................... 51
CONTENTS, P. 3
Article Section Page
- ------- ------- ----
9.11. Headings ........................................... 51
9.12. Right of Setoff .................................... 51
9.13. Jurisdiction; Consent to Service of Process......... 51
9.14. Waiver of Jury Trial ............................... 52
9.15. Addition of Borrowing Subsidiaries.................. 52
9.16. Conversion of Currencies............................ 52
EXHIBITS AND SCHEDULES
Exhibit A-1 Form of Competitive Bid Request
Exhibit A-2 Form of Notice of Competitive Bid Request
Exhibit A-3 Form of Competitive Bid
Exhibit A-4 Form of Competitive Bid Accept/Reject Letter
Exhibit A-5 Form of Standby Borrowing Request
Exhibit B Administrative Questionnaire
Exhibit C Form of Assignment and Acceptance
Exhibit D Form of Opinion of Counsel for ITT Hartford Group, Inc.
Exhibit E Form of Borrowing Subsidiary Agreement
Exhibit F Form of Local Currency Addendum
Schedule 2.01 Commitments
FIVE-YEAR COMPETITIVE ADVANCE AND REVOLVING
CREDIT FACILITY AGREEMENT (as it may be amended,
supplemented or otherwise modified, the "Agreement")
dated as of December 20, 1996, among ITT HARTFORD
GROUP, INC., a Delaware corporation (the "Company"),
each Borrowing Subsidiary party hereto, the lenders
listed in Schedule 2.01 (together with their
permitted assignees, the "Lenders") and THE CHASE
MANHATTAN BANK, a New York banking corporation, as
administrative agent for the Lenders (in such
capacity, the "Administrative Agent").
The Lenders have been requested to extend credit to the
Borrowers (such term and each other capitalized term used but not otherwise
defined herein having the meaning assigned to them in Article I) to enable them
to borrow on a standby revolving credit basis on and after the date hereof and
at any time and from time to time prior to the Maturity Date a principal amount
not in excess of $1,500,000,000 at any time outstanding. The Lenders have also
been requested to provide a procedure pursuant to which the Borrowers may invite
the Lenders to bid on an uncommitted basis on short-term borrowings by the
Borrowers. The proceeds of such borrowings are to be used for working capital
and other general corporate purposes. The Lenders are willing to extend credit
on the terms and subject to the conditions herein set forth.
Accordingly, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Defined Terms. As used in this Agreement, the
following terms shall have the meanings specified below:
"ABR Borrowing" shall mean a Borrowing comprised of ABR Loans.
"ABR Loan" shall mean any ABR Standby Loan.
"ABR Standby Loan" shall mean any Standby Loan bearing interest
at a rate determined by reference to the Alternate Base Rate in accordance with
the provisions of Article II.
"Administrative Fees" shall have the meaning assigned to such
term in Section 2.06(b).
"Administrative Questionnaire" shall mean an Administrative
Questionnaire in the form of Exhibit B hereto.
"Affiliate" shall mean, when used with respect to a specified
person, another person that directly or indirectly controls or is controlled by
or is under common control with the person specified.
2
"Agreement Currency" shall have the meaning assigned to such term
in Section 9.16(b).
"Alternate Base Rate" shall mean, for any day, a rate per annum
(rounded upwards, if necessary, to the next 1/16 of 1%) equal to the greater of
(a) the Prime Rate in effect on such day and (b) the Federal Funds Effective
Rate in effect on such day plus 1/2 of 1%. For purposes hereof, "Prime Rate"
shall mean the rate of interest per annum publicly announced from time to time
by the Administrative Agent as its prime rate in effect at its principal office
in New York City; each change in the Prime Rate shall be effective on the date
such change is publicly announced as effective. "Federal Funds Effective Rate"
shall mean, for any day, the weighted average of the rates on overnight Federal
funds transactions with members of the Federal Reserve System arranged by
Federal funds brokers, as released on the next succeeding Business Day by the
Federal Reserve Bank of New York, or, if such rate is not so released for any
day which is a Business Day, the arithmetic average (rounded upwards to the next
1/100th of 1%), as determined by the Administrative Agent, of the quotations for
the day of such transactions received by the Administrative Agent from three
Federal funds brokers of recognized standing selected by it. If for any reason
the Administrative Agent shall have determined (which determination shall be
conclusive absent manifest error) that it is unable to ascertain the Federal
Funds Effective Rate for any reason, including the inability or failure of the
Administrative Agent to obtain sufficient quotations in accordance with the
terms thereof, the Alternate Base Rate shall be determined without regard to
clause (b) of the first sentence of this definition until the circumstances
giving rise to such inability no longer exist. Any change in the Alternate Base
Rate due to a change in the Prime Rate or the Federal Funds Effective Rate shall
be effective on the effective date of such change in the Prime Rate or the
Federal Funds Effective Rate, respectively.
"Annual Statement" shall mean, with respect to the Restricted
Subsidiaries, the Annual Statement of such Restricted Subsidiary required to be
filed with the Applicable Insurance Regulatory Authority in accordance with
state law, including any exhibits, schedules, certificates or actuarial opinions
filed or delivered therewith.
"Applicable Insurance Regulatory Authority" shall mean, with
respect to any Insurance Subsidiary, the insurance commission or similar
Governmental Authority located in the state in which such Insurance Subsidiary
is domiciled and any Federal insurance Governmental Authority.
"Applicable Percentage" shall mean on any date, with respect to
Eurocurrency Standby Loans or with respect to the Facility Fee, as the case may
be, the applicable percentage set forth below under the caption "Eurocurrency
Spread" or "Facility Fee Percentage", as the case may be, based upon the Ratings
in effect on such date:
Category 1 Eurocurrency Spread Facility Fee Percentage
- ---------- ------------------- -----------------------
AA- or higher by D&P; .115% .060%
Aa3 or higher by Moody's;
AA- or higher by S&P
Category 2
- ----------
A+ or A by D&P; .130% .070%
A1 or A2 by Moody's;
A+ or A by S&P
3
Category 3
- ----------
A- by D&P; .170% .080%
A3 by Moody's;
A- by S&P
Category 4
- ----------
BBB+ by D&P; .205% .095%
Baa1 by Moody's;
BBB+ by S&P
Category 5
- ----------
BBB by D&P; .225% .125%
Baa2 by Moody's;
BBB by S&P
Category 6
- ----------
BBB- or lower by D&P; .250% .150%
Baa3 or lower by Moody's;
BBB- or lower by S&P
For purposes of the foregoing, (i) if the Ratings shall fall within different
Categories, the Applicable Percentage shall be based upon the Category in which
the largest number of Ratings falls or is deemed to fall; provided that if there
shall be no such Category, one Rating shall be excluded from each of the highest
and the lowest Categories in which Ratings shall fall or be deemed to fall, and
the Applicable Percentage shall be based upon the remaining Rating; (ii) if only
two Ratings exist, the Applicable Percentage shall be based upon the lower
(numerically higher Category) of the available Ratings, (iii) if only a single
Rating exists, the Applicable Percentage shall be based upon the lower
(numerically higher) of Category 5 and the Category corresponding to the single
available Rating; provided, however, that if only a single rating exists because
D&P, Moody's or S&P ceases to be in the business of rating the Company's
corporate debt obligations, the Applicable Percentage shall be based upon the
Category in which such single Rating falls; (iv) if no Ratings exist, the
Applicable Percentage shall be based upon Category 6, and (v) if any Rating
shall be changed (other than as a result of a change in the rating system of the
applicable Rating Agency), such change shall be effective as of the date on
which it is first announced by the Rating Agency making such change. Each such
change in the Applicable Percentage shall apply to all outstanding Eurocurrency
Standby Loans during the period commencing on the effective date of such change
and ending on the date immediately preceding the effective date of the next such
change. If the rating system of any Rating Agency shall change, the parties
hereto shall negotiate in good faith to amend the references to specific ratings
in this definition to reflect such changed rating system.
"Assignment and Acceptance" shall mean an assignment and
acceptance entered into by a Lender and an assignee in the form of Exhibit C.
"Available Commitment" shall mean, as to any Lender at any time,
an amount equal to such Lender's Commitment at such time minus the aggregate of
all such Lender's Local Currency Loans (Dollar Equivalent) outstanding at such
time.
4
"Board" shall mean the Board of Governors of the Federal Reserve
System of the United States.
"Board of Directors" shall mean the Board of Directors of a
Borrower or any duly authorized committee thereof.
"Borrower" shall mean any of the Company and the Borrowing
Subsidiaries.
"Borrowing" shall mean a group of Loans of a single Type made by
the Lenders (or, in the case of a Competitive Borrowing, by the Lender or
Lenders whose Competitive Bids have been accepted pursuant to Section 2.03) on a
single date and as to which a single Interest Period is in effect.
"Borrowing Date" shall mean any date on which a Borrowing is made
hereunder.
"Borrowing Subsidiary" shall mean any Subsidiary which shall have
executed and delivered to the Administrative Agent and each Lender a Borrowing
Subsidiary Agreement.
"Borrowing Subsidiary Agreement" shall mean an agreement, in the
form of Exhibit E hereto, duly executed by the Company and a Subsidiary.
"Business Day" shall mean any day (other than a day which is a
Saturday, Sunday or legal holiday in the State of New York) on which banks are
open for business in New York City; provided, however, that, when used in
connection with a Eurocurrency Loan, the term "Business Day" shall also exclude
any day on which banks are not open for dealings in deposits in the applicable
currency in the London interbank market, and, when used in connection with
determining any date on which any amount is to be paid or made available in
Local Currency, the term "Business Day" shall also exclude any day on which
commercial banks and foreign exchange markets are not open for business in the
principal financial center in the country of such Local Currency.
"Calculation Date" shall mean the last Business Day of each
calendar week.
"Capitalized Lease-Back Obligation" shall mean with respect to
any property or asset, at any date as of which the same is to be determined, the
total net rental obligations of the Company or a Subsidiary under a lease of
such property or asset, entered into as part of an arrangement to which the
provisions of Section 5.13 are applicable (or would have been applicable had
such Subsidiary been a Subsidiary at the time it entered into such lease),
discounted to the date of computation at the rate of interest per annum implicit
in the lease (determined in accordance with GAAP). The amount of the net rental
obligation for any calendar year under any lease shall be the sum of the rental
and other payments required to be paid in such calendar year by the lessee
thereunder, not including, however, any amounts required to be paid by such
lessee (whether or not therein designated as rental or additional rental) on
account of maintenance and repairs, insurance, taxes, assessments, water rates
and similar charges.
A "Change in Control" shall be deemed to have occurred if (a) any
person or group of persons shall have acquired beneficial ownership of more than
30% of the outstanding Voting Shares of the Company (within the meaning of
Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended, and
the applicable rules and regulations thereunder), or (b) during any period of 12
consecutive months, commencing after the Effective Date, individuals who on the
first day of such period were directors of the Company (together with any
replacement or additional directors who were nominated or elected by a majority
of directors then in office) cease to constitute a majority of the Board of
Directors of the Company.
5
"Code" shall mean the Internal Revenue Code of 1986, as the same
may be amended from time to time.
"Commitment" shall mean, with respect to each Lender, the
commitment of such Lender hereunder as set forth as of the Closing Date in
Schedule 2.01 under the heading "Commitment" or in an Assignment and Acceptance
delivered by such Lender under Section 9.04 as such Lender's Commitment may be
permanently terminated or reduced from time to time pursuant to Section 2.11 or
pursuant to one or more assignments under Section 9.04. The Commitment of each
Lender shall automatically and permanently terminate on the Maturity Date if not
terminated earlier pursuant to the terms hereof.
"Competitive Bid" shall mean an offer by a Lender to make a
Competitive Loan pursuant to Section 2.03.
"Competitive Bid Accept/Reject Letter" shall mean a notification
made by a Borrower pursuant to Section 2.03(d) in the form of Exhibit A-4.
"Competitive Bid Rate" shall mean, as to any Competitive Bid, (i)
in the case of a Eurocurrency Loan, the Margin, and (ii) in the case of a Fixed
Rate Loan, the fixed rate of interest offered by the Lender making such
Competitive Bid.
"Competitive Bid Request" shall mean a request made pursuant to
Section 2.03(a) in the form of Exhibit A-1.
"Competitive Borrowing" shall mean a Borrowing consisting of a
Competitive Loan or concurrent Competitive Loans from the Lender or Lenders
whose Competitive Bids for such Borrowing have been accepted under the bidding
procedure described in Section 2.03.
"Competitive Loan" shall mean a Loan made pursuant to the bidding
procedure described in Section 2.03. Each Competitive Loan shall be a
Eurocurrency Competitive Loan or a Fixed Rate Loan.
"Competitive Loan Exposure" shall mean, with respect to any
Lender at any time, the sum of the aggregate principal amount of all outstanding
Competitive Loans made by such Lender.
"Consolidated Net Worth" shall mean, as at any date of
determination, the consolidated stockholders' equity of the Company and its
Subsidiaries, as determined on a consolidated basis in accordance with GAAP plus
minority interests in Subsidiaries, as determined in accordance with GAAP, plus,
but without duplication, Special Preferred Securities; provided that
Consolidated Net Worth shall not include Special Preferred Securities to the
extent that Special Preferred Securities are greater than 15% of Consolidated
Total Capitalization.
"Consolidated Net Tangible Assets" shall mean the total of all
assets appearing on a consolidated balance sheet of the Company and its
Restricted Subsidiaries, prepared in accordance with GAAP (and as of a date not
more than 90 days prior to the date as of which Consolidated Net Tangible Assets
are to be determined), less the sum of the following items as shown on said
consolidated balance sheet:
6
(i) the book amount of all segregated intangible assets,
including such items as good will, trademarks, trademark rights, trade
names, trade name rights, copyrights, patents, patent rights and
licenses and unamortized debt discount and expense less unamortized
debt premium;
(ii) all depreciation, valuation and other reserves;
(iii) current liabilities;
(iv) any minority interest in the shares of stock (other than
Preferred Stock) and surplus of Restricted Subsidiaries of the
Company;
(v) the investment of the Company and its Restricted Subsidiaries
in any Subsidiary of the Company that is not a Restricted Subsidiary;
(vi) the total indebtedness of the Company and its Restricted
Subsidiaries incurred in any manner to finance or recover the cost to
the Company or any Restricted Subsidiary of any physical property,
real or personal, which prior to or simultaneously with the creation
of such indebtedness shall have been leased by the Company or a
Restricted Subsidiary to the United States of America or a department
or agency thereof at an aggregate rental, payable during that portion
of the initial term of such lease (without giving effect to any
options of renewal or extension) which shall be unexpired at the date
of the creation of such indebtedness, sufficient (taken together with
any amounts required to be paid by the lessee to the lessor upon any
termination of such lease) to pay in full at the stated maturity date
or dates thereof the principal of and the interest on such
indebtedness;
(vii) deferred income and deferred liabilities; and
(viii) other items deductible under GAAP.
"Consolidated Statutory Surplus" shall mean, with respect to
Nutmeg Insurance Company and its consolidated Subsidiaries at any time, the
amount set forth on line 25 of the Liabilities, Surplus and Other Funds
Statement in the Annual Statement or the Quarterly Statement of Nutmeg Insurance
Company most recently delivered to the Administrative Agent and the Lenders
pursuant to Section 5.03 or, if such statement shall be modified, the equivalent
item on any applicable successor form.
"Consolidated Total Capitalization" shall mean, as at any date of
determination, the sum of Consolidated Total Debt and Consolidated Net Worth.
"Consolidated Total Debt" shall mean, as at any date of
determination, without duplication, (i) all Indebtedness of the Company and its
Subsidiaries determined on a consolidated basis in accordance with GAAP plus
(ii) Special Preferred Securities and that are mandatorily redeemable, or
redeemable at the option of the holder, within 10 years of such date of
determination plus, (iii) Special Preferred Securities to the extent that
Special Preferred Securities exceed 15% of Consolidated Total Capitalization.
"D&P" shall mean Duff & Phelps Credit Rating Co. or any of its
successors.
"Default" shall mean any event or condition which upon notice,
lapse of time or both would constitute an Event of Default.
7
"Dollars" or "$" shall mean lawful money of the United States of
America.
"Dollar Borrowing" shall mean a Borrowing comprised of Dollar
Loans.
"Dollar Equivalent" shall mean, on any date of determination,
with respect to any amount in any Local Currency, the equivalent in Dollars of
such amount, determined by the Administrative Agent using the Exchange Rate with
respect to such Local Currency then in effect as determined pursuant to Section
2.22(a).
"Dollar Facility Excess" shall have the meaning assigned to such
term in Section 2.22(d).
"Dollar Facility Overage" shall mean an amount equal to the
excess of (a) the Total Commitment over (b) the aggregate amount of all Local
Currency Facility Maximum Borrowing Amounts (determined, if applicable, after
giving effect to any reduction therein made pursuant to Section 2.22(c)).
"Dollar Loan" shall mean any Loan denominated in Dollars.
"Dollar Standby Credit Excess" shall have the meaning assigned to
such term in Section 2.22(c).
"Dollar Standby Credit Overage" shall mean, with respect to any
Lender, an amount equal to the excess, if any, of (a) such Lender's Commitment
over (b) the aggregate Local Currency Lender Maximum Borrowing Amounts of such
Lender with respect to all Local Currency Addenda to which such Lender or any of
its Affiliates is a party.
"Dollar Standby Extensions of Credit" shall mean, with respect to
any Lender at any time, the aggregate principal amount of all Standby Loans made
by such Lender then outstanding.
"Effective Date" shall mean the first date on or after December
20, 1996, and on and before December 31, 1996, on which the conditions set forth
in Section 4.02 are satisfied.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as the same may be amended from time to time.
"ERISA Affiliate" shall mean any trade or business (whether or
not incorporated) that, together with the Company, is treated as a single
employer under Section 414(b) or (c) of the Code, or, solely for purposes of
Section 302 of ERISA and Section 412 of the Code, is treated as a single
employer under Section 414 of the Code.
"ERISA Event" shall mean (a) any "reportable event", as defined
in Section 4043 of ERISA or the regulations issued thereunder, with respect to a
Plan; (b) the adoption of any amendment to a Plan that would require the
provision of security pursuant to Section 401(a)(29) of the Code or Section 307
of ERISA; (c) the existence with respect to any Plan of an "accumulated funding
deficiency" (as defined in Section 412 of the Code or Section 302 of ERISA),
whether or not waived; (d) the filing pursuant to Section 412(d) of the Code or
Section 303(d) of ERISA of an application for a waiver of the minimum funding
standard with respect to any Plan; (e) the incurrence of any liability under
Title IV of ERISA with respect to the termination of any Plan or the withdrawal
or partial withdrawal of the Company or any of its ERISA Affiliates from any
Plan or Multiemployer Plan; (f) the receipt by the
8
Company or any ERISA Affiliate from the PBGC or a plan administrator of any
notice relating to the intention to terminate any Plan or Plans or to appoint a
trustee to administer any Plan; (g) the receipt by the Company or any ERISA
Affiliate of any notice that Withdrawal Liability is being imposed or a
determination that a Multiemployer Plan is, or is expected to be, insolvent or
in reorganization, within the meaning of Title IV of ERISA; and (h) the
occurrence of a "prohibited transaction" with respect to which the Company or
any of its Subsidiaries is a "disqualified person" (within the meaning of
Section 4975) of the Code, or with respect to which the Company or any such
Subsidiary could otherwise be liable.
"Eurocurrency Borrowing" shall mean a Borrowing comprised of
Eurocurrency Loans.
"Eurocurrency Competitive Loan" shall mean any Competitive Loan
bearing interest at a rate determined by reference to the LIBO Rate in
accordance with the provisions of Article II.
"Eurocurrency Loan" shall mean any Eurocurrency Competitive Loan,
Eurocurrency Standby Loan or Eurocurrency Local Currency Loan.
"Eurocurrency Local Currency Loan" shall mean any Local Currency
Loan bearing interest at a rate determined by reference to the LIBO Rate in
accordance with the provisions of Article II.
"Eurocurrency Standby Loan" shall mean any Standby Loan bearing
interest at a rate determined by reference to the LIBO Rate in accordance with
the provisions of Article II.
"Event of Default" shall have the meaning assigned to such term
in Article VI.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Exchange Rate" shall mean, with respect to any Local Currency on
a particular date, the rate at which such Local Currency may be exchanged into
Dollars, as set forth on such date on the Reuters currency page more
particularly described in the Local Currency Addendum for Loans to be made in
such Local Currency. In the event that such rate does not appear on any Reuters
currency page, the Exchange Rate with respect to such Local Currency shall be
determined by reference to such other publicly available service for displaying
exchange rates as may be agreed upon by the Administrative Agent and the Company
or, in the absence of such agreement, such Exchange Rate shall instead be the
Administrative Agent's spot rate of exchange in the London interbank market
where its foreign currency exchange operations in respect of such Local Currency
are then being conducted, at or about 10:00 A.M., local time, at such date for
the purchase of Dollars with such Local Currency, for delivery two Business Days
later; provided, however, that if at the time of any such determination, for any
reason, no such spot rate is being quoted, the Administrative Agent may use any
reasonable method it deems applicable to determine such rate, and such
determination shall be conclusive absent manifest error.
"Existing Credit Facility" shall mean the Five-Year Competitive
Advance and Revolving Credit Facility Agreement dated as of October 31, 1995,
among the Company, certain lenders and The Chase Manhattan Bank (as successor to
Chemical Bank), as administrative agent.
"Facility A Credit Agreement" shall mean the $500,000,000 364-Day
Competitive Advance and Revolving Credit Facility Agreement dated the date
hereof among the parties hereto, as such may be amended, supplemented or
modified from time to time.
9
"Facility Fee" shall have the meaning assigned to such term in
Section 2.06(a).
"Fair Value", when used with respect to property, shall mean the
fair value as determined in good faith by the board of directors of the Company.
"Fees" shall mean the Facility Fee and the Administrative Fees.
"Financial Officer" of any corporation shall mean the chief
financial officer, principal accounting officer, treasurer, associate or
assistant treasurer or director of treasury services of such corporation.
"Fixed Rate Borrowing" shall mean a Borrowing comprised of Fixed
Rate Loans.
"Fixed Rate Loan" shall mean any Competitive Loan bearing
interest at a fixed percentage rate per annum (the "Fixed Rate") (expressed in
the form of a decimal to no more than four decimal places) specified by the
Lender making such Loan in its Competitive Bid.
"GAAP" shall mean generally accepted accounting principles,
applied on a consistent basis.
"Governmental Authority" shall mean any Federal, state, local or
foreign court or governmental agency, authority, instrumentality or regulatory
body.
"Guaranteed Obligations" shall mean the principal of and interest
on the Loans made to, and the due and punctual performance of all other
obligations, monetary or otherwise of, the Borrowing Subsidiaries hereunder or
under a Local Currency Addendum.
"Indebtedness" of any person shall mean all indebtedness
representing money borrowed or the deferred purchase price of property (other
than trade accounts payable) or any capitalized lease obligation, which in any
case is created, assumed, incurred or guaranteed in any manner by such
corporation or for which such corporation is responsible or liable (whether by
agreement to purchase indebtedness of, or to supply funds to or invest in,
others or otherwise).
"Insurance Subsidiaries" shall mean Nutmeg Insurance Company and
each of its insurance company Subsidiaries.
"Interest Payment Date" shall mean (a) with respect to any Loan,
the last day of each Interest Period applicable thereto, (b) with respect to a
Eurocurrency Loan with an Interest Period of more than three months' duration or
a Fixed Rate Loan with an Interest Period of more than 90 days' duration, each
day that would have been an Interest Payment Date for such Loan had successive
Interest Periods of three months' duration or 90 days' duration, as the case may
be, been applicable to such Loan and, in addition, the date of any prepayment of
each Loan or conversion of such Loan to a Loan of a different Type and (c) with
respect to any Local Currency Loan, such days as shall be specified in the
applicable Local Currency Addendum.
"Interest Period" shall mean (a) as to any Eurocurrency
Borrowing, the period commencing on the date of such Borrowing or on the last
day of the immediately preceding Interest Period applicable to such Borrowing,
as the case may be, and ending on the numerically corresponding day (or, if
there is no numerically corresponding day, on the last day) in the calendar
month that is 1, 2, 3 or 6 months thereafter, as the Borrower may elect, (b) as
to any ABR Borrowing, the period
10
commencing on the date of such Borrowing or on the last day of the immediately
preceding Interest Period applicable to such Borrowing, as the case may be, and
ending on the earliest of (i) the next succeeding March 31, June 30, September
30 or December 31, (ii) the Maturity Date, and (iii) the date such Borrowing is
converted to a Borrowing of a different Type in accordance with Section 2.05 or
repaid or prepaid in accordance with Section 2.07 or Section 2.12, (c) as to any
Fixed Rate Borrowing, the period commencing on the date of such Borrowing and
ending on the date specified in the Competitive Bids in which the offers to make
the Fixed Rate Loans comprising such Borrowing were extended, which shall not be
earlier than seven days after the date of such Borrowing or later than 360 days
after the date of such Borrowing and (d) as to any Local Currency Borrowing,
such periods as shall be specified in the applicable Local Currency Addendum;
provided, however, that if any Interest Period would end on a day other than a
Business Day, such Interest Period shall be extended to the next succeeding
Business Day unless, in the case of Eurocurrency Loans only, such next
succeeding Business Day would fall in the next calendar month, in which case
such Interest Period shall end on the next preceding Business Day. Interest
shall accrue from and including the first day of an Interest Period to but
excluding the last day of such Interest Period.
"Judgment Currency" shall have the meaning assigned to such term
in Section 9.16(b).
"LIBO Rate" shall mean, with respect to any Eurocurrency
Borrowing for any Interest Period, an interest rate per annum (rounded upwards,
if necessary, to the next 1/16 of 1%) equal to the rate at which dollar deposits
or deposits in the applicable Local Currency approximately equal in principal
amount to (i) in the case of a Standby Borrowing that is a Eurocurrency
Borrowing, the Administrative Agent's portion of such Eurocurrency Borrowing,
(ii) in the case of a Competitive Borrowing, a principal amount that would have
been the Administrative Agent's portion of such Competitive Borrowing had such
Competitive Borrowing been a Standby Borrowing and (iii) in the case of a Local
Currency Borrowing, such Borrowing, and for a maturity comparable to such
Interest Period as are offered to the principal London offices of the
Administrative Agent in immediately available funds in the London interbank
market at approximately 11:00 a.m., London time, two Business Days prior to the
commencement of such Interest Period.
"Lien" shall mean, with respect to any property or asset, any
mortgage, deed of trust, lien, pledge, security interest, charge or other
encumbrance on, of or in such property or asset.
"Loan" shall mean a Competitive Loan, a Local Currency Loan or a
Standby Loan, whether made as a Eurocurrency Loan, an ABR Loan or a Fixed Rate
Loan, as permitted hereby.
"Loan Documents" shall mean this Agreement, the Borrowing
Subsidiary Agreements, the Local Currency Addenda and promissory notes, if any,
issued pursuant to Section 9.04(i).
"Local Currency" shall mean any currency other than Dollars as to
which an Exchange Rate may be calculated.
"Local Currency Addendum" shall mean a local currency addendum
between a Borrower and one or more Local Currency Lenders, substantially in the
form of Exhibit F, and the documentation referred to therein, to the extent not
inconsistent with this Agreement.
"Local Currency Borrowing" shall mean a Borrowing comprised of
Local Currency Loans.
11
"Local Currency Credit Event" shall mean each Borrowing under a
Local Currency Addendum.
"Local Currency Equivalent" shall mean, on any date of
determination, with respect to any amount in Dollars, the equivalent in the
relevant Local Currency of such amount, determined by the Administrative Agent
using the Exchange Rate with respect to such Local Currency then in effect as
determined pursuant to Section 2.22(a).
"Local Currency Facility Maximum Borrowing Amount" shall have the
meaning assigned to such term in Section 2.21(b).
"Local Currency Lender" shall mean any Lender (or any Affiliate,
branch or agency thereof) party to a Local Currency Addendum. In the event any
agency or Affiliate of a Lender shall be party to a Local Currency Addendum,
such agency or Affiliate shall, to the extent of any commitment extended and any
Loans made by it, have all the rights of such Lender hereunder; provided, that
such Lender shall continue to the exclusion of such agency or Affiliate to have
all the voting and consensual rights vested in it by the terms hereof.
"Local Currency Lender Maximum Borrowing Amount" shall have the
meaning assigned to such term in Section 2.21(b).
"Local Currency Loan" shall mean any Loan, denominated in a
currency other than Dollars, made to a Borrower pursuant to Section 2.01(b) and
a Local Currency Addendum.
"Local Currency Loans (Dollar Equivalent)" shall mean the Dollar
Equivalent of the relevant Local Currency Loans.
"Local Currency Standby Borrowing" shall mean any Standby
Borrowing comprised of Local Currency Loans.
"Margin" shall mean, as to any Eurocurrency Competitive Loan, the
margin (expressed as a percentage rate per annum in the form of a decimal to no
more than four decimal places) to be added to or subtracted from the LIBO Rate
in order to determine the interest rate applicable to such Loan, as specified in
the Competitive Bid relating to such Loan.
"Margin Regulations" shall mean Regulations G, T, U and X of the
Board as from time to time in effect, and all official rulings and
interpretations thereunder or thereof.
"Margin Stock" shall have the meaning given such term under
Regulation U of the Board.
"Material Adverse Effect" shall mean a materially adverse effect
on the business, assets, operations or condition, financial or otherwise, of the
Company and its Subsidiaries taken as a whole.
"Maturity Date" shall mean December 20, 2001.
"Moody's" shall mean Moody's Investors Service, Inc., or any of
its successors.
12
"Multiemployer Plan" shall mean a multiemployer plan as defined
in Section 4001(a)(3) of ERISA to which the Company or any ERISA Affiliate
(other than one considered an ERISA Affiliate only pursuant to subsection (m) or
(o) of Code Section 414) is making or accruing an obligation to make
contributions, or has within any of the preceding five plan years made or
accrued an obligation to make contributions.
"NAIC" shall mean the National Association of Insurance
Commissioners or any association or Governmental Authority succeeding to any or
all of the functions of the National Association of Insurance Commissioners.
"Notice of Competitive Bid Request" shall mean a notification
made pursuant to Section 2.03(a) in the form of Exhibit A-2.
"PBGC" shall mean the Pension Benefit Guaranty Corporation
referred to and defined in ERISA.
"person" shall mean any natural person, corporation, business
trust, joint venture, association, company, partnership or government, or any
agency or political subdivision thereof.
"Plan" shall mean any employee pension benefit plan (other than a
Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section
412 of the Code or Section 307 of ERISA, and in respect of which any Borrower or
any ERISA Affiliate is (or, if such plan were terminated, would under Section
4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of
ERISA.
"Preferred Stock" shall mean any capital stock entitled by its
terms to a preference (a) as to dividends or (b) upon a distribution of assets.
"Quarterly Statement" shall mean, with respect to any Restricted
Subsidiary, the Quarterly Statement of such Restricted Subsidiary required to be
filed with the Applicable Insurance Regulatory Authority in accordance with
state law, including any exhibits, schedules, certificates or actuarial opinions
filed or delivered therewith.
"Rating Agencies" shall mean D&P, Moody's and S&P.
"Ratings" shall mean the ratings from time to time established by
the Rating Agencies for senior, unsecured, non-credit-enhanced long-term debt of
the Company.
"Register" shall have the meaning given such term in Section
9.04(d).
"Regulation D" shall mean Regulation D of the Board as from time
to time in effect and all official rulings and interpretations thereunder or
thereof.
"Reportable Event" shall mean any reportable event as defined in
Section 4043 of ERISA or the regulations issued thereunder with respect to a
Plan (other than a Plan maintained by an ERISA Affiliate that is considered an
ERISA Affiliate only pursuant to subsection (m) or (o) of Code Section 414).
"Required Lenders" shall mean, at any time, Lenders having
Commitments representing at least 66-2/3% of the Total Commitment or, for
purposes of acceleration pursuant to
13
clause (ii) of Article VI, Lenders holding Loans representing at least 66-2/3%
of the aggregate principal amount of the Loans outstanding. For purposes of
determining the Required Lenders, any amounts denominated in a Local Currency
shall be translated into Dollars at the Exchange Rates in effect on the
Effective Date.
"Required Surplus" means, at any date, the sum, at such date,
without duplication, of (a) surplus of the Insurance Subsidiaries and (b) any
reserve established and maintained by the Insurance Subsidiaries with respect to
their invested assets, either voluntarily or pursuant to requirements of
applicable law, the NAIC, the Insurance Department of the State of Connecticut
or any other state or federal regulatory authority having jurisdiction over the
Company, in each case determined in accordance with SAP.
"Reset Date" shall have the meaning assigned to such term in
Section 2.22(a).
"Responsible Officer" of any corporation shall mean any executive
officer or Financial Officer of such corporation and any other officer or
similar official thereof responsible for the administration of the obligations
of such corporation in respect of this Agreement.
"Restricted Subsidiary" means a Subsidiary which is incorporated
in any state of the United States or in the District of Columbia and which is a
regulated insurance company principally engaged in one or more of the property,
casualty and life insurance businesses and which has total assets representing
10% or more of the total assets of the Company and its consolidated Subsidiaries
(including such Subsidiary), in each case as set forth on the most recent fiscal
year-end balance sheets of such Subsidiary and the Company and its consolidated
Subsidiaries, respectively, and computed in accordance with GAAP. Such
Subsidiary must be designated a Restricted Subsidiary in a notice delivered by
the Company and certified by a Responsible Officer to the Administrative Agent
for distribution to the Lenders. In the event that the aggregate total assets of
the Restricted Subsidiaries represent less than 80% of the total assets of the
Company and its consolidated Subsidiaries, the Board of Directors of the
Company, as evidenced by a resolution of such Board of Directors, shall promptly
designate an additional Subsidiary or Subsidiaries as Restricted Subsidiaries in
order that, after such designations, the aggregate total assets of the
Restricted Subsidiaries represent at least 80% of the total assets of the
Company and its consolidated Subsidiaries, provided that all Subsidiaries with
total assets of 10% or more of the total assets of the Company and its
consolidated Subsidiaries have previously been designated as Restricted
Subsidiaries.
"Risk-Based Capital" shall mean, with respect to the Insurance
Subsidiaries at any time, the Company Action Level Risk-Based Capital (as
defined by the NAIC at such time and as computed in accordance with SAP) of the
Insurance Subsidiaries (determined and consolidated in accordance with SAP) at
such time.
"S&P" shall mean Standard and Poor's Ratings Services, a division
of The McGraw-Hill Companies, Inc., or any of its successors.
"SAP" shall mean, with respect to any Insurance Subsidiary, the
accounting principles and procedures prescribed or permitted by the Applicable
Insurance Regulatory Authority applied on a basis consistent with those that are
indicated in Section 1.02.
"SEC" shall mean the Securities and Exchange Commission.
14
"Special Preferred Securities" shall mean preferred securities
that are mandatorily redeemable, or redeemable at the option of the holder, not
sooner than ten years after issuance and issued by the Company and/or one or
more Subsidiaries of the Company, which would not be reflected as a liability in
a consolidated balance sheet of the Company and its consolidated Subsidiaries
prepared in accordance with generally accepted accounting principles.
"Standby Borrowing" shall mean a Borrowing consisting of
simultaneous Standby Loans from each of the Lenders.
"Standby Borrowing Request" shall mean a request made pursuant to
Section 2.04 in the form of Exhibit A-5.
"Standby Credit Exposure" shall mean, with respect to any Lender
at any time, the sum of the aggregate principal amount at such time of all
outstanding Standby Loans of such Lender and the aggregate Dollar Equivalent of
the principal amount of all outstanding Local Currency Loans of such Lender (and
each agency, branch or Affiliate of such Lender acting as a Local Currency
Lender).
"Standby Loans" shall mean the revolving loans made pursuant to
Section 2.04(a). Each Standby Loan shall be in Dollars and shall be a
Eurocurrency Standby Loan or an ABR Loan.
"Statement of Actuarial Opinion" shall mean, with respect to the
Restricted Subsidiaries, the Statement of Actuarial Opinion required to be filed
with the Applicable Insurance Regulatory Authority in accordance with state law
or, if such Applicable Insurance Regulatory Authority shall no longer require
such a statement, information equivalent to that required to be included in the
Statement of Actuarial Opinion that was filed immediately prior to the time such
statement was no longer required.
"subsidiary" shall mean, with respect to any person (the
"parent"), any corporation, association or other business entity of which
securities or other ownership interests representing more than 50% of the
ordinary voting power are, at the time as of which any determination is being
made, owned or controlled by the parent or one or more subsidiaries of the
parent or by the parent and one or more subsidiaries of the parent.
"Subsidiary" shall mean a subsidiary of the Company.
"Total Adjusted Capital" shall mean, with respect to the
Insurance Subsidiaries at any time, the Total Adjusted Capital (as defined by
the NAIC at such time and as determined and consolidated in accordance with SAP)
of the Insurance Subsidiaries (taken together) at such time.
"Total Commitment" shall mean, at any time, the aggregate amount
of Commitments of all the Lenders, as in effect at such time.
"Transactions" shall have the meaning assigned to such term in
Section 3.02.
"Type", when used in respect of any Loan or Borrowing, shall
refer to the Rate by reference to which interest on such Loan or on the Loans
comprising such Borrowing is determined and the currency in which such Loan or
the Loans comprising such Borrowing are denominated. For purposes hereof, "Rate"
shall include the LIBO Rate, the Alternate Base Rate and the Fixed Rate, and
currency shall include Dollars and any Local Currency permitted hereunder.
15
"Voting Shares" shall mean, as to shares of a particular
corporation, outstanding shares of stock of any class of such corporation
entitled to vote in the election of directors, excluding shares entitled so to
vote only upon the happening of some contingency.
"Withdrawal Liability" shall mean liability to a Multiemployer
Plan as a result of a complete or partial withdrawal from such Multiemployer
Plan, as such terms are defined in Part I of Subtitle E of Title VI of ERISA.
SECTION 1.02. Terms Generally. The definitions in Section 1.01
shall apply equally to both the singular and plural forms of the terms defined.
Whenever the context may require, any pronoun shall include the corresponding
masculine, feminine and neuter forms. The words "include", "includes" and
"including" shall be deemed to be followed by the phrase "without limitation".
All references herein to Articles, Sections, Exhibits and Schedules shall be
deemed references to Articles and Sections of, and Exhibits and Schedules to,
this Agreement unless the context shall otherwise require. Except as otherwise
expressly provided herein, all terms of an accounting or financial nature shall
be construed in accordance with GAAP or, to the extent such terms apply to an
Insurance Subsidiary, SAP, in each case as in effect from time to time;
provided, however, that for purposes of determining compliance with any covenant
set forth in Article V, such terms shall be construed in accordance with GAAP or
SAP, as applicable, as in effect on the date hereof applied on a basis
consistent with the application used in preparing the Company's audited
financial statements referred to in Section 3.05.
ARTICLE II
THE CREDITS
SECTION 2.01. Commitments. (a) Subject to the terms and
conditions and relying upon the representations and warranties herein set forth,
each Lender agrees, severally and not jointly, to make Standby Loans to the
Borrowers, at any time and from time to time on and after the Effective Date and
until the earlier of the Maturity Date and the termination of the Commitment of
such Lender.
(b) Subject to the terms and conditions and relying upon the
representations and warranties set forth herein and in the applicable Local
Currency Addendum, each Local Currency Lender agrees, severally and not jointly,
to make Local Currency Loans to the Borrowers at any time and from time to time
on and after the execution of the applicable Local Currency Addendum and until
the earlier of the Maturity Date and the termination of the Commitment (or the
commitment under such Local Currency Addendum) of such Local Currency Lender.
(c) Notwithstanding anything to the contrary contained in this
Agreement, in no event may Standby Loans or Local Currency Loans be borrowed
under this Article II if, after giving effect thereto (and to any concurrent
repayment or prepayment of Loans), (i) the sum of the aggregate Standby Credit
Exposures and the aggregate Competitive Loan Exposures would exceed the Total
Commitment then in effect, (ii) the Standby Credit Exposure of any Lender would
exceed such Lender's Commitment or (iii) the Dollar Equivalent of the aggregate
principal amount of outstanding Local Currency Loans denominated in a specified
Local Currency would exceed the applicable Local Currency Facility Maximum
Borrowing Amount.
Within the foregoing limits, the Borrowers may borrow, pay or
prepay and reborrow Standby Loans and Local Currency Loans hereunder, on and
after the Effective Date and prior to the Maturity Date, subject to the terms,
conditions and limitations set forth herein.
16
SECTION 2.02. Loans. (a) Each Standby Loan shall be made as part
of a Borrowing consisting of Standby Loans made by the Lenders ratably in
accordance with their respective Available Commitments; provided, however, that
the failure of any Lender to make any Standby Loan shall not in itself relieve
any other Lender of its obligation to lend hereunder (it being understood,
however, that no Lender shall be responsible for the failure of any other Lender
to make any Loan required to be made by such other Lender). Each Local Currency
Loan shall be made as part of a Borrowing consisting of Local Currency Loans
made by the Local Currency Lenders ratably in accordance with the applicable
Local Currency Lender Maximum Borrowing Amounts; provided, however, that the
failure of any Local Currency Lender to make any Local Currency Loan shall not
in itself relieve any other Local Currency Lender of its obligation to lend
hereunder (it being understood, however, that no Local Currency Lender shall be
responsible for the failure of any other Local Currency Lender to make any Local
Currency Loan required to be made by such other Local Currency Lender). Each
Competitive Loan shall be made in accordance with the procedures set forth in
Section 2.03. The Loans comprising any Borrowing shall be (i) in the case of
Competitive Loans, in an aggregate principal amount which is an integral
multiple of $1,000,000 and not less than $5,000,000, (ii) in the case of Standby
Loans, in an aggregate principal amount which is an integral multiple of
$5,000,000 and not less than $20,000,000 (or an aggregate principal amount equal
to the remaining balance of the Available Commitments) and (iii) in the case of
Local Currency Loans, in an aggregate principal amount which complies with the
requirements set forth in the applicable Local Currency Addendum. All Standby
Loans and Competitive Loans made pursuant to this Article II shall be
denominated in Dollars.
(b) Each Competitive Borrowing shall be comprised entirely of
Eurocurrency Competitive Loans or Fixed Rate Loans, and each Standby Borrowing
shall be comprised entirely of Eurocurrency Standby Loans or ABR Loans, as the
Borrower may request pursuant to Section 2.03 or 2.04, as applicable. Each
Lender may at its option make any Eurocurrency Loan by causing any domestic or
foreign branch, agency or Affiliate of such Lender to make such Loan; provided
that any exercise of such option shall not affect the obligation of the Borrower
to repay such Loan in accordance with the terms of this Agreement. Borrowings of
more than one Type may be outstanding at the same time. For purposes of the
foregoing, Loans having different Interest Periods, regardless of whether they
commence on the same date, shall be considered separate Loans.
(c) Subject to Section 2.05 and, in the case of any Local
Currency Loan, to any alternative procedures set forth in the applicable Local
Currency Addendum, each Lender shall make each Loan to be made by it hereunder
on the proposed date thereof by wire transfer of immediately available funds to
the Administrative Agent in New York, New York, not later than 12:00 noon, New
York City time, and the Administrative Agent shall by 2:00 p.m., New York City
time, credit the amounts so received to the account or accounts specified from
time to time in one or more notices delivered by the Company to the
Administrative Agent or, if a Borrowing shall not occur on such date because any
condition precedent herein specified shall not have been met, return the amounts
so received to the respective Lenders. Competitive Loans shall be made by the
Lender or Lenders whose Competitive Bids therefor are accepted pursuant to
Section 2.03 in the amounts so accepted. Standby Loans and Local Currency Loans
shall be made by the Lenders and the Local Currency Lenders, as applicable, pro
rata in accordance with Section 2.16. Unless the Administrative Agent shall have
received notice from a Lender prior to the date (or, in the case of ABR
Borrowings, on the date) of any Borrowing that such Lender will not make
available to the Administrative Agent such Lender's portion of such Borrowing,
the Administrative Agent may assume that such Lender has made such portion
available to the Administrative Agent on the date of such Borrowing in
accordance with this paragraph (c) and the Administrative Agent may, in reliance
upon such assumption, make available to the Borrower on such date a
corresponding amount in the required currency. If and to the extent that such
Lender shall not have made such portion available to the Administrative Agent,
such Lender and the Borrower severally
17
agree to repay to the Administrative Agent forthwith on demand such
corresponding amount together with interest thereon in such currency, for each
day from the date such amount is made available to the Borrower until the date
such amount is repaid to the Administrative Agent at (i) in the case of the
Borrower, the interest rate applicable at the time to the Loans comprising such
Borrowing and (ii) in the case of such Lender, a rate determined by the
Administrative Agent to represent its cost of overnight funds. If such Lender
shall repay to the Administrative Agent such corresponding amount, such amount
shall constitute such Lender's Loan as part of such Borrowing for purposes of
this Agreement.
(d) Each Competitive Loan shall be a Eurocurrency Competitive
Loan or a Fixed Rate Loan. Each Standby Loan shall be a Eurocurrency Standby
Loan or an ABR Standby Loan. Each Local Currency Loan shall be a Eurocurrency
Local Currency Loan or shall bear interest at a rate specified in the applicable
Loan Currency Addendum.
SECTION 2.03. Competitive Bid Procedure. (a) In order to request
Competitive Bids, a Borrower (the "Applicable Borrower") shall hand deliver or
telecopy to the Administrative Agent a duly completed Competitive Bid Request in
the form of Exhibit A-1 hereto, to be received by the Administrative Agent (i)
in the case of a Eurocurrency Competitive Loan, not later than 10:00 a.m., New
York City time, four Business Days before a proposed Competitive Borrowing and
(ii) in the case of a Fixed Rate Borrowing, not later than 10:00 a.m., New York
City time, one Business Day before a proposed Competitive Borrowing. No ABR Loan
shall be requested in, or made pursuant to, a Competitive Bid Request. A
Competitive Bid Request that does not conform substantially to the format of
Exhibit A-1 may be rejected in the Administrative Agent's sole discretion, and
the Administrative Agent shall promptly notify the Borrower of such rejection by
telecopy. Each Competitive Bid Request shall refer to this Agreement and specify
(w) whether the Borrowing then being requested is to be a Eurocurrency Borrowing
or a Fixed Rate Borrowing, (x) the date of such Borrowing (which shall be a
Business Day) and the aggregate principal amount thereof which shall be in a
minimum principal amount of $10,000,000 and in an integral multiple of
$5,000,000 and (y) the Interest Period with respect thereto (which may not end
after the Maturity Date). Promptly after its receipt of a Competitive Bid
Request that is not rejected as aforesaid, the Administrative Agent shall
telecopy to the Lenders a Notice of Competitive Bid Request inviting the Lenders
to bid, on the terms and conditions of this Agreement, to make Competitive
Loans.
(b) Each Lender invited to bid may, in its sole discretion, make
one or more Competitive Bids to the Applicable Borrower responsive to such
Borrower's Competitive Bid Request. Each Competitive Bid by a Lender must be
received by the Administrative Agent by telecopy, in the form of Exhibit A-3
hereto, (i) in the case of a Eurocurrency Competitive Loan, not later than 9:30
a.m., New York City time, three Business Days before a proposed Competitive
Borrowing and (ii) in the case of a Fixed Rate Borrowing, not later than 9:30
a.m., New York City time, on the day of a proposed Competitive Borrowing. A
Lender may submit multiple bids to the Administrative Agent. Competitive Bids
that do not conform substantially to the format of Exhibit A-3 may be rejected
by the Administrative Agent, and the Administrative Agent shall notify the
Lender making such nonconforming bid of such rejection as soon as practicable.
Each Competitive Bid shall refer to this Agreement and specify (x) the principal
amount (which shall be in a minimum principal amount of $5,000,000 and in an
integral multiple of $1,000,000 and which may equal the entire principal amount
of the Competitive Borrowing requested) of the Competitive Loan or Loans that
the Lender is willing to make, (y) the Competitive Bid Rate or Rates at which
the Lender is prepared to make the Competitive Loan or Loans and (z) the
Interest Period and the last day thereof. If any Lender invited to bid shall
elect not to make a Competitive Bid, such Lender shall so notify the
Administrative Agent by telecopy (I) in the case of Eurocurrency Competitive
Loans, not later than
18
9:30 a.m., New York City time, three Business Days before a proposed Competitive
Borrowing, and (II) in the case of Fixed Rate Loans, not later than 9:30 a.m.,
New York City time, on the day of a proposed Competitive Borrowing; provided,
however, that failure by any Lender to give such notice shall not cause such
Lender to be obligated to make any Competitive Loan as part of such Competitive
Borrowing. A Competitive Bid submitted by a Lender pursuant to this paragraph
(b) shall be irrevocable.
(c) The Administrative Agent shall as promptly as practicable
notify the Borrower, by telecopy, of all the Competitive Bids made, the
Competitive Bid Rate and the principal amount of each Competitive Loan in
respect of which a Competitive Bid was made and the identity of the Lender that
made each bid. The Administrative Agent shall send a copy of all Competitive
Bids to the Borrower for its records as soon as practicable after completion of
the bidding process set forth in this Section 2.03.
(d) The Borrower may in its sole and absolute discretion, subject
only to the provisions of this paragraph (d), accept or reject any Competitive
Bid referred to in paragraph (c) above. The Borrower shall notify the
Administrative Agent by telephone, confirmed by telecopy in the form of a
Competitive Bid Accept/Reject Letter, whether and to what extent it has decided
to accept or reject any of or all the bids referred to in paragraph (c) above
not more than one hour after it shall have been notified of such bids by the
Administrative Agent pursuant to such paragraph (c); provided, however, that (i)
the failure of the Borrower to give such notice shall be deemed to be a
rejection of all the bids referred to in paragraph (c) above, (ii) the Borrower
shall not accept a bid made at a particular Competitive Bid Rate if it has
decided to reject a bid made at a lower Competitive Bid Rate, (iii) the
aggregate amount of the Competitive Bids accepted by the Borrower shall not
exceed the principal amount specified in the Competitive Bid Request, (iv) if
the Borrower shall accept a bid or bids made at a particular Competitive Bid
Rate but the amount of such bid or bids shall cause the total amount of bids to
be accepted to exceed the amount specified in the Competitive Bid Request, then
the Borrower shall accept a portion of such bid or bids in an amount equal to
the amount specified in the Competitive Bid Request less the amount of all other
Competitive Bids accepted with respect to such Competitive Bid Request, which
acceptance, in the case of multiple bids at such Competitive Bid Rate, shall be
made pro rata in accordance with the amount of each such bid at such Competitive
Bid Rate, and (v) except pursuant to clause (iv) above, no bid shall be accepted
for a Competitive Loan unless such Competitive Loan is in a minimum principal
amount of $5,000,000 and an integral multiple of $1,000,000; provided further,
however, that if a Competitive Loan must be in an amount less than $5,000,000
because of the provisions of clause (iv) above, such Competitive Loan may be for
a minimum of $1,000,000 or any integral multiple thereof, and in calculating the
pro rata allocation of acceptances of portions of multiple bids at a particular
Competitive Bid Rate pursuant to clause (iv) the amounts shall be rounded to
integral multiples of $1,000,000 in a manner which shall be in the discretion of
the Borrower. A notice given pursuant to this paragraph (d) shall be
irrevocable.
(e) The Administrative Agent shall promptly notify each bidding
Lender whether or not its Competitive Bid has been accepted (and if so, in what
amount and at what Competitive Bid Rate) by telecopy, and each successful bidder
will thereupon become bound, subject to the other applicable conditions hereof,
to make the Competitive Loan in respect of which its bid has been accepted.
(f) No Competitive Borrowing shall be requested or made hereunder
if after giving effect thereto any of the conditions set forth in paragraph (c)
of Section 2.01 would not be met.
(g) If the Administrative Agent shall elect to submit a
Competitive Bid in its capacity as a Lender, it shall submit such bid directly
to the Applicable Borrower one quarter of an hour earlier than the latest time
at which the other Lenders are required to submit their bids to the
Administrative Agent pursuant to paragraph (b) above.
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(h) All notices required by this Section 2.03 shall be given in
accordance with Section 9.01.
SECTION 2.04. Standby and Local Currency Borrowing Procedure. (a)
In order to request a Standby Borrowing, a Borrower shall hand deliver or
telecopy to the Administrative Agent a duly completed Standby Borrowing Request
in the form of Exhibit A-5 (i) in the case of a Eurocurrency Standby Loan, not
later than 10:30 a.m., New York City time (or, if the Standby Borrowing request
is delivered or telecopied to the Administrative Agent in London, 9:30 a.m.,
London time), three Business Days before such Borrowing, and (ii) in the case of
an ABR Borrowing, not later than 10:30 a.m., New York City time, on the day of
such Borrowing. No Fixed Rate Loan shall be requested or made pursuant to a
Standby Borrowing Request. Such notice shall be irrevocable and shall in each
case specify (A) whether the Borrowing then being requested is to be a
Eurocurrency Standby Loan or an ABR Borrowing; (B) the date of such Standby
Borrowing (which shall be a Business Day) and the amount thereof; and (C) if
such Borrowing is to be a Eurocurrency Standby Loan, the Interest Period with
respect thereto, which shall not end after the Maturity Date. If no election as
to the Type of Standby Borrowing is specified in any such notice, then the
requested Standby Borrowing shall be an ABR Borrowing. If no Interest Period
with respect to any Eurocurrency Standby Loan is specified in any such notice,
then the Borrower shall be deemed to have selected an Interest Period of one
month's duration. Notwithstanding any other provision of this Agreement to the
contrary, no Standby Borrowing shall be requested if the Interest Period with
respect thereto would end after the Maturity Date. The Administrative Agent
shall promptly advise each of the Lenders of any notice given pursuant to this
Section 2.04 and of each Lender's portion of the requested Borrowing.
(b) In order to request a Local Currency Borrowing, a Borrower
shall give the notice required under the applicable Local Currency Addendum and
shall simultaneously deliver a copy of such notice to the Administrative Agent.
SECTION 2.05. Conversion and Continuation of Standby Loans. Each
Borrower shall have the right at any time upon prior irrevocable notice to the
Administrative Agent (i) not later than 10:30 a.m., New York City time, on the
day of the conversion, to convert all or any part of any Eurocurrency Standby
Loan into an ABR Standby Loan, and (ii) not later than 10:30 a.m., New York City
time, three Business Days prior to conversion or continuation, to convert any
ABR Standby Loan into a Eurocurrency Standby Loan or to continue any
Eurocurrency Standby Loan as a Eurocurrency Standby Loan for an additional
Interest Period, subject in each case to the following:
(a) if less than all the outstanding principal amount of any
Standby Borrowing shall be converted or continued, the aggregate
principal amount of the Standby Borrowing converted or continued shall
be an integral multiple of $5,000,000 and not less than $20,000,000;
(b) accrued interest on a Standby Borrowing (or portion thereof)
being converted shall be paid by the Borrower at the time of
conversion;
(c) if any Eurocurrency Standby Loan is converted at a time other
than the end of the Interest Period applicable thereto, the Borrower
shall pay, upon demand, any amounts due to the Lenders pursuant to
Section 2.15;
(d) any portion of a Standby Borrowing maturing or required to be
repaid in less than one month may not be converted into or continued
as a Eurocurrency Standby Loan;
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(e) any portion of a Eurocurrency Standby Loan which cannot be
continued as a Eurocurrency Standby Loan by reason of clause (d) above
shall be automatically converted at the end of the Interest Period in
effect for such Eurocurrency Standby Loan into an ABR Borrowing;
(f) no Interest Period may be selected for any Eurocurrency
Standby Borrowing that would end later than the Maturity Date; and
(g) at any time when there shall have occurred and be continuing
any Default or Event of Default, no Borrowing may be converted into or
continued as a Eurocurrency Standby Loan.
Each notice pursuant to this Section 2.05 shall be irrevocable and
shall refer to this Agreement and specify (i) the identity and amount of the
Standby Borrowing to be converted or continued, (ii) whether such Standby
Borrowing is to be converted to or continued as a Eurocurrency Standby Loan or
an ABR Standby Loan, (iii) if such notice requests a conversion, the date of
such conversion (which shall be a Business Day) and (iv) if such Standby
Borrowing is to be converted to or continued as a Eurocurrency Standby Loan, the
Interest Period with respect thereto. If no Interest Period is specified in any
such notice with respect to any conversion to or continuation as a Eurocurrency
Standby Loan, the Borrower shall be deemed to have selected an Interest Period
of one month's duration. If no notice shall have been given in accordance with
this Section 2.05 to convert or continue any Standby Borrowing, such Standby
Borrowing shall, at the end of the Interest Period applicable thereto (unless
repaid pursuant to the terms hereof), automatically be continued into a new
Interest Period as an ABR Standby Loan.
SECTION 2.06. Fees. (a) The Company agrees to pay to each Lender,
through the Administrative Agent, on each March 31, June 30, September 30 and
December 31 (with the first payment being due on December 31, 1996) and on each
date on which the Commitment of such Lender shall be terminated as provided
herein, a facility fee (a "Facility Fee"), at a rate per annum equal to the
Applicable Percentage from time to time in effect on the amount of the
Commitment of such Lender, whether used or unused, during the preceding quarter
(or other period commencing on the Effective Date, or ending with the Maturity
Date or any date on which the Commitment of such Lender shall be terminated).
All Facility Fees shall be computed on the basis of the actual number of days
elapsed in a year of 365 or 366 days, as the case may be. The Facility Fee due
to each Lender shall commence to accrue on the Effective Date and shall cease to
accrue on the earlier of the Maturity Date and the termination of the Commitment
of such Lender as provided herein.
(b) The Company agrees to pay the Administrative Agent, for its own
account, the administrative and other fees separately agreed to by the Company
and the Administrative Agent (the "Administrative Fees").
(c) All Fees shall be paid on the dates due, in immediately available
funds, to the Administrative Agent for distribution, if and as appropriate,
among the Lenders, except that the Administrative Agent Fees shall be paid
pursuant to paragraph (b) above. Once paid, none of the Fees shall be refundable
under any circumstances.
SECTION 2.07. Repayment of Loans; Evidence of Debt. (a) Each Borrower
hereby agrees that the outstanding principal balance of each Standby Loan or
Local Currency Loan shall be payable on the Maturity Date (unless an earlier
date is specified in the Local Currency Addendum relating to such Local Currency
Loan) and that the outstanding principal balance of each Competitive
21
Loan shall be payable on the last day of the Interest Period applicable thereto.
Each Loan shall bear interest on the outstanding principal balance thereof as
set forth in Section 2.08.
(b) Each Lender shall maintain in accordance with its usual practice
an account or accounts evidencing the indebtedness to such Lender resulting from
each Loan made by such Lender from time to time, including the amounts of
principal and interest payable and paid to such Lender from time to time under
this Agreement.
(c) The Administrative Agent shall (i) maintain accounts in which it
will record (A) the amount of each Loan made hereunder, the currency of each
Loan, the Borrower of each Loan, the Type of each Loan made and the Interest
Period applicable thereto, (B) the amount of any principal or interest due and
payable or to become due and payable from each Borrower to each Lender hereunder
and (C) the amount of any sum received by the Administrative Agent hereunder
from each Borrower and each Lender's share thereof and (ii) provide a summary to
the Company in writing on a quarterly basis.
(d) The entries made in the accounts maintained pursuant to paragraphs
(b) and (c) of this Section 2.07 shall, to the extent permitted by applicable
law, be prima facie evidence of the existence and amounts of the obligations
therein recorded; provided, however, that the failure of any Lender or the
Administrative Agent to maintain such accounts or any error therein shall not in
any manner affect the obligations of the Borrowers to repay the Loans in
accordance with their terms.
SECTION 2.08. Interest on Loans. (a) Subject to the provisions of
Section 2.09, the Loans comprising each Eurocurrency Borrowing shall bear
interest (computed on the basis of the actual number of days elapsed over a year
of 360 days) at a rate per annum equal to (i) in the case of each Eurocurrency
Standby Loan, the LIBO Rate for the Interest Period in effect for such Borrowing
plus the Applicable Percentage from time to time in effect, (ii) in the case of
each Eurocurrency Competitive Loan, the LIBO Rate for the Interest Period in
effect for such Borrowing plus the Margin offered by the Lender making such Loan
and accepted by the Borrower pursuant to Section 2.03 and (iii) in the case of
each Eurocurrency Local Currency Loan, the LIBO Rate for the Interest Period in
effect for such Loan plus any spread specified in the applicable Local Currency
Addendum (or, if no such spread shall be specified, the Applicable Percentage).
(b) Subject to the provisions of Section 2.09, the Loans comprising
each ABR Borrowing shall bear interest (computed on the basis of the actual
number of days elapsed over a year of 365 or 366 days, as the case may be, for
periods during which the Alternate Base Rate is determined by reference to the
Prime Rate and 360 days for other periods) at a rate per annum equal to the
Alternate Base Rate.
(c) Subject to the provisions of Section 2.09, each Fixed Rate Loan
shall bear interest at a rate per annum (computed on the basis of the actual
number of days elapsed over a year of 360 days) equal to the fixed rate of
interest offered by the Lender making such Loan and accepted by the Borrower
pursuant to Section 2.03.
(d) Subject to the provisions of Section 2.09, any Local Currency Loan
that is not a Eurocurrency Loan shall bear interest at the rate or rates per
annum set forth in the applicable Local Currency Addendum.
(e) Interest on each Loan shall be payable on each Interest Payment
Date applicable to such Loan except as otherwise provided in this Agreement or
in an applicable Local Currency Addendum. The applicable LIBO Rate or Alternate
Base Rate for each Interest Period or day within an
22
Interest Period, as the case may be, shall be determined by the Administrative
Agent, and such determination shall be conclusive absent manifest error.
SECTION 2.09. Default Interest. If a Borrower shall default in the
payment of the principal of or interest on any Loan or any other amount becoming
due hereunder, whether by scheduled maturity, notice of prepayment, acceleration
or otherwise, such Borrower shall on demand from time to time from the
Administrative Agent pay interest, to the extent permitted by law, on such
defaulted amount up to (but not including) the date of actual payment (after as
well as before judgment) at a rate per annum (computed as provided in Section
2.08(b)) equal to the Alternate Base Rate plus 2% (or, in the case of Local
Currency Loans, such other rate as may be specified in the applicable Local
Currency Addendum).
SECTION 2.10. Alternate Rate of Interest. In the event, and on each
occasion, that on the day two Business Days prior to the commencement of any
Interest Period for a Eurocurrency Borrowing, the Administrative Agent shall
have determined (i) that deposits in the currency and principal amounts of the
Eurocurrency Loans comprising such Borrowing are not generally available in the
London market or (ii) that reasonable means do not exist for ascertaining the
LIBO Rate, the Administrative Agent shall, as soon as practicable thereafter,
give telecopy notice of such determination to the Company and applicable
Borrower and the Lenders. In the event of any such determination under clauses
(i) or (ii) above, until the Administrative Agent shall have advised the Company
and the Lenders that the circumstances giving rise to such notice no longer
exist, (x) any request by a Borrower for a Eurocurrency Competitive Loan
pursuant to Section 2.03 shall be of no force and effect and shall be denied by
the Administrative Agent, (y) any request by a Borrower for a Eurocurrency
Standby Loan pursuant to Section 2.04(a) shall be deemed to be a request for an
ABR Borrowing and (z) any request for a Eurocurrency Local Currency Loan
pursuant to Section 2.04(b) and to a Local Currency Addendum shall be deemed to
be a request for a Local Currency Loan bearing interest by reference to the rate
specified in the applicable Local Currency Addendum (provided that if the
requested Eurocurrency Local Currency Loan was to be made pursuant to a Local
Currency Addendum in which no rate is specified such request shall be of no
force and effect and shall be denied by the Administrative Agent). In the event
the Required Lenders notify the Administrative Agent that the rates at which
Dollar deposits are being offered will not adequately and fairly reflect the
cost to such Lenders of making or maintaining Eurocurrency Loans in Dollars
during such Interest Period, the Administrative Agent shall notify the
applicable Borrower of such notice and until the Required Lenders shall have
advised the Administrative Agent that the circumstances giving rise to such
notice no longer exist, any request by such Borrower for a Eurocurrency Standby
Loan shall be deemed a request for an ABR Borrowing. Each determination by the
Administrative Agent hereunder shall be made in good faith and shall be
conclusive absent manifest error.
SECTION 2.11. Termination and Reduction of Commitments. (a) The
Commitments shall be automatically terminated on the Maturity Date; provided,
however, that if the Effective Date does not occur on or before December 31,
1996, the Commitments shall terminate on such date.
(b) Upon at least three Business Days' prior irrevocable telecopy
notice to the Administrative Agent, the Company may at any time in whole
permanently terminate, or from time to time in part permanently reduce, the
Total Commitment; provided, however, that (i) each partial reduction of the
Total Commitment shall be in an integral multiple of $10,000,000 and in a
minimum principal amount of $50,000,000 and (ii) no such termination or
reduction shall be made (A) which would reduce the Total Commitment to an amount
less than the sum of the aggregate Standby Credit Exposures and the Competitive
Loan Exposures or (B) which would reduce any Lender's Commitment to an amount
that is less than such Lender's Standby Credit Exposure.
23
(c) Each reduction in the Total Commitment hereunder shall be made
ratably among the Lenders in accordance with their respective Commitments. The
Borrowers shall pay to the Administrative Agent for the account of the Lenders,
on the date of each reduction or termination of the Total Commitment, the
Facility Fees on the amount of the Commitments terminated accrued through the
date of such termination or reduction.
SECTION 2.12. Prepayment. (a) Each Borrower shall have the right at
any time and from time to time to prepay any Standby Borrowing or Local Currency
Borrowing, as the case may be, in whole or in part, upon giving telecopy notice
(or telephone notice promptly confirmed by telecopy) to the Administrative
Agent: (i) before 10:00 a.m., New York City time, three Business Days prior to
prepayment, in the case of Eurocurrency Standby Loans, and (ii) before 10:00
a.m., New York City time, one Business Day prior to prepayment, in the case of
ABR Standby Loans and (iii) in the case of Local Currency Loans, by such time as
shall be specified in the applicable Local Currency Addendum; provided, however,
that each partial prepayment shall be in an amount which is (x) in the case of
any Standby Borrowing, an integral multiple of $10,000,000 and not less than
$50,000,000, and (ii) in the case of any Local Currency Borrowing, an amount in
which prepayments are permitted to be made under the applicable Local Currency
Addendum. No prepayment may be made in respect of any Competitive Borrowing.
(b) On the date of any termination or reduction of the Commitments
pursuant to Section 2.11, the Borrowers shall pay or prepay so much of the
Standby Borrowings as shall be necessary in order that the aggregate sum of the
Competitive Loan Exposures and Standby Credit Exposures will not exceed the
Total Commitment, after giving effect to such termination or reduction.
(c) Each notice of prepayment shall specify the prepayment date and
the principal amount of each Borrowing (or portion thereof) to be prepaid, shall
be irrevocable and shall commit the applicable Borrower to prepay such Borrowing
(or portion thereof) by the amount stated therein on the date stated therein.
All prepayments under this Section 2.12 shall be subject to Section 2.15 but
otherwise without premium or penalty. All prepayments under this Section 2.12
shall be accompanied by accrued interest on the principal amount being prepaid
to the date of payment.
SECTION 2.13. Reserve Requirements; Change in Circumstances. (a)
Notwithstanding any other provision herein, if after the date of this Agreement
any change in applicable law or regulation or in the interpretation or
administration thereof by any Governmental Authority charged with the
interpretation or administration thereof (whether or not having the force of
law) shall result in the imposition, modification or applicability of any
reserve, special deposit or similar requirement against assets of, deposits with
or for the account of or credit extended by any Lender, or shall result in the
imposition on (i) any Lender or the London interbank market of any other
condition affecting this Agreement, (ii) such Lender's Commitment or (iii) any
Eurocurrency Loan or Fixed Rate Loan made by such Lender, and the result of any
of the foregoing shall be to increase the cost to such Lender of making or
maintaining any Eurocurrency Loan or Fixed Rate Loan or to reduce the amount of
any sum received or receivable by such Lender hereunder (whether of principal,
interest or otherwise) by an amount reasonably deemed by such Lender to be
material, then such additional amount or amounts as will compensate such Lender
for such additional costs or reduction will be paid by the Borrowers to such
Lender upon demand. Notwithstanding the foregoing, no Lender shall be entitled
to request compensation under this paragraph with respect to any Competitive
Loan if the change giving rise to such request was applicable to such Lender at
the time of submission of the Competitive Bid pursuant to which such Competitive
Loan was made.
24
(b) If any Lender shall have determined that the adoption of any law,
rule, regulation or guideline arising out of the July 1988 report of the Basle
Committee on Banking Regulations and Supervisory Practices entitled
"International Convergence of Capital Measurement and Capital Standards", or the
adoption after the date hereof of any other law, rule, regulation or guideline
regarding capital adequacy, or any change in any of the foregoing or in the
interpretation or administration of any of the foregoing by any Governmental
Authority, central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by any Lender (or any lending office of
such Lender) or any Lender's holding company with any request or directive
regarding capital adequacy (whether or not having the force of law) of any such
authority, central bank or comparable agency, has or would have the effect of
reducing the rate of return on (i) such Lender's capital or on the capital of
such Lender's holding company, if any, as a consequence of this Agreement, (ii)
such Lender's Commitment or (iii) the Loans made by such Lender pursuant hereto
to a level below that which such Lender or such Lender's holding company could
have achieved but for such adoption, change or compliance (taking into
consideration such Lender's policies and the policies of such Lender's holding
company with respect to capital adequacy) by an amount reasonably deemed by such
Lender to be material, then from time to time such additional amount or amounts
as will compensate such Lender for such reduction will be paid by the Borrowers
to such Lender.
(c) A certificate of any Lender setting forth such amount or amounts
as shall be necessary to compensate such Lender or its holding company, as
applicable, as specified in paragraph (a) or (b) above, as the case may be,
shall be delivered to the Company and shall be conclusive absent manifest error.
The Borrowers shall pay such Lender the amount shown as due on any such
certificate delivered by it within 10 days after its receipt of the same.
(d) Failure on the part of any Lender to demand compensation for any
increased costs or reduction in amounts received or receivable or reduction in
return on capital with respect to any period shall not constitute a waiver of
such Lender's right to demand compensation with respect to such period or any
other period; provided, however, that no Lender shall be entitled to
compensation under this Section 2.13 for any costs incurred or reductions
suffered with respect to any date unless it shall have notified the Company that
it will demand compensation for such costs or reductions under paragraph (c)
above not more than 90 days after the later of (i) such date and (ii) the date
on which it shall have become aware of such costs or reductions. The protection
of this Section shall be available to each Lender regardless of any possible
contention of the invalidity or inapplicability of the law, rule, regulation,
guideline or other change or condition which shall have occurred or been
imposed.
SECTION 2.14. Change in Legality. (a) Notwithstanding any other
provision herein, if any change in any law or regulation or in the
interpretation thereof by any Governmental Authority charged with the
administration or interpretation thereof shall make it unlawful for any Lender
or any of its Affiliates which shall be party to a Local Currency Addendum to
make or maintain any Eurocurrency Loan or Local Currency Loan or to give effect
to its obligations as contemplated hereby with respect to any Eurocurrency Loan
or Local Currency Loan, or shall limit the convertibility into Dollars of any
Local Currency (or make such conversion commercially impracticable), then, by
written notice to the Company and to the Administrative Agent, such Lender may:
(i) declare that Eurocurrency Loans or Loans in any affected Local
Currency will not thereafter be made by such Lender hereunder, whereupon
such Lender shall not submit a Competitive Bid in response to a request for
a Eurocurrency Competitive Loan, any request for a Eurocurrency Standby
Loan shall, as to such Lender only, be deemed a request for an ABR Loan,
and any request for a Local Currency Borrowing in such Local Currency shall
be disregarded, unless such declaration shall be subsequently withdrawn;
and
25
(ii) require that all outstanding Eurocurrency Loans in Dollars made
by it be converted to ABR Loans and that all outstanding Local Currency
Loans made by it in the affected Local Currency be promptly prepaid, in
which event all such Eurocurrency Loans in Dollars shall be automatically
converted to ABR Loans as of the effective date of such notice as provided
in paragraph (b) below and all such Local Currency Loans shall be promptly
prepaid.
In the event any Lender shall exercise its rights under subparagraph (i) or (ii)
above with respect to Eurocurrency Loans in Dollars, all payments and
prepayments of principal which would otherwise have been applied to repay the
Eurocurrency Loans that would have been made by such Lender or the converted
Eurocurrency Loans, of such Lender shall instead be applied to repay the ABR
Loans made by such Lender in lieu of, or resulting from the conversion of, such
Eurocurrency Loans.
(b) For purposes of this Section 2.14, a notice by any Lender shall be
effective as to each Eurocurrency Loan or Local Currency Loan, if lawful, on the
last day of the Interest Period currently applicable to such Eurocurrency Loan
or Local Currency Loan; in all other cases such notice shall be effective on the
date of receipt.
SECTION 2.15. Indemnity. The Borrowers shall indemnify each Lender
against any out-of-pocket loss or expense which such Lender may sustain or incur
as a consequence of (a) any failure to borrow or to refinance, convert or
continue any Loan hereunder after irrevocable notice of such borrowing,
refinancing, conversion or continuation has been given pursuant to Section 2.03,
2.04 or 2.05 or pursuant to any Local Currency Addendum, (b) any payment,
prepayment or conversion, or assignment required under Section 2.20, of a
Eurocurrency Loan required by any other provision of this Agreement or otherwise
made or deemed made on a date other than the last day of the Interest Period, if
any, applicable thereto, (c) any default in payment or prepayment of the
principal amount of any Loan or any part thereof or interest accrued thereon, as
and when due and payable (at the due date thereof, whether by scheduled
maturity, acceleration, irrevocable notice of prepayment or otherwise) or (d)
the occurrence of any Event of Default, including, in each such case, any loss
or reasonable expense sustained or incurred or to be sustained or incurred in
liquidating or employing deposits from third parties acquired to effect or
maintain such Loan or any part thereof as a Eurocurrency Loan or Local Currency
Loan. Such loss or reasonable expense shall include an amount equal to the
excess, if any, as reasonably determined by such Lender, of (i) its cost of
obtaining the funds for the Loan being paid, prepaid, refinanced or not borrowed
(assumed to be the LIBO Rate applicable thereto) for the period from the date of
such payment, prepayment, refinancing or failure to borrow or refinance to the
last day of the Interest Period for such Loan (or, in the case of a failure to
borrow or refinance the Interest Period for such Loan which would have commenced
on the date of such failure) over (ii) the amount of interest (as reasonably
determined by such Lender) that would be realized by such Lender in reemploying
the funds so paid, prepaid or not borrowed or refinanced for such period or
Interest Period, as the case may be. A certificate of any Lender setting forth
any amount or amounts which such Lender is entitled to receive pursuant to this
Section shall be delivered to such Borrower and shall be conclusive absent
manifest error.
SECTION 2.16. Pro Rata Treatment. Except as required under Sections
2.14 and 2.20, each payment or prepayment of principal of any Standby Borrowing,
each payment of interest on the Standby Loans, each payment of the Facility
Fees, each reduction of the Commitments and each refinancing or conversion of
any Standby Borrowing with a Standby Borrowing of any Type, shall be allocated
pro rata among the Lenders in accordance with their respective Commitments (or,
if such Commitments shall have expired or been terminated, in accordance with
the respective principal amounts of their outstanding Standby Loans). Each
payment of principal of any Competitive Borrowing shall be allocated pro rata
among the Lenders participating in such Borrowing in accordance with the
respective
26
principal amounts of their outstanding Competitive Loans comprising such
Borrowing. Each payment of interest on any Competitive Borrowing shall be
allocated pro rata among the Lenders participating in such Borrowing in
accordance with the respective amounts of accrued and unpaid interest on their
outstanding Competitive Loans comprising such Borrowing. For purposes of
determining the Available Commitments of the Lenders at any time, each
outstanding Competitive Borrowing shall be deemed to have utilized the
Commitments of the Lenders (including those Lenders which shall not have made
Loans as part of such Competitive Borrowing) pro rata in accordance with such
respective Commitments. Each Lender agrees that in computing such Lender's
portion of any Borrowing to be made hereunder, the Administrative Agent may, in
its discretion, round each Lender's percentage of such Borrowing to the next
higher or lower whole Dollar amount.
SECTION 2.17. Sharing of Setoffs. Each Lender agrees that if it shall,
through the exercise of a right of banker's lien, setoff or counterclaim, or
pursuant to a secured claim under Section 506 of Title 11 of the United States
Code or other security or interest arising from, or in lieu of, such secured
claim, received by such Lender under any applicable bankruptcy, insolvency or
other similar law or otherwise, or by any other means, obtain payment (voluntary
or involuntary) in respect of any Standby Loan or Loans as a result of which the
unpaid principal portion of its Standby Loans shall be proportionately less than
the unpaid principal portion of the Standby Loans of any other Lender, it shall
be deemed simultaneously to have purchased from such other Lender at face value,
and shall promptly pay to such other Lender the purchase price for, a
participation in the Standby Loans of such other Lender, so that the aggregate
unpaid principal amount of the Standby Loans and participations in the Standby
Loans held by each Lender shall be in the same proportion to the aggregate
unpaid principal amount of all Standby Loans then outstanding as the principal
amount of its Standby Loans prior to such exercise of banker's lien, setoff or
counterclaim or other event was to the principal amount of all Standby Loans
outstanding prior to such exercise of banker's lien, setoff or counterclaim or
other event; provided, however, that, if any such purchase or purchases or
adjustments shall be made pursuant to this Section 2.17 and the payment giving
rise thereto shall thereafter be recovered, such purchase or purchases or
adjustments shall be rescinded to the extent of such recovery and the purchase
price or prices or adjustment restored without interest. Any Lender holding a
participation in a Standby Loan deemed to have been so purchased may exercise
any and all rights of banker's lien, setoff or counterclaim with respect to any
and all moneys owing to such Lender by reason thereof as fully as if such Lender
had made a Standby Loan in the amount of such participation.
SECTION 2.18. Payments. (a) The Borrowers shall make each payment
(including principal of or interest on any Borrowing and any Fees or other
amounts) hereunder from an account in the United States not later than 12:00
noon, local time at the place of payment, on the date when due, without setoff
or counterclaim, in immediately available funds to the Administrative Agent at
its offices at 270 Park Avenue, New York, New York (or, in the case of Local
Currency Loans, such other time and place as shall be specified in the
applicable Local Currency Addendum). Each such payment (other than principal of
and interest on Local Currency Loans which shall be made in the Local Currency
of such Local Currency Loan) shall be made in Dollars.
(b) Whenever any payment (including principal of or interest on any
Borrowing or any Fees or other amounts) hereunder shall become due, or otherwise
would occur, on a day that is not a Business Day, such payment may be made on
the next succeeding Business Day, and such extension of time shall in such case
be included in the computation of interest or Fees, if applicable.
SECTION 2.19. Taxes. (a) Any and all payments to the Lenders hereunder
shall be made, in accordance with Section 2.18, free and clear of and without
deduction for any and all current or future taxes, levies, imposts, deductions,
charges or withholdings, and all liabilities with respect thereto,
27
excluding (i) income taxes imposed on the income of the Administrative Agent or
any Lender (or any transferee or assignee thereof, including a participation
holder (any such entity a "Transferee")) and (ii) franchise taxes imposed on the
income, assets or net worth of the Administrative Agent, or any Lender (or
Transferee), in each case by the jurisdiction under the laws of which the
Administrative Agent or such Lender (or Transferee) is organized or doing
business (other than as a result of entering into this Agreement, performing any
obligations hereunder, receiving any payments hereunder or enforcing any rights
hereunder), or any political subdivision thereof (all such nonexcluded taxes,
levies, imposts, deductions, charges, withholdings and liabilities, collectively
or individually, "Taxes"). If any Borrower shall be required to deduct any Taxes
from or in respect of any sum payable hereunder to any Lender (or any
Transferee) or the Administrative Agent, (i) the sum payable shall be increased
by the amount (an "additional amount") necessary so that after making all
required deductions (including deductions applicable to additional sums payable
under this Section 2.19) such Lender (or Transferee), the Administrative Agent
(as the case may be) shall receive an amount equal to the sum it would have
received had no such deductions been made, (ii) such Borrower shall make such
deductions and (iii) such Borrower shall pay the full amount deducted to the
relevant Governmental Authority in accordance with applicable law.
(b) In addition, the Borrowers shall pay to the relevant Governmental
Authority in accordance with applicable law any current or future stamp or
documentary taxes or any other excise or property taxes, charges or similar
levies that arise from any payment made hereunder or from the execution,
delivery or registration of, or otherwise with respect to, this Agreement or any
other Loan Document ("Other Taxes").
(c) The Borrowers shall indemnify each Lender (or Transferee), and the
Administrative Agent for the full amount of Taxes and Other Taxes paid by such
Lender (or Transferee) or the Administrative Agent, as the case may be, and any
liability (including penalties, interest and expenses (including reasonable
attorney's fees and expenses)) arising therefrom or with respect thereto,
whether or not such Taxes or Other Taxes were correctly or legally asserted by
the relevant Governmental Authority. A certificate as to the amount of such
payment or liability prepared by a Lender (or Transferee) or the Administrative
Agent on its behalf, absent manifest error, shall be final, conclusive and
binding for all purposes. Such indemnification shall be made within 30 days
after the date any Lender (or Transferee) or the Administrative Agent, as the
case may be, makes written demand therefor, which written demand shall be made
within 60 days of the date such Lender (or Transferee) or the Administrative
Agent receives written demand for payment of such Taxes or Other Taxes from the
relevant Governmental Authority.
(d) If a Lender (or Transferee) or the Administrative Agent shall
become aware that it is entitled to claim a refund from a Governmental Authority
in respect of Taxes or Other Taxes as to which it has been indemnified by the
Borrowers, or with respect to which the Borrowers have paid additional amounts,
pursuant to this Section 2.19, it shall promptly notify the Borrowers of the
availability of such refund claim and shall, within 30 days after receipt of a
request by the Borrowers, make a claim to such Governmental Authority for such
refund at the Borrowers' expense. If a Lender (or Transferee) or the
Administrative Agent receives a refund (including pursuant to a claim for refund
made pursuant to the preceding sentence) in respect of any Taxes or Other Taxes
as to which it has been indemnified by the Borrowers or with respect to which
the Borrowers have paid additional amounts pursuant to this Section 2.19, it
shall within 30 days from the date of such receipt pay over such refund to the
Borrowers (but only to the extent of indemnity payments made, or additional
amounts paid, by the Borrowers under this Section 2.19 with respect to the Taxes
or Other Taxes giving rise to such refund), net of all out-of-pocket expenses of
such Lender (or Transferee) or the Administrative Agent and without interest
(other than interest paid by the relevant Governmental Authority with respect to
such refund);
28
provided, however, that the Borrowers, upon the request of such Lender (or
Transferee) or the Administrative Agent, agree to repay the amount paid over to
the Borrowers (plus penalties, interest or other charges) to such Lender (or
Transferee) or the Administrative Agent in the event such Lender (or
Transferee), such Issuing Bank or the Administrative Agent is required to repay
such refund to such Governmental Authority.
(e) As soon as practicable after the date of any payment of Taxes or
Other Taxes by the Borrowers to the relevant Governmental Authority, the
Borrowers will deliver to the Administrative Agent, at its address referred to
in Section 9.01, the original or a certified copy of a receipt issued by such
Governmental Authority evidencing payment thereof.
(f) Without prejudice to the survival of any other agreement contained
herein, the agreements and obligations contained in this Section 2.19 shall
survive the payment in full of the principal of and interest on all Loans made
hereunder.
(g) Each Lender (or Transferee) that is organized under the laws of a
jurisdiction other than the United States, any State thereof or the District of
Columbia (a "Non-U.S. Lender") shall deliver to the Company and the
Administrative Agent two copies of either United States Internal Revenue Service
Form 1001 or Form 4224, or, in the case of a Non-U.S. Lender claiming exemption
from U.S. Federal withholding tax under Section 871(h) or 881(c) of the Code
with respect to payments of "portfolio interest", a Form W-8, or any subsequent
versions thereof or successors thereto (and, if such Non-U.S. Lender delivers a
Form W-8, a certificate representing that such Non-U.S. Lender is not a bank for
purposes of Section 881(c) of the Code, is not a 10 percent shareholder (within
the meaning of Section 871(h)(3)(B) of the Code) of the Company and is not a
controlled foreign corporation related to the Company (within the meaning of
Section 864(d)(4) of the Code)), properly completed and duly executed by such
Non-U.S. Lender claiming complete exemption from, or reduced rate of, U.S.
Federal withholding tax on payments by the Company under this Agreement. Such
forms shall be delivered by each Non-U.S. Lender on or before the date it
becomes a party to this Agreement (or, in the case of a Transferee that is a
participation holder, on or before the date such participation holder becomes a
Transferee hereunder) and on or before the date, if any, such Non-U.S. Lender
changes its applicable lending office by designating a different lending office
(a "New Lending Office"). In addition, each Non-U.S. Lender shall deliver such
forms promptly upon the obsolescence or invalidity of any form previously
delivered by such Non-U.S. Lender. Notwithstanding any other provision of this
Section 2.19(g), a Non-U.S. Lender shall not be required to deliver any form
pursuant to this Section 2.19(g) that such Non-U.S. Lender is not legally able
to deliver.
(h) The Company shall not be required to indemnify any Non-U.S.
Lender, or to pay any additional amounts to any Non-U.S. Lender, in respect of
United States Federal withholding tax pursuant to paragraph (a) or (c) above to
the extent that (i) the obligation to withhold amounts with respect to United
States Federal withholding tax existed on the date such Non-U.S. Lender became a
party to this Agreement (or, in the case of a Transferee that is a participation
holder, on the date such participation holder became a Transferee hereunder) or,
with respect to payments to a New Lending Office, the date such Non-U.S. Lender
designated such New Lending Office with respect to a Loan; provided, however,
that this clause (i) shall not apply to any Transferee or New Lending Office
that becomes a Transferee or New Lending Office as a result of an assignment,
participation, transfer or designation made at the request of the Company; and
provided further, however, that this clause (i) shall not apply to the extent
the indemnity payment or additional amounts any Transferee, or Lender (or
Transferee) through a New Lending Office, would be entitled to receive (without
regard to this clause (i)) do not exceed the indemnity payment or additional
amounts that the person making the assignment, participation or transfer to such
Transferee, or Lender (or Transferee) making the
29
designation of such New Lending Office, would have been entitled to receive in
the absence of such assignment, participation, transfer or designation or (ii)
the obligation to pay such additional amounts would not have arisen but for a
failure by such Non-U.S. Lender to comply with the provisions of paragraph (g)
above.
(i) Any Lender (or Transferee) claiming any indemnity payment or
additional amounts payable pursuant to this Section 2.19 shall use reasonable
efforts (consistent with legal and regulatory restrictions) to file any
certificate or document reasonably requested in writing by the Company or to
change the jurisdiction of its applicable lending office if the making of such a
filing or change would avoid the need for or reduce the amount of any such
indemnity payment or additional amounts that may thereafter accrue and would
not, in the determination of such Lender (or Transferee), be otherwise
disadvantageous to such Lender (or Transferee).
(j) Nothing contained in this Section 2.19 shall require any Lender
(or Transferee) or the Administrative Agent to make available any of its tax
returns (or any other information that it deems to be confidential or
proprietary).
SECTION 2.20. Duty to Mitigate; Assignment of Commitments Under
Certain Circumstances. (a) Any Lender (or Transferee) claiming any additional
amounts payable pursuant to Section 2.13 or Section 2.19 or exercising its
rights under Section 2.14 shall use reasonable efforts (consistent with legal
and regulatory restrictions) to file any certificate or document requested by
the Company or to change the jurisdiction of its applicable lending office if
the making of such a filing or change would avoid the need for or reduce the
amount of any such additional amounts which may thereafter accrue or avoid the
circumstances giving rise to such exercise and would not, in the determination
of such Lender (or Transferee), be otherwise disadvantageous to such Lender (or
Transferee).
(b) In the event that any Lender shall have delivered a notice or
certificate pursuant to Section 2.13 or 2.14, or the Company shall be required
to make additional payments to any Lender under Section 2.19, the Company shall
have the right, at its own expense, upon notice to such Lender and the
Administrative Agent, to require such Lender to transfer and assign without
recourse (in accordance with and subject to the restrictions contained in
Section 9.04) all interests, rights and obligations contained hereunder to
another financial institution approved by the Administrative Agent (which
approval shall not be unreasonably withheld) which shall assume such
obligations; provided that (i) no such assignment shall conflict with any law,
rule or regulation or order of any Governmental Authority and (ii) the assignee
or the Company, as the case may be, shall pay to the affected Lender in
immediately available funds on the date of such assignment the principal of and
interest accrued to the date of payment on the Loans made by it hereunder and
all other amounts accrued for its account or owed to it hereunder.
SECTION 2.21. Terms of Local Currency Facilities. (a) The Company may
in its discretion from time to time elect to borrow, or elect that one or more
Borrowing Subsidiaries may borrow, Local Currency Loans on a revolving basis
from any one or more Local Currency Lenders, with the consent of each such Local
Currency Lender in its sole discretion, by delivering a Local Currency Addendum
to the Administrative Agent and the Local Currency Lenders (through the
Administrative Agent), executed by the Company, each such Borrowing Subsidiary
and each such Local Currency Lender; provided, however, that on the effective
date of such election, and after giving effect thereto, (i) an Exchange Rate
with respect to each Local Currency covered by such Local Currency Addendum
shall be determinable by reference to the Reuters currency pages (or comparable
publicly available screen), (ii) no Default or Event of Default shall have
occurred and be continuing and (iii) the aggregate
30
amount of all Local Currency Facility Maximum Borrowing Amounts under all Local
Currency Addenda at the time in effect shall not exceed $350,000,000. Each
Borrower and, by agreeing to any Local Currency Addendum, each relevant Local
Currency Lender, acknowledges and agrees that each reference in this Agreement
to any Lender shall, to the extent applicable, be deemed to be a reference to
such Local Currency Lender, subject to the second sentence of the definition of
such term.
(b) Each Local Currency Addendum shall set forth (i) the maximum
amount (expressed in Dollars and without duplication) available to be borrowed
from all Local Currency Lenders under such Local Currency Addendum (as the same
may be reduced from time to time pursuant to Section 2.22(c) or (d), a "Local
Currency Facility Maximum Borrowing Amount") and (ii) with respect to each Local
Currency Lender party to such Local Currency Addendum, the maximum amount
(expressed in Dollars and without duplication) available to be borrowed from
such Local Currency Lender thereunder (as the same may be reduced from time to
time pursuant to Section 2.22(c) or (d), a "Local Currency Lender Maximum
Borrowing Amount"). In no event shall the aggregate of all Local Currency Lender
Maximum Borrowing Amounts in respect of any Local Currency Lender at any time
exceed such Lender's Commitment. Except as provided in Section 2.21(c), the
making of Local Currency Loans by a Local Currency Lender under a Local Currency
Addendum shall under no circumstances reduce the amount available to be borrowed
from such Lender under any other Local Currency Addendum to which such Lender is
a party.
(c) Except as otherwise required by applicable law, in no event shall
the Local Currency Lenders have the right to accelerate the Local Currency Loans
outstanding under any Local Currency Addendum, or to terminate their commitments
(if any) thereunder to make Local Currency Loans prior to the stated termination
date in respect thereof, except that such Local Currency Lenders shall, in each
case, have such rights upon an acceleration of the Loans and a termination of
the Commitments pursuant to Article VI, respectively. No Local Currency Loan may
be made if (i) an Exchange Rate with respect to such Local Currency cannot be
determined, (ii) a Default or an Event of Default shall have occurred and be
continuing or would result therefrom or (iii) after giving effect thereto, (A)
the sum of the aggregate principal amount of the Dollar Loans (other than
Competitive Loans) and Local Currency Loans (Dollar Equivalent) of any Lender
(and the Affiliates of such Lender that are Local Currency Lenders) then
outstanding would exceed such Lender's Commitment, (B) the Dollar Equivalent of
the aggregate principal amount of outstanding Local Currency Loans denominated
in a specified Local Currency would exceed the applicable Local Currency
Facility Maximum Borrowing Amount or (C) the sum of the aggregate Standby Credit
Exposures and the aggregate Competitive Loan Exposures would exceed the Total
Commitment.
(d) The applicable Borrower and the applicable Local Currency Lenders,
or, if so specified in the relevant Local Currency Addendum, an agent acting on
their behalf, shall furnish to the Administrative Agent, promptly following the
making, payment or prepayment of each Local Currency Loan, and at any other time
at the request of the Administrative Agent, a statement setting forth the
outstanding Local Currency Loans made under such Local Currency Addendum.
(e) The applicable Borrower shall furnish to the Administrative Agent
copies of any amendment, supplement or other modification to the terms of any
Local Currency Addendum promptly after the effectiveness thereof.
(f) The Company may terminate any Local Currency Addendum, if there
are not any Loans outstanding thereunder, in its sole discretion (or, if there
are Loans outstanding thereunder, with the consent of each Local Currency Lender
party thereto), by written notice to the Administrative Agent, which notice
shall be executed by the Company, each relevant Borrowing Subsidiary and, if
their consent
31
is required, each such Local Currency Lender. Once notice of such termination is
received by the Administrative Agent, such Local Currency Addendum and the loans
and other obligations outstanding thereunder shall immediately cease to be
subject to the terms of this Agreement.
SECTION 2.22. Currency Fluctuations, etc. (a) Not later than 1:00
p.m., New York City time, on each Calculation Date, the Administrative Agent
shall (i) determine the Exchange Rate as of such Calculation Date with respect
to each Local Currency covered by a Local Currency Addendum and (ii) give notice
thereof to the Lenders, the Company and the relevant Borrowing Subsidiaries. The
Exchange Rates so determined shall become effective on the first Business Day
immediately following the relevant Calculation Date (a "Reset Date") and shall
remain effective until the next succeeding Reset Date.
(b) Not later than 5:00 p.m., New York City time, on each Reset Date
and each Borrowing Date, the Administrative Agent shall (i) determine the Dollar
Equivalent of the Local Currency Loans then outstanding (after giving effect to
any Local Currency Loans to be made or repaid on such date) and (ii) notify the
Lenders, the Company and the relevant Borrowing Subsidiaries of the results of
such determination.
(c) If, on any Reset Date or any Borrowing Date (after giving effect
to (i) any Loans to be made or repaid on such date and (ii) any amendment,
supplement or other modification to any Local Currency Addendum effective on
such date of which the Administrative Agent has received notice), the aggregate
outstanding Dollar Standby Extensions of Credit of any Lender exceeds the Dollar
Standby Credit Overage of such Lender (the amount of such excess being called
the "Dollar Standby Credit Excess"), then such Lender's Local Currency Lender
Maximum Borrowing Amount under each Local Currency Addendum to which such Lender
is a party shall be reduced on such date by an amount equal to the product of
such Dollar Standby Credit Excess times a fraction, the numerator of which shall
equal the Local Currency Lender Maximum Borrowing Amount under such Local
Currency Addendum and the denominator of which shall equal the aggregate of the
Local Currency Lender Maximum Borrowing Amounts of such Lender. After giving
effect to any such reduction in Local Currency Lender Maximum Borrowing Amounts,
the Local Currency Facility Maximum Borrowing Amount with respect to each Local
Currency Addendum shall, in turn, be reduced to an amount equal to the aggregate
of the Local Currency Lender Maximum Borrowing Amounts of all Lenders party to
such Local Currency Addendum. Reductions in Local Currency Facility Maximum
Borrowing Amounts and Local Currency Lender Maximum Borrowing Amounts pursuant
to this Section 2.22(c) shall be effective until the amount thereof shall be
recalculated by the Administrative Agent on the next succeeding Reset Date or
Borrowing Date, and shall not be deemed to reduce the stated amount of any
commitment of any Local Currency Lender in respect of any Local Currency
Addendum.
(d) If, on any Reset Date or Borrowing Date (after giving effect to
(i) any Loans to be made or repaid on such date, (ii) any amendment, supplement
or other modification to any Local Currency Addendum effective on such date of
which the Administrative Agent has received notice and (iii) any reduction in
the Local Currency Facility Maximum Borrowing Amounts pursuant to Section
2.22(c) effective on such date), the sum of (A) the aggregate outstanding Dollar
Standby Extensions of Credit of all the Lenders and (B) the aggregate
Competitive Loan Exposures exceed the Dollar Facility Overage (the amount of
such excess being called the "Dollar Facility Excess"), then the Local Currency
Facility Maximum Borrowing Amount under each Local Currency Addendum shall be
reduced on such date by an amount equal to the product of such Dollar Facility
Excess times a fraction, the numerator of which shall equal the Local Currency
Facility Maximum Borrowing Amount under such Local Currency Addendum and the
denominator of which shall equal the aggregate of the Local Currency Facility
Maximum Borrowing Amounts with respect to all Local Currency Addenda. Each such
32
reduction in the Local Currency Facility Maximum Borrowing Amount under a Local
Currency Addendum shall, in turn, reduce the respective Local Currency Lender
Maximum Borrowing Amounts of each Local Currency Lender party to such Local
Currency Addendum, pro rata on the basis of the respective Local Currency Lender
Maximum Borrowing Amounts of such Local Currency Lenders immediately prior to
such reduction. Reductions in Local Currency Facility Maximum Borrowing Amounts
and Local Currency Lender Maximum Borrowing Amounts pursuant to this Section
2.22(d) shall be effective until the amount thereof shall be recalculated by the
Administrative Agent on the next succeeding Reset Date or Borrowing Date, and
shall not be deemed to reduce the stated amount of any commitment of any Local
Currency Lender in respect of any Local Currency Addendum.
(e) If, on any Reset Date, the Dollar Equivalent of the Local Currency
Loans outstanding under a Local Currency Addendum exceeds 105% of the Local
Currency Facility Maximum Borrowing Amount with respect thereto (after giving
effect to any reductions therein effected pursuant to Section 2.22(c) or (d) on
such date), then the relevant Borrower shall, within three Business Days after
notice thereof from the Administrative Agent, (i) increase the Local Currency
Facility Maximum Borrowing Amount with respect to such Local Currency Facility
in accordance with Section 2.21(e) and/or (ii) prepay Local Currency Loans, in
either case in an aggregate amount such that, after giving effect thereto, (x)
the Dollar Equivalent of all such Local Currency Loans shall be equal to or less
than such Local Currency Facility Maximum Borrowing Amount and (y) the Dollar
Equivalent of the Local Currency Loans of each relevant Local Currency Lender
shall be equal to or less than such Local Currency Lender's Local Currency
Lender Maximum Borrowing Amount with respect to such Local Currency Addendum.
(f) If, on any Reset Date, the Standby Credit Exposure of any Lender
exceeds 105% of such Lender's Commitment, then, within three Business Days after
notice thereof from the Administrative Agent, the Company shall prepay and/or
cause the relevant Borrowing Subsidiaries to prepay the Loans in accordance with
this Agreement, in an aggregate amount such that, after giving effect thereto,
the Standby Credit Exposure of such Lender shall be equal to or less than such
Lender's Standby Credit Commitment.
(g) The Administrative Agent shall promptly notify the relevant
Lenders of the amount of any reductions in Local Currency Facility Maximum
Borrowing Amounts or Local Currency Lender Maximum Borrowing Amounts required
pursuant to this Section 2.22.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Each Borrower represents and warrants to each of the Lenders that:
SECTION 3.01. Organization; Powers. Each Borrower and each of
the Restricted Subsidiaries (a) is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization, (b) has all requisite power and authority to own its property and
assets and to carry on its business as now conducted and as proposed to be
conducted, (c) is qualified to do business in every jurisdiction where such
qualification is required, except where the failure so to qualify would not
result in a Material Adverse Effect, and (d) in the case of each Borrower, has
the corporate power and authority to execute, deliver and perform its
obligations under the Loan Documents and to borrow hereunder and thereunder.
33
SECTION 3.02. Authorization. The execution, delivery and
performance by the Borrowers of this Agreement, the promissory notes, if any,
issued pursuant to Section 9.04(i) and each Local Currency Addendum (and by the
Borrowing Subsidiaries of each Borrowing Subsidiary Agreement) and the
Borrowings hereunder (collectively, the "Transactions") (a) have been duly
authorized by all requisite corporate action and (b) will not (i) violate (A)
any provision of any law, statute, rule or regulation (including the Margin
Regulations) or of the certificate of incorporation or other constitutive
documents or by-laws of the Borrowers, (B) any order of any Governmental
Authority or (C) any provision of any indenture, agreement or other instrument
to which any Borrower is a party or by which it or any of its property is or may
be bound, (ii) be in conflict with, result in a breach of or constitute (alone
or with notice or lapse of time or both) a default under any such indenture,
agreement or other instrument or (iii) result in the creation or imposition of
any lien upon any property or assets of any Borrower.
SECTION 3.03. Enforceability. This Agreement and each Loan
Document to which a Borrower is a party constitutes a legal, valid and binding
obligation of each such Borrower enforceable in accordance with its terms.
SECTION 3.04. Governmental Approvals. No action, consent or
approval of, registration or filing with or other action by any Governmental
Authority, other than those which have been taken, given or made, as the case
may be, is or will be required with respect to any Borrower in connection with
the Transactions.
SECTION 3.05. Financial Statements. (a) The Company has
heretofore furnished to the Administrative Agent and the Lenders copies of its
consolidated balance sheet and statements of income, cash flow and stockholders'
equity as of and for the year ended December 31, 1995, and the nine months ended
September 30, 1996. Such financial statements present fairly, in all material
respects, the consolidated financial condition and the results of operations of
the Company and the Subsidiaries as of such dates and for such periods in
accordance with GAAP or SAP, as requested.
(b) As of the date hereof, there has been no material adverse
change in the consolidated financial condition of the Company and the
Subsidiaries taken as a whole from the financial condition reported in the
financial statements referenced in paragraph (a) of this Section 3.05.
SECTION 3.06. Litigation; Compliance with Laws. (a) There are
no actions, proceedings or investigations filed or (to the knowledge of the
Borrowers) threatened against any Borrower or any Subsidiary in any court or
before any Governmental Authority or arbitration board or tribunal which
question the validity or legality of this Agreement, the Transactions or any
action taken or to be taken pursuant to this Agreement and no order or judgment
has been issued or entered restraining or enjoining any Borrower or any
Subsidiary from the execution, delivery or performance of this Agreement nor is
there any other action, proceeding or investigation filed or (to the knowledge
of any Borrower or any Subsidiary) threatened against any Borrower or any
Subsidiary in any court or before any Governmental Authority or arbitration
board or tribunal which would be reasonably likely to result in a Material
Adverse Effect or materially restrict the ability of any Borrower to comply with
its obligations under the Loan Documents.
(b) Neither any Borrower nor any Subsidiary is in violation of
any law, rule or regulation (including any law, rule or regulation relating to
the protection of the environment or to employee health or safety), or in
default with respect to any judgment, writ, injunction or decree of any
Governmental Authority, where such violation or default would be reasonably
likely to result in a Material Adverse Effect.
34
(c) No exchange control law or regulation materially restricts
any Borrower from complying with its obligations in respect of any Loan or
otherwise under this Agreement or any Local Currency Addendum.
SECTION 3.07. Federal Reserve Regulations. (a) Neither any
Borrower nor any Subsidiary that will receive proceeds of the Loans hereunder is
engaged principally, or as one of its important activities, in the business of
extending credit for the purpose of purchasing or carrying Margin Stock.
(b) No part of the proceeds of any Loan will be used, whether
directly or indirectly, and whether immediately, incidentally or ultimately, to
purchase or carry Margin Stock or to refund indebtedness originally incurred for
such purpose, or for any other purpose which entails a violation of, or which is
inconsistent with, the provisions of the Margin Regulations.
SECTION 3.08. Investment Company Act; Public Utility Holding
Company Act. No Borrower is (a) an "investment company" as defined in, or
subject to regulation under, the Investment Company Act of 1940 (the "1940 Act")
or (b) a "holding company" as defined in, or subject to regulation under, the
Public Utility Holding Company Act of 1935. While certain subsidiaries of
Hartford Life Insurance Company are "investment companies" as defined in the
1940 Act, the transactions contemplated by this Agreement will not violate or
require any approval under such Act or any regulations promulgated pursuant
thereto.
SECTION 3.09. Use of Proceeds. All proceeds of the Loans
shall be used for the purposes referred to in the recitals to this Agreement.
SECTION 3.10. Full Disclosure; No Material Misstatements. None
of the representations or warranties made by any Borrower in connection with
this Agreement as of the date such representations and warranties are made or
deemed made, and no report, financial statement or other information furnished
by or on behalf of any Borrower to the Administrative Agent or any Lender
pursuant to or in connection with this Agreement or the credit facilities
established hereby, contains or will contain any material misstatement of fact
or omits or will omit to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they were or
will be made, not misleading.
SECTION 3.11. Taxes. Each Borrower and each of the Restricted
Subsidiaries have filed or caused to be filed all Federal, state and local tax
returns which are required to be filed by them, and have paid or caused to be
paid all taxes shown to be due and payable on such returns or on any assessments
received by any of them, other than any taxes or assessments, the validity of
which is being contested in good faith by appropriate proceedings and with
respect to which appropriate accounting reserves have to the extent required by
GAAP or SAP, as applicable, been set aside.
SECTION 3.12. Employee Pension Benefit Plans. The present
aggregate value of accumulated benefit obligations of all unfunded and
underfunded pension plans of the Company and its Subsidiaries (based on those
assumptions used for disclosure in corporate financial statements in accordance
with GAAP or SAP, as applicable) did not, as of December 31, 1994, exceed by
more than $70,000,000 the value of the assets of all such plans. In these cases
the Company has recorded book reserves to meet the obligations.
35
ARTICLE IV
CONDITIONS OF LENDING
The obligations of the Lenders to make Loans hereunder are
subject to the satisfaction of the following conditions:
SECTION 4.01. All Borrowings. On the date of each Borrowing:
(a) The Administrative Agent shall have received a notice of
such Borrowing as required by Section 2.03 or Section 2.04, as
applicable.
(b) The representations and warranties set forth in Article
III hereof shall be true and correct in all material respects on and as
of the date of such Borrowing with the same effect as though made on
and as of such date, except to the extent such representations and
warranties expressly relate to an earlier date.
(c) At the time of and immediately after such Borrowing no
Event of Default or Default shall have occurred and be continuing.
Each Borrowing shall be deemed to constitute a representation and warranty by
each Borrower on the date of such Borrowing as to the matters specified in
paragraphs (b) and (c) of this Section 4.01.
SECTION 4.02. Effective Date. On the Effective Date:
(a) The Administrative Agent shall have received a favorable
written opinion of Michael S. Wilder, Esq., dated the Effective Date and
addressed to the Lenders and satisfactory to the Lenders, the Administrative
Agent and Cravath, Swaine & Moore, counsel for the Administrative Agent, to the
effect set forth in Exhibit D hereto.
(b) The Administrative Agent shall have received (i) a copy of
the certificate of incorporation, including all amendments thereto, of the
Company, certified as of a recent date by the Secretary of State of its state of
incorporation, and a certificate as to the good standing of the Company as of a
recent date from such Secretary of State; (ii) a certificate of the Secretary or
an Assistant Secretary of the Company dated the Effective Date and certifying
(A) that attached thereto is a true and complete copy of the by-laws of the
Company as in effect on the Effective Date and at all times since a date prior
to the date of the resolutions described in clause (B) below, (B) that attached
thereto is a true and complete copy of resolutions duly adopted by the Board of
Directors of the Company authorizing the execution, delivery and performance of
this Agreement and any other documents related to this Agreement and the
Borrowings hereunder, and that such resolutions have not been modified,
rescinded or amended and are in full force and effect, (C) that the certificate
of incorporation referred to in clause (i) above has not been amended since the
date of the last amendment thereto shown on the certificate of good standing
furnished pursuant to such clause (i) and (D) as to the incumbency and specimen
signature of each officer executing this Agreement or any other document
delivered in connection herewith on behalf of the Company; and (iii) a
certificate of another officer of the Company as to the incumbency and specimen
signature of the Secretary or Assistant Secretary executing the certificate
pursuant to (ii) above.
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(c) The Administrative Agent shall have received a
certificate, dated the Effective Date and signed by a Financial Officer of the
Company, confirming compliance with the conditions precedent set forth in
paragraphs (b) and (c) of Section 4.01.
(d) The principal of and accrued and unpaid interest on any
loans outstanding under the Existing Credit Facility shall have been paid in
full, all other amounts due in respect of the Existing Credit Facility shall
have been paid in full and the commitments to lend under the Existing Credit
Facility shall have been permanently terminated.
(e) The Administrative Agent shall have received any Fees or
other amounts due and payable on or prior to the Effective Date.
SECTION 4.03. First Borrowing by Each Borrowing Subsidiary.
On or prior to the first date on which Loans are made to any Borrowing
Subsidiary:
(a) The Lenders shall have received the favorable written
opinion of counsel with respect to such Borrowing Subsidiary
satisfactory to the Administrative Agent, addressed to the Lenders and
satisfactory to the Lenders, the Administrative Agent and Cravath,
Swaine & Moore, counsel for the Administrative Agent, to the effect set
forth in Exhibit D hereto.
(b) Each Lender shall have received a copy of the Borrowing
Subsidiary Agreement executed by such Borrowing Subsidiary.
ARTICLE V
COVENANTS
A. Affirmative Covenants. Each Borrower covenants and agrees
with each Lender and the Administrative Agent that so long as this Agreement
shall remain in effect or the principal of or interest on any Loan, any Fees or
any other amounts payable hereunder shall be unpaid, unless the Required Lenders
shall otherwise consent in writing, it will, and will cause each of the
Subsidiaries to:
SECTION 5.01. Existence. Do or cause to be done all things
necessary to preserve and keep in full force and effect its corporate existence,
rights and franchises, except as expressly permitted under Section 5.11;
provided, however, that nothing in this Section shall prevent the abandonment or
termination of the existence, rights or franchises of any Restricted Subsidiary
or any rights or franchises of any Borrower if such abandonment or termination
is in the best interests of the Borrowers and is not disadvantageous in any
material respect to the Lenders.
SECTION 5.02. Business and Properties. In the case of the
Borrowers and the Restricted Subsidiaries, comply in all material respects with
all applicable laws, rules, regulations and orders of any Governmental Authority
(including any of the foregoing relating to the protection of the environment or
to employee health and safety), whether now in effect or hereafter enacted; and
at all times maintain and preserve all property material to the conduct of its
business and keep such property in good repair, working order and condition and
from time to time make, or cause to be made, all needful and proper repairs,
renewals, additions, improvements and replacements thereto necessary in order
that the business carried on in connection therewith may be properly conducted
at all times.
37
SECTION 5.03. Financial Statements, Reports, etc. In the case
of the Company, furnish to the Administrative Agent for distribution to each
Lender:
(a) within 120 days after the end of each fiscal year, its
consolidated balance sheet and the related consolidated statements of
income and cash flows showing its consolidated financial condition as
of the close of such fiscal year and the consolidated results of its
operations during such year, all audited by Arthur Andersen LLP or
other independent certified public accountants of recognized national
standing selected by the Company and accompanied by an opinion of such
accountants to the effect that such consolidated financial statements
fairly present its financial condition and results of operations on a
consolidated basis in accordance with GAAP or SAP, as applicable (it
being agreed that the requirements of this paragraph may be satisfied
by the delivery pursuant to paragraph (f) below of an annual report on
Form 10-K containing the foregoing);
(b) within 90 days after the end of each of the first three
fiscal quarters of each fiscal year, its consolidated balance sheet and
related consolidated statements of income and cash flows showing its
consolidated financial condition as of the close of such fiscal quarter
and the consolidated results of its operations during such fiscal
quarter and the then elapsed portion of the fiscal year, all certified
by one of its Financial Officers as fairly presenting its financial
condition and results of operations on a consolidated basis in
accordance with GAAP or SAP, as applicable, subject to normal year-end
audit adjustments (it being agreed that the requirements of this
paragraph may be satisfied by the delivery pursuant to paragraph (f)
below of a quarterly report on Form 10-Q containing the foregoing);
(c) concurrently with any delivery of financial statements
under paragraph (a) or (b) above, a certificate of a Financial Officer
certifying that no Event of Default or Default has occurred or, if such
an Event of Default or Default has occurred, specifying the nature and
extent thereof and any corrective action taken or proposed to be taken
with respect thereto;
(d) as soon as available and in any event within 90 days after
the end of each fiscal year, (i) the Statement of Actuarial Opinion of
each of the Restricted Subsidiaries for such fiscal year and as filed
with the Applicable Insurance Regulatory Authority and (ii) the Annual
Statement of each of the Restricted Subsidiaries for such fiscal year
and as filed with the Applicable Insurance Regulatory Authority,
together with, in the case of the statements delivered pursuant to
clause (ii) above, a certificate of a Financial Officer to the effect
that such statements present fairly the statutory assets, liabilities,
capital and surplus, results of operations and cash flows of such
Insurance Subsidiary in accordance with SAP;
(e) promptly after the same become publicly available, copies
of all reports on forms 10-K, 10-Q and 8-K filed by it with the SEC, or
any Governmental Authority succeeding to any of or all the functions of
the SEC, or, in the case of the Company, copies of all reports
distributed to its shareholders, as the case may be;
(f) promptly, from time to time, such other information as any
Lender shall reasonably request through the Administrative Agent; and
(g) concurrently with any delivery of financial statements
under paragraph (a) or (b) above, calculations of the financial tests
referred to in Sections 5.10, 5.14 and 5.16.
38
SECTION 5.04. Insurance. In the case of the Borrowers and each
Restricted Subsidiary, keep its insurable properties adequately insured at all
times by financially sound and reputable insurers, and maintain such other
insurance, to such extent and against such risks, including fire and other risks
insured against by extended coverage, as is customary with companies similarly
situated and in the same or similar businesses (it being understood that the
Borrowers and the Restricted Subsidiaries may self-insure to the extent
customary with companies similarly situated and in the same or similar
businesses).
SECTION 5.05. Obligations and Taxes. In the case of the
Company and each Restricted Subsidiary, pay and discharge promptly when due all
taxes, assessments and governmental charges imposed upon it or upon its income
or profits or in respect of its property, as well as all other material
liabilities, in each case before the same shall become delinquent or in default
and before penalties accrue thereon, unless and to the extent that the same are
being contested in good faith by appropriate proceedings and adequate reserves
with respect thereto shall, to the extent required by GAAP or SAP, as
applicable, have been set aside.
SECTION 5.06. Litigation and Other Notices. Give the
Administrative Agent prompt written notice of the following:
(a) the filing or commencement of, or any written threat or
written notice of intention of any person to file or commence, any
action, suit or proceeding which could reasonably be expected to result
in a Material Adverse Effect;
(b) any Event of Default or Default, specifying the nature and
extent thereof and the action (if any) which is proposed to be taken
with respect thereto; and
(c) any change in any of the Ratings.
SECTION 5.07. Maintaining Records; Access to Properties and
Inspections. Maintain financial records in accordance with GAAP or SAP, as
applicable, and, upon reasonable notice, at all reasonable times, permit any
authorized representative designated by the Administrative Agent to visit and
inspect the properties of the Company and of any Restricted Subsidiary and to
discuss the affairs, finances and condition of the Company and the Restricted
Subsidiaries with a Financial Officer of the Company and such other officers as
the Company shall deem appropriate.
SECTION 5.08. Employee Benefits. (a) Comply in all material
respects with the applicable provisions of ERISA and the Code and (b) furnish to
the Administrative Agent and each Lender as soon as possible after, and in any
event within 30 days after any Responsible Officer of any Borrower or any ERISA
Affiliate knows that, any ERISA Event has occurred that, alone or together with
any other ERISA Event known to have occurred, could reasonably be expected to
result in liability of such Borrower in an aggregate amount exceeding
$15,000,000 in any year, a statement of a Financial Officer of the Borrower
setting forth details as to such ERISA Event and the action, if any, that such
Borrower proposes to take with respect thereto.
SECTION 5.09. Use of Proceeds. Use the proceeds of the Loans
only for the purposes set forth in the preamble to this Agreement.
SECTION 5.10. Risk-Based Capital Ratio. Maintain the ratio of
Total Adjusted Capital to Risk-Based Capital (after covariance) at the end of
each fiscal year of the Company and the Insurance Subsidiaries at a level equal
to or greater than 1.25 to 1.00.
39
B. Negative Covenants. Each Borrower covenants and agrees with
each Lender and the Administrative Agent that so long as this Agreement shall
remain in effect or the principal of or interest on any Loan, any Fees or any
other amounts payable hereunder shall be unpaid, unless the Required Lenders
shall otherwise consent in writing, it will not, and will not cause or permit
any of the Subsidiaries to:
SECTION 5.11. Consolidations, Mergers, and Sales of Assets. In
the case of the Company and the Restricted Subsidiaries, consolidate or merge
with or into any other person or sell, lease or transfer all or substantially
all of its property and assets, or agree to do any of the foregoing, unless (a)
no Default or Event of Default has occurred and is continuing or would have
occurred immediately after giving effect thereto, and (b) in the case of a
consolidation or merger or transfer of assets involving the Company and in which
the Company is not the surviving corporation or sells, leases or transfers all
or substantially all of its property and assets, the surviving corporation or
person purchasing, leasing or receiving such property and assets is organized in
the United States of America or a state thereof and agrees to be bound by the
terms and provisions applicable to the Company hereunder.
SECTION 5.12. Limitations on Liens. Create, incur, assume or
permit to exist any Lien on any property or assets (including the capital stock
of any Subsidiary) now owned or hereafter acquired by it, or sell or transfer or
create any Lien on any income or revenues or rights in respect thereof;
provided, however, that this covenant shall not apply to any of the following:
(a) any Lien on any property or asset hereafter acquired,
constructed or improved by the Company or any Subsidiary which is
created or assumed to secure or provide for the payment of any part of
the purchase price of such property or asset or the cost of such
construction or improvement, or any mortgage, pledge or other lien on
any Lien on any property or asset existing at the time of acquisition
thereof; provided, however, that such Lien shall not extend to any
other property owned by the Company or any Subsidiary;
(b) any Lien existing upon any property or asset of a company
which is merged with or into or is consolidated into, or substantially
all the assets or shares of capital stock of which are acquired by, the
Company or a Subsidiary, at the time of such merger, consolidation or
acquisition; provided that such Lien does not extend to any other
property or asset, other than improvements to the property or asset
subject to such Lien;
(c) any pledge or deposit to secure payment of workers'
compensation or insurance premiums, or in connection with tenders,
bids, contracts (other than contracts for the payment of money) or
leases;
(d) any pledge of, or other Lien upon, any assets as security
for the payment of any tax, assessment or other similar charge by any
Governmental Authority or public body, or as security required by law
or governmental regulation as a condition to the transaction of any
business or the exercise of any privilege or right;
(e) any Lien necessary to secure a stay of any legal or
equitable process in a proceeding to enforce a liability or obligation
contested in good faith by the Company or a Subsidiary or required in
connection with the institution by the Company or a Subsidiary of any
legal or equitable proceeding to enforce a right or to obtain a remedy
claimed in good faith by the Company or a Subsidiary, or required in
connection with any order or decree in any such proceeding or in
connection with any contest of any tax or other governmental charge; or
the making of any deposit with or the giving of any form of security to
any governmental agency or
40
any body created or approved by law or governmental regulation in
order to entitle the Company or a Subsidiary to maintain
self-insurance or to participate in any fund in connection with
workers' compensation, unemployment insurance, old age pensions or
other social security or to share in any provisions or other benefits
provided for companies participating in any such arrangement or for
liability on insurance of credits or other risks;
(f) any mechanics', carriers', workmen's, repairmen's, or
other like Liens, if arising in the ordinary course of business, in
respect of obligations which are not overdue or liability for which is
being contested in good faith by appropriate proceedings;
(g) any Lien on property in favor of the United States of
America, or of any agency, department or other instrumentality thereof,
to secure partial, progress or advance payments pursuant to the
provisions of any contract;
(h) any Lien securing indebtedness of a Subsidiary to the
Company or a Subsidiary; provided that in the case of any sale or other
disposition of such indebtedness by the Company or such Subsidiary,
such sale or other disposition shall be deemed to constitute the
creation of another Lien not permitted by this clause (h);
(i) any Lien affecting property of the Company or any
Subsidiary securing indebtedness of the United States of America or a
State thereof (or any instrumentality or agency of either thereof)
issued in connection with a pollution control or abatement program
required in the opinion of the Company to meet environmental criteria
with respect to operations of the Company or any Subsidiary and the
proceeds of which indebtedness have financed the cost of acquisition of
such program;
(j) the renewal, extension, replacement or refunding of any
mortgage, pledge, lien, deposit, charge or other encumbrance permitted
by the foregoing provisions of this covenant upon the same property
theretofore subject thereto, or the renewal, extension, replacement or
refunding of the amount secured thereby; provided that in each case
such amount outstanding at that time shall not be increased; or
(k) any other Lien, provided that immediately after the
creation or assumption of such Lien, the total of (x) the aggregate
principal amount of Indebtedness of the Company and all Subsidiaries
(not including Indebtedness permitted under clauses (a) through (j)
above) secured by all Liens created or assumed under the provisions of
this clause (k), plus (y) the aggregate amount of Capitalized
Lease-Back Obligations of the Company and Subsidiaries under the entire
unexpired terms of all leases entered into in connection with sale and
lease-back transactions which would have been precluded by the
provisions of Section 5.13 but for the satisfaction of the condition
set forth in clause (b) thereof, shall not exceed an amount equal to
10% of the Consolidated Net Tangible Assets of the Company and its
consolidated Subsidiaries.
SECTION 5.13. Limitations on Sale and Leaseback Transactions.
Enter into any arrangement with any person providing for the leasing by the
Company or any Restricted Subsidiary of any property or asset (except for
temporary leases for a term of not more than three years and except for leases
between the Company and a Restricted Subsidiary or between Restricted
Subsidiaries), which property has been or is to be sold or transferred by the
Company or such Restricted Subsidiary to such person more than 120 days after
the acquisition thereof or the completion of construction and commencement of
full operation thereof, unless either (a) the Company shall apply an amount
equal to the greater of the Fair Value of such property or the net proceeds of
such sale, within 120 days of the
41
effective date of any such arrangement, to the retirement (other than any
mandatory retirement or by way of payment at maturity) of Indebtedness or to the
acquisition, construction, development or improvement of properties, facilities
or equipment used for operating purposes; or (b) at the time of entering into
such arrangement, such property or asset could have been subjected to a Lien
securing Indebtedness of the Company or a Restricted Subsidiary in a principal
amount equal to the Capitalized Lease-Back Obligations with respect to such
property or asset under paragraph (k) of Section 5.12.
SECTION 5.14. Consolidated Total Debt to Consolidated Total
Capitalization. Permit the ratio of (a) Consolidated Total Debt to (b)
Consolidated Total Capitalization to be greater than 0.40 to 1.
SECTION 5.15. Limitations on Dividends and Advances by
Subsidiaries. Enter into any covenant or agreement restricting the ability of
any Subsidiary to pay dividends on or make other distributions in respect of its
capital stock, to make loans or advances to the Company or any Subsidiary or to
pay any Indebtedness owed to the Company or any Subsidiary.
SECTION 5.16. Minimum Consolidated Statutory Surplus. Permit
Consolidated Statutory Surplus at the end of any fiscal quarter to be less than
$2,500,000,000.
ARTICLE VI
EVENTS OF DEFAULT
In case of the happening of any of the following events (each
an "Event of Default"):
(a) any representation or warranty made or deemed made in or
in connection with the execution and delivery of this Agreement or any
Local Currency Addenda or the Borrowings hereunder shall prove to have
been false or misleading in any material respect when so made, deemed
made or furnished;
(b) default shall be made in the payment of any principal of
any Loan when and as the same shall become due and payable, whether at
the due date thereof or at a date fixed for prepayment thereof or by
acceleration thereof or otherwise;
(c) default shall be made in the payment of any interest on
any Loan or any Fee or any other amount (other than an amount referred
to in paragraph (b) above) due hereunder, when and as the same shall
become due and payable, and such default shall continue unremedied for
a period of 10 days;
(d) default shall be made in the due observance or performance
of any covenant, condition or agreement contained in Section 5.01,
5.10, 5.11, 5.12, 5.13, 5.14, 5.15 or 5.16 or in any Local Currency
Addendum and, in the case of any default under Section 5.12, such
default shall continue for 30 days;
(e) default shall be made in the due observance or performance
of any covenant, condition or agreement contained herein or in any
other Loan Document (other than those specified in clauses (b), (c) or
(d) above) and such default shall continue unremedied for a period of
30 days after notice thereof from the Administrative Agent or any
Lender to the Company;
42
(f) the Company or any Subsidiary shall (i) fail to pay any
principal or interest, regardless of amount, due in respect of any
Indebtedness in a principal amount in excess of $20,000,000, when and
as the same shall become due and payable, or (ii) fail to observe or
perform any other term, covenant, condition or agreement contained in
any agreement or instrument evidencing or governing any such
Indebtedness if the effect of any failure referred to in this clause
(ii) is to cause, or to permit the holder or holders of such
Indebtedness or a trustee on its or their behalf (with or without the
giving of notice, the lapse of time or both) to cause, such
Indebtedness to become due prior to its stated maturity;
(g) an involuntary proceeding shall be commenced or an
involuntary petition shall be filed in a court of competent
jurisdiction seeking (i) relief in respect of the Company or any
Restricted Subsidiary, or of a substantial part of the property or
assets of the Company or or any Restricted Subsidiary, under Title 11
of the United States Code, as now constituted or hereafter amended, or
any other Federal or state bankruptcy, insolvency, receivership or
similar law, (ii) the appointment of a receiver, trustee, custodian,
sequestrator, conservator or similar official for the Company or any
Restricted Subsidiary or for a substantial part of the property or
assets of the Company or any Restricted Subsidiary or (iii) the winding
up or liquidation of the Company or any Restricted Subsidiary; and such
proceeding or petition shall continue undismissed for 60 days or an
order or decree approving or ordering any of the foregoing shall be
entered;
(h) the Company or any Restricted Subsidiary shall (i)
voluntarily commence any proceeding or file any petition seeking relief
under Title 11 of the United States Code, as now constituted or
hereafter amended, or any other Federal or state bankruptcy,
insolvency, receivership or similar law, (ii) consent to the
institution of, or fail to contest in a timely and appropriate manner,
any proceeding or the filing of any petition described in (g) above,
(iii) apply for or consent to the appointment of a receiver, trustee,
custodian, sequestrator, conservator or similar official for the
Company or any Restricted Subsidiary or for a substantial part of the
property or assets of the Company or any Restricted Subsidiary, (iv)
file an answer admitting the material allegations of a petition filed
against it in any such proceeding, (v) make a general assignment for
the benefit of creditors, (vi) become unable, admit in writing its
inability or fail generally to pay its debts as they become due or
(vii) take any action for the purpose of effecting any of the
foregoing;
(i) one or more final judgments shall be entered by any court
against the Company or any of the Subsidiaries for the payment of money
in an aggregate amount in excess of $50,000,000, and such judgment or
judgments shall not have been paid, discharged or stayed for a period
of 60 days, or a warrant of attachment or execution or similar process
shall have been issued or levied against property of the Company or any
of the Subsidiaries to enforce any such judgment or judgments;
(j) an ERISA Event shall have occurred that, in the opinion of
the Required Lenders, when taken together with all other such ERISA
Events, could reasonably be expected to result in a Material Adverse
Effect; or
(k) a Change in Control shall occur;
then, and in every such event (other than an event with respect to the Company
or any Restricted Subsidiary described in paragraph (g) or (h) above), and at
any time thereafter during the continuance of such event, the Administrative
Agent, at the request of the Required Lenders, shall, by notice to the
43
Company, take either or both of the following actions, at the same or different
times: (i) terminate forthwith the Commitments and (ii) declare the Loans then
outstanding to be forthwith due and payable in whole or in part, whereupon the
principal of the Loans so declared to be due and payable, together with accrued
interest thereon and any unpaid accrued Fees and all other liabilities of the
Borrowers accrued hereunder, without presentment, demand, protest or any other
notice of any kind, all of which are hereby expressly waived anything contained
herein to the contrary notwithstanding; and, in the case of any event with
respect to the Company or any Restricted Subsidiary described in paragraph (g)
or (h) above, the Commitments shall automatically terminate and the principal of
the Loans then outstanding, together with accrued interest thereon and any
unpaid accrued Fees and all other liabilities of the Borrowers accrued hereunder
shall automatically become due and payable, without presentment, demand, protest
or any other notice of any kind, all of which are hereby expressly waived
anything contained herein to the contrary notwithstanding.
ARTICLE VII
GUARANTEE
The Company unconditionally and irrevocably guarantees the due
and punctual payment and performance, when and as due, whether at maturity, by
acceleration, upon one or more dates set for prepayment or otherwise, of the
Guaranteed Obligations. The Company further agrees that the Guaranteed
Obligations may be extended or renewed, in whole or in part, without notice or
further assent from it and that it will remain bound upon its guarantee
notwithstanding any extension or renewal of any Guaranteed Obligations.
The Company waives presentment to, demand of payment from and
protest to the Borrowing Subsidiaries of any of the Guaranteed Obligations, and
also waives notice of acceptance of its guarantee and notice of protest for
nonpayment. The obligations of the Company hereunder shall not be affected by
(a) the failure of any Lender to assert any claim or demand or to enforce any
right or remedy against the Borrowing Subsidiaries under the provisions of this
Agreement or otherwise; (b) any rescission, waiver, amendment or modification of
any of the terms or provisions of this Agreement, any guarantee or any other
agreement; or (c) the failure of any Lender to exercise any right or remedy
against any other guarantor of the Guaranteed Obligations.
The Company further agrees that its guarantee constitutes a
guarantee of payment when due and not of collection, and waives any right to
require that any resort be had by the Administrative Agent or any Lender to any
security, if any, held for payment of the Guaranteed Obligations or to any
balance of any deposit account or credit on its books, in favor of the Borrowing
Subsidiaries or any other person.
The obligations of the Company hereunder shall not be subject
to any reduction, limitation, impairment or termination for any reason,
including any claim of waiver, release, surrender, alteration or compromise, and
shall not be subject to any defense or setoff, counterclaim, recoupment or
termination whatsoever by reason of the invalidity, illegality or
unenforceability of the Guaranteed Obligations or otherwise. Without limiting
the generality of the foregoing, the obligations of the Company hereunder shall
not be discharged or impaired or otherwise affected by the failure of the
Administrative Agent or any Lender to assert any claim or demand or to enforce
any remedy under this Agreement, any guarantee or any other agreement, by any
waiver or modification of any provision thereof, by any default, failure or
delay, willful or otherwise, in the performance of the Guaranteed
44
Obligations, or by any other act or omission which may or might in any manner or
to any extent vary the risk of the Company or otherwise operate as a discharge
of the Company as a matter of law or equity.
To the extent permitted by applicable law, the Company waives
any defense based on or arising out of any defense available to the Borrowing
Subsidiaries, including any defense based on or arising out of any disability of
the Borrowing Subsidiaries, or the unenforceability of the Guaranteed
Obligations or any part thereof from any cause, or the cessation from any cause
of the liability of the Borrowing Subsidiaries, other than final payment in full
of the Guaranteed Obligations. The Administrative Agent and the Lenders may, at
their election, foreclose on any security held by one or more of them by one or
more judicial or non judicial sales, or exercise any other right or remedy
available to them against the Borrowing Subsidiaries, or any security without
affecting or impairing in any way the liability of the Company hereunder except
to the extent the Guaranteed Obligations have been fully and finally paid. The
Company waives any defense arising out of any such election even though such
election operates to impair or to extinguish any right of reimbursement or
subrogation or other right or remedy of the Company against the Borrowing
Subsidiaries or any security.
The Company further agrees that its guarantee shall continue
to be effective or be reinstated, as the case may be, if at any time payment, or
any part thereof, of principal of or interest on any Guaranteed Obligation is
rescinded or must otherwise be restored by any Lender upon the bankruptcy or
reorganization of any Borrowing Subsidiary or otherwise.
In furtherance of the foregoing and not in limitation of any
other right which the Administrative Agent or any Lender may have at law or in
equity against the Company by virtue hereof, upon the failure of any Borrowing
Subsidiary to pay any Guaranteed Obligation when and as the same shall become
due, whether at maturity, by acceleration, after notice of prepayment or
otherwise, the Company hereby promises to and will, upon receipt of written
demand by the Administrative Agent or any Lender, forthwith pay or cause to be
paid to the Administrative Agent or such Lender in cash the amount of such
unpaid Guaranteed Obligation.
Until the termination of this Agreement and the commitments
hereunder, and the repayment in full of all amounts due under this Agreement,
the Company hereby irrevocably waives and releases any and all rights of
subrogation, indemnification, reimbursement and similar rights which it may have
against or in respect of the Borrowing Subsidiaries at any time relating to the
Guaranteed Obligations, including all rights that would result in its being
deemed a "creditor" of the Borrowing Subsidiaries under the United States Code
as now in effect or hereafter amended, or any comparable provision of any
successor statute.
ARTICLE VIII
THE ADMINISTRATIVE AGENT
In order to expedite the transactions contemplated by this
Agreement, The Chase Manhattan Bank is hereby appointed to act as Administrative
Agent on behalf of the Lenders. Each of the Lenders hereby irrevocably
authorizes the Administrative Agent to take such actions on behalf of such
Lender and to exercise such powers as are specifically delegated to the
Administrative Agent by the terms and provisions hereof, together with such
actions and powers as are reasonably incidental thereto. The Administrative
Agent is hereby expressly authorized by the Lenders, without hereby limiting any
implied authority, (a) to receive on behalf of the Lenders all payments of
principal of and interest on the Loans and all other amounts due to the Lenders
hereunder, and promptly to distribute to each Lender its
45
proper share of each payment so received; (b) to give notice on behalf of each
of the Lenders to the Borrowers of any Event of Default of which the
Administrative Agent has actual knowledge acquired in connection with its agency
hereunder; and (c) to distribute to each Lender copies of all notices, financial
statements and other materials delivered by the Borrowers pursuant to this
Agreement as received by the Administrative Agent.
Neither the Administrative Agent nor any of its directors,
officers, employees or agents shall be liable as such for any action taken or
omitted by any of them except for its or his or her own gross negligence or
willful misconduct, or be responsible for any statement, warranty or
representation herein or the contents of any document delivered in connection
herewith, or be required to ascertain or to make any inquiry concerning the
performance or observance by the Borrowers of any of the terms, conditions,
covenants or agreements contained in this Agreement. The Administrative Agent
shall not be responsible to the Lenders for the due execution, genuineness,
validity, enforceability or effectiveness of this Agreement or other instruments
or agreements. The Administrative Agent may deem and treat the Lender which
makes any Loan as the holder of the indebtedness resulting therefrom for all
purposes hereof until it shall have received notice from such Lender, given as
provided herein, of the transfer thereof. The Administrative Agent shall in all
cases be fully protected in acting, or refraining from acting, in accordance
with written instructions signed by the Required Lenders and, except as
otherwise specifically provided herein, such instructions and any action or
inaction pursuant thereto shall be binding on all the Lenders. The
Administrative Agent shall, in the absence of knowledge to the contrary, be
entitled to rely on any instrument or document believed by it in good faith to
be genuine and correct and to have been signed or sent by the proper person or
persons. Neither the Administrative Agent nor any of its directors, officers,
employees or agents shall have any responsibility to the Borrowers on account of
the failure of or delay in performance or breach by any Lender of any of its
obligations hereunder or to any Lender on account of the failure of or delay in
performance or breach by any other Lender or the Borrowers of any of their
respective obligations hereunder or in connection herewith. The Administrative
Agent may execute any and all duties hereunder by or through agents or employees
and shall be entitled to rely upon the advice of legal counsel selected by it
with respect to all matters arising hereunder and shall not be liable for any
action taken or suffered in good faith by it in accordance with the advice of
such counsel.
The Lenders hereby acknowledge that the Administrative Agent
shall be under no duty to take any discretionary action permitted to be taken by
it pursuant to the provisions of this Agreement unless it shall be requested in
writing to do so by the Required Lenders.
Subject to the appointment and acceptance of a successor
Administrative Agent as provided below, the Administrative Agent may resign at
any time by notifying the Lenders and the Company. Upon any such resignation,
the Required Lenders shall have the right to appoint a successor Administrative
Agent acceptable to the Company. If no successor shall have been so appointed by
the Required Lenders and shall have accepted such appointment within 30 days
after the retiring Administrative Agent gives notice of its resignation, then
the retiring Administrative Agent may, on behalf of the Lenders, appoint a
successor Administrative Agent which shall be a bank with an office in the
United States, having a combined capital and surplus of at least $500,000,000 or
an Affiliate of any such bank. Upon the acceptance of any appointment as
Administrative Agent hereunder by a successor bank, such successor shall succeed
to and become vested with all the rights, powers, privileges and duties of the
retiring Administrative Agent and the retiring Administrative Agent shall be
discharged from its duties and obligations hereunder. After the Administrative
Agent's resignation hereunder, the provisions of this Article and Section 9.05
shall continue in effect for its benefit in respect of any actions taken or
omitted to be taken by it while it was acting as Administrative Agent.
46
With respect to the Loans made by it hereunder, the
Administrative Agent in its individual capacity and not as Administrative Agent
shall have the same rights and powers as any other Lender and may exercise the
same as though it were not the Administrative Agent, and the Administrative
Agent and its Affiliates may accept deposits from, lend money to and generally
engage in any kind of business with the Borrowers or any Subsidiary or other
Affiliate thereof as if it were not the Administrative Agent.
Each Lender agrees (i) to reimburse the Administrative Agent,
on demand, in the amount of its pro rata share (based on its Commitment
hereunder or, if the Commitments shall have been terminated, the amount of its
outstanding Loans) of any expenses incurred for the benefit of the Lenders by
the Administrative Agent, including counsel fees and compensation of agents and
employees paid for services rendered on behalf of the Lenders, which shall not
have been reimbursed by the Borrowers and (ii) to indemnify and hold harmless
the Administrative Agent and any of its directors, officers, employees or
agents, on demand, in the amount of such pro rata share, from and against any
and all liabilities, taxes, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature
whatsoever which may be imposed on, incurred by or asserted against it in its
capacity as the Administrative Agent in any way relating to or arising out of
this Agreement or any action taken or omitted by it under this Agreement to the
extent the same shall not have been reimbursed by the Borrowers; provided that
no Lender shall be liable to the Administrative Agent for any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements resulting from the gross negligence or wilful
misconduct of the Administrative Agent or any of its directors, officers,
employees or agents. Each Lender agrees that any allocation made in good faith
by the Administrative Agent of expenses or other amounts referred to in this
paragraph between this Agreement and the Facility A Credit Agreement shall be
conclusive and binding for all purposes absent manifest error.
Each Lender acknowledges that it has, independently and
without reliance upon the Administrative Agent or any other Lender and based on
such documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement. Each Lender also
acknowledges that it will, independently and without reliance upon the
Administrative Agent or any other Lender and based on such documents and
information as it shall from time to time deem appropriate, continue to make its
own decisions in taking or not taking action under or based upon this Agreement
or any related agreement or any document furnished hereunder or thereunder.
ARTICLE IX
MISCELLANEOUS
SECTION 9.01. Notices. Notices and other communications
provided for herein shall be in writing and shall be delivered by hand or
overnight courier service, mailed or sent by telecopy, as follows:
(a) if to any Borrower, to ITT Hartford Group, Inc., Hartford
Plaza, Hartford, CT 06115, Attention of Mr. J. Richard Garrett
(Telecopy No. 203-547-5462); with a copy to Mr. Scott Mansolillo, ITT
Hartford Group, Inc., Hartford Plaza, Hartford CT 06115 (Telecopy No.
203-547-6959);
(b) if to the Administrative Agent, to The Chase Manhattan
Bank Agency Services Corp., One Chase Manhattan Plaza, New York, New
York 10081, Attention of Janet Belden,
47
(Telecopy No. 212-552-5658; with a copy to The Chase Manhattan Bank at
270 Park Avenue, New York, New York 10017, Re: ITT Hartford Group,
Inc.; and
(c) if to a Lender, to it at its address (or telecopy number)
set forth in Schedule 2.01 or in the Assignment and Acceptance pursuant
to which such Lender became a party hereto.
All notices and other communications given to any party hereto in accordance
with the provisions of this Agreement shall be deemed to have been given on the
date of receipt if delivered by hand or overnight courier service or sent by
telecopy to such party as provided in this Section or in accordance with the
latest unrevoked direction from such party given in accordance with this
Section.
SECTION 9.02. Survival of Agreement. All covenants,
agreements, representations and warranties made by the Borrowers herein and in
the certificates or other instruments prepared or delivered in connection with
or pursuant to this Agreement shall be considered to have been relied upon by
the Lenders and shall survive the making by the Lenders of the Loans regardless
of any investigation made by the Lenders or on their behalf, and shall continue
in full force and effect as long as the principal of or any accrued interest on
any Loan or any Fee or any other amount payable under this Agreement is
outstanding and unpaid, or the Commitments have not been terminated.
SECTION 9.03. Binding Effect. This Agreement shall become
effective on the Effective Date when it shall have been executed by the Company
and the Administrative Agent and when the Administrative Agent shall have
received copies hereof (telecopied or otherwise) which, when taken together,
bear the signature of each Lender, and thereafter shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns, except that the Borrowers shall not have the right to assign any rights
hereunder or any interest herein without the prior consent of all the Lenders.
SECTION 9.04. Successors and Assigns. (a) Whenever in this
Agreement any of the parties hereto is referred to, such reference shall be
deemed to include the successors and assigns of such party; and all covenants,
promises and agreements by or on behalf of any party that are contained in this
Agreement shall bind and inure to the benefit of its successors and assigns.
(b) Each Lender may assign to one or more assignees all or a
portion of its interests, rights and obligations under this Agreement (including
all or a portion of its Commitment and the Loans at the time owing to it);
provided, however, that (i) except in the case of an assignment to a Lender or
an Affiliate of a Lender, the Company and the Administrative Agent must give
their prior written consent (except when there exists a Default or an Event of
Default) to such assignment (which consent shall not be unreasonably withheld),
(ii) the parties to each such assignment shall execute and deliver to the
Administrative Agent an Assignment and Acceptance, and a processing and
recordation fee of $3,000, (iii) the assignee, if it shall not be a Lender,
shall deliver to the Administrative Agent an Administrative Questionnaire, and
(iv) the amount of the Commitment of the assigning Lender subject to each such
assignment (determined as of the date the Assignment and Acceptance with respect
to such assignment is delivered to the Administrative Agent) shall not be less
than $5,000,000 and the amount of the Commitment of such Lender remaining after
such assignment shall not be less than $5,000,000 or shall be zero. Upon
acceptance and recording pursuant to paragraph (e) of this Section, from and
after the effective date specified in each Assignment and Acceptance, which
effective date shall be at least five Business Days after the execution thereof,
(A) the assignee thereunder shall be a party hereto and, to the extent of the
interest assigned by such Assignment and Acceptance, have the rights and
obligations of a Lender under this Agreement and (B) the assigning Lender
thereunder shall, to the extent of the interest assigned by such Assignment and
Acceptance, be released from its obligations under this Agreement
48
(and, in the case of an Assignment and Acceptance covering all or the remaining
portion of an assigning Lender's rights and obligations under this Agreement,
such Lender shall cease to be a party hereto (but shall continue to be entitled
to the benefits of Sections 2.13, 2.15, 2.19 and 9.05, as well as to any Fees
accrued for its account hereunder and not yet paid)). Notwithstanding the
foregoing, any Lender assigning its rights and obligations under this Agreement
may retain any Competitive Loans made by it outstanding at such time, and in
such case shall retain its rights hereunder in respect of any Loans so retained
until such Loans have been repaid in full in accordance with this Agreement.
(c) By executing and delivering an Assignment and Acceptance,
the assigning Lender thereunder and the assignee thereunder shall be deemed to
confirm to and agree with each other and the other parties hereto as follows:
(i) such assigning Lender warrants that it is the legal and beneficial owner of
the interest being assigned thereby free and clear of any adverse claim, (ii)
except as set forth in (i) above, such assigning Lender makes no representation
or warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with this Agreement, or
the execution, legality, validity, enforceability, genuineness, sufficiency or
value of this Agreement or any other instrument or document furnished pursuant
hereto or the financial condition of the Borrowers or the performance or
observance by the Borrowers of any obligations under this Agreement or any other
instrument or document furnished pursuant hereto; (iii) such assignee represents
and warrants that it is legally authorized to enter into such Assignment and
Acceptance; (iv) such assignee confirms that it has received a copy of this
Agreement, together with copies of the most recent financial statements
delivered pursuant to Section 5.03 and such other documents and information as
it has deemed appropriate to make its own credit analysis and decision to enter
into such Assignment and Acceptance; (v) such assignee will independently and
without reliance upon the Administrative Agent, such assigning Lender or any
other Lender and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under this Agreement; (vi) such assignee appoints and
authorizes the Administrative Agent to take such action as agent on its behalf
and to exercise such powers under this Agreement as are delegated to the
Administrative Agent by the terms hereof, together with such powers as are
reasonably incidental thereto; and (vii) such assignee agrees that it will
perform in accordance with their terms all the obligations which by the terms of
this Agreement are required to be performed by it as a Lender.
(d) The Administrative Agent shall maintain at one of its
offices in The City of New York a copy of each Assignment and Acceptance
delivered to it and a register for the recordation of the names and addresses of
the Lenders, and the Commitment of, and the principal amount of the Loans owing
to, each Lender pursuant to the terms hereof from time to time (the "Register").
The entries in the Register shall be conclusive in the absence of manifest error
and the Borrowers, the Administrative Agent and the Lenders may treat each
person whose name is recorded in the Register pursuant to the terms hereof as a
Lender hereunder for all purposes of this Agreement. The Register shall be
available for inspection by each party hereto, at any reasonable time and from
time to time upon reasonable prior notice.
(e) Upon its receipt of a duly completed Assignment and
Acceptance executed by an assigning Lender and an assignee together with an
Administrative Questionnaire completed in respect of the assignee (unless the
assignee shall already be a Lender hereunder), the processing and recordation
fee referred to in paragraph (b) above and the written consent of the Company to
such assignment, the Administrative Agent shall (i) accept such Assignment and
Acceptance and (ii) record the information contained therein in the Register.
(f) Each Lender may sell participations to one or more banks
or other entities in all or a portion of its rights and obligations under this
Agreement (including all or a portion of its Commitment
49
and the Loans owing to it); provided, however, that (i) such Lender's
obligations under this Agreement shall remain unchanged, (ii) such Lender shall
remain solely responsible to the other parties hereto for the performance of
such obligations, (iii) each participating bank or other entity shall be
entitled to the benefit of the cost protection provisions contained in Sections
2.13, 2.15 and 2.19 to the same extent as if it were the selling Lender (and
limited to the amount that could have been claimed by the selling Lender had it
continued to hold the interest of such participating bank or other entity),
except that all claims made pursuant to such Sections shall be made through such
selling Lender, and (iv) the Borrowers, the Administrative Agent and the other
Lenders shall continue to deal solely and directly with such selling Lender in
connection with such Lender's rights and obligations under this Agreement.
(g) Any Lender or participant may, in connection with any
assignment or participation or proposed assignment or participation pursuant to
this Section, disclose to the assignee or participant or proposed assignee or
participant any information relating to the Borrowers furnished to such Lender;
provided that, prior to any such disclosure, each such assignee or participant
or proposed assignee or participant shall execute an agreement whereby such
assignee or participant shall agree (subject to customary exceptions) to
preserve the confidentiality of any such information.
(h) The Borrowers shall not assign or delegate any rights and
duties hereunder without the prior written consent of all Lenders.
(i) Any Lender may at any time pledge all or any portion of
its rights under this Agreement to a Federal Reserve Bank; provided that no such
pledge shall release any Lender from its obligations hereunder or substitute any
such Bank for such Lender as a party hereto. In order to facilitate such an
assignment to a Federal Reserve Bank, each Borrower shall, at the request of the
assigning Lender, duly execute and deliver to the assigning Lender a promissory
note or notes evidencing the Loans made to such Borrower by the assigning Lender
hereunder.
SECTION 9.05. Expenses; Indemnity. (a) The Borrowers agree to
pay all reasonable out-of-pocket expenses incurred by the Administrative Agent
in connection with entering into this Agreement or in connection with any
amendments, modifications or waivers of the provisions hereof, or incurred by
the Administrative Agent or any Lender in connection with the enforcement or
protection of their rights in connection with this Agreement or in connection
with the Loans made hereunder or under any Local Currency Addendum, including
the fees and disbursements of counsel for the Administrative Agent or, in the
case of enforcement, the Lenders.
(b) The Borrowers agree to indemnify the Administrative Agent,
each Lender, each of their Affiliates and the directors, officers, employees and
agents of the foregoing (each such person being called an "Indemnitee") against,
and to hold each Indemnitee harmless from, any and all losses, claims, damages,
liabilities and related expenses, including reasonable counsel fees and
expenses, incurred by or asserted against any Indemnitee arising out of (i) the
consummation of the transactions contemplated by this Agreement, (ii) the use of
the proceeds of the Loans or (iii) any claim, litigation, investigation or
proceeding relating to any of the foregoing, whether or not any Indemnitee is a
party thereto; provided that such indemnity shall not, as to any Indemnitee, be
available to the extent that such losses, claims, damages, liabilities or
related expenses are determined by a final judgment of a court of competent
jurisdiction to have resulted from the gross negligence or willful misconduct of
such Indemnitee.
(c) The provisions of this Section shall remain operative and
in full force and effect regardless of the expiration of the term of this
Agreement, the consummation of the transactions contemplated hereby, the
repayment of any of the Loans, the invalidity or unenforceability of any term or
50
provision of this Agreement or any investigation made by or on behalf of the
Administrative Agent or any Lender. All amounts due under this Section shall be
payable on written demand therefor.
SECTION 9.06. APPLICABLE LAW. THIS AGREEMENT SHALL BE
CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.
SECTION 9.07. Waivers; Amendment. (a) No failure or delay of
the Administrative Agent or any Lender in exercising any power or right
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any such right or power, or any abandonment or discontinuance of
steps to enforce such a right or power, preclude any other or further exercise
thereof or the exercise of any other right or power. The rights and remedies of
the Administrative Agent and the Lenders hereunder are cumulative and are not
exclusive of any rights or remedies which they would otherwise have. No waiver
of any provision of this Agreement or consent to any departure therefrom shall
in any event be effective unless the same shall be permitted by paragraph (b)
below, and then such waiver or consent shall be effective only in the specific
instance and for the purpose for which given. No notice or demand on any
Borrower or any Subsidiary in any case shall entitle such party to any other or
further notice or demand in similar or other circumstances.
(b) Neither this Agreement nor any provision hereof may be
waived, amended or modified except pursuant to an agreement or agreements in
writing entered into by the Borrowers and the Required Lenders; provided,
however, that no such agreement shall (i) decrease the principal amount of, or
extend the maturity of or any scheduled principal payment date or date for the
payment of any interest on any Loan or waive or excuse any such payment or any
part thereof, or decrease the rate of interest on any Loan, without the prior
written consent of each Lender affected thereby, (ii) increase the Commitment or
decrease the Facility Fee of any Lender without the prior written consent of
such Lender, (iii) limit or release the guarantee set forth in Article VII, or
(iv) amend or modify the provisions of Section 2.16 or Section 9.04(h), the
provisions of this Section or the definition of the "Required Lenders", without
the prior written consent of each Lender; provided further, however, that no
such agreement shall amend, modify or otherwise affect the rights or duties of
the Administrative Agent hereunder without the prior written consent of the
Administrative Agent. Each Lender shall be bound by any waiver, amendment or
modification authorized by this Section and any consent by any Lender pursuant
to this Section shall bind any assignee of its rights and interests hereunder.
SECTION 9.08. Entire Agreement. This Agreement and the
agreements referred to in Section 2.06(b) constitute the entire contract among
the parties relative to the subject matter hereof. Any previous agreement among
the parties with respect to the subject matter hereof is superseded by this
Agreement. Nothing in this Agreement, expressed or implied, is intended to
confer upon any party other than the parties hereto any rights, remedies,
obligations or liabilities under or by reason of this Agreement.
SECTION 9.09. Severability. In the event any one or more of
the provisions contained in this Agreement should be held invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein shall not in any way be affected or
impaired thereby. The parties shall endeavor in good-faith negotiations to
replace the invalid, illegal or unenforceable provisions with valid provisions
the economic effect of which comes as close as possible to that of the invalid,
illegal or unenforceable provisions.
51
SECTION 9.10. Counterparts. This Agreement may be executed in
two or more counterparts, each of which shall constitute an original but all of
which when taken together shall constitute but one contract, and shall become
effective as provided in Section 9.03.
SECTION 9.11. Headings. Article and Section headings and the
Table of Contents used herein are for convenience of reference only, are not
part of this Agreement and are not to affect the construction of, or to be taken
into consideration in interpreting, this Agreement.
SECTION 9.12. Right of Setoff. If an Event of Default shall
have occurred and be continuing, each Lender is hereby authorized at any time
and from time to time, to the fullest extent permitted by law, to set off and
apply any and all deposits (general or special, time or demand, provisional or
final) at any time held and other indebtedness at any time owing by such Lender
to or for the credit or obligations of the Company and any Borrowing Subsidiary
now or hereafter existing under this Agreement held by such Lender, irrespective
of whether or not such Lender shall have made any demand under this Agreement
and although such obligations may be unmatured. Each Lender agrees promptly to
notify the Company and the Administrative Agent after such setoff and
application made by such Lender, but the failure to give such notice shall not
affect the validity of such setoff and application. The rights of each Lender
under this Section are in addition to other rights and remedies (including other
rights of setoff) which such Lender may have.
SECTION 9.13. Jurisdiction; Consent to Service of Process. (a)
Each Borrower hereby irrevocably and unconditionally submits, for itself and its
property, to the nonexclusive jurisdiction of any New York State court or
Federal court of the United States of America sitting in New York County, and
any appellate court from any thereof, in any action or proceeding arising out of
or relating to this Agreement, any Local Currency Addendum, or for recognition
or enforcement of any judgment, and each of the parties hereto hereby
irrevocably and unconditionally agrees that all claims in respect of any such
action or proceeding may be heard and determined in such New York State or, to
the extent permitted by law, in such Federal court. Each of the parties hereto
agrees that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment or
in any other manner provided by law. Subject to the foregoing and to paragraph
(b) below, nothing in this Agreement shall affect any right that any party
hereto may otherwise have to bring any action or proceeding relating to this
Agreement, any Local Currency Addendum against any other party hereto in the
courts of any jurisdiction.
(b) Each Borrower hereby irrevocably and unconditionally
waives, to the fullest extent it may legally and effectively do so, any
objection which it may now or thereafter have to the laying of venue of any
suit, action or proceeding arising out of or relating to this Agreement or any
Local Currency Addendum in any New York State or Federal court. Each of the
parties hereto hereby irrevocably waives, to the fullest extent permitted by
law, the defense of an inconvenient forum to the maintenance of such action or
proceeding in any such court.
(c) Each party to this Agreement irrevocably consents to
service of process in the manner provided for notices in Section 9.01. Nothing
in this Agreement will affect the right of any party to this Agreement to serve
process in any other manner permitted by law.
SECTION 9.14. Waiver of Jury Trial. EACH PARTY HERETO HEREBY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE
TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING
OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT. Each party hereto (a)
certifies that no representative, agent or attorney of any other party has
52
represented, expressly or otherwise, that such other party would not, in the
event of litigation, seek to enforce the foregoing waiver and (b) acknowledges
that it and other parties hereto have been induced to enter into this Agreement
by, among other things, the mutual waivers and certification in this Section.
SECTION 9.15. Addition of Borrowing Subsidiaries. Each
Borrowing Subsidiary which shall deliver to the Administrative Agent a Borrowing
Subsidiary Agreement executed by such Subsidiary and the Company shall, upon
such delivery and without further act, become a party hereto and a Borrower
hereunder with the same effect as if it had been an original party to this
Agreement.
SECTION 9.16. Conversion of Currencies. (a) If, for the
purpose of obtaining judgment in any court, it is necessary to convert a sum
owing hereunder in one currency into another currency, each party hereto agrees,
to the fullest extent that it may effectively do so, that the rate of exchange
used shall be that at which in accordance with normal banking procedures in the
relevant jurisdiction the first currency could be purchased with such other
currency on the Business Day immediately preceding the day on which final
judgment is given.
(b) The obligations of the Borrowers in respect of any sum due
to any party hereto or any holder of the obligations owing hereunder (the
"Applicable Creditor") shall, notwithstanding any judgment in a currency (the
"Judgment Currency") other than the currency in which such sum is stated to be
due hereunder (the "Agreement Currency"), be discharged only to the extent that,
on the Business Day following receipt by the Applicable Creditor of any sum
adjudged to be so due in the Judgment Currency, the Applicable Creditor may in
accordance with normal banking procedures in the relevant jurisdiction purchase
the Agreement Currency with the Judgment Currency; if the amount of the
Agreement Currency so purchased is less than the sum originally due to the
Applicable Creditor in the Agreement Currency, the Borrowers agree, as a
separate obligation and notwithstanding any such judgment, to indemnify the
Applicable Creditor against such loss. The obligations of the Borrowers
contained in this Section 9.16 shall survive the termination of this Agreement
and the payment of all other amounts owing hereunder.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their respective authorized officers as of the
day and year first above written.
ITT HARTFORD GROUP, INC., as Borrower,
by
/s/ J. Richard Garrett
------------------------------------
Name: J. Richard Garrett
Title: Vice President and Treasurer
THE CHASE MANHATTAN BANK, individually and
as Administrative Agent,
by
/s/ Dennis Cogan
------------------------------------
Name: Dennis Cogan
Title: Vice President
53
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54
BANK OF AMERICA ILLINOIS,
by
/s/ Elizabeth W. F. Bishop
------------------------------------
Name: Elizabeth W. F. Bishop
Title: Vice President
BANQUE NATIONALE DE PARIS, NEW YORK
BRANCH,
by
/s/ Phil Truesdale
------------------------------------
Name: Phil Truesdale
Title: Vice President
by
/s/ Barry S. Feigenbaum
------------------------------------
Name: Barry S. Feigenbaum
Title: Senior Vice President
THE BANK OF NEW YORK,
by
/s/ Melanie Shorofsky
------------------------------------
Name: Melanie Shorofsky
Title: Vice President
BANKERS TRUST COMPANY,
by
/s/ Vincent Abruzzini
------------------------------------
Name: Vincent Abruzzini
Title: Managing Director
BANK OF TOKYO-MITSUBISHI TRUST COMPANY
by
/s/ Hiroaki Fuchida
------------------------------------
Name: Hiroaki Fuchida
Title: Senior Vice President
and Manager
55
BARCLAYS BANK PLC,
by
/s/ C. Cathcart
------------------------------------
Name: C. Cathcart
Title: Director
CITIBANK, N.A.,
by
/s/ Scott F. Engle
------------------------------------
Name: Scott F. Engle
Title: Attorney-in-Fact
CIBC, INC.,
by
/s/ Gerald J. Girardi
------------------------------------
Name: Gerald J. Girardi
Title: Director, CIBC Wood Gundy
Securities Corp., as Agent
COMERICA BANK,
by
/s/ Chris Georvassilis
------------------------------------
Name: Chris Georvassilis
Title: Vice President
CORESTATES BANK, N.A.,
by
/s/ John M. Hayes
------------------------------------
Name: John M. Hayes
Title: Vice President
THE FIRST NATIONAL BANK OF BOSTON,
by
/s/ C. Garrity
------------------------------------
Name: C. Garrity
Title: Vice President
56
THE FIRST NATIONAL BANK OF CHICAGO,
by
/s/ Thomas Collimore
------------------------------------
Name: Thomas Collimore
Title: Vice President
THE FUJI BANK, LIMITED, NEW YORK BRANCH,
by
/s/ Masanobu Kobayashi
------------------------------------
Name: Masanobu Kobayashi
Title: Vice President and Manager
NORWEST BANK,
by
/s/ D. E. Jackson
------------------------------------
Name: D. E. Jackson
Title: Vice President
MELLON BANK, N.A.,
by
/s/ Karen E. McConomy
------------------------------------
Name: Karen E. McConomy
Title: Assistant Vice President
BANK OF MONTREAL,
by
/s/ Soren K. Christensen
------------------------------------
Name: Soren K. Christensen
Title: Senior Vice President
MORGAN GUARANTY TRUST COMPANY OF NEW YORK,
by
/s/ Jerry J. Fall
------------------------------------
Name: Jerry J. Fall
Title: Vice President
57
THE NORTHERN TRUST COMPANY,
by
/s/ Marcia Saper
------------------------------------
Name: Marcia Saper
Title: Vice President
PNC BANK, NATIONAL ASSOCIATION,
by
/s/ Eileen McDonald
------------------------------------
Name: Eileen McDonald
Title: Vice President
ROYAL BANK OF CANADA,
by
/s/ Y. J. Bernard
------------------------------------
Name: Y. J. Beranrd
Title: Manager
THE SAKURA BANK, LIMITED, NEW YORK BRANCH,
by
/s/ Yasumasa Kikuchi
------------------------------------
Name: Yasumasa Kikuchi
Title: Senior Vice President
THE SANWA BANK LIMITED, NEW YORK BRANCH,
by
/s/ Stephen C. Small
------------------------------------
Name: Stephen C. Small
Title: Vice President and
Area Manager
FLEET NATIONAL BANK (formerly known as
Fleet National Bank of Connecticut,
successor by merger to Shawmut Bank
Connectucut, N.A.),
by
/s/ Thomas E. McKinlay
------------------------------------
Name: Thomas E. McKinlay
Title: Senior Vice President
STATE STREET BANK AND TRUST COMPANY,
58
by
/s/ Robert P. Engvall
------------------------------------
Name: Robert P. Engvall, Jr.
Title: Vice President
THE SUMITOMO BANK, LIMITED, NEW YORK
BRANCH,
by
/s/ John C. Kissinger
------------------------------------
Name: John C. Kissinger
Title: Joint General Manager
SUNTRUST BANK, ATLANTA,
by
/s/ Lara L. McGinty
------------------------------------
Name: Lara L. McGinty
Title: Banking Officer
by
/s/ Mary Anne Zagroba
------------------------------------
Name: Mary Anne Zabroba
Title: Vice President
THE TORONTO-DOMINION BANK,
by
/s/ Jorge A. Garcia
------------------------------------
Name: Jorge A. Garcia
Title: Manager
WACHOVIA BANK OF GEORGIA, N.A.,
by
/s/ Holger B. Ebert
------------------------------------
Name: Holger B. Ebert
Title: Vice President
EXHIBIT A-1
FORM OF COMPETITIVE BID REQUEST
The Chase Manhattan Bank,
as Administrative Agent
for the Lenders referred to below,
270 Park Avenue
New York, NY 10017
Attention: [ ]
Dear Ladies and Gentlemen:
The undersigned, ________________________ (the
"Borrower"), refers to the Five-Year Competitive Advance and Revolving Credit
Facility Agreement dated as of December 20, 1996 (as it may be amended,
modified, extended or restated from time to time, the "5-Year Agreement"), among
the Borrower, the Borrowing Subsidiaries parties thereto, the Lenders parties
thereto and The Chase Manhattan Bank, as Administrative Agent. Capitalized terms
used herein and not otherwise defined herein shall have the meanings assigned to
such terms in the 5-Year Agreement. The Borrower hereby gives you notice
pursuant to Section 2.03(a) of the 5-Year Agreement that it requests a
Competitive Borrowing under the 5-Year Agreement, and in that connection sets
forth below the terms on which such Competitive Borrowing is requested to be
made:
(A) Date of Competitive Borrowing
(which is a Business Day) __________
(B) Principal amount of
Competitive Borrowing 1/ __________
-
(C) Interest rate basis 2/ __________
-
(D) Interest Period and the
last day thereof 3/ __________
-
Upon acceptance of any or all of the Loans offered by the
Lenders in response to this request, the Borrower shall be deemed to have
represented and warranted that the conditions to lending specified in Section
4.01(b) and (c) of the 5-Year Agreement have been satisfied.
Very truly yours,
[NAME OF BORROWER],
by
__________________________
Name:
Title: [Financial Officer]
________________________
1/ Not less than $10,000,000 (and in integral multiples of $5,000,000) or
-
greater than the Total Commitment then available.
2/ Eurocurrency Competitive Loan or Fixed Rate Loan.
-
3/ Which shall be subject to the definition of "Interest Period" and end
-
not later than the Maturity Date.
EXHIBIT A-2
FORM OF NOTICE OF COMPETITIVE BID REQUEST
[Name of Lender]
[Address]
[Date]
Attention: [ ]
Dear Ladies and Gentlemen:
Reference is made to the Five-Year Competitive Advance and
Revolving Credit Facility Agreement dated as of December 20, 1996 (as it may be
amended, modified, extended or restated from time to time, the "5-Year
Agreement"), among ITT Hartford Group, Inc. [,__________] (the "Borrower"), the
Borrowing Subsidiaries parties thereto, the Lenders parties thereto and The
Chase Manhattan Bank, as Administrative Agent. Capitalized terms used herein and
not otherwise defined herein shall have the meanings assigned to such terms in
the 5-Year Agreement. The Borrower made a Competitive Bid Request on _________
, pursuant to Section 2.03(a) of the 5-Year Agreement, and in that connection
you are invited to submit a Competitive Bid by [Date]/[Time]. 1/ Your
-
Competitive Bid must comply with Section 2.03(b) of the 5-Year Agreement and the
terms set forth below on which the Competitive Bid Request was made:
(A) Date of Competitive Borrowing _______
(B) Principal amount of
Competitive Borrowing _______
(C) Interest rate basis _______
(D) Interest Period and the
last day thereof _______
Very truly yours,
THE CHASE MANHATTAN BANK,
as Administrative Agent,
by
____________________
Name:
Title:
_____________________
1/ The Competitive Bid must be received by the Administrative Agent (i) in
-
the case of Eurocurrency Competitive Loans, not later than 10:00 a.m., New York
City time, four Business Days before a proposed Competitive Borrowing, and (ii)
in the case of Fixed Rate Loans, not later than 10:00 a.m., New York City time,
one Business Day before a proposed Competitive Borrowing.
EXHIBIT A-3
FORM OF COMPETITIVE BID
The Chase Manhattan Bank, as Administrative Agent
for the Lenders referred to below,
270 Park Avenue
New York, N.Y. 10017
[Date]
Attention: [ ]
Dear Ladies and Gentlemen:
The undersigned, [Name of Lender], refers to the Five-Year
Competitive Advance and Revolving Credit Facility Agreement dated as of December
20, 1996 (as it may be amended, modified, extended or restated from time to
time, the "5-Year Agreement"), among ITT Hartford Group, Inc. [,__________] (the
"Borrower"), the Borrowing Subsidiaries parties thereto, the Lenders parties
thereto and The Chase Manhattan Bank, as Administrative Agent. Capitalized terms
used herein and not otherwise defined herein shall have the meanings assigned to
such terms in the 5-Year Agreement. The undersigned hereby makes a Competitive
Bid pursuant to Section 2.03(b) of the 5-Year Agreement, in response to the
Competitive Bid Request made by the Borrower on __________, 19[ ], and in that
connection sets forth below the terms on which such Competitive Bid is made:
(A) Principal Amount 1/
-
(B) Competitive Bid Rate 2/
-
(C) Interest Period and last
day thereof
The undersigned hereby confirms that it is prepared, subject to the
conditions set forth in the 5-Year Agreement, to extend credit to the Borrower
upon acceptance by the Borrower of this bid in accordance with Section 2.03(d)
of the 5-Year Agreement.
Very truly yours,
[NAME OF LENDER],
by
__________________
Name:
Title:
_____________________
1/ Not less than $5,000,000 or greater than the requested Competitive
-
Borrowing and in integral multiples of $1,000,000. Multiple bids will be
accepted by the Administrative Agent.
2/ i.e., LIBO Rate + or -_%, in the case of Eurocurrency Competitive Loans
-
or_%, in the case of Fixed Rate Loans.
EXHIBIT A-4
FORM OF COMPETITIVE BID ACCEPT/REJECT LETTER
[Date]
The Chase Manhattan Bank, as Administrative Agent
for the Lenders referred to below
270 Park Avenue
New York, N.Y. 10017
Attention: [ ]
Dear Ladies and Gentlemen:
The undersigned, ________________________ (the "Borrower"), refers to
the Five-Year Competitive Advance and Revolving Credit Facility Agreement dated
as of December 20, 1996 (as it may be amended, modified, extended or restated
from time to time, the "5-Year Agreement"), among the Borrower, the Borrowing
Subsidiaries parties thereto, the Lenders parties thereto and The Chase
Manhattan Bank, as Administrative Agent for the Lenders.
In accordance with Section 2.03(c) of the 5-Year Agreement, we have
received a summary of bids in connection with our Competitive Bid Request dated
__________, and in accordance with Section 2.03(d) of the 5-Year Agreement,
we hereby accept the following bids for maturity on [date]:
Principal Amount Fixed Rate/Margin Lender
- ---------------- ----------------- ------
$ [%]/[+/-. %]
$
We hereby reject the following bids:
Principal Amount Fixed Rate/Margin Lender
$ [%]/[+/-. %]
$
The $ ___________ should be deposited in The Chase Manhattan Bank account
number [ ] on [date].
Very truly yours,
[NAME OF BORROWER],
by __________________
Name:
Title:
EXHIBIT A-5
FORM OF STANDBY BORROWING REQUEST
The Chase Manhattan Bank, as Administrative Agent
for the Lenders referred to below,
270 Park Avenue
New York, N.Y. 10017
[Date]
Attention: [ ]
Dear Ladies and Gentlemen:
The undersigned, _______________________ (the "Borrower"), refers to
the Five-Year Competitive Advance and Revolving Credit Facility Agreement dated
as of December 20, 1996 (as it may be amended, modified, extended or restated
from time to time, the "5-Year Agreement"), among the Borrower, the Borrowing
Subsidiaries parties thereto, the Lenders parties thereto and The Chase
Manhattan Bank, as Administrative Agent. Capitalized terms used herein and not
otherwise defined herein shall have the meanings assigned to such terms in the
5-Year Agreement. The Borrower hereby gives you notice pursuant to Section 2.04
of the 5-Year Agreement that it requests a Standby Borrowing under the 5-Year
Agreement, and in that connection sets forth below the terms on which such
Standby Borrowing is requested to be made:
(A) Date of Standby Borrowing
(which is a Business Day)
(B) Principal amount of
Standby Borrowing 1/
-
(C) Interest rate basis 2/
-
(D) Interest Period and the
last day thereof 3/
-
Upon acceptance of any or all of the Loans made by the Lenders in
response to this request, the Borrower shall be deemed to have represented and
warranted that the conditions to lending specified in Section 4.01(b) and (c) of
the 5-Year Agreement have been satisfied.
Very truly yours,
[NAME OF BORROWER],
by _____________________
Name:
Title: [Financial Officer]
____________________
1/ Not less than $20,000,000 (and in integral multiples of $5,000,000) or
-
greater than the Total Commitment then available.
2/ Eurocurrency Standby Loan or ABR Loan.
-
3/ Which shall be subject to the definition of "Interest Period" and end
-
not later than the Maturity Date.
EXHIBIT C
FORM OF
ASSIGNMENT AND ACCEPTANCE
Dated:_____ , ____
Reference is made to the Five-Year Competitive Advance and
Revolving Credit Facility Agreement dated as of December 20, 1996 (the "5-Year
Agreement"), among ITT Hartford Group, Inc. (the "Company"), the Borrowing
Subsidiaries parties thereto, the lenders parties thereto (the "Lenders") and
The Chase Manhattan Bank, as Administrative Agent for the Lenders. Terms defined
in the 5-Year Agreement are used herein with the same meanings.
1. The Assignor hereby sells and assigns, without recourse, to
the Assignee, and the Assignee hereby purchases and assumes, without recourse,
from the Assignor, effective as of the Effective Date set forth below, the
interests set forth below (the "Assigned Interest") in the Assignor's rights and
obligations under the 5-Year Agreement, including, without limitation, the
interests set forth below in the Commitment of the Assignor on the Effective
Date and the Competitive Loans and Standby Loans owing to the Assignor which are
outstanding on the Effective Date. Each of the Assignor and the Assignee hereby
makes and agrees to be bound by all the representations, warranties and
agreements set forth in Section 9.04(c) of the 5-Year Agreement, a copy of which
has been received by each such party. From and after the Effective Date, (i) the
Assignee shall be a party to and be bound by the provisions of the 5-Year
Agreement and, to the extent of the interests assigned by this Assignment and
Acceptance, have the rights and obligations of a Lender thereunder and (ii) the
Assignor shall, to the extent of the interests assigned by this Assignment and
Acceptance, relinquish its rights and be released from its obligations under the
5-Year Agreement.
2. This Assignment and Acceptance is being delivered to the
Administrative Agent together with (i) if the Assignee is organized under the
laws of a jurisdiction outside the United States, the forms specified in Section
2.19(g) of the 5-Year Agreement, duly completed and executed by such Assignee,
(ii) if the Assignee is not already a Lender under the 5-Year Agreement, an
Administrative Questionnaire in the form of Exhibit B to the 5-Year Agreement
and (iii) a processing and recordation fee of $3,000.
3. This Assignment and Acceptance shall be governed by and
construed in accordance with the laws of the State of New York.
Date of Assignment:
Legal Name of Assignor:
Legal Name of Assignee:
Assignee's Address for Notices:
2
Effective Date of Assignment (may not be fewer than 5 Business Days after the
Date of Assignment):
- -------------------------------------------------------------------------------|
| | | |
|Facility |Principal Amount Assigned (and | Percentage Assigned of |
| |identifying information as to |Facility/Commitment (set forth,|
| | individual Competitive Loans) | to at least 8 decimals, as a |
| | | percentage of the Facility and|
| | | the aggregate Commitments of|
| | | all Lenders thereunder)|
|--------------|-------------------------------|-------------------------------|
| | | |
|Commitment | | |
| Assigned: | $____________ | ___________ % |
| | | |
|--------------|-------------------------------|-------------------------------|
| | | |
|Standby Loans:| $____________ | ___________ % |
| | | |
|--------------|-------------------------------|-------------------------------|
| | | |
|Competitive | | |
| Loans: | $____________ | ___________ % |
| | | |
- -------------------------------------------------------------------------------
The terms set forth and on the reverse side hereof Accepted:
are hereby agreed to:
ITT HARTFORD GROUP, INC.,
________________________________, by: ______________________
as Assignor, Name:
Title:
by: ____________________________
Name:
Title:
________________________________,
as Assignee,
by: ____________________________
Name:
Title:
EXHIBIT D
FORM OF
OPINION OF COUNSEL FOR
ITT HARTFORD GROUP, INC. 1/
-
1. ITT Hartford Group, Inc. (i) is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, (ii) has all requisite power and authority to own its property and
assets and to carry on its business as now conducted, (iii) is qualified to do
business in every jurisdiction within the United States where such qualification
is required, except where the failure so to qualify would not result in a
Material Adverse Effect on ITT Hartford Group, Inc., and (iv) has all requisite
corporate power and authority to execute, deliver and perform its obligations
under the Agreement and to borrow funds thereunder.
2. The execution, delivery and performance by ITT Hartford
Group, Inc. of the Agreement and the borrowings of ITT Hartford Group, Inc.
thereunder (collectively, the "Transactions") (i) have been duly authorized by
all requisite corporate action and (ii) will not (a) violate (1) any provision
of law, statute, rule or regulation (including without limitation, the Margin
Regulations), or of the certificate of incorporation or other constitutive
documents or by-laws of ITT Hartford Group, Inc., (2) any order of any
governmental authority or (3) any provision of any indenture, agreement or other
instrument to which ITT Hartford Group, Inc. is a party or by which it or its
property is or may be bound, (b) be in conflict with, result in a breach of or
constitute (alone or with notice or lapse of time or both) a default under any
such indenture, agreement or other instrument or (c) result in the creation or
imposition of any lien upon any property or assets of ITT Hartford Group, Inc..
3. The Agreement has been duly executed and delivered by ITT
Hartford Group, Inc. and constitutes a legal, valid and binding obligation of
ITT Hartford Group, Inc. enforceable against ITT Hartford Group, Inc. in
accordance with its terms, subject as to the enforceability of rights and
remedies to any applicable bankruptcy, reorganization, insolvency, moratorium or
other similar laws of general application relating to or affecting the
enforcement of creditors' rights from time to time in effect.
4. No action, consent or approval of, registration or filing
with, or any other action by, any government authority is or will be required in
connection with the Transactions, except such as have been made or obtained and
are in full force and effect.
5. Neither ITT Hartford Group, Inc. nor any of its
subsidiaries is (a) an "investment company" as defined in, or subject to
regulation under, the Investment Company Act of 1940 (the "1940 Act") or (b) a
"holding company" as defined in, or subject to regulation under, the Public
Utility Holding Company Act of 1935. While certain subsidiaries of ITT Hartford
Group, Inc. are "investment companies" as defined in the 1940 Act, the
transactions contemplated by this Agreement will not violate or require any
approval under such Act or any regulations promulgated pursuant thereto.
_____________________
1/ Capitalized terms used but not otherwise defined herein shall have the
-
meanings assigned to such terms in the Five-Year Competitive Advance and
Revolving Credit Facility Agreement (the "Agreement") dated as of December 20,
1996, among ITT Hartford Group, Inc., the lenders listed in Schedule 2.01
thereto, and The Chase Manhattan Bank, as Administrative Agent.
EXHIBIT E
BORROWING SUBSIDIARY AGREEMENT dated as of [
], [ ], among ITT HARTFORD GROUP, INC., a Delaware
corporation (the "Company"), [Name of Subsidiary], a
[ ] corporation ("the Subsidiary"), and THE CHASE
MANHATTAN BANK, as administrative agent (the
"Administrative Agent") for the lenders (the
"Lenders") party to the Five-Year Competitive Advance
and Revolving Credit Facility Agreement dated as of
December 20, 1996, as amended (the "Agreement"),
among the Company, the Administrative Agent and the
Lenders.
Under the Agreement, the Lenders have agreed, upon the terms
and subject to the conditions therein set forth, to make competitive advance and
revolving credit loans and to issue Letters of Credit to or for the account of
the Company and to Subsidiaries (as defined in the Agreement) of the Company
which execute and deliver to the Administrative Agent Borrowing Subsidiary
Agreements in the form of this Borrowing Subsidiary Agreement. The Company
represents that the Subsidiary is a subsidiary (as so defined) of the Company
and that the guarantee of the Company contained in Article VII of the Agreement
applies to the obligations of the Subsidiary. In consideration of being
permitted to borrow under the Agreement upon the terms and subject to the
conditions set forth therein, the Subsidiary agrees that from and after the date
of this Borrowing Subsidiary Agreement it is, and will be liable for the
observance and performance of all the obligations of, a Borrowing Subsidiary
under the Agreement, as the same may be amended from time to time, to the same
extent as if it had been one of the original parties to the Agreement.
IN WITNESS WHEREOF, the Company and the Subsidiary have caused
this Borrowing Subsidiary Agreement to be duly executed by their authorized
officers as of the date first appearing above.
ITT HARTFORD GROUP, INC.,
by
______________________________
Name:
Title:
[NAME OF SUBSIDIARY],
by
______________________________
Name:
Title:
Accepted as of the date first appearing above:
THE CHASE MANHATTAN BANK,
as Administrative Agent,
by
_______________________
Name:
Title:
EXHIBIT F
FORM OF
LOCAL CURRENCY ADDENDUM
To: The Chase Manhattan Bank, as Administrative Agent
From: ITT Hartford Group, Inc.
1. This Local Currency Addendum is being delivered to you
pursuant to Section 2.21(b) of the Five-Year Competitive Bid and Revolving
Credit Facility, dated as of December 20, 1996, among ITT Hartford Group, Inc.,
the Borrowing Subsidiaries parties thereto, the Lenders parties thereto and The
Chase Manhattan Bank, as Administrative Agent (as the same may be amended,
supplemented or otherwise modified from time to time, the "Credit Agreement").
Terms defined in the Credit Agreement and used herein shall have the meanings
given to them in the Credit Agreement.
2. The effective date (the "Effective Date") of this Local
Currency Addendum will be [ ].
Local Currenc(y)(ies):
Local Currency Facility
Maximum Borrowing Amount: $
Local Currency Local Currency Lender
Lenders: Name of Lender Maximum Borrowing Amount
-------------- ------------------------
$
List of Documentation Governing
Local Currency Facility
(the "Documentation"): 2/
-
3. The Company hereby represents and warrants that (i) as of
the Effective Date, an Exchange Rate with respect to each Local Currency is
determinable by reference to the Reuters currency pages (or comparable publicly
available screen), (ii) the Documentation complies in all respects with the
___________________
2/ Copies of the Documentation must accompany the Local Currency Addendum,
-
together with, if applicable, an English translation thereof (provided, that the
Company may instead furnish a summary term sheet in English so long as an
English translation of the Documentation is furnished to the Administrative
Agent or its counsel within 90 days after the date of delivery of the Local
Currency Addendum).
2
requirements of Section 2.21 of the Credit Agreement and (iii)___________
of__________ 3/ contains an express acknowledgement that such Local Currency
-
Loan shall be subject to the provisions of Sections 2.21 and 2.22 of the Credit
Agreement.
ITT HARTFORD GROUP, INC.
By _______________________
Name:
Title:
Accepted and Acknowledged:
THE CHASE MANHATTAN BANK,
as Administrative Agent
By ____________________________
Name:
Title:
____________________
3/ Provide citation to relevant provision from the Documentation.
-
SCHEDULE 2.01
Contact Person
Name and Address of Lender and Telecopy Number Commitment
- -------------------------- ------------------- ----------
The Chase Manhattan Bank Mr. Daniel Troy $ 90,000,000
270 Park Avenue (212) 552-1999
New York, NY 10017
Bank of America Illinois Ms. Colleen Mullins $ 71,250,000
231 South LaSalle (312) 828-8206
Chicago, IL 60697
Bank of Montreal Ms. Cathy Betz $ 33,750,000
115 S. LaSalle St., 12th Floor (312) 750-3783
Chicago, IL 60603
Banque Nationale de Paris Mr. Phil Truesdale $ 33,750,000
499 Park Avenue (212) 415-9695
New York, NY 10022-1278
The Bank of New York Ms. Lizanne P. Eberle $ 60,000,000
One Wall Street, 17th Floor (212) 809-9520
New York, NY 10286
Bankers Trust Company Mr. Lucien Burnett $ 52,500,000
One Bankers Trust Plaza, (212) 250-1530
33rd Floor
New York, NY 10006
Barclays Bank PLC Mr. Christopher Cathcart $ 33,750,000
222 Broadway (212) 412-7622
New York, NY 10038
CIBC Inc. Mr. David B. Walsh $ 33,750,000
425 Lexington Avenue, (212) 856-3599
8th Floor
New York, NY 10017
The Bank of Tokyo-- Mr. Dane Holmes $ 52,500,000
Mitsubishi, Ltd. (212) 782-6440
1251 Avenue of the
Americas
12th Floor
New York, NY 10020
Citibank, N.A. Mr. Scott Engle $ 71,250,000
399 Park Avenue (212) 925-4285
New York, NY 10043
Comerica Bank Mr. Chris Georvassilis $ 33,750,000
One Detroit Center (313) 222-3330
500 Woodward Avenue, MC 3280
Detroit, MI 48226
2
Contact Person
Name and Address of Lender and Telecopy Number Commitment
- -------------------------- ------------------- ----------
Corestates National Bank Mr. Tom Singleton $ 71,250,000
Widener Building (215) 786-4114
1339 Chestnut St.
FC 1-8-8-4
Philadelphia, PA 19101
The First National Bank Mr. Charles Garrity $ 33,750,000
of Boston (617) 434-1537
100 Federal Street
01-32-04
Boston, MA 02110
The First National Bank Mr. Tom Collimore $ 60,000,000
of Chicago (212) 373-1393
153 West 51st Street
New York, NY 10019
The Fuji Bank, Ltd. Mr. Roy Tanfield $ 52,500,000
Two World Trade Center, (212) 321-9407
79th Floor
New York, NY 10048
Mellon Bank, N.A. Ms. Karen McConomy $ 71,250,000
500 Grant Street (412) 234-8087
One Mellon Bank Center, Rm 370
Pittsburgh, PA 15258
Morgan Guaranty Trust Company Mr. Jerry Fall $ 71,250,000
of New York (212) 648-5249
60 Wall Street
New York, NY 10260-0060
The Northern Trust Company Ms. Marcia Saper $ 33,750,000
50 South LaSalle Street (312) 557-2673
Chicago, IL 60675
Norwest Bank Mr. Edge Jackson $ 33,750,000
Norwest Center (612) 667-7251
Minneapolis, MN 55479
PNC Bank, National Association Ms. Eileen McDonald $ 52,500,000
100 S. Broad Street. (908) 220-3270
Philadelphia, PA 19110
3
Contact Person
Name and Address of Lender and Telecopy Number Commitment
- -------------------------- ------------------- ----------
Royal Bank of Canada Manager, Credit $ 52,500,000
Grand Cayman (North America Administration
No. 1) Branch (212) 428-2372
c/o New York Branch
Financial Square, 23rd Floor
New York, NY 10005-3531
with copy to:
Royal Bank of Canada Ms. Michelle Rutigliano
Financial Square, 24th Floor (212) 809-7468
New York, NY 10005-3531
Sakura Bank Ltd. Mr. Stephen Santora $ 33,750,000
277 Park Avenue, 45th Floor (212) 888-7651
New York, NY 10172
The Sanwa Bank, Ltd. Mr. Stephen C. Small $ 52,500,000
New York Branch (212) 754-1304
55 East 52nd Street
New York, NY 10055
Fleet National Bank Mr. Tom McKinley $ 71,250,000
One Federal Street (203) 988-1264
Mail Code OFO324
Boston, MA 02211
State Street Bank Mr. Robert Engvall $ 52,500,000
750 Main Street (203) 244-1889
Hartford, CT 06103
The Sumitomo Bank, Limited Mr. Edward McColly $ 52,500,000
New York Branch (212) 224-5188
277 Park Avenue
New York, NY 10172
SunTrust Bank, Atlanta Ms. Allison L. Vella $ 52,500,000
711 Fifth Avenue, 6th Floor (212) 371-9386
New York, NY 10022
The Toronto-Dominion Bank Mr. Reginald Waylen $ 33,750,000
31 West 52nd Street (212) 262-1926
New York, NY 10019
4
Contact Person
Name and Address of Lender and Telecopy Number Commitment
- -------------------------- ------------------- ----------
Wachovia Bank of Georgia, N.A. Terry Snellings $ 52,500,000
191 Peachtree Street (404) 332-1090
Atlanta, GA 30303
----------------
TOTAL COMMITMENT $1,500,000,000
EXHIBIT 10.12
364-DAY COMPETITIVE ADVANCE AND
REVOLVING CREDIT FACILITY AGREEMENT
Dated as of December 20, 1996
among
ITT HARTFORD GROUP, INC.
THE LENDERS NAMED HEREIN
and
THE CHASE MANHATTAN BANK,
as Administrative Agent
6700-488
TABLE OF CONTENTS
Article Section Page
- ------- ------- ----
I. DEFINITIONS
1.01. Defined Terms ....................................... 1
1.02. Terms Generally ..................................... 12
II. THE CREDITS
2.01. Commitments.......................................... 13
2.02. Loans ............................................... 13
2.03. Competitive Bid Procedure ........................... 14
2.04. Standby and Local Currency Borrowing Procedure....... 16
2.05. Conversion and Continuation of Standby Loans ........ 16
2.06. Fees ................................................ 17
2.07. Repayment of Loans; Evidence of Debt ................ 18
2.08. Interest on Loans ................................... 18
2.09. Default Interest .................................... 19
2.10. Alternate Rate of Interest .......................... 19
2.11. Termination and Reduction of Commitments............. 19
2.12. Prepayment .......................................... 20
2.13. Reserve Requirements; Change in Circumstances........ 20
2.14. Change in Legality .................................. 21
2.15. Indemnity ........................................... 22
2.16. Pro Rata Treatment .................................. 22
2.17. Sharing of Setoffs .................................. 23
2.18. Payments ............................................ 23
2.19. Taxes ............................................... 23
2.20. Duty to Mitigate; Assignment of Commitments
Under Certain Circumstances........................ 26
III. REPRESENTATIONS AND WARRANTIES
3.01. Organization; Powers ................................ 26
3.02. Authorization ....................................... 27
3.03. Enforceability ...................................... 27
3.04. Governmental Approvals .............................. 27
3.05. Financial Statements ................................ 27
3.06. Litigation; Compliance with Laws..................... 27
3.07. Federal Reserve Regulations.......................... 28
3.08. Investment Company Act; Public Utility Holding
Company Act ....................................... 28
3.09. Use of Proceeds...................................... 28
3.10. Full Disclosure; No Material Misstatements .......... 28
3.11. Taxes ............................................... 28
2
Page
----
3.12. Employee Pension Benefit Plans ...................... 28
IV. CONDITIONS OF LENDING
4.01. All Extensions of Credit............................. 29
4.02. Effective Date ...................................... 29
4.03. First Borrowing by Each Borrowing Subsidiary......... 30
V. COVENANTS
5.01. Existence............................................ 30
5.02. Business and Properties . ........................... 30
5.03. Financial Statements, Reports, Etc................... 31
5.04. Insurance . . . . .................................. 32
5.05. Obligations and Taxes ............................... 32
5.06. Litigation and Other Notices ........................ 32
5.07. Maintaining Records; Access to Properties and
Inspections........................................ 32
5.08. Employee Benefits.................................... 32
5.09. Use of Proceeds...................................... 32
5.10. Risk-Based Capital Ratio............................. 32
5.11. Consolidations, Mergers, and Sales of Assets......... 33
5.12. Limitations on Liens ................................ 33
5.13. Limitations on Sale and Leaseback Transactions....... 34
5.14. Consolidated Total Debt to Consolidated Total
Capitalization..................................... 35
5.15. Limitations on Dividends and Advances by
Subsidiaries ...................................... 35
5.16. Minimum Statutory Surplus............................ 35
VI. EVENTS OF DEFAULT........................................... 35
VII. GUARANTEE ................................................ 37
VIII. THE ADMINISTRATIVE AGENT ................................... 38
IX. MISCELLANEOUS
9.01. Notices.............................................. 40
9.02. Survival of Agreement ............................... 41
9.03. Binding Effect ...................................... 41
9.04. Successors and Assigns .............................. 41
9.05. Expenses; Indemnity ................................. 43
9.06. Applicable Law ...................................... 44
9.07. Waivers; Amendment .................................. 44
9.08. Entire Agreement .................................... 44
9.09. Severability ........................................ 44
9.10. Counterparts ........................................ 45
9.11. Headings ............................................ 45
9.12. Right of Setoff ..................................... 45
3
Page
----
9.13. Jurisdiction; Consent to Service of Process.......... 45
9.14. Waiver of Jury Trial ................................ 45
9.15. Addition of Borrowing Subsidiaries................... 46
EXHIBITS AND SCHEDULES
Exhibit A-1 Form of Competitive Bid Request
Exhibit A-2 Form of Notice of Competitive Bid Request
Exhibit A-3 Form of Competitive Bid
Exhibit A-4 Form of Competitive Bid Accept/Reject
Exhibit A-5 Form of Standby Borrowing Request
Exhibit B Administrative Questionnaire
Exhibit C Form of Assignment and Acceptance
Exhibit D Form of Opinion of Counsel for ITT Hartford Group, Inc.
Exhibit E Form of Borrowing Subsidiary Agreement
Schedule 2.01 Commitments
364-DAY COMPETITIVE ADVANCE AND REVOLVING
CREDIT FACILITY AGREEMENT (as it may be amended,
supplemented or otherwise modified, the "Agreement")
dated as of December 20, 1996, among ITT HARTFORD
GROUP, INC., a Delaware corporation (the "Company"),
each Borrowing Subsidiary party hereto, the lenders
listed in Schedule 2.01 together with their permitted
assignees, the "Lenders") and THE CHASE MANHATTAN
BANK, a New York banking corporation, as
administrative agent for the Lenders (in such
capacity, the "Administrative Agent").
The Lenders have been requested to extend credit to the
Borrowers (such term and each other capitalized term used but not otherwise
defined herein having the meaning assigned to it in Article I) to enable them to
borrow on a standby revolving credit basis on and after the date hereof and at
any time and from time to time prior to the Maturity Date a principal amount not
in excess of $500,000,000 at any time outstanding. The Lenders have also been
requested to provide a procedure pursuant to which the Borrowers may invite the
Lenders to bid on an uncommitted basis on short-term borrowings by the
Borrowers. The proceeds of such borrowings are to be used for working capital
and other general corporate purposes. The Lenders are willing to extend credit
on the terms and subject to the conditions herein set forth.
Accordingly, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Defined Terms. As used in this Agreement, the
following terms shall have the meanings specified below:
"ABR Borrowing" shall mean a Borrowing comprised of ABR Loans.
"ABR Loan" shall mean any Standby Loan bearing interest at a
rate determined by reference to the Alternate Base Rate in accordance with the
provisions of Article II.
"Administrative Fees" shall have the meaning assigned to such
term in Section 2.06(b).
"Administrative Questionnaire" shall mean an Administrative
Questionnaire in the form of Exhibit B hereto.
"Affiliate" shall mean, when used with respect to a specified
person, another person that directly or indirectly controls or is controlled by
or is under common control with the person specified.
"Alternate Base Rate" shall mean, for any day, a rate per
annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to the
greater of (a) the Prime Rate in effect on such day and (b) the Federal Funds
Effective Rate in effect on such day plus 1/2 of 1%. For purposes hereof, "Prime
2
Rate" shall mean the rate of interest per annum publicly announced from time to
time by the Administrative Agent as its prime rate in effect at its principal
office in New York City; each change in the Prime Rate shall be effective on the
date such change is publicly announced as effective. "Federal Funds Effective
Rate" shall mean, for any day, the weighted average of the rates on overnight
Federal funds transactions with members of the Federal Reserve System arranged
by Federal funds brokers, as released on the next succeeding Business Day by the
Federal Reserve Bank of New York, or, if such rate is not so released for any
day which is a Business Day, the arithmetic average (rounded upwards to the next
1/100th of 1%), as determined by the Administrative Agent, of the quotations for
the day of such transactions received by the Administrative Agent from three
Federal funds brokers of recognized standing selected by it. If for any reason
the Administrative Agent shall have determined (which determination shall be
conclusive absent manifest error) that it is unable to ascertain the Federal
Funds Effective Rate for any reason, including the inability or failure of the
Administrative Agent to obtain sufficient quotations in accordance with the
terms thereof, the Alternate Base Rate shall be determined without regard to
clause (b) of the first sentence of this definition until the circumstances
giving rise to such inability no longer exist. Any change in the Alternate Base
Rate due to a change in the Prime Rate or the Federal Funds Effective Rate shall
be effective on the effective date of such change in the Prime Rate or the
Federal Funds Effective Rate, respectively.
"Annual Statement" shall mean, with respect to the Restricted
Subsidiaries, the Annual Statement of such Restricted Subsidiary required to be
filed with the Applicable Insurance Regulatory Authority in accordance with
state law, including any exhibits, schedules, certificates or actuarial opinions
filed or delivered therewith.
"Applicable Insurance Regulatory Authority" shall mean, with
respect to any Insurance Subsidiary, the insurance commission or similar
Governmental Authority located in the state in which such Insurance Subsidiary
is domiciled and any Federal insurance Governmental Authority.
"Applicable Percentage" shall mean on any date, with respect
to Eurodollar Standby Loans or with respect to the Facility Fee, as the case may
be, the applicable percentage set forth below under the caption "Eurodollar
Spread" or "Facility Fee Percentage", as the case may be, based upon the Ratings
in effect on such date:
Category 1 Eurodollar Spread Facility Fee Percentage
- ---------- ----------------- -----------------------
AA- or higher by D&P; .135% .040%
Aa3 or higher by Moody's;
AA- or higher by S&P
Category 2
- ----------
A+ or A by D&P; .150% .050%
A1 or A2 by Moody's;
A+ or A by S&P
Category 3
- ----------
A- by D&P; .190% .060%
A3 by Moody's;
A- by S&P
3
Category 4
- ----------
BBB+ by D&P; .225% .075%
Baa1 by Moody's;
BBB+ by S&P
Category 5
- ----------
BBB by D&P; .255% .095%
Baa2 by Moody's;
BBB by S&P
Category 6
- ----------
BBB- or lower by D&P; .300% .100%
Baa3 or lower by Moody's;
BBB- or lower by S&P
For purposes of the foregoing, (i) if the Ratings shall fall within different
Categories, the Applicable Percentage shall be based upon the Category in which
the largest number of Ratings falls or is deemed to fall, provided, that if
there shall be no such Category, one Rating shall be excluded from each of the
highest and the lowest Categories in which Ratings shall fall or be deemed to
fall, and the Applicable Percentage shall be based upon the remaining Rating;
(ii) if only two Ratings exist, the Applicable Percentage shall be based upon
the lower (numerically higher Category) of the available Ratings, (iii) if only
a single Rating exists, the Applicable Percentage shall be based upon the lower
(numerically higher) of Category 5 and the Category corresponding to the single
available Rating; provided, however, that if only a single rating exists because
D&P, Moody's or S&P ceases to be in the business of rating the Company's
corporate debt obligations, the Applicable Percentage shall be based upon the
Category in which such single Rating falls; (iv) if no Ratings exist, the
Applicable Percentage shall be based upon Category 6, and (v) if any Rating
shall be changed (other than as a result of a change in the rating system of the
applicable Rating Agency), such change shall be effective as of the date on
which it is first announced by the Rating Agency making such change. Each such
change in the Applicable Percentage shall apply to all outstanding Eurodollar
Standby Loans during the period commencing on the effective date of such change
and ending on the date immediately preceding the effective date of the next such
change. If the rating system of any Rating Agency shall change, the parties
hereto shall negotiate in good faith to amend the references to specific ratings
in this definition to reflect such changed rating system.
"Assignment and Acceptance" shall mean an assignment and
acceptance entered into by a Lender and an assignee in the form of Exhibit C.
"Board" shall mean the Board of Governors of the Federal
Reserve System of the United States.
"Board of Directors" shall mean the Board of Directors of a
Borrower or any duly authorized committee thereof.
"Borrower" shall mean any of the Company and the Borrowing
Subsidiaries.
4
"Borrowing" shall mean a group of Loans of a single Type made
by the Lenders (or, in the case of a Competitive Borrowing, by the Lender or
Lenders whose Competitive Bids have been accepted pursuant to Section 2.03) on a
single date and as to which a single Interest Period is in effect.
"Borrowing Subsidiary" shall mean any Subsidiary which shall
have executed and delivered to the Administrative Agent and each Lender a
Borrowing Subsidiary Agreement.
"Borrowing Subsidiary Agreement" shall mean an agreement, in
the form of Exhibit E hereto, duly executed by the Company and a Subsidiary.
"Business Day" shall mean any day (other than a day which is a
Saturday, Sunday or legal holiday in the State of New York) on which banks are
open for business in New York City; provided, however, that, when used in
connection with a Eurodollar Loan, the term "Business Day" shall also exclude
any day on which banks are not open for dealings in dollar deposits in the
London interbank market.
"Capitalized Lease-Back Obligation" shall mean with respect to
any property or asset, at any date as of which the same is to be determined, the
total net rental obligations of the Company or a Subsidiary under a lease of
such property or asset, entered into as part of an arrangement to which the
provisions of Section 5.13 are applicable (or would have been applicable had
such Subsidiary been a Subsidiary at the time it entered into such lease),
discounted to the date of computation at the rate of interest per annum implicit
in the lease (determined in accordance with GAAP). The amount of the net rental
obligation for any calendar year under any lease shall be the sum of the rental
and other payments required to be paid in such calendar year by the lessee
thereunder, not including, however, any amounts required to be paid by such
lessee (whether or not therein designated as rental or additional rental) on
account of maintenance and repairs, insurance, taxes, assessments, water rates
and similar charges.
A "Change in Control" shall be deemed to have occurred if (a)
any person or group of persons shall have acquired beneficial ownership of more
than 30% of the outstanding Voting Shares of the Company (within the meaning of
Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended, and
the applicable rules and regulations thereunder), or (b) during any period of 12
consecutive months, commencing after the Effective Date, individuals who on the
first day of such period were directors of the Company (together with any
replacement or additional directors who were nominated or elected by a majority
of directors then in office) cease to constitute a majority of the Board of
Directors of the Company.
"Code" shall mean the Internal Revenue Code of 1986, as the
same may be amended from time to time.
"Commitment" shall mean, with respect to each Lender, the
commitment of such Lender hereunder as set forth as of the Closing Date in
Schedule 2.01 under the heading "Commitment" or in an Assignment and Acceptance
delivered by such Lender under Section 9.04 as such Lender's Commitment may be
permanently terminated or reduced from time to time pursuant to Section 2.11 or
pursuant to one or more assignments under Section 9.04. The Commitment of each
Lender shall automatically and permanently terminate on the Maturity Date if not
terminated earlier pursuant to the terms hereof.
"Competitive Bid" shall mean an offer by a Lender to make a
Competitive Loan pursuant to Section 2.03.
5
"Competitive Bid Accept/Reject Letter" shall mean a
notification made by a Borrower pursuant to Section 2.03(d) in the form of
Exhibit A-4.
"Competitive Bid Rate" shall mean, as to any Competitive Bid,
(i) in the case of a Eurodollar Loan, the Margin, and (ii) in the case of a
Fixed Rate Loan, the fixed rate of interest offered by the Lender making such
Competitive Bid.
"Competitive Bid Request" shall mean a request made pursuant
to Section 2.03(a) in the form of Exhibit A-1.
"Competitive Borrowing" shall mean a Borrowing consisting of a
Competitive Loan or concurrent Competitive Loans from the Lender or Lenders
whose Competitive Bids for such Borrowing have been accepted under the bidding
procedure described in Section 2.03.
"Competitive Loan" shall mean a Loan made pursuant to the
bidding procedure described in Section 2.03. Each Competitive Loan shall be a
Eurodollar Competitive Loan or a Fixed Rate Loan.
"Competitive Loan Exposure" shall mean, with respect to any
Lender at any time, the sum of the aggregate principal amount of all outstanding
Competitive Loans made by such Lender.
"Consolidated Net Worth" shall mean, as at any date of
determination, the consolidated stockholders' equity of the Company and its
Subsidiaries, as determined on a consolidated basis in accordance with GAAP plus
minority interests in Subsidiaries, as determined in accordance with GAAP plus,
but without duplication, Special Preferred Securities, provided that
Consolidated Net Worth shall not include Special Preferred Securities to the
extent that Special Preferred Securities are greater than 15% of Consolidated
Total Capitalization.
"Consolidated Net Tangible Assets" shall mean the total of all
assets appearing on a consolidated balance sheet of the Company and its
Restricted Subsidiaries, prepared in accordance with GAAP (and as of a date not
more than 90 days prior to the date as of which Consolidated Net Tangible Assets
are to be determined), less the sum of the following items as shown on said
consolidated balance sheet:
(i) the book amount of all segregated intangible assets,
including such items as good will, trademarks, trademark rights, trade
names, trade name rights, copyrights, patents, patent rights and
licenses and unamortized debt discount and expense less unamortized
debt premium;
(ii) all depreciation, valuation and other reserves;
(iii) current liabilities;
(iv) any minority interest in the shares of stock (other than
Preferred Stock) and surplus of Restricted Subsidiaries of the Company;
(v) the investment of the Company and its Restricted
Subsidiaries in any Subsidiary of the Company that is not a Restricted
Subsidiary;
(vi) the total indebtedness of the Company and its Restricted
Subsidiaries incurred in any manner to finance or recover the cost to
the Company or any Restricted Subsidiary of any
6
physical property, real or personal, which prior to or simultaneously
with the creation of such indebtedness shall have been leased by the
Company or a Restricted Subsidiary to the United States of America or
a department or agency thereof at an aggregate rental, payable during
that portion of the initial term of such lease (without giving effect
to any options of renewal or extension) which shall be unexpired at
the date of the creation of such indebtedness, sufficient (taken
together with any amounts required to be paid by the lessee to the
lessor upon any termination of such lease) to pay in full at the
stated maturity date or dates thereof the principal of and the
interest on such indebtedness;
(vii) deferred income and deferred liabilities; and
(viii) other items deductible under GAAP.
"Consolidated Statutory Surplus" shall mean, with respect to
Nutmeg Insurance Company and its consolidated Subsidiaries at any time, the
amount set forth on line 25 of the Liabilities, Surplus and Other Funds
Statement in the Annual Statement or the Quarterly Statement of Nutmeg Insurance
Company most recently delivered to the Administrative Agent and the Lenders
pursuant to Section 5.03 or, if such statement shall be modified, the equivalent
item on any applicable successor form.
"Consolidated Total Capitalization" shall mean, as at any date
of determination, the sum of Consolidated Total Debt and Consolidated Net Worth.
"Consolidated Total Debt" shall mean, as at any date of
determination, without duplication, (i) all Indebtedness of the Company and its
Subsidiaries determined on a consolidated basis in accordance with GAAP plus
(ii) Special Preferred Securities that are mandatorily redeemable, or redeemable
at the option of the holder, within 10 years of such date of determination plus
(iii) Special Preferred Securities to the extent that Special Preferred
Securities exceed 15% of Consolidated Total Capitalization.
"D&P" shall mean Duff & Phelps Credit Rating Co. or any of its
successors.
"Default" shall mean any event or condition which upon notice,
lapse of time or both would constitute an Event of Default.
"Dollars" or "$" shall mean lawful money of the United States
of America.
"Effective Date" shall mean the first date on or after
December 20, 1996, and on and before December 31, 1996, on which the conditions
set forth in Section 4.02 are satisfied.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as the same may be amended from time to time.
"ERISA Affiliate" shall mean any trade or business (whether or
not incorporated) that, together with the Company, is treated as a single
employer under Section 414(b) or (c) of the Code, or, solely for purposes of
Section 302 of ERISA and Section 412 of the Code, is treated as a single
employer under Section 414 of the Code.
"ERISA Event" shall mean (a) any "reportable event", as
defined in Section 4043 of ERISA or the regulations issued thereunder, with
respect to a Plan; (b) the adoption of any amendment to
7
a Plan that would require the provision of security pursuant to Section
401(a)(29) of the Code or Section 307 of ERISA; (c) the existence with respect
to any Plan of an "accumulated funding deficiency" (as defined in Section 412 of
the Code or Section 302 of ERISA), whether or not waived; (d) the filing
pursuant to Section 412(d) of the Code or Section 303(d) of ERISA of an
application for a waiver of the minimum funding standard with respect to any
Plan; (e) the incurrence of any liability under Title IV of ERISA with respect
to the termination of any Plan or the withdrawal or partial withdrawal of the
Company or any of its ERISA Affiliates from any Plan or Multiemployer Plan; (f)
the receipt by the Company or any ERISA Affiliate from the PBGC or a plan
administrator of any notice relating to the intention to terminate any Plan or
Plans or to appoint a trustee to administer any Plan; (g) the receipt by the
Company or any ERISA Affiliate of any notice that Withdrawal Liability is being
imposed or a determination that a Multiemployer Plan is, or is expected to be,
insolvent or in reorganization, within the meaning of Title IV of ERISA; and (h)
the occurrence of a "prohibited transaction" with respect to which the Company
or any of its Subsidiaries is a "disqualified person" (within the meaning of
Section 4975) of the Code, or with respect to which the Company or any such
Subsidiary could otherwise be liable.
"Eurodollar Borrowing" shall mean a Borrowing comprised of
Eurodollar Loans.
"Eurodollar Competitive Loan" shall mean any Competitive Loan
bearing interest at a rate determined by reference to the LIBO Rate in
accordance with the provisions of Article II.
"Eurodollar Loan" shall mean any Eurodollar Competitive Loan,
or Eurodollar Standby Loan.
"Eurodollar Standby Loan" shall mean any Standby Loan bearing
interest at a rate determined by reference to the LIBO Rate in accordance with
the provisions of Article II.
"Event of Default" shall have the meaning assigned to such
term in Article VI.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
"Existing Credit Facility" shall mean the Five-Year
Competitive Advance and Revolving Credit Facility Agreement dated as of October
31, 1995, among the Company, certain lenders and The Chase Manhattan Bank (as
successor to Chemical Bank), as administrative agent.
"Facility B Credit Agreement" shall mean the $1,500,000,000
Five-Year Competitive Advance and Revolving Credit Facility Agreement dated the
date hereof among the parties hereto, as such agreement may be amended,
supplemented or modified from time to time.
"Facility Fee" shall have the meaning assigned to such term in
Section 2.06(a).
"Fair Value", when used with respect to property, shall mean
the fair value as determined in good faith by the board of directors of the
Company.
"Fees" shall mean the Facility Fee and the Administrative
Fees.
"Financial Officer" of any corporation shall mean the chief
financial officer, principal accounting officer, treasurer, associate or
assistant treasurer or director of treasury services of such corporation.
8
"Fixed Rate Borrowing" shall mean a Borrowing comprised of
Fixed Rate Loans.
"Fixed Rate Loan" shall mean any Competitive Loan bearing
interest at a fixed percentage rate per annum (the "Fixed Rate") (expressed in
the form of a decimal to no more than four decimal places) specified by the
Lender making such Loan in its Competitive Bid.
"GAAP" shall mean generally accepted accounting principles,
applied on a consistent basis.
"Governmental Authority" shall mean any Federal, state, local
or foreign court or governmental agency, authority, instrumentality or
regulatory body.
"Guaranteed Obligations" shall mean the principal of and
interest on the Loans made to, and the due and punctual performance of all other
obligations, monetary or otherwise, of the Borrowing Subsidiaries hereunder.
"Indebtedness" of any person shall mean all indebtedness
representing money borrowed or the deferred purchase price of property (other
than trade accounts payable) or any capitalized lease obligation, which in any
case is created, assumed, incurred or guaranteed in any manner by such
corporation or for which such corporation is responsible or liable (whether by
agreement to purchase indebtedness of, or to supply funds to or invest in,
others or otherwise).
"Insurance Subsidiaries" shall mean Nutmeg Insurance Company
and each of its insurance company Subsidiaries.
"Interest Payment Date" shall mean, with respect to any Loan,
the last day of each Interest Period applicable thereto and, in the case of a
Eurodollar Loan with an Interest Period of more than three months' duration or a
Fixed Rate Loan with an Interest Period of more than 90 days' duration, each day
that would have been an Interest Payment Date for such Loan had successive
Interest Periods of three months' duration or 90 days' duration, as the case may
be, been applicable to such Loan and, in addition, the date of any prepayment of
each Loan or conversion of such Loan to a Loan of a different Type.
"Interest Period" shall mean (a) as to any Eurodollar
Borrowing, the period commencing on the date of such Borrowing or on the last
day of the immediately preceding Interest Period applicable to such Borrowing,
as the case may be, and ending on the numerically corresponding day (or, if
there is no numerically corresponding day, on the last day) in the calendar
month that is 1, 2, 3 or 6 months thereafter, as the Borrower may elect, (b) as
to any ABR Borrowing, the period commencing on the date of such Borrowing or on
the last day of the immediately preceding Interest Period applicable to such
Borrowing, as the case may be, and ending on the earliest of (i) the next
succeeding March 31, June 30, September 30 or December 31, (ii) the Maturity
Date, and (iii) the date such Borrowing is converted to a Borrowing of a
different Type in accordance with Section 2.05 or repaid or prepaid in
accordance with Section 2.07 or Section 2.12 and (c) as to any Fixed Rate
Borrowing, the period commencing on the date of such Borrowing and ending on the
date specified in the Competitive Bids in which the offers to make the Fixed
Rate Loans comprising such Borrowing were extended, which shall not be earlier
than seven days after the date of such Borrowing or later than 360 days after
the date of such Borrowing; provided, however, that if any Interest Period would
end on a day other than a Business Day, such Interest Period shall be extended
to the next succeeding Business Day unless, in the case of Eurodollar Loans
only, such next succeeding Business Day would fall in the next calendar month,
in which case such Interest Period shall end on the next preceding Business Day.
9
Interest shall accrue from and including the first day of an Interest Period to
but excluding the last day of such Interest Period.
"LIBO Rate" shall mean, with respect to any Eurodollar
Borrowing for any Interest Period, an interest rate per annum (rounded upwards,
if necessary, to the next 1/16 of 1%) equal to the rate at which dollar deposits
approximately equal in principal amount to (i) in the case of a Standby
Borrowing, the Administrative Agent's portion of such Eurodollar Borrowing and
(ii) in the case of a Competitive Borrowing, a principal amount that would have
been the Administrative Agent's portion of such Competitive Borrowing had such
Competitive Borrowing been a Standby Borrowing, and for a maturity comparable to
such Interest Period as are offered to the principal London offices of the
Administrative Agent in immediately available funds in the London interbank
market at approximately 11:00 a.m., London time, two Business Days prior to the
commencement of such Interest Period.
"Lien" shall mean, with respect to any property or asset, any
mortgage, deed of trust, lien, pledge, security interest, charge or other
encumbrance on, of or in such property or asset.
"Loan" shall mean a Competitive Loan or a Standby Loan,
whether made as a Eurodollar Loan, an ABR Loan or a Fixed Rate Loan, as
permitted hereby.
"Loan Documents" shall mean this Agreement, the Borrowing
Subsidiary Agreements and promissory notes, if any, issued pursuant to Section
9.04(i).
"Margin" shall mean, as to any Eurodollar Competitive Loan,
the margin (expressed as a percentage rate per annum in the form of a decimal to
no more than four decimal places) to be added to or subtracted from the LIBO
Rate in order to determine the interest rate applicable to such Loan, as
specified in the Competitive Bid relating to such Loan.
"Margin Regulations" shall mean Regulations G, T, U and X of
the Board as from time to time in effect, and all official rulings and
interpretations thereunder or thereof.
"Margin Stock" shall have the meaning given such term under
Regulation U of the Board.
"Material Adverse Effect" shall mean a materially adverse
effect on the business, assets, operations or condition, financial or otherwise,
of the Company and its Subsidiaries taken as a whole.
"Maturity Date" shall mean December 19, 1997.
"Moody's" shall mean Moody's Investors Service, Inc. or any of
its successors.
"Multiemployer Plan" shall mean a multiemployer plan as
defined in Section 4001(a)(3) of ERISA to which the Company or any ERISA
Affiliate (other than one considered an ERISA Affiliate only pursuant to
subsection (m) or (o) of Code Section 414) is making or accruing an obligation
to make contributions, or has within any of the preceding five plan years made
or accrued an obligation to make contributions.
"NAIC" shall mean the National Association of Insurance
Commissioners or any association or Governmental Authority succeeding to any or
all of the functions of the National Association of Insurance Commissioners.
10
"Notice of Competitive Bid Request" shall mean a notification
made pursuant to Section 2.03(a) in the form of Exhibit A-2.
"PBGC" shall mean the Pension Benefit Guaranty Corporation
referred to and defined in ERISA.
"person" shall mean any natural person, corporation, business
trust, joint venture, association, company, partnership or government, or any
agency or political subdivision thereof.
"Plan" shall mean any employee pension benefit plan (other
than a Multiemployer Plan) subject to the provisions of Title IV of ERISA or
Section 412 of the Code or Section 307 of ERISA, and in respect of which any
Borrower or any ERISA Affiliate is (or, if such plan were terminated, would
under Section 4069 of ERISA be deemed to be) an "employer" as defined in Section
3(5) of ERISA.
"Preferred Stock" shall mean any capital stock entitled by its
terms to a preference (a) as to dividends or (b) upon a distribution of assets.
"Quarterly Statement" shall mean, with respect to any
Restricted Subsidiary, the Quarterly Statement of such Restricted Subsidiary
required to be filed with the Applicable Insurance Regulatory Authority in
accordance with state law, including any exhibits, schedules, certificates or
actuarial opinions filed or delivered therewith.
"Rating Agencies" shall mean D&P, Moody's and S&P.
"Ratings" shall mean the ratings from time to time established
by the Rating Agencies for senior, unsecured, non-credit-enhanced long-term debt
of the Company.
"Register" shall have the meaning given such term in Section
9.04(d).
"Regulation D" shall mean Regulation D of the Board as from
time to time in effect and all official rulings and interpretations thereunder
or thereof.
"Reportable Event" shall mean any reportable event as defined
in Section 4043 of ERISA or the regulations issued thereunder with respect to a
Plan (other than a Plan maintained by an ERISA Affiliate that is considered an
ERISA Affiliate only pursuant to subsection (m) or (o) of Code Section 414).
"Required Lenders" shall mean, at any time, Lenders having
Commitments representing at least 66-2/3% of the Total Commitment or, for
purposes of acceleration pursuant to clause (ii) of Article VI, Lenders holding
Loans representing at least 66-2/3% of the aggregate principal amount of the
Loans outstanding.
"Required Surplus" means, at any date, the sum, at such date,
without duplication, of (a) surplus of the Insurance Subsidiaries and (b) any
reserve established and maintained by the Insurance Subsidiaries with respect to
their invested assets, either voluntarily or pursuant to requirements of
applicable law, the NAIC, the Insurance Department of the State of Connecticut
or any other state or federal regulatory authority having jurisdiction over the
Company, in each case determined in accordance with SAP.
11
"Responsible Officer" of any corporation shall mean any
executive officer or Financial Officer of such corporation and any other officer
or similar official thereof responsible for the administration of the
obligations of such corporation in respect of this Agreement.
"Restricted Subsidiary" means a Subsidiary which is
incorporated in any state of the United States or in the District of Columbia
and which is a regulated insurance company principally engaged in one or more of
the property, casualty and life insurance businesses and which has total assets
representing 10% or more of the total assets of the Company and its consolidated
Subsidiaries (including such Subsidiary), in each case as set forth on the most
recent fiscal year-end balance sheets of such Subsidiary and the Company and its
consolidated Subsidiaries, respectively, and computed in accordance with GAAP.
Such Subsidiary must be designated a Restricted Subsidiary in a notice delivered
by the Company and certified by a Responsible Officer to the Administrative
Agent for distribution to the Lenders. In the event that the aggregate total
assets of the Restricted Subsidiaries represent less than 80% of the total
assets of the Company and its consolidated Subsidiaries, the Board of Directors
of the Company, as evidenced by a resolution of such Board of Directors, shall
promptly designate an additional Subsidiary or Subsidiaries as Restricted
Subsidiaries in order that, after such designations, the aggregate total assets
of the Restricted Subsidiaries represent at least 80% of the total assets of the
Company and its consolidated Subsidiaries, provided that all Subsidiaries with
total assets of 10% or more of the total assets of the Company and its
consolidated Subsidiaries have previously been designated as Restricted
Subsidiaries.
"Risk-Based Capital" shall mean, with respect to the Insurance
Subsidiaries at any time, the Company Action Level Risk-Based Capital (as
defined by the NAIC at such time and as computed in accordance with SAP) of the
Insurance Subsidiaries (determined and consolidated in accordance with SAP) at
such time.
"S&P" shall mean Standard and Poor's Ratings Services, a
division of The McGraw-Hill Companies, Inc., or any of its successors.
"SAP" shall mean, with respect to any Insurance Subsidiary,
the accounting principles and procedures prescribed or permitted by the
Applicable Insurance Regulatory Authority applied on a basis consistent with
those that are indicated in Section 1.02.
"SEC" shall mean the Securities and Exchange Commission.
"Special Preferred Securities" shall mean preferred securities
that are mandatorily redeemable, or redeemable at the option of the holder, not
sooner than ten years after issuance and issued by the Company and/or one or
more Subsidiaries of the Company, which would not be reflected as a liability in
a consolidated balance sheet of the Company and its consolidated Subsidiaries
prepared in accordance with generally accepted accounting principles.
"Standby Borrowing" shall mean a Borrowing consisting of
simultaneous Standby Loans from each of the Lenders.
"Standby Borrowing Request" shall mean a request made pursuant
to Section 2.04 in the form of Exhibit A-5.
"Standby Credit Exposure" shall mean, with respect to any
Lender at any time, the sum of the aggregate principal amount of all outstanding
Standby Loans made by such Lender.
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"Standby Loans" shall mean the revolving loans made pursuant
to Section 2.04. Each Standby Loan shall be a Eurodollar Standby Loan or an
ABR Loan.
"Statement of Actuarial Opinion" shall mean, with respect to
the Restricted Subsidiaries, the Statement of Actuarial Opinion required to be
filed with the Applicable Insurance Regulatory Authority in accordance with
state law or, if such Applicable Insurance Regulatory Authority shall no longer
require such a statement, information equivalent to that required to be included
in the Statement of Actuarial Opinion that was filed immediately prior to the
time such statement was no longer required.
"subsidiary" shall mean, with respect to any person (the
"parent"), any corporation, association or other business entity of which
securities or other ownership interests representing more than 50% of the
ordinary voting power are, at the time as of which any determination is being
made, owned or controlled by the parent or one or more subsidiaries of the
parent or by the parent and one or more subsidiaries of the parent.
"Subsidiary" shall mean a subsidiary of the Company.
"Total Adjusted Capital" shall mean, with respect to the
Insurance Subsidiaries at any time, the Total Adjusted Capital (as defined by
the NAIC at such time and as determined and consolidated in accordance with SAP)
of the Insurance Subsidiaries (taken together) at such time.
"Total Commitment" shall mean, at any time, the aggregate
amount of Commitments of all the Lenders, as in effect at such time.
"Transactions" shall have the meaning assigned to such term in
Section 3.02.
"Type", when used in respect of any Loan or Borrowing, shall
refer to the Rate by reference to which interest on such Loan or on the Loans
comprising such Borrowing is determined. For purposes hereof, "Rate" shall
include the LIBO Rate, the Alternate Base Rate and the Fixed Rate.
"Voting Shares" shall mean, as to shares of a particular
corporation, outstanding shares of stock of any class of such corporation
entitled to vote in the election of directors, excluding shares entitled so to
vote only upon the happening of some contingency.
"Withdrawal Liability" shall mean liability to a Multiemployer
Plan as a result of a complete or partial withdrawal from such Multiemployer
Plan, as such terms are defined in Part I of Subtitle E of Title VI of ERISA.
SECTION 1.02. Terms Generally. The definitions in Section 1.01
shall apply equally to both the singular and plural forms of the terms defined.
Whenever the context may require, any pronoun shall include the corresponding
masculine, feminine and neuter forms. The words "include", "includes" and
"including" shall be deemed to be followed by the phrase "without limitation".
All references herein to Articles, Sections, Exhibits and Schedules shall be
deemed references to Articles and Sections of, and Exhibits and Schedules to,
this Agreement unless the context shall otherwise require. Except as otherwise
expressly provided herein, all terms of an accounting or financial nature shall
be construed in accordance with GAAP or, to the extent such terms apply to an
Insurance Subsidiary, SAP, in each case as in effect from time to time;
provided, however, that for purposes of determining compliance with any covenant
set forth in Article V, such terms shall be construed in accordance with GAAP or
SAP, as applicable, as in effect on the date hereof applied on a basis
consistent with the application used in preparing the Company's audited
financial statements referred to in Section 3.05.
13
ARTICLE II
THE CREDITS
SECTION 2.01. Commitments. Subject to the terms and conditions
and relying upon the representations and warranties herein set forth, each
Lender agrees, severally and not jointly, to make Standby Loans to the
Borrowers, at any time and from time to time on and after the Effective Date and
until the earlier of the Maturity Date and the termination of the Commitment of
such Lender, in an aggregate principal amount at any time outstanding not to
exceed such Lender's Commitment minus the amount by which the Competitive Loans
outstanding at such time shall be deemed to have used such Commitment pursuant
to Section 2.16, subject, however, to the conditions that (i) at no time shall
(A) the sum of (x) the outstanding aggregate principal amount of all Standby
Loans made by all Lenders plus (y) the outstanding principal amount of all
Competitive Loans made by all Lenders exceed (B) the Total Commitment and (ii)
at all times, the outstanding aggregate principal amount of all Standby Loans
made by each Lender shall equal the product of (A) the percentage which its
Commitment represents of the Total Commitment times (B) the outstanding
aggregate principal amount of all Standby Loans.
Within the foregoing limits, the Borrowers may borrow, pay or
prepay and reborrow Standby Loans hereunder, on and after the Effective Date and
prior to the Maturity Date, subject to the terms, conditions and limitations set
forth herein.
SECTION 2.02. Loans. (a) Each Standby Loan shall be made as
part of a Borrowing consisting of Loans made by the Lenders ratably in
accordance with their respective Commitments; provided, however, that the
failure of any Lender to make any Standby Loan shall not in itself relieve any
other Lender of its obligation to lend hereunder (it being understood, however,
that no Lender shall be responsible for the failure of any other Lender to make
any Loan required to be made by such other Lender). Each Competitive Loan shall
be made in accordance with the procedures set forth in Section 2.03. The Standby
or Competitive Loans comprising any Borrowing shall be (i) in the case of
Competitive Loans, in an aggregate principal amount which is an integral
multiple of $1,000,000 and not less than $5,000,000 and (ii) in the case of
Standby Loans, in an aggregate principal amount which is an integral multiple of
$5,000,000 and not less than $20,000,000 (or an aggregate principal amount equal
to the remaining balance of the available Commitments).
(b) Each Competitive Borrowing shall be comprised entirely of
Eurodollar Competitive Loans or Fixed Rate Loans, and each Standby Borrowing
shall be comprised entirely of Eurodollar Standby Loans or ABR Loans, as the
Borrower may request pursuant to Section 2.03 or 2.04, as applicable. Each
Lender may at its option make any Eurodollar Loan by causing any domestic or
foreign branch, agency or Affiliate of such Lender to make such Loan; provided
that any exercise of such option shall not affect the obligation of the Borrower
to repay such Loan in accordance with the terms of this Agreement. Borrowings of
more than one Type may be outstanding at the same time. For purposes of the
foregoing, Loans having different Interest Periods, regardless of whether they
commence on the same date, shall be considered separate Loans.
(c) Subject to Section 2.05, each Lender shall make each Loan
to be made by it hereunder on the proposed date thereof by wire transfer of
immediately available funds to the Administrative Agent in New York, New York,
not later than 12:00 noon, New York City time, and the Administrative Agent
shall by 2:00 p.m., New York City time, credit the amounts so received to the
account or accounts specified from time to time in one or more notices delivered
by the Company to the Administrative Agent or, if a Borrowing shall not occur on
such date because any condition precedent herein
14
specified shall not have been met, return the amounts so received to the
respective Lenders. Competitive Loans shall be made by the Lender or Lenders
whose Competitive Bids therefor are accepted pursuant to Section 2.03 in the
amounts so accepted. Standby Loans shall be made by the Lenders pro rata in
accordance with Section 2.16. Unless the Administrative Agent shall have
received notice from a Lender prior to the date (or, in the case of ABR
Borrowings, on the date) of any Borrowing that such Lender will not make
available to the Administrative Agent such Lender's portion of such Borrowing,
the Administrative Agent may assume that such Lender has made such portion
available to the Administrative Agent on the date of such Borrowing in
accordance with this paragraph (c) and the Administrative Agent may, in reliance
upon such assumption, make available to the Borrower on such date a
corresponding amount. If and to the extent that such Lender shall not have made
such portion available to the Administrative Agent, such Lender and the Borrower
severally agree to repay to the Administrative Agent forthwith on demand such
corresponding amount together with interest thereon, for each day from the date
such amount is made available to the Borrower until the date such amount is
repaid to the Administrative Agent at (i) in the case of the Borrower, the
interest rate applicable at the time to the Loans comprising such Borrowing and
(ii) in the case of such Lender, the Federal Funds Effective Rate. If such
Lender shall repay to the Administrative Agent such corresponding amount, such
amount shall constitute such Lender's Loan as part of such Borrowing for
purposes of this Agreement.
SECTION 2.03. Competitive Bid Procedure. (a) In order to
request Competitive Bids, a Borrower (the "Applicable Borrower") shall hand
deliver or telecopy to the Administrative Agent a duly completed Competitive Bid
Request in the form of Exhibit A-1 hereto, to be received by the Administrative
Agent (i) in the case of a Eurodollar Competitive Loan, not later than 10:00
a.m., New York City time, four Business Days before a proposed Competitive
Borrowing and (ii) in the case of a Fixed Rate Borrowing, not later than 10:00
a.m., New York City time, one Business Day before a proposed Competitive
Borrowing. No ABR Loan shall be requested in, or made pursuant to, a Competitive
Bid Request. A Competitive Bid Request that does not conform substantially to
the format of Exhibit A-1 may be rejected in the Administrative Agent's sole
discretion, and the Administrative Agent shall promptly notify the Borrower of
such rejection by telecopy. Each Competitive Bid Request shall refer to this
Agreement and specify (w) whether the Borrowing then being requested is to be a
Eurodollar Borrowing or a Fixed Rate Borrowing, (x) the date of such Borrowing
(which shall be a Business Day) and the aggregate principal amount thereof which
shall be in a minimum principal amount of $10,000,000 and in an integral
multiple of $5,000,000 and (y) the Interest Period with respect thereto (which
may not end after the Maturity Date). Promptly after its receipt of a
Competitive Bid Request that is not rejected as aforesaid, the Administrative
Agent shall telecopy to the Lenders a Notice of Competitive Bid Request inviting
the Lenders to bid, on the terms and conditions of this Agreement, to make
Competitive Loans.
(b) Each Lender invited to bid may, in its sole discretion,
make one or more Competitive Bids to the Applicable Borrower responsive to such
Borrower's Competitive Bid Request. Each Competitive Bid by a Lender must be
received by the Administrative Agent by telecopy, in the form of Exhibit A-3
hereto, (i) in the case of a Eurodollar Competitive Loan, not later than 9:30
a.m., New York City time, three Business Days before a proposed Competitive
Borrowing and (ii) in the case of a Fixed Rate Borrowing, not later than 9:30
a.m., New York City time, on the day of a proposed Competitive Borrowing. A
Lender may submit multiple bids to the Administrative Agent. Competitive Bids
that do not conform substantially to the format of Exhibit A-3 may be rejected
by the Administrative Agent, and the Administrative Agent shall notify the
Lender making such nonconforming bid of such rejection as soon as practicable.
Each Competitive Bid shall refer to this Agreement and specify (x) the principal
amount (which shall be in a minimum principal amount of $5,000,000 and in an
integral multiple of $1,000,000 and which may equal the entire principal amount
of the Competitive Borrowing requested) of the Competitive Loan or Loans that
the Lender is willing to make, (y) the Competitive Bid
15
Rate or Rates at which the Lender is prepared to make the Competitive Loan or
Loans and (z) the Interest Period and the last day thereof. If any Lender
invited to bid shall elect not to make a Competitive Bid, such Lender shall so
notify the Administrative Agent by telecopy (I) in the case of Eurodollar
Competitive Loans, not later than 9:30 a.m., New York City time, three Business
Days before a proposed Competitive Borrowing, and (II) in the case of Fixed Rate
Loans, not later than 9:30 a.m., New York City time, on the day of a proposed
Competitive Borrowing; provided, however, that failure by any Lender to give
such notice shall not cause such Lender to be obligated to make any Competitive
Loan as part of such Competitive Borrowing. A Competitive Bid submitted by a
Lender pursuant to this paragraph (b) shall be irrevocable.
(c) The Administrative Agent shall as promptly as practicable
notify the Borrower, by telecopy, of all the Competitive Bids made, the
Competitive Bid Rate and the principal amount of each Competitive Loan in
respect of which a Competitive Bid was made and the identity of the Lender that
made each bid. The Administrative Agent shall send a copy of all Competitive
Bids to the Borrower for its records as soon as practicable after completion of
the bidding process set forth in this Section 2.03.
(d) The Borrower may in its sole and absolute discretion,
subject only to the provisions of this paragraph (d), accept or reject any
Competitive Bid referred to in paragraph (c) above. The Borrower shall notify
the Administrative Agent by telephone, confirmed by telecopy in the form of a
Competitive Bid Accept/Reject Letter, whether and to what extent it has decided
to accept or reject any of or all the bids referred to in paragraph (c) above
not more than one hour after it shall have been notified of such bids by the
Administrative Agent pursuant to such paragraph (c); provided, however, that (i)
the failure of the Borrower to give such notice shall be deemed to be a
rejection of all the bids referred to in paragraph (c) above, (ii) the Borrower
shall not accept a bid made at a particular Competitive Bid Rate if it has
decided to reject a bid made at a lower Competitive Bid Rate, (iii) the
aggregate amount of the Competitive Bids accepted by the Borrower shall not
exceed the principal amount specified in the Competitive Bid Request, (iv) if
the Borrower shall accept a bid or bids made at a particular Competitive Bid
Rate but the amount of such bid or bids shall cause the total amount of bids to
be accepted to exceed the amount specified in the Competitive Bid Request, then
the Borrower shall accept a portion of such bid or bids in an amount equal to
the amount specified in the Competitive Bid Request less the amount of all other
Competitive Bids accepted with respect to such Competitive Bid Request, which
acceptance, in the case of multiple bids at such Competitive Bid Rate, shall be
made pro rata in accordance with the amount of each such bid at such Competitive
Bid Rate, and (v) except pursuant to clause (iv) above, no bid shall be accepted
for a Competitive Loan unless such Competitive Loan is in a minimum principal
amount of $5,000,000 and an integral multiple of $1,000,000; provided further,
however, that if a Competitive Loan must be in an amount less than $5,000,000
because of the provisions of clause (iv) above, such Competitive Loan may be for
a minimum of $1,000,000 or any integral multiple thereof, and in calculating the
pro rata allocation of acceptances of portions of multiple bids at a particular
Competitive Bid Rate pursuant to clause (iv) the amounts shall be rounded to
integral multiples of $1,000,000 in a manner which shall be in the discretion of
the Borrower. A notice given pursuant to this paragraph (d) shall be
irrevocable.
(e) The Administrative Agent shall promptly notify each
bidding Lender whether or not its Competitive Bid has been accepted (and if so,
in what amount and at what Competitive Bid Rate) by telecopy, and each
successful bidder will thereupon become bound, subject to the other applicable
conditions hereof, to make the Competitive Loan in respect of which its bid has
been accepted.
(f) No Competitive Borrowing shall be requested or made
hereunder if after giving effect thereto any of the conditions set forth in
subsections (i) or (ii) of Section 2.01 would not be met.
16
(g) If the Administrative Agent shall elect to submit a
Competitive Bid in its capacity as a Lender, it shall submit such bid directly
to the Applicable Borrower one quarter of an hour earlier than the latest time
at which the other Lenders are required to submit their bids to the
Administrative Agent pursuant to paragraph (b) above.
(h) All notices required by this Section 2.03 shall be given
in accordance with Section 9.01.
SECTION 2.04. Standby Borrowing Procedure. In order to request
a Standby Borrowing, a Borrower shall hand deliver or telecopy to the
Administrative Agent a duly completed Standby Borrowing Request in the form of
Exhibit A-5 (a) in the case of a Eurodollar Standby Loan, not later than 10:30
a.m., New York City time, three Business Days before such Borrowing, and (b) in
the case of an ABR Borrowing, not later than 10:30 a.m., New York City time, on
the day of such Borrowing. No Fixed Rate Loan shall be requested or made
pursuant to a Standby Borrowing Request. Such notice shall be irrevocable and
shall in each case specify (i) whether the Borrowing then being requested is to
be a Eurodollar Standby Loan or an ABR Borrowing; (ii) the date of such Standby
Borrowing (which shall be a Business Day) and the amount thereof; and (iii) if
such Borrowing is to be a Eurodollar Standby Loan, the Interest Period with
respect thereto, which shall not end after the Maturity Date. If no election as
to the Type of Standby Borrowing is specified in any such notice, then the
requested Standby Borrowing shall be an ABR Borrowing. If no Interest Period
with respect to any Eurodollar Standby Loan is specified in any such notice,
then the Borrower shall be deemed to have selected an Interest Period of one
month's duration, in the case of a Eurodollar Borrowing. Notwithstanding any
other provision of this Agreement to the contrary, no Standby Borrowing shall be
requested if the Interest Period with respect thereto would end after the
Maturity Date. The Administrative Agent shall promptly advise each of the
Lenders of any notice given pursuant to this Section 2.04 and of each Lender's
portion of the requested Borrowing.
SECTION 2.05. Conversion and Continuation of Standby Loans.
Each Borrower shall have the right at any time upon prior irrevocable notice to
the Administrative Agent (i) not later than 10:30 a.m., New York City time, on
the day of the conversion, to convert all or any part of any Eurodollar Standby
Loan into an ABR Borrowing, and (ii) not later than 10:30 a.m., New York City
time, three Business Days prior to conversion or continuation, to convert any
ABR Borrowing into a Eurodollar Standby Loan or to continue any Eurodollar
Standby Loan as a Eurodollar Standby Loan for an additional Interest Period,
subject in each case to the following:
(a) if less than all the outstanding principal amount of any
Standby Borrowing shall be converted or continued, the aggregate
principal amount of the Standby Borrowing converted or continued shall
be an integral multiple of $5,000,000 and not less than $20,000,000;
(b) accrued interest on a Standby Borrowing (or portion
thereof) being converted shall be paid by the Borrower at the time of
conversion;
(c) if any Eurodollar Standby Loan is converted at a time
other than the end of the Interest Period applicable thereto, the
Borrower shall pay, upon demand, any amounts due to the Lenders
pursuant to Section 2.15;
(d) any portion of a Standby Borrowing maturing or required to
be repaid in less than one month may not be converted into or continued
as a Eurodollar Standby Loan;
17
(e) any portion of a Eurodollar Standby Loan which cannot be
continued as a Eurodollar Standby Loan by reason of clause (d) above
shall be automatically converted at the end of the Interest Period in
effect for such Eurodollar Standby Loan into an ABR Borrowing;
(f) no Interest Period may be selected for any Eurodollar
Standby Loan that would end later than the Maturity Date; and
(g) at any time when there shall have occurred and be
continuing any Default or Event of Default, no Borrowing may be
converted into or continued as a Eurodollar Standby Loan.
Each notice pursuant to this Section 2.05 shall be irrevocable
and shall refer to this Agreement and specify (i) the identity and amount of the
Standby Borrowing to be converted or continued, (ii) whether such Standby
Borrowing is to be converted to or continued as a Eurodollar Standby Loan or an
ABR Borrowing, (iii) if such notice requests a conversion, the date of such
conversion (which shall be a Business Day) and (iv) if such Standby Borrowing is
to be converted to or continued as a Eurodollar Standby Loan, the Interest
Period with respect thereto. If no Interest Period is specified in any such
notice with respect to any conversion to or continuation as a Eurodollar Standby
Loan, the Borrower shall be deemed to have selected an Interest Period of one
month's duration. If no notice shall have been given in accordance with this
Section 2.05 to convert or continue any Standby Borrowing, such Standby
Borrowing shall, at the end of the Interest Period applicable thereto (unless
repaid pursuant to the terms hereof), automatically be continued into a new
Interest Period as an ABR Borrowing.
SECTION 2.06. Fees. (a) The Company agrees to pay to each
Lender, through the Administrative Agent, on each March 31, June 30, September
30 and December 31 (with the first payment being due on December 31, 1996) and
on each date on which the Commitment of such Lender shall be terminated as
provided herein, a facility fee (a "Facility Fee"), at a rate per annum equal to
the Applicable Percentage from time to time in effect on the amount of the
Commitment of such Lender, whether used or unused, during the preceding quarter
(or other period commencing on the Effective Date, or ending with the Maturity
Date or any date on which the Commitment of such Lender shall be terminated).
All Facility Fees shall be computed on the basis of the actual number of days
elapsed in a year of 365 or 366 days, as the case may be. The Facility Fee due
to each Lender shall commence to accrue on the Effective Date and shall cease to
accrue on the earlier of the Maturity Date and the termination of the Commitment
of such Lender as provided herein.
(b) The Company agrees to pay the Administrative Agent, for
its own account, the administrative and other fees separately agreed to by the
Company and the Administrative Agent (the "Administrative Fees").
(c) All Fees shall be paid on the dates due, in immediately
available funds, to the Administrative Agent for distribution, if and as
appropriate, among the Lenders except that the Administrative Fees shall be paid
pursuant to paragraph (b) above. Once paid, none of the Fees shall be refundable
under any circumstances.
SECTION 2.07. Repayment of Loans; Evidence of Debt. (a) Each
Borrower hereby agrees that the outstanding principal balance of each Standby
Loan shall be payable on the Maturity Date and that the outstanding principal
balance of each Competitive Loan shall be payable on the last day of the
Interest Period applicable thereto. Each Loan shall bear interest on the
outstanding principal balance thereof as set forth in Section 2.08.
18
(b) Each Lender shall maintain in accordance with its usual
practice an account or accounts evidencing the indebtedness to such Lender
resulting from each Loan made by such Lender from time to time, including the
amounts of principal and interest payable and paid to such Lender from time to
time under this Agreement.
(c) The Administrative Agent shall (i) maintain accounts in
which it will record (A) the amount of each Loan made hereunder, the Borrower of
each Loan, the Type of each Loan made and the Interest Period applicable
thereto, (B) the amount of any principal or interest due and payable or to
become due and payable from each Borrower to each Lender hereunder and (C) the
amount of any sum received by the Administrative Agent hereunder from each
Borrower and each Lender's share thereof and (ii) provide a summary to the
Company in writing on a quarterly basis.
(d) The entries made in the accounts maintained pursuant to
paragraphs (b) and (c) of this Section 2.07 shall, to the extent permitted by
applicable law, be prima facie evidence of the existence and amounts of the
obligations therein recorded; provided, however, that the failure of any Lender
or the Administrative Agent to maintain such accounts or any error therein shall
not in any manner affect the obligations of the Borrowers to repay the Loans in
accordance with their terms.
SECTION 2.08. Interest on Loans. (a) Subject to the provisions
of Section 2.09, the Loans comprising each Eurodollar Borrowing shall bear
interest (computed on the basis of the actual number of days elapsed over a year
of 360 days) at a rate per annum equal to (i) in the case of each Eurodollar
Standby Loan, the LIBO Rate for the Interest Period in effect for such Borrowing
plus the Applicable Percentage from time to time in effect and (ii) in the case
of each Eurodollar Competitive Loan, the LIBO Rate for the Interest Period in
effect for such Borrowing plus the Margin offered by the Lender making such Loan
and accepted by the Borrower pursuant to Section 2.03.
(b) Subject to the provisions of Section 2.09, the Loans
comprising each ABR Borrowing shall bear interest (computed on the basis of the
actual number of days elapsed over a year of 365 or 366 days, as the case may
be, for periods during which the Alternate Base Rate is determined by reference
to the Prime Rate and 360 days for other periods) at a rate per annum equal to
the Alternate Base Rate.
(c) Subject to the provisions of Section 2.09, each Fixed Rate
Loan shall bear interest at a rate per annum (computed on the basis of the
actual number of days elapsed over a year of 360 days) equal to the fixed rate
of interest offered by the Lender making such Loan and accepted by the Borrower
pursuant to Section 2.03.
(d) Interest on each Loan shall be payable on each Interest
Payment Date applicable to such Loan except as otherwise provided in this
Agreement. The applicable LIBO Rate or Alternate Base Rate for each Interest
Period or day within an Interest Period, as the case may be, shall be determined
by the Administrative Agent, and such determination shall be conclusive absent
manifest error.
SECTION 2.09. Default Interest. If a Borrower shall default in
the payment of the principal of or interest on any Loan or any other amount
becoming due hereunder, whether by scheduled maturity, notice of prepayment,
acceleration or otherwise, such Borrower shall on demand from time to time from
the Administrative Agent pay interest, to the extent permitted by law, on such
defaulted amount up to (but not including) the date of actual payment (after as
well as before judgment) at a rate per annum (computed as provided in Section
2.08(b)) equal to the Alternate Base Rate plus 2%.
19
SECTION 2.10. Alternate Rate of Interest. In the event, and on
each occasion, that on the day two Business Days prior to the commencement of
any Interest Period for a Eurodollar Borrowing, the Administrative Agent shall
have determined (i) that dollar deposits in the currency and principal amounts
of the Eurodollar Loans comprising such Borrowing are not generally available in
the London market or (ii) that reasonable means do not exist for ascertaining
the LIBO Rate, the Administrative Agent shall, as soon as practicable
thereafter, give telecopy notice of such determination to the Company and
applicable Borrower and the Lenders. In the event of any such determination
under clauses (i) or (ii) above, until the Administrative Agent shall have
advised the Borrower and the Lenders that the circumstances giving rise to such
notice no longer exist, (x) any request by a Borrower for a Eurodollar
Competitive Loan pursuant to Section 2.03 shall be of no force and effect and
shall be denied by the Administrative Agent and (y) any request by a Borrower
for a Eurodollar Standby Loan pursuant to Section 2.04 shall be deemed to be a
request for an ABR Borrowing. In the event the Required Lenders notify the
Administrative Agent that the rates at which dollar deposits are being offered
will not adequately and fairly reflect the cost to such Lenders of making or
maintaining Eurodollar Loans during such Interest Period, the Administrative
Agent shall notify the applicable Borrower of such notice and until the Required
Lenders shall have advised the Administrative Agent that the circumstances
giving rise to such notice no longer exist, any request by such Borrower for a
Eurodollar Standby Loan shall be deemed a request for an ABR Borrowing. Each
determination by the Administrative Agent hereunder shall be made in good faith
and shall be conclusive absent manifest error.
SECTION 2.11. Termination and Reduction of Commitments. (a)
The Commitments shall be automatically terminated on the Maturity Date;
provided, however, that if the Effective Date does not occur on or before
December 31, 1996, the Commitments shall terminate on such date.
(b) Upon at least three Business Days' prior irrevocable
telecopy notice to the Administrative Agent, the Company may at any time in
whole permanently terminate, or from time to time in part permanently reduce,
the Total Commitment; provided, however, that (i) each partial reduction of the
Total Commitment shall be in an integral multiple of $10,000,000 and in a
minimum principal amount of $50,000,000 and (ii) no such termination or
reduction shall be made which would reduce the Total Commitment to an amount
less than the sum of the aggregate Standby Credit Exposures and aggregate
outstanding principal amount of the Competitive Loans.
(c) Each reduction in the Total Commitment hereunder shall be
made ratably among the Lenders in accordance with their respective Commitments.
The Borrowers shall pay to the Administrative Agent for the account of the
Lenders, on the date of each reduction or termination of the Total Commitment,
the Facility Fees on the amount of the Commitments terminated accrued through
the date of such termination or reduction.
SECTION 2.12. Prepayment. (a) Each Borrower shall have the
right at any time and from time to time to prepay any Standby Borrowing, in
whole or in part, upon giving telecopy notice (or telephone notice promptly
confirmed by telecopy) to the Administrative Agent: (i) before 10:00 a.m., New
York City time, three Business Days prior to prepayment, in the case of
Eurodollar Loans, and (ii) before 10:00 a.m., New York City time, one Business
Day prior to prepayment, in the case of ABR Loans; provided, however, that each
partial prepayment shall be in an amount which is an integral multiple of
$10,000,000 and not less than $50,000,000. No prepayment may be made in respect
of any Competitive Borrowing.
(b) On the date of any termination or reduction of the
Commitments pursuant to Section 2.11, the Borrowers shall pay or prepay so much
of the Standby Borrowings as shall be necessary
20
in order that the aggregate sum of the Competitive Loan Exposures and Standby
Credit Exposures will not exceed the Total Commitment, after giving effect to
such termination or reduction.
(c) Each notice of prepayment shall specify the prepayment
date and the principal amount of each Borrowing (or portion thereof) to be
prepaid, shall be irrevocable and shall commit the applicable Borrower to prepay
such Borrowing (or portion thereof) by the amount stated therein on the date
stated therein. All prepayments under this Section 2.12 shall be subject to
Section 2.15 but otherwise without premium or penalty. All prepayments under
this Section 2.12 shall be accompanied by accrued interest on the principal
amount being prepaid to the date of payment.
SECTION 2.13. Reserve Requirements; Change in Circumstances.
(a) Notwithstanding any other provision herein, if after the date of this
Agreement any change in applicable law or regulation or in the interpretation or
administration thereof by any Governmental Authority charged with the
interpretation or administration thereof (whether or not having the force of
law) shall result in the imposition, modification or applicability of any
reserve, special deposit or similar requirement against assets of, deposits with
or for the account of or credit extended by any Lender, or shall result in the
imposition on (i) any Lender or the London interbank market of any other
condition affecting this Agreement, (ii) such Lender's Commitment or (iii) any
Eurodollar Loan or Fixed Rate Loan made by such Lender and the result of any of
the foregoing shall be to increase the cost to such Lender of making or
maintaining any Eurodollar Loan or Fixed Rate Loan or to reduce the amount of
any sum received or receivable by such Lender hereunder (whether of principal,
interest or otherwise) by an amount reasonably deemed by such Lender to be
material, then such additional amount or amounts as will compensate such Lender
for such additional costs or reduction will be paid by the Borrowers to such
Lender upon demand. Notwithstanding the foregoing, no Lender shall be entitled
to request compensation under this paragraph with respect to any Competitive
Loan if the change giving rise to such request was applicable to such Lender at
the time of submission of the Competitive Bid pursuant to which such Competitive
Loan was made.
(b) If any Lender shall have determined that the adoption of
any law, rule, regulation or guideline arising out of the July 1988 report of
the Basle Committee on Banking Regulations and Supervisory Practices entitled
"International Convergence of Capital Measurement and Capital Standards", or the
adoption after the date hereof of any other law, rule, regulation or guideline
regarding capital adequacy, or any change in any of the foregoing or in the
interpretation or administration of any of the foregoing by any Governmental
Authority, central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by any Lender (or any lending office of
such Lender) or any Lender's holding company with any request or directive
regarding capital adequacy (whether or not having the force of law) of any such
authority, central bank or comparable agency, has or would have the effect of
reducing the rate of return on (i) such Lender's capital or on the capital of
such Lender's holding company, if any, as a consequence of this Agreement, (ii)
such Lender's Commitment or (iii) the Loans made by such Lender pursuant hereto
to a level below that which such Lender or such Lender's holding company could
have achieved but for such adoption, change or compliance (taking into
consideration such Lender's policies and the policies of such Lender's holding
company with respect to capital adequacy) by an amount reasonably deemed by such
Lender to be material, then from time to time such additional amount or amounts
as will compensate such Lender for such reduction will be paid by the Borrowers
to such Lender. It is acknowledged that this Agreement is being entered into by
the Lenders on the understanding that the Lenders will not be required to
maintain capital against their Commitments under currently applicable laws,
regulations and regulatory guidelines. In the event that any Lender shall be
advised by any Governmental Authority or shall otherwise determine on the basis
of pronouncements of any Governmental Authority that such understanding is
incorrect, it is agreed that the Lenders will be entitled to make claims under
this paragraph (b) based
21
upon market requirements prevailing on the date hereof for commitments under
comparable credit facilities against which capital is required to be maintained.
(c) A certificate of any Lender setting forth such amount or
amounts as shall be necessary to compensate such Lender or its holding company,
as applicable, as specified in paragraph (a) or (b) above, as the case may be,
shall be delivered to the Company and shall be conclusive absent manifest error.
The Borrowers shall pay such Lender the amount shown as due on any such
certificate delivered by it within 10 days after its receipt of the same.
(d) Failure on the part of any Lender to demand compensation
for any increased costs or reduction in amounts received or receivable or
reduction in return on capital with respect to any period shall not constitute a
waiver of such Lender's right to demand compensation with respect to such period
or any other period; provided, however, that no Lender shall be entitled to
compensation under this Section 2.13 for any costs incurred or reductions
suffered with respect to any date unless it shall have notified the Company that
it will demand compensation for such costs or reductions under paragraph (c)
above not more than 90 days after the later of (i) such date and (ii) the date
on which it shall have become aware of such costs or reductions. The protection
of this Section shall be available to each Lender regardless of any possible
contention of the invalidity or inapplicability of the law, rule, regulation,
guideline or other change or condition which shall have occurred or been
imposed.
SECTION 2.14. Change in Legality. (a) Notwithstanding any
other provision herein, if any change in any law or regulation or in the
interpretation thereof by any Governmental Authority charged with the
administration or interpretation thereof shall make it unlawful for any Lender
to make or maintain any Eurodollar Loan or to give effect to its obligations as
contemplated hereby with respect to any Eurodollar Loan, then, by written notice
to the Company and to the Administrative Agent, such Lender may:
(i) declare that Eurodollar Loans will not thereafter be made
by such Lender hereunder, whereupon such Lender shall not submit a
Competitive Bid in response to a request for a Eurodollar Competitive
Loan and any request for a Eurodollar Standby Loan shall, as to such
Lender only, be deemed a request for an ABR Loan, unless such
declaration shall be subsequently withdrawn; and
(ii) require that all outstanding Eurodollar Loans, made by it
be converted to ABR Loans, in which event all such Eurodollar Loans
shall be automatically converted to ABR Loans as of the effective date
of such notice as provided in paragraph (b) below.
In the event any Lender shall exercise its rights under subparagraph (i) or (ii)
above, all payments and prepayments of principal which would otherwise have been
applied to repay the Eurodollar Loans that would have been made by such Lender,
or the converted Eurodollar Loans of such Lender, shall instead be applied to
repay the ABR Loans made by such Lender in lieu of, or resulting from the
conversion of, such Eurodollar Loans.
(b) For purposes of this Section 2.14, a notice by any Lender
shall be effective as to each Eurodollar Loan, if lawful, on the last day of the
Interest Period currently applicable to such Eurodollar Loan; in all other cases
such notice shall be effective on the date of receipt.
SECTION 2.15. Indemnity. The Borrowers shall indemnify each
Lender against any out-of-pocket loss or expense which such Lender may sustain
or incur as a consequence of (a) any failure to borrow or to refinance, convert
or continue any Loan hereunder after irrevocable notice of such
22
borrowing, refinancing, conversion or continuation has been given pursuant to
Section 2.03, 2.04 or 2.05, (b) any payment, prepayment or conversion, or
assignment required under Section 2.20, of a Eurodollar Loan required by any
other provision of this Agreement or otherwise made or deemed made on a date
other than the last day of the Interest Period, if any, applicable thereto, (c)
any default in payment or prepayment of the principal amount of any Loan or any
part thereof or interest accrued thereon, as and when due and payable (at the
due date thereof, whether by scheduled maturity, acceleration, irrevocable
notice of prepayment or otherwise) or (d) the occurrence of any Event of
Default, including, in each such case, any loss or reasonable expense sustained
or incurred or to be sustained or incurred in liquidating or employing deposits
from third parties acquired to effect or maintain such Loan or any part thereof
as a Eurodollar Loan. Such loss or reasonable expense shall include an amount
equal to the excess, if any, as reasonably determined by such Lender, of (i) its
cost of obtaining the funds for the Loan being paid, prepaid, refinanced or not
borrowed (assumed to be the LIBO Rate applicable thereto) for the period from
the date of such payment, prepayment, refinancing or failure to borrow or
refinance to the last day of the Interest Period for such Loan (or, in the case
of a failure to borrow or refinance the Interest Period for such Loan which
would have commenced on the date of such failure) over (ii) the amount of
interest (as reasonably determined by such Lender) that would be realized by
such Lender in reemploying the funds so paid, prepaid or not borrowed or
refinanced for such period or Interest Period, as the case may be. A certificate
of any Lender setting forth any amount or amounts which such Lender is entitled
to receive pursuant to this Section shall be delivered to such Borrower and
shall be conclusive absent manifest error.
SECTION 2.16. Pro Rata Treatment. Except as required under
Sections 2.14 and 2.20, each payment or prepayment of principal of any Standby
Borrowing, each payment of interest on the Standby Loans, each payment of the
Facility Fees, each reduction of the Commitments and each refinancing or
conversion of any Standby Borrowing with a Standby Borrowing of any Type, shall
be allocated pro rata among the Lenders in accordance with their respective
Commitments (or, if such Commitments shall have expired or been terminated, in
accordance with the respective principal amounts of their outstanding Standby
Loans). Each payment of principal of any Competitive Borrowing shall be
allocated pro rata among the Lenders participating in such Borrowing in
accordance with the respective principal amounts of their outstanding
Competitive Loans comprising such Borrowing. Each payment of interest on any
Competitive Borrowing shall be allocated pro rata among the Lenders
participating in such Borrowing in accordance with the respective amounts of
accrued and unpaid interest on their outstanding Competitive Loans comprising
such Borrowing. For purposes of determining the available Commitments of the
Lenders at any time, each outstanding Competitive Borrowing shall be deemed to
have utilized the Commitments of the Lenders (including those Lenders which
shall not have made Loans as part of such Competitive Borrowing) pro rata in
accordance with such respective Commitments. Each Lender agrees that in
computing such Lender's portion of any Borrowing to be made hereunder, the
Administrative Agent may, in its discretion, round each Lender's percentage of
such Borrowing to the next higher or lower whole Dollar amount.
SECTION 2.17. Sharing of Setoffs. Each Lender agrees that if
it shall, through the exercise of a right of banker's lien, setoff or
counterclaim, or pursuant to a secured claim under Section 506 of Title 11 of
the United States Code or other security or interest arising from, or in lieu
of, such secured claim, received by such Lender under any applicable bankruptcy,
insolvency or other similar law or otherwise, or by any other means, obtain
payment (voluntary or involuntary) in respect of any Standby Loan or Loans as a
result of which the unpaid principal portion of its Standby Loans shall be
proportionately less than the unpaid principal portion of the Standby Loans of
any other Lender, it shall be deemed simultaneously to have purchased from such
other Lender at face value, and shall promptly pay to such other Lender the
purchase price for, a participation in the Standby Loans of such other Lender,
so that the aggregate unpaid principal amount of the Standby Loans and
participations in the
23
Standby Loans held by each Lender shall be in the same proportion to the
aggregate unpaid principal amount of all Standby Loans then outstanding as the
principal amount of its Standby Loans prior to such exercise of banker's lien,
setoff or counterclaim or other event was to the principal amount of all Standby
Loans outstanding prior to such exercise of banker's lien, setoff or
counterclaim or other event; provided, however, that, if any such purchase or
purchases or adjustments shall be made pursuant to this Section 2.17 and the
payment giving rise thereto shall thereafter be recovered, such purchase or
purchases or adjustments shall be rescinded to the extent of such recovery and
the purchase price or prices or adjustment restored without interest. Any Lender
holding a participation in a Standby Loan deemed to have been so purchased may
exercise any and all rights of banker's lien, setoff or counterclaim with
respect to any and all moneys owing to such Lender by reason thereof as fully as
if such Lender had made a Standby Loan in the amount of such participation.
SECTION 2.18. Payments. (a) The Borrowers shall make each
payment (including principal of or interest on any Borrowing and any Fees or
other amounts) hereunder from an account in the United States not later than
12:00 noon, local time at the place of payment, on the date when due, without
setoff or counterclaim, to the Administrative Agent at its offices at 270 Park
Avenue, New York, New York, in immediately available funds. Each such payment
shall be made in Dollars.
(b) Whenever any payment (including principal of or interest
on any Borrowing or any Fees or other amounts) hereunder shall become due, or
otherwise would occur, on a day that is not a Business Day, such payment may be
made on the next succeeding Business Day, and such extension of time shall in
such case be included in the computation of interest or Fees, if applicable.
SECTION 2.19. Taxes. (a) Any and all payments to the Lenders
hereunder shall be made, in accordance with Section 2.18, free and clear of and
without deduction for any and all current or future taxes, levies, imposts,
deductions, charges or withholdings, and all liabilities with respect thereto,
excluding (i) income taxes imposed on the income of the Administrative Agent or
any Lender (or any transferee or assignee thereof, including a participation
holder (any such entity a "Transferee")) and (ii) franchise taxes imposed on the
income, assets or net worth of the Administrative Agent or any Lender (or
Transferee), in each case by the jurisdiction under the laws of which the
Administrative Agent or such Lender (or Transferee) is organized or doing
business (other than as a result of entering into this Agreement, performing any
obligations hereunder, receiving any payments hereunder or enforcing any rights
hereunder), or any political subdivision thereof (all such nonexcluded taxes,
levies, imposts, deductions, charges, withholdings and liabilities, collectively
or individually, "Taxes"). If any Borrower shall be required to deduct any Taxes
from or in respect of any sum payable hereunder to any Lender (or any
Transferee) or the Administrative Agent, (i) the sum payable shall be increased
by the amount (an "additional amount") necessary so that after making all
required deductions (including deductions applicable to additional sums payable
under this Section 2.19) such Lender (or Transferee) or the Administrative Agent
(as the case may be) shall receive an amount equal to the sum it would have
received had no such deductions been made, (ii) such Borrower shall make such
deductions and (iii) such Borrower shall pay the full amount deducted to the
relevant Governmental Authority in accordance with applicable law.
(b) In addition, the Borrowers shall pay to the relevant
Governmental Authority in accordance with applicable law any current or future
stamp or documentary taxes or any other excise or property taxes, charges or
similar levies that arise from any payment made hereunder or from the execution,
delivery or registration of, or otherwise with respect to, this Agreement or any
other Loan Document ("Other Taxes").
24
(c) The Borrowers shall indemnify each Lender (or Transferee)
and the Administrative Agent for the full amount of Taxes and Other Taxes paid
by such Lender (or Transferee) or the Administrative Agent, as the case may be,
and any liability (including penalties, interest and expenses (including
reasonable attorney's fees and expenses)) arising therefrom or with respect
thereto, whether or not such Taxes or Other Taxes were correctly or legally
asserted by the relevant Governmental Authority. A certificate as to the amount
of such payment or liability prepared by a Lender (or Transferee) or the
Administrative Agent on its behalf, absent manifest error, shall be final,
conclusive and binding for all purposes. Such indemnification shall be made
within 30 days after the date any Lender (or Transferee) or the Administrative
Agent, as the case may be, makes written demand therefor, which written demand
shall be made within 60 days of the date such Lender (or Transferee) or the
Administrative Agent receives written demand for payment of such Taxes or Other
Taxes from the relevant Governmental Authority.
(d) If a Lender (or Transferee) or the Administrative Agent
shall become aware that it is entitled to claim a refund from a Governmental
Authority in respect of Taxes or Other Taxes as to which it has been indemnified
by the Borrowers, or with respect to which the Borrowers have paid additional
amounts, pursuant to this Section 2.19, it shall promptly notify the Borrowers
of the availability of such refund claim and shall, within 30 days after receipt
of a request by the Borrowers, make a claim to such Governmental Authority for
such refund at the Borrowers' expense. If a Lender (or Transferee) or the
Administrative Agent receives a refund (including pursuant to a claim for refund
made pursuant to the preceding sentence) in respect of any Taxes or Other Taxes
as to which it has been indemnified by the Borrowers or with respect to which
the Borrowers have paid additional amounts pursuant to this Section 2.19, it
shall within 30 days from the date of such receipt pay over such refund to the
Borrowers (but only to the extent of indemnity payments made, or additional
amounts paid, by the Borrowers under this Section 2.19 with respect to the Taxes
or Other Taxes giving rise to such refund), net of all out-of-pocket expenses of
such Lender (or Transferee) or the Administrative Agent and without interest
(other than interest paid by the relevant Governmental Authority with respect to
such refund); provided, however, that the Borrowers, upon the request of such
Lender (or Transferee) or the Administrative Agent, agree to repay the amount
paid over to the Borrowers (plus penalties, interest or other charges) to such
Lender (or Transferee) or the Administrative Agent in the event such Lender (or
Transferee) or the Administrative Agent is required to repay such refund to such
Governmental Authority.
(e) As soon as practicable after the date of any payment of
Taxes or Other Taxes by the Borrowers to the relevant Governmental Authority,
the Borrowers will deliver to the Administrative Agent, at its address referred
to in Section 9.01, the original or a certified copy of a receipt issued by such
Governmental Authority evidencing payment thereof.
(f) Without prejudice to the survival of any other agreement
contained herein, the agreements and obligations contained in this Section 2.19
shall survive the payment in full of the principal of and interest on all Loans
made hereunder.
(g) Each Lender (or Transferee) that is organized under the
laws of a jurisdiction other than the United States, any State thereof or the
District of Columbia (a "Non-U.S. Lender") shall deliver to the Company and the
Administrative Agent two copies of either United States Internal Revenue Service
Form 1001 or Form 4224, or, in the case of a Non-U.S. Lender claiming exemption
from U.S. Federal withholding tax under Section 871(h) or 881(c) of the Code
with respect to payments of "portfolio interest", a Form W-8, or any subsequent
versions thereof or successors thereto (and, if such Non-U.S. Lender delivers a
Form W-8, a certificate representing that such Non-U.S. Lender is not a bank for
purposes of Section 881(c) of the Code, is not a 10 percent shareholder (within
the meaning of
25
Section 871(h)(3)(B) of the Code) of the Company and is not a controlled foreign
corporation related to the Company (within the meaning of Section 864(d)(4) of
the Code)), properly completed and duly executed by such Non-U.S. Lender
claiming complete exemption from, or reduced rate of, U.S. Federal withholding
tax on payments by the Company under this Agreement. Such forms shall be
delivered by each Non-U.S. Lender on or before the date it becomes a party to
this Agreement (or, in the case of a Transferee that is a participation holder,
on or before the date such participation holder becomes a Transferee hereunder)
and on or before the date, if any, such Non-U.S. Lender changes its applicable
lending office by designating a different lending office (a "New Lending
Office"). In addition, each Non-U.S. Lender shall deliver such forms promptly
upon the obsolescence or invalidity of any form previously delivered by such
Non-U.S. Lender. Notwithstanding any other provision of this Section 2.19(g), a
Non-U.S. Lender shall not be required to deliver any form pursuant to this
Section 2.19(g) that such Non-U.S. Lender is not legally able to deliver.
(h) The Company shall not be required to indemnify any
Non-U.S. Lender, or to pay any additional amounts to any Non-U.S. Lender, in
respect of United States Federal withholding tax pursuant to paragraph (a) or
(c) above to the extent that (i) the obligation to withhold amounts with respect
to United States Federal withholding tax existed on the date such Non-U.S.
Lender became a party to this Agreement (or, in the case of a Transferee that is
a participation holder, on the date such participation holder became a
Transferee hereunder) or, with respect to payments to a New Lending Office, the
date such Non-U.S. Lender designated such New Lending Office with respect to a
Loan; provided, however, that this clause (i) shall not apply to any Transferee
or New Lending Office that becomes a Transferee or New Lending Office as a
result of an assignment, participation, transfer or designation made at the
request of the Company; and provided further, however, that this clause (i)
shall not apply to the extent the indemnity payment or additional amounts any
Transferee, or Lender (or Transferee) through a New Lending Office, would be
entitled to receive (without regard to this clause (i)) do not exceed the
indemnity payment or additional amounts that the person making the assignment,
participation or transfer to such Transferee, or Lender (or Transferee) making
the designation of such New Lending Office, would have been entitled to receive
in the absence of such assignment, participation, transfer or designation or
(ii) the obligation to pay such additional amounts would not have arisen but for
a failure by such Non-U.S. Lender to comply with the provisions of paragraph (g)
above.
(i) Any Lender (or Transferee) claiming any indemnity payment
or additional amounts payable pursuant to this Section 2.19 shall use reasonable
efforts (consistent with legal and regulatory restrictions) to file any
certificate or document reasonably requested in writing by the Company or to
change the jurisdiction of its applicable lending office if the making of such a
filing or change would avoid the need for or reduce the amount of any such
indemnity payment or additional amounts that may thereafter accrue and would
not, in the determination of such Lender (or Transferee), be otherwise
disadvantageous to such Lender (or Transferee).
(j) Nothing contained in this Section 2.19 shall require any
Lender (or Transferee) or the Administrative Agent to make available any of its
tax returns (or any other information that it deems to be confidential or
proprietary).
SECTION 2.20. Duty to Mitigate; Assignment of Commitments
Under Certain Circumstances. (a) Any Lender (or Transferee) claiming any
additional amounts payable pursuant to Section 2.13 or Section 2.19 or
exercising its rights under Section 2.14 shall use reasonable efforts
(consistent with legal and regulatory restrictions) to file any certificate or
document requested by the Company or to change the jurisdiction of its
applicable lending office if the making of such a filing or change would avoid
the need for or reduce the amount of any such additional amounts which may
26
thereafter accrue or avoid the circumstances giving rise to such exercise and
would not, in the determination of such Lender (or Transferee), be otherwise
disadvantageous to such Lender (or Transferee).
(b) In the event that any Lender shall have delivered a notice
or certificate pursuant to Section 2.13 or 2.14, or the Company shall be
required to make additional payments to any Lender under Section 2.19, the
Company shall have the right, at its own expense, upon notice to such Lender and
the Administrative Agent, to require such Lender to transfer and assign without
recourse (in accordance with and subject to the restrictions contained in
Section 9.04) all interests, rights and obligations contained hereunder to
another financial institution approved by the Administrative Agent (which
approval shall not be unreasonably withheld) which shall assume such
obligations; provided that (i) no such assignment shall conflict with any law,
rule or regulation or order of any Governmental Authority and (ii) the assignee
or the Company, as the case may be, shall pay to the affected Lender in
immediately available funds on the date of such assignment the principal of and
interest accrued to the date of payment on the Loans made by it hereunder and
all other amounts accrued for its account or owed to it hereunder.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Each Borrower represents and warrants to each of the Lenders
that:
SECTION 3.01. Organization; Powers. Each Borrower and each of
the Restricted Subsidiaries (a) is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization, (b) has all requisite power and authority to own its property and
assets and to carry on its business as now conducted and as proposed to be
conducted, (c) is qualified to do business in every jurisdiction where such
qualification is required, except where the failure so to qualify would not
result in a Material Adverse Effect, and (d) in the case of each Borrower, has
the corporate power and authority to execute, deliver and perform its
obligations under the Loan Documents and to borrow hereunder and thereunder.
SECTION 3.02. Authorization. The execution, delivery and
performance by the Borrowers of this Agreement, the promissory notes, if any,
issued pursuant to Section 9.04(i) (and by the Borrowing Subsidiaries of each
Borrowing Subsidiary Agreement) and the Borrowings hereunder (collectively, the
"Transactions") (a) have been duly authorized by all requisite corporate action
and (b) will not (i) violate (A) any provision of any law, statute, rule or
regulation (including the Margin Regulations) or of the certificate of
incorporation or other constitutive documents or by-laws of the Borrowers, (B)
any order of any Governmental Authority or (C) any provision of any indenture,
agreement or other instrument to which any Borrower is a party or by which it or
any of its property is or may be bound, (ii) be in conflict with, result in a
breach of or constitute (alone or with notice or lapse of time or both) a
default under any such indenture, agreement or other instrument or (iii) result
in the creation or imposition of any lien upon any property or assets of any
Borrower.
SECTION 3.03. Enforceability. This Agreement and each Loan
Document to which a Borrower is a party constitutes a legal, valid and binding
obligation of each such Borrower enforceable in accordance with its terms.
SECTION 3.04. Governmental Approvals. No action, consent or
approval of, registration or filing with or other action by any Governmental
Authority, other than those which have
27
been taken, given or made, as the case may be, is or will be required with
respect to any Borrower in connection with the Transactions.
SECTION 3.05. Financial Statements. (a) The Company has
heretofore furnished to the Administrative Agent and the Lenders copies of its
consolidated balance sheet and statements of income, cash flow and stockholders'
equity as of and for the year ended December 31, 1995 and the nine months ended
September 30, 1996. Such financial statements present fairly, in all material
respects, the consolidated financial condition and the results of operations of
the Company and the Subsidiaries as of such dates and for such periods in
accordance with GAAP or SAP, as requested.
(b) As of the date hereof, there has been no material adverse
change in the consolidated financial condition of the Company and the
Subsidiaries taken as a whole from the financial condition reported in the
financial statements referenced in paragraph (a) of this Section 3.05.
SECTION 3.06. Litigation; Compliance with Laws. (a) There are
no actions, proceedings or investigations filed or (to the knowledge of the
Borrowers) threatened against any Borrower or any Subsidiary in any court or
before any Governmental Authority or arbitration board or tribunal which
question the validity or legality of this Agreement, the Transactions or any
action taken or to be taken pursuant to this Agreement and no order or judgment
has been issued or entered restraining or enjoining any Borrower or any
Subsidiary from the execution, delivery or performance of this Agreement nor is
there any other action, proceeding or investigation filed or (to the knowledge
of any Borrower or any Subsidiary) threatened against any Borrower or any
Subsidiary in any court or before any Governmental Authority or arbitration
board or tribunal which would be reasonably likely to result in a Material
Adverse Effect or materially restrict the ability of any Borrower to comply with
its obligations under the Loan Documents.
(b) Neither any Borrower nor any Subsidiary is in violation of
any law, rule or regulation (including any law, rule or regulation relating to
the protection of the environment or to employee health or safety), or in
default with respect to any judgment, writ, injunction or decree of any
Governmental Authority, where such violation or default would be reasonably
likely to result in a Material Adverse Effect.
SECTION 3.07. Federal Reserve Regulations. (a) Neither any
Borrower nor any Subsidiary that will receive proceeds of the Loans hereunder is
engaged principally, or as one of its important activities, in the business of
extending credit for the purpose of purchasing or carrying Margin Stock.
(b) No part of the proceeds of any Loan will be used, whether
directly or indirectly, and whether immediately, incidentally or ultimately, to
purchase or carry Margin Stock or to refund indebtedness originally incurred for
such purpose, or for any other purpose which entails a violation of, or which is
inconsistent with, the provisions of the Margin Regulations.
SECTION 3.08. Investment Company Act; Public Utility Holding
Company Act. No Borrower is (a) an "investment company" as defined in, or
subject to regulation under, the Investment Company Act of 1940 (the "1940 Act")
or (b) a "holding company" as defined in, or subject to regulation under, the
Public Utility Holding Company Act of 1935. While certain subsidiaries of
Hartford Life Insurance Company are "investment companies" as defined in the
1940 Act, the transactions contemplated by this Agreement will not violate or
require any approval under such Act or any regulations promulgated pursuant
thereto.
28
SECTION 3.09. Use of Proceeds. All proceeds of the Loans
shall be used for the purposes referred to in the recitals to this Agreement.
SECTION 3.10. Full Disclosure; No Material Misstatements. None
of the representations or warranties made by any Borrower in connection with
this Agreement as of the date such representations and warranties are made or
deemed made, and no report, financial statement or other information furnished
by or on behalf of any Borrower to the Administrative Agent or any Lender
pursuant to or in connection with this Agreement or the credit facilities
established hereby, contains or will contain any material misstatement of fact
or omits or will omit to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they were or
will be made, not misleading.
SECTION 3.11. Taxes. Each Borrower and each of the Restricted
Subsidiaries have filed or caused to be filed all Federal, state and local tax
returns which are required to be filed by them, and have paid or caused to be
paid all taxes shown to be due and payable on such returns or on any assessments
received by any of them, other than any taxes or assessments the validity of
which is being contested in good faith by appropriate proceedings, and with
respect to which appropriate accounting reserves have to the extent required by
GAAP or SAP, as applicable, been set aside.
SECTION 3.12. Employee Pension Benefit Plans. The present
aggregate value of accumulated benefit obligations of all unfunded and
underfunded pension plans of the Company and its Subsidiaries (based on those
assumptions used for disclosure in corporate financial statements in accordance
with GAAP or SAP, as applicable) did not, as of December 31, 1994, exceed by
more than $70,000,000 the value of the assets of all such plans. In these cases
the Company has recorded book reserves to meet the obligations.
ARTICLE IV
CONDITIONS OF LENDING
The obligations of the Lenders to make Loans hereunder are
subject to the satisfaction of the following conditions:
SECTION 4.01. All Borrowings. On the date of each Borrowing:
(a) The Administrative Agent shall have received a notice of
such Borrowing as required by Section 2.03 or Section 2.04, as
applicable.
(b) The representations and warranties set forth in Article
III hereof shall be true and correct in all material respects on and as
of the date of such Borrowing with the same effect as though made on
and as of such date, except to the extent such representations and
warranties expressly relate to an earlier date.
(c) At the time of and immediately after such Borrowing no
Event of Default or Default shall have occurred and be continuing.
Each Borrowing shall be deemed to constitute a representation and warranty by
each Borrower on the date of such Borrowing as to the matters specified in
paragraphs (b) and (c) of this Section 4.01.
29
SECTION 4.02. Effective Date. On the Effective Date:
(a) The Administrative Agent shall have received a favorable
written opinion of Michael S. Wilder, Esq., dated the Effective Date and
addressed to the Lenders and satisfactory to the Lenders, the Administrative
Agent and Cravath, Swaine & Moore, counsel for the Administrative Agent, to the
effect set forth in Exhibit D hereto.
(b) The Administrative Agent shall have received (i) a copy of
the certificate of incorporation, including all amendments thereto, of the
Company, certified as of a recent date by the Secretary of State of its state of
incorporation, and a certificate as to the good standing of the Company as of a
recent date from such Secretary of State; (ii) a certificate of the Secretary or
an Assistant Secretary of the Company dated the Effective Date and certifying
(A) that attached thereto is a true and complete copy of the by-laws of the
Company as in effect on the Effective Date and at all times since a date prior
to the date of the resolutions described in clause (B) below, (B) that attached
thereto is a true and complete copy of resolutions duly adopted by the Board of
Directors of the Company authorizing the execution, delivery and performance of
this Agreement and any other documents related to this Agreement and the
Borrowings hereunder, and that such resolutions have not been modified,
rescinded or amended and are in full force and effect, (C) that the certificate
of incorporation referred to in clause (i) above has not been amended since the
date of the last amendment thereto shown on the certificate of good standing
furnished pursuant to such clause (i) and (D) as to the incumbency and specimen
signature of each officer executing this Agreement or any other document
delivered in connection herewith on behalf of the Company; and (iii) a
certificate of another officer of the Company as to the incumbency and specimen
signature of the Secretary or Assistant Secretary executing the certificate
pursuant to (ii) above.
(c) The Administrative Agent shall have received a
certificate, dated the Effective Date and signed by a Financial Officer of the
Company, confirming compliance with the conditions precedent set forth in
paragraphs (b) and (c) of Section 4.01.
(d) The principal of and accrued and unpaid interest on any
loans outstanding under the Existing Credit Facility shall have been paid in
full, all other amounts due in respect of the Existing Credit Facility shall
have been paid in full and the commitments to lend under the Existing Credit
Facility shall have been permanently terminated.
(e) The Administrative Agent shall have received any Fees or
other amounts due and payable on or prior to the Effective Date.
SECTION 4.03. First Borrowing by Each Borrowing Subsidiary.
On or prior to the first date on which Loans are made to any Borrowing
Subsidiary:
(a) The Lenders shall have received the favorable written
opinion of counsel with respect to such Borrowing Subsidiary
satisfactory to the Administrative Agent, addressed to the Lenders and
satisfactory to the Lenders, the Administrative Agent and Cravath,
Swaine & Moore, counsel for the Administrative Agent, to the effect set
forth in Exhibit D hereto.
(b) Each Lender shall have received a copy of the Borrowing
Subsidiary Agreement executed by such Borrowing Subsidiary.
30
ARTICLE V
COVENANTS
A. Affirmative Covenants. Each Borrower covenants and agrees
with each Lender and the Administrative Agent that so long as this Agreement
shall remain in effect or the principal of or interest on any Loan, any Fees or
any other amounts payable hereunder shall be unpaid, unless the Required Lenders
shall otherwise consent in writing, it will, and will cause each of the
Subsidiaries to:
SECTION 5.01. Existence. Do or cause to be done all things
necessary to preserve and keep in full force and effect its corporate existence,
rights and franchises, except as expressly permitted under Section 5.11;
provided, however, that nothing in this Section shall prevent the abandonment or
termination of the existence, rights or franchises of any Restricted Subsidiary
or any rights or franchises of any Borrower if such abandonment or termination
is in the best interests of the Borrowers and is not disadvantageous in any
material respect to the Lenders.
SECTION 5.02. Business and Properties. In the case of the
Borrowers and the Restricted Subsidiaries, comply in all material respects with
all applicable laws, rules, regulations and orders of any Governmental Authority
(including any of the foregoing relating to the protection of the environment or
to employee health and safety), whether now in effect or hereafter enacted; and
at all times maintain and preserve all property material to the conduct of its
business and keep such property in good repair, working order and condition and
from time to time make, or cause to be made, all needful and proper repairs,
renewals, additions, improvements and replacements thereto necessary in order
that the business carried on in connection therewith may be properly conducted
at all times.
SECTION 5.03. Financial Statements, Reports, Etc. In the case
of the Company, furnish to the Administrative Agent for distribution to each
Lender:
(a) within 120 days after the end of each fiscal year, its
consolidated balance sheet and the related consolidated statements of
income and cash flows showing its consolidated financial condition as
of the close of such fiscal year and the consolidated results of its
operations during such year, all audited by Arthur Andersen LLP or
other independent certified public accountants of recognized national
standing selected by the Company and accompanied by an opinion of such
accountants to the effect that such consolidated financial statements
fairly present its financial condition and results of operations on a
consolidated basis in accordance with GAAP or SAP, as applicable (it
being agreed that the requirements of this paragraph may be satisfied
by the delivery pursuant to paragraph (f) below of an annual report on
Form 10-K containing the foregoing);
(b) within 90 days after the end of each of the first three
fiscal quarters of each fiscal year, its consolidated balance sheet and
related consolidated statements of income and cash flows showing its
consolidated financial condition as of the close of such fiscal quarter
and the consolidated results of its operations during such fiscal
quarter and the then elapsed portion of the fiscal year, all certified
by one of its Financial Officers as fairly presenting its financial
condition and results of operations on a consolidated basis in
accordance with GAAP or SAP, as applicable, subject to normal year-end
audit adjustments (it being agreed that the requirements of this
paragraph may be satisfied by the delivery pursuant to paragraph (f)
below of a quarterly report on Form 10-Q containing the foregoing);
31
(c) concurrently with any delivery of financial statements
under paragraph (a) or (b) above, a certificate of a Financial Officer
certifying that no Event of Default or Default has occurred or, if such
an Event of Default or Default has occurred, specifying the nature and
extent thereof and any corrective action taken or proposed to be taken
with respect thereto;
(d) as soon as available and in any event within 90 days after
the end of each fiscal year, (i) the Statement of Actuarial Opinion of
each of the Restricted Subsidiaries for such fiscal year and as filed
with the Applicable Insurance Regulatory Authority and (ii) the Annual
Statement of each of the Restricted Subsidiaries for such fiscal year
and as filed with the Applicable Insurance Regulatory Authority,
together with, in the case of the statements delivered pursuant to
clause (ii) above, a certificate of a Financial Officer to the effect
that such statements present fairly the statutory assets, liabilities,
capital and surplus, results of operations and cash flows of such
Insurance Subsidiary in accordance with SAP;
(e) promptly after the same become publicly available, copies
of all reports on forms 10-K, 10-Q and 8-K filed by it with the SEC, or
any Governmental Authority succeeding to any of or all the functions of
the SEC, or, in the case of the Company, copies of all reports
distributed to its shareholders, as the case may be;
(f) promptly, from time to time, such other information as any
Lender shall reasonably request through the Administrative Agent; and
(g) concurrently with any delivery of financial statements
under paragraph (a) or (b) above, calculations of the financial tests
referred to in Sections 5.10, 5.14 and 5.16.
SECTION 5.04. Insurance. In the case of the Borrowers and each
Restricted Subsidiary, keep its insurable properties adequately insured at all
times by financially sound and reputable insurers, and maintain such other
insurance, to such extent and against such risks, including fire and other risks
insured against by extended coverage, as is customary with companies similarly
situated and in the same or similar businesses (it being understood that the
Borrowers and the Restricted Subsidiaries may self-insure to the extent
customary with companies similarly situated and in the same or similar
businesses).
SECTION 5.05. Obligations and Taxes. In the case of the
Company and each Restricted Subsidiary, pay and discharge promptly when due all
taxes, assessments and governmental charges imposed upon it or upon its income
or profits or in respect of its property, as well as all other material
liabilities, in each case before the same shall become delinquent or in default
and before penalties accrue thereon, unless and to the extent that the same are
being contested in good faith by appropriate proceedings and adequate reserves
with respect thereto shall, to the extent required by GAAP or SAP, as
applicable, have been set aside.
SECTION 5.06. Litigation and Other Notices. Give the
Administrative Agent prompt written notice of the following:
(a) the filing or commencement of, or any written threat or
written notice of intention of any person to file or commence, any
action, suit or proceeding which could reasonably be expected to result
in a Material Adverse Effect;
(b) any Event of Default or Default, specifying the nature and
extent thereof and the action (if any) which is proposed to be taken
with respect thereto; and
32
(c) any change in any of the Ratings.
SECTION 5.07. Maintaining Records; Access to Properties and
Inspections. Maintain financial records in accordance with GAAP or SAP, as
applicable, and, upon reasonable notice, at all reasonable times, permit any
authorized representative designated by the Administrative Agent to visit and
inspect the properties of the Company and of any Restricted Subsidiary and to
discuss the affairs, finances and condition of the Company and the Restricted
Subsidiaries with a Financial Officer of the Company and such other officers as
the Company shall deem appropriate.
SECTION 5.08. Employee Benefits. (a) Comply in all material
respects with the applicable provisions of ERISA and the Code and (b) furnish to
the Administrative Agent and each Lender as soon as possible after, and in any
event within 30 days after any Responsible Officer of any Borrower or any ERISA
Affiliate knows that, any ERISA Event has occurred that, alone or together with
any other ERISA Event known to have occurred, could reasonably be expected to
result in liability of such Borrower in an aggregate amount exceeding
$15,000,000 in any year, a statement of a Financial Officer of the Borrower
setting forth details as to such ERISA Event and the action, if any, that such
Borrower proposes to take with respect thereto.
SECTION 5.09. Use of Proceeds. Use the proceeds of the Loans
only for the purposes set forth in the preamble to this Agreement.
SECTION 5.10. Risk-Based Capital Ratio. Maintain the ratio of
Total Adjusted Capital to Risk-Based Capital (after covariance) at the end of
each fiscal year of the Company and the Insurance Subsidiaries at a level equal
to or greater than 1.25 to 1.00.
B. Negative Covenants. Each Borrower covenants and agrees with
each Lender and the Administrative Agent that so long as this Agreement shall
remain in effect or the principal of or interest on any Loan, any Fees or any
other amounts payable hereunder shall be unpaid, unless the Required Lenders
shall otherwise consent in writing, it will not, and will not cause or permit
any of the Subsidiaries to:
SECTION 5.11. Consolidations, Mergers, and Sales of Assets. In
the case of the Company and the Restricted Subsidiaries, consolidate or merge
with or into any other person or sell, lease or transfer all or substantially
all of its property and assets, or agree to do any of the foregoing, unless (a)
no Default or Event of Default has occurred and is continuing or would have
occurred immediately after giving effect thereto, and (b) in the case of a
consolidation or merger or transfer of assets involving the Company and in which
the Company is not the surviving corporation or sells, leases or transfers all
or substantially all of its property and assets, the surviving corporation or
person purchasing, leasing or receiving such property and assets is organized in
the United States of America or a state thereof and agrees to be bound by the
terms and provisions applicable to the Company hereunder.
SECTION 5.12. Limitations on Liens. Create, incur, assume or
permit to exist any Lien on any property or assets (including the capital stock
of any Subsidiary) now owned or hereafter acquired by it, or sell or transfer or
create any Lien on any income or revenues or rights in respect thereof;
provided, however, that this covenant shall not apply to any of the following:
(a) any Lien on any property or asset hereafter acquired,
constructed or improved by the Company or any Subsidiary which is
created or assumed to secure or provide for the payment of any part of
the purchase price of such property or asset or the cost of such
construction or improvement, or any mortgage, pledge or other lien on
any Lien on any property
33
or asset existing at the time of acquisition thereof, provided,
however, that such Lien shall not extend to any other property owned
by the Company or any Subsidiary;
(b) any Lien existing upon any property or asset of a company
which is merged with or into or is consolidated into, or substantially
all the assets or shares of capital stock of which are acquired by, the
Company or a Subsidiary, at the time of such merger, consolidation or
acquisition, provided that such Lien does not extend to any other
property or asset, other than improvements to the property or asset
subject to such Lien;
(c) any pledge or deposit to secure payment of workers'
compensation or insurance premiums, or in connection with tenders,
bids, contracts (other than contracts for the payment of money) or
leases;
(d) any pledge of, or other Lien upon, any assets as security
for the payment of any tax, assessment or other similar charge by any
Governmental Authority or public body, or as security required by law
or governmental regulation as a condition to the transaction of any
business or the exercise of any privilege or right;
(e) any Lien necessary to secure a stay of any legal or
equitable process in a proceeding to enforce a liability or obligation
contested in good faith by the Company or a Subsidiary or required in
connection with the institution by the Company or a Subsidiary of any
legal or equitable proceeding to enforce a right or to obtain a remedy
claimed in good faith by the Company or a Subsidiary, or required in
connection with any order or decree in any such proceeding or in
connection with any contest of any tax or other governmental charge; or
the making of any deposit with or the giving of any form of security to
any governmental agency or any body created or approved by law or
governmental regulation in order to entitle the Company or a Subsidiary
to maintain self-insurance or to participate in any fund in connection
with workers' compensation, unemployment insurance, old age pensions or
other social security or to share in any provisions or other benefits
provided for companies participating in any such arrangement or for
liability on insurance of credits or other risks;
(f) any mechanics', carriers', workmen's, repairmen's, or
other like Liens, if arising in the ordinary course of business, in
respect of obligations which are not overdue or liability for which is
being contested in good faith by appropriate proceedings;
(g) any Lien on property in favor of the United States of
America, or of any agency, department or other instrumentality thereof,
to secure partial, progress or advance payments pursuant to the
provisions of any contract;
(h) any Lien securing indebtedness of a Subsidiary to the
Company or a Subsidiary, provided that in the case of any sale or other
disposition of such indebtedness by the Company or such Subsidiary,
such sale or other disposition shall be deemed to constitute the
creation of another Lien not permitted by this clause (h);
(i) any Lien affecting property of the Company or any
Subsidiary securing indebtedness of the United States of America or a
State thereof (or any instrumentality or agency of either thereof)
issued in connection with a pollution control or abatement program
required in the opinion of the Company to meet environmental criteria
with respect to operations of the Company or any Subsidiary and the
proceeds of which indebtedness have financed the cost of acquisition of
such program;
34
(j) the renewal, extension, replacement or refunding of any
mortgage, pledge, lien, deposit, charge or other encumbrance permitted
by the foregoing provisions of this covenant upon the same property
theretofore subject thereto, or the renewal, extension, replacement or
refunding of the amount secured thereby, provided that in each case
such amount outstanding at that time shall not be increased; or
(k) any other Lien, provided that immediately after the
creation or assumption of such Lien, the total of (x) the aggregate
principal amount of Indebtedness of the Company and all Subsidiaries
(not including Indebtedness permitted under clauses (a) through (j)
above) secured by all Liens created or assumed under the provisions of
this clause (k), plus (y) the aggregate amount of Capitalized
Lease-Back Obligations of the Company and Subsidiaries under the entire
unexpired terms of all leases entered into in connection with sale and
lease-back transactions which would have been precluded by the
provisions of Section 5.13 but for the satisfaction of the condition
set forth in clause (b) thereof, shall not exceed an amount equal to
10% of the Consolidated Net Tangible Assets of the Company and its
consolidated Subsidiaries.
SECTION 5.13. Limitations on Sale and Leaseback Transactions.
Enter into any arrangement with any person providing for the leasing by the
Company or any Restricted Subsidiary of any property or asset (except for
temporary leases for a term of not more than three years and except for leases
between the Company and a Restricted Subsidiary or between Restricted
Subsidiaries), which property has been or is to be sold or transferred by the
Company or such Restricted Subsidiary to such person more than 120 days after
the acquisition thereof or the completion of construction and commencement of
full operation thereof, unless either (a) the Company shall apply an amount
equal to the greater of the Fair Value of such property or the net proceeds of
such sale, within 120 days of the effective date of any such arrangement, to the
retirement (other than any mandatory retirement or by way of payment at
maturity) of Indebtedness or to the acquisition, construction, development or
improvement of properties, facilities or equipment used for operating purposes;
or (b) at the time of entering into such arrangement, such property or asset
could have been subjected to a Lien securing Indebtedness of the Company or a
Restricted Subsidiary in a principal amount equal to the Capitalized Lease-Back
Obligations with respect to such property or asset under paragraph (k) of
Section 5.12.
SECTION 5.14. Consolidated Total Debt to Consolidated Total
Capitalization. Permit the ratio of (a) Consolidated Total Debt to (b)
Consolidated Total Capitalization to be greater than 0.40 to 1.
SECTION 5.15. Limitations on Dividends and Advances by
Subsidiaries. Enter into any covenant or agreement restricting the ability of
any Subsidiary to pay dividends on or make other distributions in respect of its
capital stock, to make loans or advances to the Company or any Subsidiary or to
pay any Indebtedness owed to the Company or any Subsidiary.
SECTION 5.16. Minimum Consolidated Statutory Surplus.
Permit Consolidated Statutory Surplus at the end of any fiscal quarter to be
less than $2,500,000,000.
35
ARTICLE VI
EVENTS OF DEFAULT
In case of the happening of any of the following events (each
an "Event of Default"):
(a) any representation or warranty made or deemed made in or
in connection with the execution and delivery of this Agreement or the
Borrowings hereunder shall prove to have been false or misleading in
any material respect when so made, deemed made or furnished;
(b) default shall be made in the payment of any principal of
any Loan when and as the same shall become due and payable, whether at
the due date thereof or at a date fixed for prepayment thereof or by
acceleration thereof or otherwise;
(c) default shall be made in the payment of any interest on
any Loan or any Fee or any other amount (other than an amount referred
to in paragraph (b) above) due hereunder, when and as the same shall
become due and payable, and such default shall continue unremedied for
a period of ten days;
(d) default shall be made in the due observance or performance
of any covenant, condition or agreement contained in Section 5.01,
5.10, 5.11, 5.12, 5.13, 5.14, 5.15 or 5.16 and, in the case of any
default under Section 5.12, such default shall continue for 30 days;
(e) default shall be made in the due observance or performance
of any covenant, condition or agreement contained herein or in any
other Loan Document (other than those specified in clauses (b), (c) or
(d) above) and such default shall continue unremedied for a period of
30 days after notice thereof from the Administrative Agent or any
Lender to the Company;
(f) the Company or any Subsidiary shall (i) fail to pay any
principal or interest, regardless of amount, due in respect of any
Indebtedness in a principal amount in excess of $20,000,000, when and
as the same shall become due and payable, or (ii) fail to observe or
perform any other term, covenant, condition or agreement contained in
any agreement or instrument evidencing or governing any such
Indebtedness if the effect of any failure referred to in this clause
(ii) is to cause, or to permit the holder or holders of such
Indebtedness or a trustee on its or their behalf (with or without the
giving of notice, the lapse of time or both) to cause, such
Indebtedness to become due prior to its stated maturity;
(g) an involuntary proceeding shall be commenced or an
involuntary petition shall be filed in a court of competent
jurisdiction seeking (i) relief in respect of the Company or any
Restricted Subsidiary, or of a substantial part of the property or
assets of the Company or any Restricted Subsidiary, under Title 11 of
the United States Code, as now constituted or hereafter amended, or any
other Federal or state bankruptcy, insolvency, receivership or similar
law, (ii) the appointment of a receiver, trustee, custodian,
sequestrator, conservator or similar official for the Company or any
Restricted Subsidiary or for a substantial part of the property or
assets of the Company or any Restricted Subsidiary or (iii) the winding
up or liquidation of the Company or any Restricted Subsidiary; and such
proceeding or petition shall continue undismissed for 60 days or an
order or decree approving or ordering any of the foregoing shall be
entered;
(h) the Company or any Restricted Subsidiary shall (i)
voluntarily commence any proceeding or file any petition seeking relief
under Title 11 of the United States Code, as now
36
constituted or hereafter amended, or any other Federal or state
bankruptcy, insolvency, receivership or similar law, (ii) consent to
the institution of, or fail to contest in a timely and appropriate
manner, any proceeding or the filing of any petition described in (g)
above, (iii) apply for or consent to the appointment of a receiver,
trustee, custodian, sequestrator, conservator or similar official for
the Company or any Restricted Subsidiary or for a substantial part of
the property or assets of the Company or any Restricted Subsidiary,
(iv) file an answer admitting the material allegations of a petition
filed against it in any such proceeding, (v) make a general assignment
for the benefit of creditors, (vi) become unable, admit in writing its
inability or fail generally to pay its debts as they become due or
(vii) take any action for the purpose of effecting any of the
foregoing;
(i) one or more final judgments shall be entered by any court
against the Company or any of the Subsidiaries for the payment of money
in an aggregate amount in excess of $50,000,000, and such judgment or
judgments shall not have been paid, discharged or stayed for a period
of 60 days, or a warrant of attachment or execution or similar process
shall have been issued or levied against property of the Company or any
of the Subsidiaries to enforce any such judgment or judgments;
(j) an ERISA Event shall have occurred that, in the opinion of
the Required Lenders, when taken together with all other such ERISA
Events, could reasonably be expected to result in a Material Adverse
Effect; or
(k) a Change in Control shall occur;
then, and in every such event (other than an event with respect to the Company
or any Restricted Subsidiary described in paragraph (g) or (h) above), and at
any time thereafter during the continuance of such event, the Administrative
Agent, at the request of the Required Lenders, shall, by notice to the Company,
take either or both of the following actions, at the same or different times:
(i) terminate forthwith the Commitments and (ii) declare the Loans then
outstanding to be forthwith due and payable in whole or in part, whereupon the
principal of the Loans so declared to be due and payable, together with accrued
interest thereon and any unpaid accrued Fees and all other liabilities of the
Borrowers accrued hereunder, without presentment, demand, protest or any other
notice of any kind, all of which are hereby expressly waived anything contained
herein to the contrary notwithstanding; and, in the case of any event with
respect to the Company or any Restricted Subsidiary described in paragraph (g)
or (h) above, the Commitments shall automatically terminate and the principal of
the Loans then outstanding, together with accrued interest thereon and any
unpaid accrued Fees and all other liabilities of the Borrowers accrued hereunder
shall automatically become due and payable, without presentment, demand, protest
or any other notice of any kind, all of which are hereby expressly waived
anything contained herein to the contrary notwithstanding.
ARTICLE VII
GUARANTEE
The Company unconditionally and irrevocably guarantees the due
and punctual payment and performance, when and as due, whether at maturity, by
acceleration, upon one or more dates set for prepayment or otherwise, of the
Guaranteed Obligations. The Company further agrees that the Guaranteed
Obligations may be extended or renewed, in whole or in part, without notice or
further assent
37
from it and that it will remain bound upon its guarantee notwithstanding any
extension or renewal of any Guaranteed Obligations.
The Company waives presentment to, demand of payment from and
protest to the Borrowing Subsidiaries of any of the Guaranteed Obligations, and
also waives notice of acceptance of its guarantee and notice of protest for
nonpayment. The obligations of the Company hereunder shall not be affected by
(a) the failure of any Lender to assert any claim or demand or to enforce any
right or remedy against the Borrowing Subsidiaries under the provisions of this
Agreement or otherwise; (b) any rescission, waiver, amendment or modification of
any of the terms or provisions of this Agreement, any guarantee or any other
agreement; or (c) the failure of any Lender to exercise any right or remedy
against any other guarantor of the Guaranteed Obligations.
The Company further agrees that its guarantee constitutes a
guarantee of payment when due and not of collection, and waives any right to
require that any resort be had by the Administrative Agent or any Lender to any
security, if any, held for payment of the Guaranteed Obligations or to any
balance of any deposit account or credit on its books, in favor of the Borrowing
Subsidiaries or any other person.
The obligations of the Company hereunder shall not be subject
to any reduction, limitation, impairment or termination for any reason,
including any claim of waiver, release, surrender, alteration or compromise, and
shall not be subject to any defense or setoff, counterclaim, recoupment or
termination whatsoever by reason of the invalidity, illegality or
unenforceability of the Guaranteed Obligations or otherwise. Without limiting
the generality of the foregoing, the obligations of the Company hereunder shall
not be discharged or impaired or otherwise affected by the failure of the
Administrative Agent or any Lender to assert any claim or demand or to enforce
any remedy under this Agreement, any guarantee or any other agreement, by any
waiver or modification of any provision thereof, by any default, failure or
delay, wilful or otherwise, in the performance of the Guaranteed Obligations, or
by any other act or omission which may or might in any manner or to any extent
vary the risk of the Company or otherwise operate as a discharge of the Company
as a matter of law or equity.
To the extent permitted by applicable law, the Company waives
any defense based on or arising out of any defense available to the Borrowing
Subsidiaries, including any defense based on or arising out of any disability of
the Borrowing Subsidiaries, or the unenforceability of the Guaranteed
Obligations or any part thereof from any cause, or the cessation from any cause
of the liability of the Borrowing Subsidiaries, other than final payment in full
of the Guaranteed Obligations. The Administrative Agent and the Lenders may, at
their election, foreclose on any security held by one or more of them by one or
more judicial or non-judicial sales, or exercise any other right or remedy
available to them against the Borrowing Subsidiaries, or any security without
affecting or impairing in any way the liability of the Company hereunder except
to the extent the Guaranteed Obligations have been fully and finally paid. The
Company waives any defense arising out of any such election even though such
election operates to impair or to extinguish any right of reimbursement or
subrogation or other right or remedy of the Company against the Borrowing
Subsidiaries or any security.
The Company further agrees that its guarantee shall continue
to be effective or be reinstated, as the case may be, if at any time payment, or
any part thereof, of principal of or interest on any Guaranteed Obligation is
rescinded or must otherwise be restored by any Lender upon the bankruptcy or
reorganization of any Borrowing Subsidiary or otherwise.
In furtherance of the foregoing and not in limitation of any
other right which the Administrative Agent or any Lender may have at law or in
equity against the Company by virtue hereof,
38
upon the failure of any Borrowing Subsidiary to pay any Guaranteed Obligation
when and as the same shall become due, whether at maturity, by acceleration,
after notice of prepayment or otherwise, the Company hereby promises to and
will, upon receipt of written demand by the Administrative Agent or any Lender,
forthwith pay or cause to be paid to the Administrative Agent or such Lender in
cash the amount of such unpaid Guaranteed Obligation.
Until the termination of this Agreement and the commitments
hereunder, and the repayment in full of all amounts due under this Agreement,
the Company hereby irrevocably waives and releases any and all rights of
subrogation, indemnification, reimbursement and similar rights which it may have
against or in respect of the Borrowing Subsidiaries at any time relating to the
Guaranteed Obligations, including all rights that would result in its being
deemed a "creditor" of the Borrowing Subsidiaries under the United States Code
as now in effect or hereafter amended, or any comparable provision of any
successor statute.
ARTICLE VIII
THE ADMINISTRATIVE AGENT
In order to expedite the transactions contemplated by this
Agreement, The Chase Manhattan Bank is hereby appointed to act as Administrative
Agent on behalf of the Lenders. Each of the Lenders hereby irrevocably
authorizes the Administrative Agent to take such actions on behalf of such
Lender and to exercise such powers as are specifically delegated to the
Administrative Agent by the terms and provisions hereof, together with such
actions and powers as are reasonably incidental thereto. The Administrative
Agent is hereby expressly authorized by the Lenders, without hereby limiting any
implied authority, (a) to receive on behalf of the Lenders all payments of
principal of and interest on the Loans and all other amounts due to the Lenders
hereunder, and promptly to distribute to each Lender its proper share of each
payment so received; (b) to give notice on behalf of each of the Lenders to the
Borrowers of any Event of Default of which the Administrative Agent has actual
knowledge acquired in connection with its agency hereunder; and (c) to
distribute to each Lender copies of all notices, financial statements and other
materials delivered by the Borrowers pursuant to this Agreement as received by
the Administrative Agent.
Neither the Administrative Agent nor any of its directors,
officers, employees or agents shall be liable as such for any action taken or
omitted by any of them except for its or his or her own gross negligence or
willful misconduct, or be responsible for any statement, warranty or
representation herein or the contents of any document delivered in connection
herewith, or be required to ascertain or to make any inquiry concerning the
performance or observance by the Borrowers of any of the terms, conditions,
covenants or agreements contained in this Agreement. The Administrative Agent
shall not be responsible to the Lenders for the due execution, genuineness,
validity, enforceability or effectiveness of this Agreement or other instruments
or agreements. The Administrative Agent may deem and treat the Lender which
makes any Loan as the holder of the indebtedness resulting therefrom for all
purposes hereof until it shall have received notice from such Lender, given as
provided herein, of the transfer thereof. The Administrative Agent shall in all
cases be fully protected in acting, or refraining from acting, in accordance
with written instructions signed by the Required Lenders and, except as
otherwise specifically provided herein, such instructions and any action or
inaction pursuant thereto shall be binding on all the Lenders. The
Administrative Agent shall, in the absence of knowledge to the contrary, be
entitled to rely on any instrument or document believed by it in good faith to
be genuine and correct and to have been signed or sent by the proper person or
persons. Neither the Administrative Agent nor any of its directors, officers,
employees or agents shall have any responsibility to the Borrowers on account
39
of the failure of or delay in performance or breach by any Lender of any of its
obligations hereunder or to any Lender on account of the failure of or delay in
performance or breach by any other Lender or the Borrowers of any of their
respective obligations hereunder or in connection herewith. The Administrative
Agent may execute any and all duties hereunder by or through agents or employees
and shall be entitled to rely upon the advice of legal counsel selected by it
with respect to all matters arising hereunder and shall not be liable for any
action taken or suffered in good faith by it in accordance with the advice of
such counsel.
The Lenders hereby acknowledge that the Administrative Agent
shall be under no duty to take any discretionary action permitted to be taken by
it pursuant to the provisions of this Agreement unless it shall be requested in
writing to do so by the Required Lenders.
Subject to the appointment and acceptance of a successor
Administrative Agent as provided below, the Administrative Agent may resign at
any time by notifying the Lenders and the Company. Upon any such resignation,
the Required Lenders shall have the right to appoint a successor Administrative
Agent acceptable to the Company. If no successor shall have been so appointed by
the Required Lenders and shall have accepted such appointment within 30 days
after the retiring Administrative Agent gives notice of its resignation, then
the retiring Administrative Agent may, on behalf of the Lenders, appoint a
successor Administrative Agent which shall be a bank with an office in the
United States, having a combined capital and surplus of at least $500,000,000 or
an Affiliate of any such bank. Upon the acceptance of any appointment as
Administrative Agent hereunder by a successor bank, such successor shall succeed
to and become vested with all the rights, powers, privileges and duties of the
retiring Administrative Agent and the retiring Administrative Agent shall be
discharged from its duties and obligations hereunder. After the Administrative
Agent's resignation hereunder, the provisions of this Article and Section 9.05
shall continue in effect for its benefit in respect of any actions taken or
omitted to be taken by it while it was acting as Administrative Agent.
With respect to the Loans made by it hereunder, the
Administrative Agent in its individual capacity and not as Administrative Agent
shall have the same rights and powers as any other Lender and may exercise the
same as though it were not the Administrative Agent, and the Administrative
Agent and its Affiliates may accept deposits from, lend money to and generally
engage in any kind of business with the Borrowers or any Subsidiary or other
Affiliate thereof as if it were not the Administrative Agent.
Each Lender agrees (i) to reimburse the Administrative Agent,
on demand, in the amount of its pro rata share (based on its Commitment
hereunder or, if the Commitments shall have been terminated, the amount of its
outstanding Loans) of any expenses incurred for the benefit of the Lenders by
the Administrative Agent, including counsel fees and compensation of agents and
employees paid for services rendered on behalf of the Lenders, which shall not
have been reimbursed by the Borrowers and (ii) to indemnify and hold harmless
the Administrative Agent and any of its directors, officers, employees or
agents, on demand, in the amount of such pro rata share, from and against any
and all liabilities, taxes, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature
whatsoever which may be imposed on, incurred by or asserted against it in its
capacity as the Administrative Agent in any way relating to or arising out of
this Agreement or any action taken or omitted by it under this Agreement to the
extent the same shall not have been reimbursed by the Borrowers; provided that
no Lender shall be liable to the Administrative Agent for any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements resulting from the gross negligence or wilful
misconduct of the Administrative Agent or any of its directors, officers,
employees or agents. Each Lender agrees that any allocation made in good faith
by the Administrative Agent of expenses or other amounts referred to in this
paragraph between this
40
Agreement and the Facility B Credit Agreement shall be conclusive and binding
for all purposes absent manifest error.
Each Lender acknowledges that it has, independently and
without reliance upon the Administrative Agent or any other Lender and based on
such documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement. Each Lender also
acknowledges that it will, independently and without reliance upon the
Administrative Agent or any other Lender and based on such documents and
information as it shall from time to time deem appropriate, continue to make its
own decisions in taking or not taking action under or based upon this Agreement
or any related agreement or any document furnished hereunder or thereunder.
ARTICLE IX
MISCELLANEOUS
SECTION 9.01. Notices. Notices and other communications
provided for herein shall be in writing and shall be delivered by hand or
overnight courier service, mailed or sent by telecopy, as follows:
(a) if to any Borrower, to ITT Hartford Group, Inc., Hartford
Plaza, Hartford, CT 06115, Attention of Mr. J. Richard Garrett
(Telecopy No. 203-547-5462); with a copy to Mr. Scott Mansolillo, ITT
Hartford Group, Inc., Hartford Plaza, Hartford CT 06115 (Telecopy No.
203-547-6959);
(b) if to the Administrative Agent, to The Chase Manhattan
Bank Agency Services Corp., One Chase Manhattan Plaza, New York, New
York 10081, Attention of Janet Belden, (Telecopy No. 212-552-5658),
with a copy to The Chase Manhattan Bank at 270 Park Avenue, New York,
New York 10017, Re: ITT Hartford Group, Inc.; and
(c) if to a Lender, to it at its address (or telecopy number)
set forth in Schedule 2.01 or in the Assignment and Acceptance pursuant
to which such Lender became a party hereto.
All notices and other communications given to any party hereto in accordance
with the provisions of this Agreement shall be deemed to have been given on the
date of receipt if delivered by hand or overnight courier service or sent by
telecopy to such party as provided in this Section or in accordance with the
latest unrevoked direction from such party given in accordance with this
Section.
SECTION 9.02. Survival of Agreement. All covenants,
agreements, representations and warranties made by the Borrowers herein and in
the certificates or other instruments prepared or delivered in connection with
or pursuant to this Agreement shall be considered to have been relied upon by
the Lenders and shall survive the making by the Lenders of the Loans regardless
of any investigation made by the Lenders or on their behalf, and shall continue
in full force and effect as long as the principal of or any accrued interest on
any Loan or any Fee or any other amount payable under this Agreement is
outstanding and unpaid or the Commitments have not been terminated.
SECTION 9.03. Binding Effect. This Agreement shall become
effective on the Effective Date when it shall have been executed by the Company
and the Administrative Agent and when the Administrative Agent shall have
received copies hereof (telecopied or otherwise) which, when taken together,
bear the signature of each Lender, and thereafter shall be binding upon and
inure to the benefit
41
of the parties hereto and their respective successors and assigns, except that
the Borrowers shall not have the right to assign any rights hereunder or any
interest herein without the prior consent of all the Lenders.
SECTION 9.04. Successors and Assigns. (a) Whenever in this
Agreement any of the parties hereto is referred to, such reference shall be
deemed to include the successors and assigns of such party; and all covenants,
promises and agreements by or on behalf of any party that are contained in this
Agreement shall bind and inure to the benefit of its successors and assigns.
(b) Each Lender may assign to one or more assignees all or a
portion of its interests, rights and obligations under this Agreement (including
all or a portion of its Commitment and the Loans at the time owing to it);
provided, however, that (i) except in the case of an assignment to a Lender or
an Affiliate of a Lender, the Company and the Administrative Agent must give
their written consent (except when there exists a Default or an Event of
Default) to such assignment (which consent shall not be unreasonably withheld),
(ii) the parties to each such assignment shall execute and deliver to the
Administrative Agent an Assignment and Acceptance, and a processing and
recordation fee of $3,000, (iii) the assignee, if it shall not be a Lender,
shall deliver to the Administrative Agent an Administrative Questionnaire, and
(iv) the amount of the Commitment of the assigning Lender subject to each such
assignment (determined as of the date the Assignment and Acceptance with respect
to such assignment is delivered to the Administrative Agent) shall not be less
than $5,000,000 and the amount of the Commitment of such Lender remaining after
such assignment shall not be less than $5,000,000 or shall be zero. Upon
acceptance and recording pursuant to paragraph (e) of this Section, from and
after the effective date specified in each Assignment and Acceptance, which
effective date shall be at least five Business Days after the execution thereof,
(A) the assignee thereunder shall be a party hereto and, to the extent of the
interest assigned by such Assignment and Acceptance, have the rights and
obligations of a Lender under this Agreement and (B) the assigning Lender
thereunder shall, to the extent of the interest assigned by such Assignment and
Acceptance, be released from its obligations under this Agreement (and, in the
case of an Assignment and Acceptance covering all or the remaining portion of an
assigning Lender's rights and obligations under this Agreement, such Lender
shall cease to be a party hereto (but shall continue to be entitled to the
benefits of Sections 2.13, 2.15, 2.19 and 9.05, as well as to any Fees accrued
for its account hereunder and not yet paid)). Notwithstanding the foregoing, any
Lender assigning its rights and obligations under this Agreement may retain any
Competitive Loans made by it outstanding at such time, and in such case shall
retain its rights hereunder in respect of any Loans so retained until such Loans
have been repaid in full in accordance with this Agreement.
(c) By executing and delivering an Assignment and Acceptance,
the assigning Lender thereunder and the assignee thereunder shall be deemed to
confirm to and agree with each other and the other parties hereto as follows:
(i) such assigning Lender warrants that it is the legal and beneficial owner of
the interest being assigned thereby free and clear of any adverse claim, (ii)
except as set forth in (i) above, such assigning Lender makes no representation
or warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with this Agreement, or
the execution, legality, validity, enforceability, genuineness, sufficiency or
value of this Agreement or any other instrument or document furnished pursuant
hereto or the financial condition of the Borrowers or the performance or
observance by the Borrowers of any obligations under this Agreement or any other
instrument or document furnished pursuant hereto; (iii) such assignee represents
and warrants that it is legally authorized to enter into such Assignment and
Acceptance; (iv) such assignee confirms that it has received a copy of this
Agreement, together with copies of the most recent financial statements
delivered pursuant to Section 5.03 and such other documents and information as
it has deemed appropriate to make its own credit analysis and decision to enter
into such Assignment and Acceptance; (v) such assignee will independently and
without reliance upon the Administrative Agent,
42
such assigning Lender or any other Lender and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under this Agreement; (vi) such
assignee appoints and authorizes the Administrative Agent to take such action as
agent on its behalf and to exercise such powers under this Agreement as are
delegated to the Administrative Agent by the terms hereof, together with such
powers as are reasonably incidental thereto; and (vii) such assignee agrees that
it will perform in accordance with their terms all the obligations which by the
terms of this Agreement are required to be performed by it as a Lender.
(d) The Administrative Agent shall maintain at one of its
offices in The City of New York a copy of each Assignment and Acceptance
delivered to it and a register for the recordation of the names and addresses of
the Lenders, and the Commitment of, and the principal amount of the Loans owing
to, each Lender pursuant to the terms hereof from time to time (the "Register").
The entries in the Register shall be conclusive in the absence of manifest error
and the Borrowers, the Administrative Agent and the Lenders may treat each
person whose name is recorded in the Register pursuant to the terms hereof as a
Lender hereunder for all purposes of this Agreement. The Register shall be
available for inspection by each party hereto, at any reasonable time and from
time to time upon reasonable prior notice.
(e) Upon its receipt of a duly completed Assignment and
Acceptance executed by an assigning Lender and an assignee together with an
Administrative Questionnaire completed in respect of the assignee (unless the
assignee shall already be a Lender hereunder), the processing and recordation
fee referred to in paragraph (b) above and the written consent of the Company to
such assignment, the Administrative Agent shall (i) accept such Assignment and
Acceptance and (ii) record the information contained therein in the Register.
(f) Each Lender may sell participations to one or more banks
or other entities in all or a portion of its rights and obligations under this
Agreement (including all or a portion of its Commitment and the Loans owing to
it); provided, however, that (i) such Lender's obligations under this Agreement
shall remain unchanged, (ii) such Lender shall remain solely responsible to the
other parties hereto for the performance of such obligations, (iii) each
participating bank or other entity shall be entitled to the benefit of the cost
protection provisions contained in Sections 2.13, 2.15 and 2.19 to the same
extent as if it were the selling Lender (and limited to the amount that could
have been claimed by the selling Lender had it continued to hold the interest of
such participating bank or other entity), except that all claims made pursuant
to such Sections shall be made through such selling Lender, and (iv) the
Borrowers, the Administrative Agent and the other Lenders shall continue to deal
solely and directly with such selling Lender in connection with such Lender's
rights and obligations under this Agreement.
(g) Any Lender or participant may, in connection with any
assignment or participation or proposed assignment or participation pursuant to
this Section, disclose to the assignee or participant or proposed assignee or
participant any information relating to the Borrowers furnished to such Lender;
provided that, prior to any such disclosure, each such assignee or participant
or proposed assignee or participant shall execute an agreement whereby such
assignee or participant shall agree (subject to customary exceptions) to
preserve the confidentiality of any such information.
(h) The Borrowers shall not assign or delegate any rights and
duties hereunder without the prior written consent of all Lenders.
(i) Any Lender may at any time pledge all or any portion of
its rights under this Agreement to a Federal Reserve Bank; provided that no such
pledge shall release any Lender from its obligations hereunder or substitute any
such Bank for such Lender as a party hereto. In order to facilitate
43
such an assignment to a Federal Reserve Bank, each Borrower shall, at the
request of the assigning Lender, duly execute and deliver to the assigning
Lender a promissory note or notes evidencing the Loans made to such Borrower by
the assigning Lender hereunder.
SECTION 9.05. Expenses; Indemnity. (a) The Borrowers agree to
pay all reasonable out-of-pocket expenses incurred by the Administrative Agent
in connection with entering into this Agreement or in connection with any
amendments, modifications or waivers of the provisions hereof, or incurred by
the Administrative Agent or any Lender in connection with the enforcement or
protection of their rights in connection with this Agreement or in connection
with the Loans made hereunder, including the fees and disbursements of counsel
for the Administrative Agent or, in the case of enforcement, the Lenders.
(b) The Borrowers agree to indemnify the Administrative Agent,
each Lender, each of their Affiliates and the directors, officers, employees and
agents of the foregoing (each such person being called an "Indemnitee") against,
and to hold each Indemnitee harmless from, any and all losses, claims, damages,
liabilities and related expenses, including reasonable counsel fees and
expenses, incurred by or asserted against any Indemnitee arising out of (i) the
consummation of the transactions contemplated by this Agreement, (ii) the use of
the proceeds of the Loans or (iii) any claim, litigation, investigation or
proceeding relating to any of the foregoing, whether or not any Indemnitee is a
party thereto; provided that such indemnity shall not, as to any Indemnitee, be
available to the extent that such losses, claims, damages, liabilities or
related expenses are determined by a final judgment of a court of competent
jurisdiction to have resulted from the gross negligence or willful misconduct of
such Indemnitee.
(c) The provisions of this Section shall remain operative and
in full force and effect regardless of the expiration of the term of this
Agreement, the consummation of the transactions contemplated hereby, the
repayment of any of the Loans, the invalidity or unenforceability of any term or
provision of this Agreement or any investigation made by or on behalf of the
Administrative Agent or any Lender. All amounts due under this Section shall be
payable on written demand therefor.
SECTION 9.06. APPLICABLE LAW. THIS AGREEMENT SHALL BE
CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.
SECTION 9.07. Waivers; Amendment. (a) No failure or delay of
the Administrative Agent or any Lender in exercising any power or right
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any such right or power, or any abandonment or discontinuance of
steps to enforce such a right or power, preclude any other or further exercise
thereof or the exercise of any other right or power. The rights and remedies of
the Administrative Agent and the Lenders hereunder are cumulative and are not
exclusive of any rights or remedies which they would otherwise have. No waiver
of any provision of this Agreement or consent to any departure therefrom shall
in any event be effective unless the same shall be permitted by paragraph (b)
below, and then such waiver or consent shall be effective only in the specific
instance and for the purpose for which given. No notice or demand on any
Borrower or any Subsidiary in any case shall entitle such party to any other or
further notice or demand in similar or other circumstances.
(b) Neither this Agreement nor any provision hereof may be
waived, amended or modified except pursuant to an agreement or agreements in
writing entered into by the Borrowers and the Required Lenders; provided,
however, that no such agreement shall (i) decrease the principal amount of, or
extend the maturity of or any scheduled principal payment date or date for the
payment of any interest on any Loan, or waive or excuse any such payment or any
part thereof, or decrease the rate of interest on
44
any Loan, without the prior written consent of each Lender affected thereby,
(ii) increase the Commitment or decrease the Facility Fee of any Lender without
the prior written consent of such Lender, (iii) limit or release the guarantee
set forth in Article VII, or (iv) amend or modify the provisions of Section 2.16
or Section 9.04(h), the provisions of this Section or the definition of the
"Required Lenders", without the prior written consent of each Lender; provided
further, however, that no such agreement shall amend, modify or otherwise affect
the rights or duties of the Administrative Agent hereunder without the prior
written consent of the Administrative Agent. Each Lender shall be bound by any
waiver, amendment or modification authorized by this Section and any consent by
any Lender pursuant to this Section shall bind any assignee of its rights and
interests hereunder.
SECTION 9.08. Entire Agreement. This Agreement and the
agreements referred to in Section 2.06(b) constitute the entire contract among
the parties relative to the subject matter hereof. Any previous agreement among
the parties with respect to the subject matter hereof is superseded by this
Agreement. Nothing in this Agreement, expressed or implied, is intended to
confer upon any party other than the parties hereto any rights, remedies,
obligations or liabilities under or by reason of this Agreement.
SECTION 9.09. Severability. In the event any one or more of
the provisions contained in this Agreement should be held invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein shall not in any way be affected or
impaired thereby. The parties shall endeavor in good-faith negotiations to
replace the invalid, illegal or unenforceable provisions with valid provisions
the economic effect of which comes as close as possible to that of the invalid,
illegal or unenforceable provisions.
SECTION 9.10. Counterparts. This Agreement may be executed in
two or more counterparts, each of which shall constitute an original but all of
which when taken together shall constitute but one contract, and shall become
effective as provided in Section 9.03.
SECTION 9.11. Headings. Article and Section headings and the
Table of Contents used herein are for convenience of reference only, are not
part of this Agreement and are not to affect the construction of, or to be taken
into consideration in interpreting, this Agreement.
SECTION 9.12. Right of Setoff. If an Event of Default shall
have occurred and be continuing, each Lender is hereby authorized at any time
and from time to time, to the fullest extent permitted by law, to set off and
apply any and all deposits (general or special, time or demand, provisional or
final) at any time held and other indebtedness at any time owing by such Lender
to or for the credit or obligations of the Company and any Borrowing Subsidiary
now or hereafter existing under this Agreement held by such Lender, irrespective
of whether or not such Lender shall have made any demand under this Agreement
and although such obligations may be unmatured. Each Lender agrees promptly to
notify the Company and the Administrative Agent after such setoff and
application made by such Lender, but the failure to give such notice shall not
affect the validity of such setoff and application. The rights of each Lender
under this Section are in addition to other rights and remedies (including other
rights of setoff) which such Lender may have.
SECTION 9.13. Jurisdiction; Consent to Service of Process. (a)
Each Borrower hereby irrevocably and unconditionally submits, for itself and its
property, to the nonexclusive jurisdiction of any New York State court or
Federal court of the United States of America sitting in New York County, and
any appellate court from any thereof, in any action or proceeding arising out of
or relating to this Agreement, or for recognition or enforcement of any
judgment, and each of the parties hereto hereby irrevocably and unconditionally
agrees that all claims in respect of any such action or proceeding may be heard
and determined in such New York State or, to the extent permitted by law, in
such Federal court. Each of the parties hereto agrees that a final judgment in
any such action or
45
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on the judgment or in any other manner provided by law. Subject to the
foregoing and to paragraph (b) below, nothing in this Agreement shall affect any
right that any party hereto may otherwise have to bring any action or proceeding
relating to this Agreement against any other party hereto in the courts of any
jurisdiction.
(b) Each Borrower hereby irrevocably and unconditionally
waives, to the fullest extent it may legally and effectively do so, any
objection which it may now or thereafter have to the laying of venue of any
suit, action or proceeding arising out of or relating to this Agreement in any
New York State or Federal court. Each of the parties hereto hereby irrevocably
waives, to the fullest extent permitted by law, the defense of an inconvenient
forum to the maintenance of such action or proceeding in any such court.
(c) Each party to this Agreement irrevocably consents to
service of process in the manner provided for notices in Section 9.01. Nothing
in this Agreement will affect the right of any party to this Agreement to serve
process in any other manner permitted by law.
SECTION 9.14. Waiver of Jury Trial. EACH PARTY HERETO HEREBY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE
TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING
OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT. Each party hereto (a)
certifies that no representative, agent or attorney of any other party has
represented, expressly or otherwise, that such other party would not, in the
event of litigation, seek to enforce the foregoing waiver and (b) acknowledges
that it and other parties hereto have been induced to enter into this Agreement
by, among other things, the mutual waivers and certification in this Section.
SECTION 9.15. Addition of Borrowing Subsidiaries. Each
Borrowing Subsidiary which shall deliver to the Administrative Agent a Borrowing
Subsidiary Agreement executed by such Subsidiary and the Company shall, upon
such delivery and without further act, become a party hereto and a Borrower
hereunder with the same effect as if it had been an original party to this
Agreement.
46
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their respective authorized officers as of the
day and year first above written.
ITT HARTFORD GROUP, INC., as Borrower,
by
/s/ J. Richard Garrett
-------------------------------------
Name: J. Richard Garrett
Title: Vice President and Treasurer
THE CHASE MANHATTAN BANK, individually and
as Administrative Agent,
by
/s/ Dennis Cogan
-------------------------------------
Name: Dennis Cogan
Title: Vice President
47
BANK OF AMERICA ILLINOIS,
by
/s/ Elizabeth W. F. Bishop
-------------------------------------
Name: Elizabeth W. F. Bishop
Title: Vice President
BANQUE NATIONALE DE PARIS, NEW YORK BRANCH,
by
/s/ Phil Truesdale
-------------------------------------
Name: Phil Truesdale
Title: Vice President
by
/s/ Barry S. Feigenbaum
-------------------------------------
Name: Barry S. Feigenbaum
Title: Senior Vice President
THE BANK OF NEW YORK,
by
/s/ Melanie Shorofsky
-------------------------------------
Name: Melanie Shorofsky
Title: Vice President
BANKERS TRUST COMPANY,
by
/s/ Vincent Abruzzini
-------------------------------------
Name: Vincent Abruzzini
Title: Managing Director
BANK OF TOKYO-MITSUBISHI TRUST COMPANY
by
/s/ Hiroaki Fuchida
-------------------------------------
Name: Hiroaki Fuchida
Title: Senior Vice President and
Manager
48
BARCLAYS BANK PLC,
by
/s/ C. Cathcart
-------------------------------------
Name: C. Cathcart
Title: Director
CITIBANK, N.A.,
by
/s/ Scott F. Engle
-------------------------------------
Name: Scott F. Engle
Title: Attorney-in-Fact
CIBC, INC.,
by
/s/ Gerald J. Girardi
-------------------------------------
Name: Gerald J. Girardi
Title: Director, CIBC Wood Gundy
Securities Corp., as Agent
COMERICA BANK,
by
/s/ Chris Georvassilis
-------------------------------------
Name: Chris Georvassilis
Title: Vice President
CORESTATES BANK, N.A.,
by
/s/ John M. Hayes
-------------------------------------
Name: John M. Hayes
Title: Vice President
THE FIRST NATIONAL BANK OF BOSTON,
by
/s/ C. Garrity
-------------------------------------
Name: C. Garrity
Title: Vice President
49
THE FIRST NATIONAL BANK OF CHICAGO,
by
/s/ Thomas Collimore
-------------------------------------
Name: Thomas Collimore
Title: Vice President
THE FUJI BANK, LIMITED, NEW YORK BRANCH,
by
/s/ Masanobu Kobayashi
-------------------------------------
Name: Masanobu Kobayashi
Title: Vice President and Manager
NORWEST BANK,
by
/s/ D. E. Jackson
-------------------------------------
Name: D. E. Jackson
Title: Vice President
MELLON BANK, N.A.,
by
/s/ Karen E. McConomy
-------------------------------------
Name: Karen E. McConomy
Title: Assistant Vice President
BANK OF MONTREAL,
by
/s/ Soren K. Christensen
-------------------------------------
Name: Soren K. Christensen
Title: Senior Vice President
MORGAN GUARANTY TRUST COMPANY OF NEW YORK,
by
/s/ Jerry J. Fall
-------------------------------------
Name: Jerry J. Fall
Title: Vice President
50
THE NORTHERN TRUST COMPANY,
by
/s/ Marcia Saper
-------------------------------------
Name: Marcia Saper
Title: Vice President
PNC BANK, NATIONAL ASSOCIATION,
by
/s/ Eileen McDonald
-------------------------------------
Name: Eileen McDonald
Title: Vice President
ROYAL BANK OF CANADA,
by
/s/ Y. J. Bernard
-------------------------------------
Name: Y. J. Beranrd
Title: Manager
THE SAKURA BANK, LIMITED, NEW YORK BRANCH,
by
/s/ Yasumasa Kikuchi
-------------------------------------
Name: Yasumasa Kikuchi
Title: Senior Vice President
THE SANWA BANK LIMITED, NEW YORK BRANCH,
by
/s/ Stephen C. Small
-------------------------------------
Name: Stephen C. Small
Title: Vice President and Area
Manager
FLEET NATIONAL BANK (formerly known
as Fleet National Bank of
Connecticut, successor by merger to
Shawmut Bank Connectucut, N.A.),
by
/s/ Thomas E. McKinlay
-------------------------------------
Name: Thomas E. McKinlay
Title: Senior Vice President
STATE STREET BANK AND TRUST COMPANY,
51
by
/s/ Robert P. Engvall
-------------------------------------
Name: Robert P. Engvall, Jr.
Title: Vice President
THE SUMITOMO BANK, LIMITED, NEW YORK
BRANCH,
by
/s/ John C. Kissinger
-------------------------------------
Name: John C. Kissinger
Title: Joint General Manager
SUNTRUST BANK, ATLANTA,
by
/s/ Lara L. McGinty
-------------------------------------
Name: Lara L. McGinty
Title: Banking Officer
by
/s/ Mary Anne Zagroba
-------------------------------------
Name: Mary Anne Zabroba
Title: Vice President
THE TORONTO-DOMINION BANK,
by
/s/ Jorge A. Garcia
-------------------------------------
Name: Jorge A. Garcia
Title: Manager
WACHOVIA BANK OF GEORGIA, N.A.,
by
/s/ Holger B. Ebert
-------------------------------------
Name: Holger B. Ebert
Title: Vice President
EXHIBIT A-1
FORM OF COMPETITIVE BID REQUEST
The Chase Manhattan Bank, as Administrative Agent
for the Lenders referred to below,
270 Park Avenue
New York, NY 10017
Attention: [ ]
Dear Ladies and Gentlemen:
The undersigned, ________________________ (the
"Borrower"), refers to the 364-Day Competitive Advance and Revolving Credit
Facility Agreement dated as of December 20, 1996 (as it may be amended,
modified, extended or restated from time to time, the "364-Day Agreement"),
among the Borrower, the Borrowing Subsidiaries parties thereto, the Lenders
parties thereto and The Chase Manhattan Bank, as Administrative Agent.
Capitalized terms used herein and not otherwise defined herein shall have the
meanings assigned to such terms in the 364-Day Agreement. The Borrower hereby
gives you notice pursuant to Section 2.03(a) of the 364-Day Agreement that it
requests a Competitive Borrowing under the 364-Day Agreement, and in that
connection sets forth below the terms on which such Competitive Borrowing is
requested to be made:
(A) Date of Competitive Borrowing
(which is a Business Day) ____________
(B) Principal amount of
Competitive Borrowing 1/ ____________
-
(C) Interest rate basis 2/ ____________
-
(D) Interest Period and the
last day thereof 3/ ____________
-
Upon acceptance of any or all of the Loans offered by the
Lenders in response to this request, the Borrower shall be deemed to have
represented and warranted that the conditions to lending specified in Section
4.01(b) and (c) of the 364-Day Agreement have been satisfied.
Very truly yours,
[NAME OF BORROWER],
by ___________________________
Name:
Title: [Financial Officer]
____________________
1/ Not less than $10,000,000 (and in integral multiples of $5,000,000) or
-
greater than the Total Commitment then available.
2/ Eurodollar Competitive Loan or Fixed Rate Loan.
-
3/ Which shall be subject to the definition of "Interest Period" and end
-
not later than the Maturity Date.
EXHIBIT A-2
FORM OF NOTICE OF COMPETITIVE BID REQUEST
[Name of Lender]
[Address]
[Date]
Attention: [ ]
Dear Ladies and Gentlemen:
Reference is made to the 364-Day Competitive Advance and
Revolving Credit Facility Agreement dated as of December 20, 1996 (as it may be
amended, modified, extended or restated from time to time, the "364-Day
Agreement"), among ITT Hartford Group, Inc. [,__________] (the "Borrower"), the
Borrowing Subsidiaries parties thereto, the Lenders parties thereto and The
Chase Manhattan Bank, as Administrative Agent. Capitalized terms used herein and
not otherwise defined herein shall have the meanings assigned to such terms in
the 364-Day Agreement. The Borrower made a Competitive Bid Request on _________,
pursuant to Section 2.03(a) of the 364-Day Agreement, and in that connection you
are invited to submit a Competitive Bid by [Date]/[Time]. 1/ Your Competitive
Bid -
must comply with Section 2.03(b) of the 364-Day Agreement and the terms set
forth below on which the Competitive Bid Request was made:
(A) Date of Competitive Borrowing __________
(B) Principal amount of
Competitive Borrowing __________
(C) Interest rate basis __________
(D) Interest Period and the
last day thereof __________
Very truly yours,
THE CHASE MANHATTAN BANK,
as Administrative Agent,
by ___________________________
Name:
Title:
__________________
1/ The Competitive Bid must be received by the Administrative Agent (i) in
-
the case of Eurodollar Competitive Loans, not later than 10:00 a.m., New York
City time, four Business Days before a proposed Competitive Borrowing, and (ii)
in the case of Fixed Rate Loans, not later than 10:00 a.m., New York City time,
one Business Day before a proposed Competitive Borrowing.
EXHIBIT A-3
FORM OF COMPETITIVE BID
The Chase Manhattan Bank, as Administrative Agent
for the Lenders referred to below,
270 Park Avenue
New York, N.Y. 10017
[Date]
Attention: [ ]
Dear Ladies and Gentlemen:
The undersigned, [Name of Lender], refers to the 364-Day
Competitive Advance and Revolving Credit Facility Agreement dated as of December
20, 1996 (as it may be amended, modified, extended or restated from time to
time, the "364-Day Agreement"), among ITT Hartford Group, Inc. [,__________]
(the "Borrower"), the Borrowing Subsidiaries parties thereto, the Lenders
parties thereto and The Chase Manhattan Bank, as Administrative Agent.
Capitalized terms used herein and not otherwise defined herein shall have the
meanings assigned to such terms in the 364-Day Agreement. The undersigned hereby
makes a Competitive Bid pursuant to Section 2.03(b) of the 364-Day Agreement, in
response to the Competitive Bid Request made by the Borrower on __________ , 19
[ ], and in that connection sets forth below the terms on which such Competitive
Bid is made:
(A) Principal Amount 1/ ____________
-
(B) Competitive Bid Rate 2/ ____________
-
(C) Interest Period and last
day thereof ____________
The undersigned hereby confirms that it is prepared, subject to the
conditions set forth in the 364-Day Agreement, to extend credit to the Borrower
upon acceptance by the Borrower of this bid in accordance with Section 2.03(d)
of the 364-Day Agreement.
Very truly yours,
[NAME OF LENDER],
by ___________________________
Name:
Title:
_________________
1/ Not less than $5,000,000 or greater than the requested Competitive
-
Borrowing and in integral multiples of $1,000,000. Multiple bids will be
accepted by the Administrative Agent.
2/ i.e., LIBO Rate + or - %, in the case of Eurodollar Competitive Loans or
-
%, in the case of Fixed Rate Loans.
EXHIBIT A-4
FORM OF COMPETITIVE BID ACCEPT/REJECT LETTER
[Date]
The Chase Manhattan Bank, as Administrative Agent
for the Lenders referred to below
270 Park Avenue
New York, N.Y. 10017
Attention: [ ]
Dear Ladies and Gentlemen:
The undersigned, ________________________ (the "Borrower"), refers to
the 364-Day Competitive Advance and Revolving Credit Facility Agreement dated as
of December 20, 1996 (as it may be amended, modified, extended or restated from
time to time, the "5-Year Agreement"), among the Borrower, the Borrowing
Subsidiaries parties thereto, the Lenders parties thereto and The Chase
Manhattan Bank, as Administrative Agent for the Lenders.
In accordance with Section 2.03(c) of the 364-Day Agreement, we have
received a summary of bids in connection with our Competitive Bid Request dated
, and in accordance with Section 2.03(d) of the 364-Day Agreement, we hereby
accept the following bids for maturity on [date]:
Principal Amount Fixed Rate/Margin Lender
- ---------------- ----------------- ------
$ [%]/[+/-. %]
$
We hereby reject the following bids:
Principal Amount Fixed Rate/Margin Lender
- ---------------- ----------------- ------
$ [%]/[+/-. %]
$
The $__________ should be deposited in The Chase Manhattan Bank account
number [ ] on [date].
Very truly yours,
[NAME OF BORROWER],
by ___________________________
Name:
Title:
EXHIBIT A-5
FORM OF STANDBY BORROWING REQUEST
The Chase Manhattan Bank, as Administrative Agent
for the Lenders referred to below,
270 Park Avenue
New York, N.Y. 10017
[Date]
Attention: [ ]
Dear Ladies and Gentlemen:
The undersigned, _______________________ (the "Borrower"), refers to
the 364-Day Competitive Advance and Revolving Credit Facility Agreement dated as
of December 20, 1996 (as it may be amended, modified, extended or restated from
time to time, the "364-Day Agreement"), among the Borrower, the Borrowing
Subsidiaries parties thereto, the Lenders parties thereto and The Chase
Manhattan Bank, as Administrative Agent. Capitalized terms used herein and not
otherwise defined herein shall have the meanings assigned to such terms in the
364-Day Agreement. The Borrower hereby gives you notice pursuant to Section 2.04
of the 364-Day Agreement that it requests a Standby Borrowing under the 364-Day
Agreement, and in that connection sets forth below the terms on which such
Standby Borrowing is requested to be made:
(A) Date of Standby Borrowing
(which is a Business Day)
(B) Principal amount of
Standby Borrowing 1/
(C) Interest rate basis 2/
(D) Interest Period and the
last day thereof 3/
Upon acceptance of any or all of the Loans made by the Lenders in
response to this request, the Borrower shall be deemed to have represented and
warranted that the conditions to lending specified in Section 4.01(b) and (c) of
the 364-Day Agreement have been satisfied.
Very truly yours,
[NAME OF BORROWER],
by ___________________________
Name:
Title: [Financial Officer]
_________________
1/ Not less than $20,000,000 (and in integral multiples of $5,000,000) or
-
greater than the Total Commitment then available.
2/ Eurodollar Standby Loan or ABR Loan.
-
3/ Which shall be subject to the definition of "Interest Period" and end
-
not later than the Maturity Date.
EXHIBIT C
[FORM OF]
ASSIGNMENT AND ACCEPTANCE
Dated: _______, ____
Reference is made to the 364-Day Competitive Advance and
Revolving Credit Facility Agreement dated as of December 20, 1996 (the "364-Day
Agreement"), among ITT Hartford Group, Inc. (the "Company"), the Borrowing
Subsidiaries parties thereto, the lenders parties thereto (the "Lenders") and
The Chase Manhattan Bank, as Administrative Agent for the Lenders. Terms defined
in the 5-Year Agreement are used herein with the same meanings.
1. The Assignor hereby sells and assigns, without recourse, to
the Assignee, and the Assignee hereby purchases and assumes, without recourse,
from the Assignor, effective as of the Effective Date set forth below, the
interests set forth below (the "Assigned Interest") in the Assignor's rights and
obligations under the 364-Day Agreement, including, without limitation, the
interests set forth below in the Commitment of the Assignor on the Effective
Date and the Competitive Loans and Standby Loans owing to the Assignor which are
outstanding on the Effective Date. Each of the Assignor and the Assignee hereby
makes and agrees to be bound by all the representations, warranties and
agreements set forth in Section 9.04(c) of the 364-Day Agreement, a copy of
which has been received by each such party. From and after the Effective Date,
(i) the Assignee shall be a party to and be bound by the provisions of the
364-Day Agreement and, to the extent of the interests assigned by this
Assignment and Acceptance, have the rights and obligations of a Lender
thereunder and (ii) the Assignor shall, to the extent of the interests assigned
by this Assignment and Acceptance, relinquish its rights and be released from
its obligations under the 364-Day Agreement.
2. This Assignment and Acceptance is being delivered to the
Administrative Agent together with (i) if the Assignee is organized under the
laws of a jurisdiction outside the United States, the forms specified in Section
2.19(g) of the 364-Day Agreement, duly completed and executed by such Assignee,
(ii) if the Assignee is not already a Lender under the 364-Day Agreement, an
Administrative Questionnaire in the form of Exhibit B to the 364-Day Agreement
and (iii) a processing and recordation fee of $3,000.
3. This Assignment and Acceptance shall be governed by and
construed in accordance with the laws of the State of New York.
Date of Assignment:
Legal Name of Assignor:
Legal Name of Assignee:
Assignee's Address for Notices:
2
Effective Date of Assignment (may not be fewer than 5 Business Days after the
Date of Assignment):
- -------------------------------------------------------------------------------|
| | | |
|Facility |Principal Amount Assigned (and | Percentage Assigned of |
| |identifying information as to |Facility/Commitment (set forth,|
| | individual Competitive Loans) | to at least 8 decimals, as a |
| | | percentage of the Facility and|
| | | the aggregate Commitments of|
| | | all Lenders thereunder)|
|--------------|-------------------------------|-------------------------------|
| | | |
|Commitment | | |
| Assigned: | $____________ | ___________ % |
| | | |
|--------------|-------------------------------|-------------------------------|
| | | |
|Standby Loans:| $____________ | ___________ % |
| | | |
|--------------|-------------------------------|-------------------------------|
| | | |
|Competitive | | |
| Loans: | $____________ | ___________ % |
| | | |
- -------------------------------------------------------------------------------
The terms set forth and on the reverse side hereof Accepted:
are hereby agreed to:
ITT HARTFORD GROUP, INC.,
________________________________, by: ______________________
as Assignor, Name:
Title:
by: ____________________________
Name:
Title:
________________________________,
as Assignee,
by: ____________________________
Name:
Title:
EXHIBIT D
[FORM OF]
OPINION OF COUNSEL FOR
ITT HARTFORD GROUP, INC. 1/
-
1. ITT Hartford Group, Inc. (i) is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, (ii) has all requisite power and authority to own its property and
assets and to carry on its business as now conducted, (iii) is qualified to do
business in every jurisdiction within the United States where such qualification
is required, except where the failure so to qualify would not result in a
Material Adverse Effect on ITT Hartford Group, Inc., and (iv) has all requisite
corporate power and authority to execute, deliver and perform its obligations
under the Agreement and to borrow funds thereunder.
2. The execution, delivery and performance by ITT Hartford
Group, Inc. of the Agreement and the borrowings of ITT Hartford Group, Inc.
thereunder (collectively, the "Transactions") (i) have been duly authorized by
all requisite corporate action and (ii) will not (a) violate (1) any provision
of law, statute, rule or regulation (including without limitation, the Margin
Regulations), or of the certificate of incorporation or other constitutive
documents or by-laws of ITT Hartford Group, Inc., (2) any order of any
governmental authority or (3) any provision of any indenture, agreement or other
instrument to which ITT Hartford Group, Inc. is a party or by which it or its
property is or may be bound, (b) be in conflict with, result in a breach of or
constitute (alone or with notice or lapse of time or both) a default under any
such indenture, agreement or other instrument or (c) result in the creation or
imposition of any lien upon any property or assets of ITT Hartford Group, Inc..
3. The Agreement has been duly executed and delivered by ITT
Hartford Group, Inc. and constitutes a legal, valid and binding obligation of
ITT Hartford Group, Inc. enforceable against ITT Hartford Group, Inc. in
accordance with its terms, subject as to the enforceability of rights and
remedies to any applicable bankruptcy, reorganization, insolvency, moratorium or
other similar laws of general application relating to or affecting the
enforcement of creditors' rights from time to time in effect.
4. No action, consent or approval of, registration or filing
with, or any other action by, any government authority is or will be required in
connection with the Transactions, except such as have been made or obtained and
are in full force and effect.
5. Neither ITT Hartford Group, Inc. nor any of its
subsidiaries is (a) an "investment company" as defined in, or subject to
regulation under, the Investment Company Act of 1940 (the "1940 Act") or (b) a
"holding company" as defined in, or subject to regulation under, the Public
Utility Holding Company Act of 1935. While certain subsidiaries of ITT Hartford
Group, Inc. are "investment companies" as defined in the 1940 Act, the
transactions contemplated by this Agreement will not violate or require any
approval under such Act or any regulations promulgated pursuant thereto.
____________________
1/ Capitalized terms used but not otherwise defined herein shall have the
-
meanings assigned to such terms in the 364-Day Competitive Advance and Revolving
Credit Facility Agreement (the "Agreement") dated as of December 20, 1996, among
ITT Hartford Group, Inc., the lenders listed in Schedule 2.01 thereto, and The
Chase Manhattan Bank, as Administrative Agent.
EXHIBIT E to the
Credit Agreement
BORROWING SUBSIDIARY AGREEMENT dated as of [
], [ ], among ITT HARTFORD GROUP, INC., a Delaware
corporation (the "Company"), [Name of Subsidiary], a
[ ] corporation ("the Subsidiary"), and THE CHASE
MANHATTAN BANK, as administrative agent (the
"Administrative Agent") for the lenders (the
"Lenders") party to the 364-Day Competitive Advance
and Revolving Credit Facility Agreement dated as of
December 20, 1996, as amended (the "Agreement"),
among the Company, the Administrative Agent and the
Lenders.
Under the Agreement, the Lenders have agreed, upon the terms
and subject to the conditions therein set forth, to make competitive advance and
revolving credit loans and to issue Letters of Credit to or for the account of
the Company and to Subsidiaries (as defined in the Agreement) of the Company
which execute and deliver to the Administrative Agent Borrowing Subsidiary
Agreements in the form of this Borrowing Subsidiary Agreement. The Company
represents that the Subsidiary is a subsidiary (as so defined) of the Company
and that the guarantee of the Company contained in Article VII of the Agreement
applies to the obligations of the Subsidiary. In consideration of being
permitted to borrow or to have Letters of Credit issued under the Agreement upon
the terms and subject to the conditions set forth therein, the Subsidiary agrees
that from and after the date of this Borrowing Subsidiary Agreement it will be,
and will be liable for the observance and performance of all the obligations of,
a Borrowing Subsidiary under the Agreement, as the same may be amended from time
to time, to the same extent as if it had been one of the original parties to the
Agreement.
IN WITNESS WHEREOF, the Company and the Subsidiary have caused
this Borrowing Subsidiary Agreement to be duly executed by their authorized
officers as of the date first appearing above.
ITT HARTFORD GROUP, INC.,
by
______________________________
Name:
Title:
[NAME OF SUBSIDIARY],
by
______________________________
Name:
Title:
Accepted as of the date first appearing above:
THE CHASE MANHATTAN BANK,
as Administrative Agent,
by
_______________________
Name:
Title:
SCHEDULE 2.01
Contact Person
Name and Address of Lender and Telecopy Number Commitment
- -------------------------- ------------------- ----------
The Chase Manhattan Bank Mr. Daniel Troy $ 30,000,000
270 Park Avenue (212) 552-1999
New York, NY 10017
Bank of America Illinois Ms. Colleen Mullins $ 23,750,000
231 South LaSalle (312) 828-8206
Chicago, IL 60697
Bank of Montreal Ms. Cathy Betz $ 11,250,000
115 S. LaSalle St., 12th Floor (312) 750-3783
Chicago, IL 60603
Banque Nationale de Paris Mr. Phil Truesdale $ 11,250,000
499 Park Avenue (212) 415-9695
New York, NY 10022-1278
The Bank of New York Ms. Lizanne P. Eberle $ 20,000,000
One Wall Street, 17th Floor (212) 809-9520
New York, NY 10286
Bankers Trust Company Mr. Lucien Burnett $ 17,500,000
One Bankers Trust Plaza, (212) 250-1530
33rd Floor
New York, NY 10006
Barclays Bank PLC Mr. Christopher Cathcart $ 11,250,000
222 Broadway (212) 412-7622
New York, NY 10038
CIBC Inc. Mr. David B. Walsh $ 11,250,000
425 Lexington Avenue, (212) 856-3599
8th Floor
New York, NY 10017
The Bank of Tokyo-- Mr. Dane Holmes $ 17,500,000
Mitsubishi, Ltd. (212) 782-6440
1251 Avenue of the
Americas
12th Floor
New York, NY 10020
Citibank, N.A. Mr. Scott Engle $ 23,750,000
399 Park Avenue (212) 925-4285
New York, NY 10043
Comerica Bank Mr. Chris Georvassilis $ 11,250,000
One Detroit Center (313) 222-3330
500 Woodward Avenue, MC 3280
Detroit, MI 48226
2
Contact Person
Name and Address of Lender and Telecopy Number Commitment
- -------------------------- ------------------- ----------
Corestates National Bank Mr. Tom Singleton $ 23,750,000
Widener Building (215) 786-4114
1339 Chestnut St.
FC 1-8-8-4
Philadelphia, PA 19101
The First National Bank Mr. Charles Garrity $ 11,250,000
of Boston (617) 434-1537
100 Federal Street
01-32-04
Boston, MA 02110
The First National Bank Mr. Tom Collimore $ 20,000,000
of Chicago (212) 373-1393
153 West 51st Street
New York, NY 10019
The Fuji Bank, Ltd. Mr. Roy Tanfield $ 17,500,000
Two World Trade Center, (212) 321-9407
79th Floor
New York, NY 10048
Mellon Bank, N.A. Ms. Karen McConomy $ 23,750,000
500 Grant Street (412) 234-8087
One Mellon Bank Center, Rm 370
Pittsburgh, PA 15258
Morgan Guaranty Trust Company Mr. Jerry Fall $ 23,750,000
of New York (212) 648-5249
60 Wall Street
New York, NY 10260-0060
The Northern Trust Company Ms. Marcia Saper $ 11,250,000
50 South LaSalle Street (312) 557-2673
Chicago, IL 60675
Norwest Bank Mr. Edge Jackson $ 11,250,000
Norwest Center (612) 667-7251
Minneapolis, MN 55479
PNC Bank, National Association Ms. Eileen McDonald $ 17,500,000
100 S. Broad Street. (908) 220-3270
Philadelphia, PA 19110
3
Contact Person
Name and Address of Lender and Telecopy Number Commitment
- -------------------------- ------------------- ----------
Royal Bank of Canada Manager, Credit $ 17,500,000
Grand Cayman (North America Administration
No. 1) Branch (212) 428-2372
c/o New York Branch
Financial Square, 23rd Floor
New York, NY 10005-3531
with copy to:
Royal Bank of Canada Ms. Michelle Rutigliano
Financial Square, 24th Floor (212) 809-7468
New York, NY 10005-3531
Sakura Bank Ltd. Mr. Stephen Santora $ 11,250,000
277 Park Avenue, 45th Floor (212) 888-7651
New York, NY 10172
The Sanwa Bank, Ltd. Mr. Stephen C. Small $ 17,500,000
New York Branch (212) 754-1304
55 East 52nd Street
New York, NY 10055
Fleet National Bank Mr. Tom McKinley $ 23,750,000
One Federal Street (203) 988-1264
Mail Code OFO324
Boston, MA 02211
State Street Bank Mr. Robert Engvall $ 17,500,000
750 Main Street (203) 244-1889
Hartford, CT 06103
The Sumitomo Bank, Limited Mr. Edward McColly $ 17,500,000
New York Branch (212) 224-5188
277 Park Avenue
New York, NY 10172
SunTrust Bank, Atlanta Ms. Allison L. Vella $ 17,500,000
711 Fifth Avenue, 6th Floor (212) 371-9386
New York, NY 10022
The Toronto-Dominion Bank Mr. Reginald Waylen $ 11,250,000
31 West 52nd Street (212) 262-1926
New York, NY 10019
Wachovia Bank of Georgia, N.A. Terry Snellings $ 17,500,000
191 Peachtree Street (404) 332-1090
Atlanta, GA 30303
4
Contact Person
Name and Address of Lender and Telecopy Number Commitment
- -------------------------- ------------------- ----------
----------------
TOTAL COMMITMENT $ 500,000,000
EXHIBIT 10.16
1996 ITT HARTFORD DEFERRED RESTRICTED STOCK UNIT PLAN
ARTICLE I
CREATION AND PURPOSE
1.1 CREATION OF THE PLAN. The ITT Hartford Deferred Restricted Stock Unit Plan
--------------------
(the "Plan") is created pursuant to the terms of the 1995 ITT Hartford Incentive
Stock Plan (the "Incentive Stock Plan") relating to restricted stock, which
terms are incorporated herein by reference. Capitalized terms used in this Plan
and not defined herein shall have the meanings assigned to such terms by the
Incentive Stock Plan.
1.2 PURPOSE OF THE PLAN. The purpose of the Plan is to motivate and reward
---------------------
superior performance on the part of employees of the Company and thereby to
attract and retain employees of superior ability. In addition, the Plan is
intended to further the opportunities for stock ownership by such employees in
order to increase their proprietary interest in the Company, and as a result,
their interest in the success of the Company. Awards consisting of contractual
rights to receive shares of the Company's Stock ("Units") may be made under the
Plan, in the discretion of the Committee, to Key Employees of the Company who
properly elect to participate in the Plan. Participation in the Plan shall
require a Key Employee's irrevocable election to receive in the form of Units a
portion of certain bonuses that may become payable to such Key Employee, such
Units entitling the Key Employee to receive certain Company Stock at the end of
a three year restriction period to the extent provided herein.
ARTICLE II
DEFINITIONS
2.1 "ACCOUNT" means an account maintained on behalf of a Participant on the
---------
books of the Company in accordance with the terms hereof.
2.2 "ACCELERATION EVENT" shall have the meaning assigned by the Incentive Stock
---------------------
Plan.
2.3 "AWARD DATE" means the date designated by the Committee for the award of
------------
Units pursuant to the Plan.
2.4 "BOARD OF DIRECTORS" means the Board of Directors of ITT Hartford Group,
---------------------
Inc.
2.5 "BENEFICIARY" shall have the meaning assigned by the Incentive Stock Plan.
-------------
- 2 -
2.6 "COMMITTEE" means the Compensation and Personnel Committee of the Board of
-----------
Directors, or such other Committee as the Board may designate to administer the
Plan pursuant to Article VIII.
2.7 "COMPANY" means ITT Hartford Group Inc. and its subsidiaries, and their
---------
successors and assigns.
2.8 "DIVIDEND AMOUNT" means the per share cash dividend amount paid on the
------------------
Company's Stock on a particular dividend payment date.
2.9 "DIVIDEND CONVERSION PRICE" means the Fair Market Value of one share of the
----------------------------
Company's Stock on the date that a dividend is paid on such Stock.
2.10 "DIVIDEND RECORD DATE" means the date fixed by the Board of Directors as
------------------------
the date for determining those holders of Stock who are entitled to receive
payment of any dividend declared by the Board of Directors.
2.11 "ELECTIVE UNITS" shall have the meaning assigned by Article III of the
-----------------
Plan.
2.12 "FAIR MARKET VALUE" shall have the meaning assigned by the Incentive Stock
-------------------
Plan.
2.13 "INCENTIVE STOCK PLAN" means the 1995 ITT Hartford Incentive Stock Plan, as
----------------------
amended from time to time.
2.14 "KEY EMPLOYEE" shall have the meaning assigned by the Incentive Stock Plan.
--------------
2.15 "NORMAL VESTING DATE" means the third anniversary of the Award Date.
---------------------
2.16 "PARTICIPANT" means a Key Employee who properly elects to participate in
-------------
the Plan pursuant to Article V of the Plan.
2.17 "PARTICIPATING COMPANY" shall have the meaning assigned by the Incentive
------------------------
Stock Plan.
2.18 "Plan" means this 1996 ITT Hartford Deferred Restricted Stock Unit Plan.
------
2.19 "Premium Units" shall have the meaning assigned by Article IV of the Plan.
---------------
2.20 "Plan Administrator" shall have the meaning assigned by Article VIII of the
--------------------
Plan.
- 3 -
2.21 "RETIREMENT" shall have the meaning assigned by the Incentive Stock Plan.
------------
2.22 "STOCK" shall have the meaning assigned by the Incentive Stock Plan.
-------
2.23 "TOTAL DISABILITY" shall have the meaning assigned by the Incentive Stock
-------------------
Plan.
2.24 "UNITS" shall have the meaning assigned by Article I of the Plan.
-------
ARTICLE III
ELECTIVE UNITS
3.1 AWARD OF ELECTIVE UNITS. On the Award Date, the Committee may, in its
-------------------------
discretion, award to each Participant a number of whole and/or fractional
contractual rights to receive in accordance with the Plan shares of the
Company's Stock (the "Elective Units") equal to (a) the portion of bonus elected
by the Participant in accordance with Article V, divided by (b) the Fair Market
Value of the Company's Stock on the Award Date. If the Committee does not make
an award to a Participant pursuant to this Section, any election made by the
Participant pursuant to Article V shall be null and void.
3.2 CREDITING OF ELECTIVE UNITS TO ACCOUNT. The number of whole and/or
-------------------------------------------
fractional Elective Units awarded to a Participant pursuant to this Article III
shall be credited, as of the Award Date, to the Participant's Account.
3.3 VESTING OF ELECTIVE UNITS. The rights of a Participant with respect to
----------------------------
Elective Units awarded hereunder shall be fully vested and nonforfeitable at all
times. To the extent provided in Article VII, the Participant shall become
entitled to receive certificates for shares of Stock corresponding to such
Elective Units credited to the Participant's Account on the applicable date
identified in Article VII.
ARTICLE IV
PREMIUM UNITS
4.1 AWARD OF PREMIUM UNITS. On the Award Date, the Committee shall award to each
-----------------------
Participant a number of additional whole and/or fractional contractual rights to
receive in accordance with the Plan shares of the Company's Stock (the "Premium
Units") equal to 10% of the Elective Units awarded to the Participant pursuant
to Article III.
4.2 CREDITING OF PREMIUM UNITS TO ACCOUNT. The number of whole and/or fractional
--------------------------------------
Premium Units awarded to a Participant pursuant to this Article IV shall be
credited, as of the Award Date, to the Participant's Account.
- 4 -
4.3 VESTING OF PREMIUM UNITS. Except as otherwise provided herein, a
----------------------------
Participant's rights with respect to Premium Units shall vest on the Normal
Vesting Date. To the extent provided in Article VII, the Participant shall
become entitled to receive certificates for shares of Stock corresponding to
vested Premium Units credited to the Participant's Account on the applicable
date identified in Article VII.
A. TERMINATION OF EMPLOYMENT. In the event of a Participant's
----------------------------
termination of employment with all Participating Companies prior to the
Normal Vesting Date due to (i) death, (ii) Total Disability, or (iii)
Retirement, the Premium Units credited to the Participant's Account as
of the date of such termination shall become immediately vested and
nonforfeitable. In the event of a Participant's termination of
employment with all Participating Companies for any other reason, any
Premium Units credited to the Participant's Account that have not
become vested on or before the date of such termination shall be
forfeited, unless the Committee determines otherwise in its sole
discretion in accordance with the Incentive Stock Plan. Premium Units
forfeited by a Participant pursuant to this Section shall immediately
be deducted from the Participant's Account.
ARTICLE V
PARTICIPATION
5.1 ELECTION TO PARTICIPATE. A Key Employee may participate in the Plan by
-------------------------
filing a properly completed election agreement, or such other authorization as
the Plan Administrator may require, with the party and by the date designated by
the Plan Administrator. The election of a Key Employee hereunder shall only
apply to the bonus as to which the election is made, and shall be irrevocable,
unless otherwise determined by the Committee in its sole discretion. The
election of a Key Employee shall be deemed null and void if no award pursuant to
Article III hereof is made to the Key Employee with respect to such election.
5.2 ELECTION FORM. The election agreement completed by a Participant pursuant to
--------------
this Article V shall (a) identify a portion of the Participant's bonus that may
become payable with respect to the Participant's services, (b) contain the
Participant's election to receive such portion of such bonus (which would
otherwise become payable in cash) in the form of Elective Units in accordance
with the Plan, and (c) contain such other information as the Plan Administrator
may require.
5.3 MAXIMUM AND MINIMUM AMOUNTS REQUIRED FOR PARTICIPATION. The Committee may
---------------------------------------------------------
designate a maximum and a minimum portion of a Key Employee's bonus, in terms of
a percentage or other amount of such bonus, as to which an election may be made
hereunder.
- 5 -
ARTICLE VI
DIVIDEND EQUIVALENTS
6.1 DIVIDEND EQUIVALENTS ON ELECTIVE UNITS. As soon as practicable after any
-----------------------------------------
dividend is paid on the Company's Stock, a Participant's Account shall be
credited with additional Elective Units equal to (a) the product of (i) the
Dividend Amount, and (ii) the number of whole and fractional Elective Units
credited to the Participant's Account as of the Dividend Record Date, divided by
(b) the Dividend Conversion Price.
6.2 DIVIDEND EQUIVALENTS ON PREMIUM UNITS. As soon as practicable after any
----------------------------------------
dividend is paid on the Company's Stock, the Participant's Account shall be
credited with additional Premium Units equal to (a) the product of (i) the
Dividend Amount, and (ii) the number of whole and fractional Premium Units
credited to the Participant's Account as of the Dividend Record Date, divided by
(b) the Dividend Conversion Price.
6.3 TREATMENT OF UNITS CREDITED IN RESPECT OF DIVIDEND EQUIVALENTS. Any
----------------------------------------------------------------------
additional Units credited to the Account of a Participant pursuant to this
Article VI shall, as of the date so credited, be treated for all purposes of
this Plan (including, without limitation, the provisions hereof pertaining to
the crediting of future dividend equivalents and the vesting of Premium Units)
as though part of the Elective Units and Premium Units in relation to which such
additional Units were credited, respectively.
6.4 NON-CASH DIVIDENDS. In the event that a stock dividend is paid on the
--------------------
Company's Stock, the appropriate Dividend Amount for purposes of this Article VI
shall be determined in accordance with Section 9.3 hereof.
ARTICLE VII
RECEIPT OF SHARES IN RESPECT OF UNITS
7.1 GENERAL RULE. Except as otherwise provided herein, as soon as practicable
-------------
after the earlier to occur of (a) the Normal Vesting Date, or (b) the date a
Participant's employment with all Participating Companies terminates, the
Company shall issue to such Participant certificates for shares of Stock
corresponding to the number of whole Elective Units and whole vested Premium
Units credited to the Participant's Account as of the earlier of such dates.
7.2 FRACTIONAL UNITS. Notwithstanding anything herein to the contrary, if any
-----------------
vested fractional Units are credited to a Participant's Account (after adding
together all fractional Elective and vested Premium Units then credited to the
Participant's Account) on the earlier of the dates identified in Section 7.1,
such fractional Units shall be paid to the Participant in cash, based on the
Fair Market Value of the Company's Stock on such date.
7.3 VOLUNTARY DEFERRAL. Upon such terms and conditions as the Committee may
--------------------
determine, a
- 6 -
Participant may be permitted to elect, by written notice to the Plan
Administrator filed by the date and on such form or other authorization as the
Plan Administrator may require, to defer the issuance hereunder of certificates
for shares of Stock pursuant to the Plan, or such other arrangement maintained
by the Company, if any, in which the Participant is eligible to participate as
of such date. Such election shall have the effect of deferring such issuance
until the date permitted by the Plan Administrator, and/or such other effect as
permitted by the Committee.
7.4 ACCELERATION EVENT. Notwithstanding anything herein to the contrary, upon
-------------------
the occurrence of an Acceleration Event, any Premium Units then credited to the
Account of a Participant shall immediately become fully vested, and certificates
for shares of Stock corresponding to the Participant's Elective Units and vested
Premium Units shall be issued to the Participant as soon as practicable
thereafter.
ARTICLE VIII
ADMINISTRATION
8.1 ADMINISTRATION BY COMMITTEE. Except as otherwise delegated by the Committee
----------------------------
pursuant to this Plan or the Incentive Stock Plan, (a) this Plan shall be
administered by the Committee, (b) the Committee shall have full authority to
administer and interpret this Plan in any manner it deems appropriate in its
sole discretion, and (c) the determinations of the Committee shall be binding on
and conclusive as to all parties.
8.2 DELEGATION OF CERTAIN AUTHORITY TO PLAN ADMINISTRATOR. Except as otherwise
-------------------------------------------------------
provided by the Committee in accordance with this Plan or the Incentive Stock
Plan, the Plan Administrator shall be the Company's Senior Vice President, Human
Resources. Except as otherwise provided in this Plan or the Incentive Stock
Plan, required by applicable law, or determined by the Committee, (a) the Plan
Administrator shall be responsible for the performance of such administrative
duties under this Plan that are not otherwise reserved to the Committee by this
Plan or the Incentive Stock Plan, (b) the Plan Administrator shall have full
authority to administer and interpret this Plan in any manner it deems
appropriate in its sole discretion, and (c) the determinations of the Plan
Administrator shall be binding and conclusive as to all parties.
8.3 APPLICABILITY OF INCENTIVE STOCK PLAN. In the event of a conflict between
---------------------------------------
the terms of this Plan and the terms of the Incentive Stock Plan, the terms of
the Incentive Stock Plan shall control.
- 7 -
ARTICLE IX
MISCELLANEOUS
9.1 WITHHOLDING. The Plan Administrator shall have the right to make such
------------
provisions as it deems appropriate to satisfy any obligation of the Company to
withhold federal, state or local income or other taxes incurred by reason of the
operation of the Plan, including but not limited to at any time requiring a
Participant to submit payment to the Company for such taxes, or withholding such
taxes from a Participant's wages (or other amounts) due to the Participant.
9.2 NO EMPLOYMENT RIGHTS. The Plan shall not, directly or indirectly, create in
---------------------
any Participant any right with respect to continuation of employment with any of
the Participating Companies or to the receipt of any bonus. The Plan shall not
interfere in any way with the rights of the applicable Participating Company to
terminate, or otherwise modify, the employment of any Participant or its bonus
policies at any time.
9.3 CAPITAL ADJUSTMENTS FOR CORPORATE TRANSACTIONS. Upon the occurrence of an
-------------------------------------------------
event described in Section 13 of the Incentive Stock Plan, the Committee may
adjust the number of Units credited to the Account of a Participant in
accordance with the terms of that Section.
9.4 DELIVERY OF SHARES OF STOCK IN THE EVENT OF DEATH. In the event of the death
--------------------------------------------------
of a Participant, certificates for shares of Stock and/or cash corresponding to
the Elective Units and vested Premium Units then credited to the Account of the
Participant shall be transferred (in the same form as would have been
transferred to the Participant pusuant to Article VII) as soon as practicable
thereafter to such Beneficiary or Beneficiaries as properly designated by the
Participant in accordance with Section 10 of the Incentive Stock Plan. If no
such designation is in effect at the time of the Participant's death, or if no
designated Beneficiary survives the Participant or if any Beneficiary
designation conflicts with applicable law, such certificates and/or cash shall
be transferred to the Participant's estate as provided in Section 10 of the
Incentive Stock Plan.
9.5 RIGHTS NOT TRANSFERABLE. The rights of a Participant under the Plan shall
-------------------------
not be sold, exchanged, transferred, pledged, hypothecated or otherwise disposed
of, other than (a) by will, (b) by the laws of descent or distribution, or (c)
pursuant to a qualified domestic relations order as defined in the Internal
Revenue Code of 1986, as amended, provided that the rights of any transferee of
a Participant shall not be greater than the rights of the Participant hereunder.
The foregoing restriction shall be in addition to any restrictions imposed by
applicable law on a Participant's ability to dispose of Units awarded under the
Plan.
- 8 -
9.6 EFFECT OF PLAN. The provisions of the Plan shall be binding upon all
----------------
successors and assigns of a Participant, including without limitation the
Participant's estate and the executors, administrators or trustees thereof,
heirs and legatees, and any receiver, trustee in bankruptcy or representative of
creditors of the Participant.
9.7 USE OF FUNDS AND ASSETS. All funds and assets received or held by the
--------------------------
Company pursuant to or in connection with the Plan may be used by the Company
for any corporate purpose, and the Company shall not be obligated to segregate
such amounts from its general assets. The Company may establish a trust or other
entity to aid in meeting its obligations under the Plan.
9.8 SOURCE OF SHARES FOR THE PLAN. Except as otherwise provided in the Incentive
------------------------------
Stock Plan, shares of Company Stock to be issued hereunder may be made available
from authorized but unissued stock, shares held by the Company in treasury or
shares purchased on the open market.
9.9 AMENDMENT AND TERMINATION OF THE PLAN. Subject to the provisions of the
----------------------------------------
Incentive Stock Plan, the Board of Directors may amend or terminate this Plan at
any time. Amendments to the Plan may be made by the Plan Administrator to the
extent (a) required by applicable law, or (b) required to maintain a favorable
tax status for the Plan.
9.10 GOVERNING LAW. The laws of the State of Connecticut shall govern all
---------------
matters relating to the Plan, except to the extent such laws are superseded by
the laws of the United States.
9.11 SEVERABILITY OF PROVISIONS. If any provision of the Plan shall be held
-----------------------------
invalid or unenforceable, such invalidity or unenforceability shall not affect
any other provisions hereof, and the Plan shall be construed and enforced as if
such invalid or unenforceable provisions had not been included herein.
EXHIBIT 11.01
ITT HARTFORD GROUP, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(In millions, except per share data)
1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------
Income (loss) before cumulative effect of accounting changes $ (99) $ 559 $ 632
Cumulative effect of accounting changes -- -- 12
- -----------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ (99) $ 559 $ 644
=======================================================================================================================
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING [1] 117.3 117.1 117.1
=======================================================================================================================
EARNINGS PER SHARE
Income (loss) before cumulative effect of accounting changes $ (0.84) $ 4.77 $ 5.40
Cumulative effect of accounting changes -- -- 0.10
- -----------------------------------------------------------------------------------------------------------------------
Net income (loss) $ (0.84) $ 4.77 $ 5.50
=======================================================================================================================
[1] Actual number of weighted average common shares outstanding at December 31,
1995 of 117.1 is retroactively presented for the years ended December 31,
1995 and 1994.
EXHIBIT 12.01
ITT HARTFORD GROUP, INC. AND SUBSIDIARIES
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES AND EARNINGS
TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
(In millions)
1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------
EARNINGS
Operating income (loss) $ (318) $ 742 $ 852 $ 687 $ (501)
ADD:
FIXED CHARGES
Interest expense 148 101 76 57 64
Interest factor attributable to rentals [1] 36 49 48 46 48
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL FIXED CHARGES 184 150 124 103 112
- -----------------------------------------------------------------------------------------------------------------------------
EARNINGS, AS DEFINED $ (134) $ 892 $ 976 $ 790 $ (389)
=============================================================================================================================
FIXED CHARGES
Fixed charges above $ 184 $ 150 $ 124 $ 103 $ 112
Dividends on subsidiary preferred stock -- 4 8 14 12
- -----------------------------------------------------------------------------------------------------------------------------
Total fixed charges and preferred dividend requirements $ 184 $ 154 $ 132 $ 117 $ 124
=============================================================================================================================
RATIOS
Earnings, as defined, to total fixed charges [2] (0.7) 5.9 7.9 7.7 (3.5)
=============================================================================================================================
Earnings, as defined, to total fixed charges and preferred
dividend requirements (0.7) 5.8 7.4 6.8 (3.1)
=============================================================================================================================
[1] The interest factor attributable to rentals was computed by calculating the
estimated present value of all long-term rental commitments and applying
the approximate weighted average interest rate inherent in the lease
obligations and adding thereto the interest element assumed in short-term
cancelable and contingent rentals excluded from the commitment data but
included in rental expense.
[2] The 1996 earnings to total fixed charges ratio, excluding other charges of
$1,061, before-tax, primarily related to environmental and asbestos reserve
increases and recognition of losses on Closed Book GRC, was 5.0.
EXHIBIT 21.01
SUBSIDIARIES OF ITT HARTFORD GROUP, INC.
JURISDICTION NAMES UNDER
OF WHICH COMPANY
COMPANY NAME INCORPORATION DOES BUSINESS
- ------------ ------------- -------------
Adapt, Inc. (6.69%) Delaware n/a
Alpine Life Insurance Company New Jersey n/a
American Maturity Life Insurance
Company (60%) Connecticut "AMLIC"
Brasilcap Capitalizacao, S.A. (17%) Brazil n/a
Beleggingsmaatschappij
Buizerdlaan B.V. Netherlands n/a
Business Management Group, Inc. Connecticut "BMG"
CAB Corporation British Virgin Island n/a
CCS Commercial, L.L.C. (50%) Delaware n/a
Central Park Square Athletic Club, Inc. Arizona n/a
CLA Corp. Connecticut "CLA"
Claridad Administradora de
Fondos de Jubilaciones y
Pensiones, S.A. (24%) Argentina n/a
Consultora de Capitales, S.A.,
Sociedad Gerente de Fondos
Comunes de Enversion (50%) Argentina n/a
Dornberger/Berry & Company, Inc. South Dakota n/a
1810 Corporation Delaware n/a
Excess Insurance Company, Ltd. U.K. n/a
Exploitatiemaatschappij
Buizerdlaan B.V. Netherlands n/a
F. A. Knight & Son, N.V. Belgium n/a
Fencourt Printers, Ltd. U.K. n/a
Fencourt Reinsurance Company, Ltd. Bermuda "Fencourt Re"
First State Insurance Company Connecticut "First State"
First State Management Group, Inc. Delaware n/a
Four Thirty Seven Land Company, Inc. Delaware n/a
Galicia Vida Compania de
Seguros, S.A., (40%) Argentina n/a
H. L. Funding Company, Inc. Connecticut n/a
H. L. Funding, Inc. Maryland n/a
H. L. Mutual Fund Corporation Delaware n/a
HARCO Property Services, Inc. Connecticut n/a
Hartford Accident and
Indemnity Company Connecticut "Hartford A&I"
Hartford Advisers Fund, Inc. Maryland n/a
Hartford (Bermuda), Ltd. Bermuda n/a
Hartford Bond Fund, Inc. Maryland n/a
Hartford Capital Appreciation Fund, Inc. Maryland n/a
Hartford Casualty Insurance Company Indiana n/a
Hartford Calma Company Florida n/a
Hartford Dividend and Growth Fund, Inc. Maryland n/a
Hartford Equity Sales Company, Inc. Connecticut "HESCO"
Hartford Europe, Inc. Delaware n/a
Hartford Financial Services Corporation Delaware n/a
Hartford Financial Services Life
Insurance Company Connecticut n/a
Hartford Fire Insurance Company Connecticut "Hartford Fire"
Hartford Fire International
(Germany) GMBH West Germany n/a
Hartford Fire International, Ltd. Connecticut "HFI"
Hartford Fire International Servicios Spain n/a
Hartford Holdings, Ltd. Bermuda n/a
Hartford Index Fund, Inc. Maryland n/a
Hartford Insurance, Ltd. Bermuda n/a
n/a - Does not do business under any other names.
EXHIBIT 21.01
Hartford Insurance Company of Canada Canada n/a
Hartford Insurance Company of Illinois Illinois n/a
Hartford Insurance Company of the Midwest Indiana n/a
Hartford Insurance Company of
the Southeast Florida n/a
Hartford Integrated Technologies, Inc. Connecticut "HiTec"
Hartford International Advisers
Fund, Inc. Maryland n/a
Hartford International Insurance
Company, N.V. Belgium n/a
Hartford International Opportunities
Fund, Inc. Maryland n/a
Hartford Investment Counsel, Inc. Delaware n/a
Hartford Investment Services, Inc. Connecticut "HIS"
Hartford Life and Accident
Insurance Company Connecticut "Hartford Life and Accident"
Hartford Life Insurance Company Connecticut "Hartford Life"
Hartford Life, Inc. Delaware n/a
Hartford Lloyd's Corporation Texas n/a
Hartford Lloyd's Insurance
Company (partnership) Texas n/a
Hartford Money Market Fund, Inc. Maryland n/a
Hartford Mortgage Securities Fund, Inc. Maryland n/a
Hartford Re Company Connecticut "HartRe"
Hartford Real Estate Company Delaware "Harco"
Hartford Securities Distribution
Company, Inc. Connecticut n/a
Hartford Seguros de Vida (17%) Uruguay n/a
Hartford Small Company Fund, Inc. Maryland n/a
Hartford Specialty Company Delaware "HSC"
Hartford Stock Fund, Inc. Maryland n/a
Hartford U.S. Government Money
Market Fund, Inc. Maryland n/a
Hartford Underwriters Insurance
Company Connecticut n/a
Heritage Holdings, Inc. Connecticut n/a
Holland Beleggingsgroep B.V. Netherlands n/a
HRA, Inc. Connecticut n/a
HRA Brokerage Services, Inc. Connecticut n/a
HVA Money Market Fund, Inc. Maryland n/a
ICATU Hartford Administracao
de Beneficios, Ltda. Brazil n/a
ICATU Hartford Capitalizacao, S.A. (45%) Brazil n/a
ICATU Hartford Fundo de Pensao Brazil n/a
ICATU Hartford Seguros, S.A. (22.5%) Brazil n/a
Insurance Technology Systems, Ltd. U.K. n/a
International Corporate Marketing
Group, Inc. (60%) [also owned
by Mutual Benefit] Connecticut n/a
ITT Assurances S.A. France n/a
ITT Comprehensive Employee
Benefits Service Company Connecticut "ITT CEBSCO"
ITT Ercos de Segaros y Reaseguros,
S.A. (99.75%) Spain n/a
ITT Ercos Vida Compania de Segaros
y Reaseguros, S.A. (99.75%) Spain n/a
ITT Hartford Canada Holdings, Inc. Canada n/a
ITT Hartford Holdings, Ltd. Bermuda n/a
ITT Hartford Insurance Center, Inc. Connecticut n/a
ITT Hartford Insurance Group
Foundation, Inc. (non-stock
corporation) Connecticut n/a
ITT Hartford International, Inc. Delaware n/a
ITT Hartford International, Ltd. U.K. n/a
ITT Hartford International Life
Reassurance Corp. Connecticut "ITT HILRE"
ITT Hartford Life and Annuity
Insurance Company Connecticut "ITT HL&A"
ITT Hartford Life Insurance
Company of Canada Canada n/a
ITT Hartford Life International, Ltd. Connecticut n/a
ITT Hartford Life, Ltd. Bermuda n/a
EXHIBIT 21.01
ITT Hartford Mutual Funds, Inc. Maryland n/a
ITT Hartford Seguros de Retiro S.A. Argentina n/a
ITT Hartford Seguros de Vida Argentina n/a
ITT Hartford Sudamericana Holdings,
S.A. (60%) Argentina n/a
ITT New England Management
Company, Inc. Massachusetts n/a
ITT Specialty Risk Services, Inc. Delaware "ITT-SRS"
London and Edinburgh Insurance
Company, Ltd. U.K. "L and E"
London & Edinburgh Insurance Group, Ltd. U.K. "L and E"
London and Edinburgh Life Assurance
Company, Ltd. U.K. n/a
London and Edinburgh Services, Ltd. U.K. "Zwolsche"
Lyndon International, Ltd. Bermuda n/a
MS Fund America, Inc. Delaware n/a
Macalister & Dundas, Ltd. Scotland n/a
New England Insurance Company Connecticut n/a
New England Reinsurance Corporation Connecticut "New England Re"
Nutmeg Insurance Company Connecticut "Nutmeg"
Pacific Insurance Company, Limited Connecticut "ITT Pacific Ins. Co., Ltd."
Personal Lines Insurance Center, Inc. Connecticut "PLIC"
Property and Casualty Insurance
Company of Hartford Indiana n/a
Quotel Insurance Systems, Ltd. U.K. n/a
Segpool, S.A. Argentina n/a
Sentinel Insurance Company, Ltd. Hawaii n/a
Terry Associates, Inc. Connecticut n/a
The Confluence Group, Inc. Connecticut n/a
The Evergreen Group, Inc. New York n/a
The Hartford Club of Simsbury, Inc. Connecticut n/a
The Hartford Investment Management
Company Connecticut "HIMCO"
Thesis S.A. Argentina n/a
Trumbull Insurance Company Connecticut n/a
Twin City Fire Insurance Company Indiana n/a
U.O.R., S.A. (47.75%) Argentina n/a
Underoath, Inc. Delaware n/a
Z.A. Lux, S.A. Luxemburg n/a
Z.A. Verzekeringen N.V. Belgium n/a
Zwolsche Algemeene Beleggingen
III B.V. Netherlands n/a
Zwolsche Algemeene Europa B.V. Netherlands "Zwolsche"
Zwolsche Algemeene Herverzekering B.V. Netherlands n/a
Zwolsche Algemeene Hypotheken N.V. Netherlands n/a
Zwolsche Algemeene Levensverzekering
N.V. Netherlands n/a
Zwolsche Algemeene N.V. Netherlands n/a
Zwolsche Algemeene Schadeverzekering
N.V. Netherlands n/a
EXHIBIT 23.01
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
To ITT Hartford Group, Inc.:
As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 10-K, into the Company's previously filed
registration statements (i) on Forms S-3 (Registration Nos. 33-98014 and
333-12617) and (ii) on Forms S-8 (Registration Nos. 33-80663, 33-80665, and
333-12563).
Arthur Andersen LLP
Hartford, Connecticut
March 28, 1997