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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, 1998
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 1-12749
HARTFORD LIFE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 06-1470915
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
200 HOPMEADOW STREET, SIMSBURY, CONNECTICUT 06089 (Address of
principal executive offices)
(860) 525-8555
(Registrant's telephone number, including area code)
Securities registered pursuant to section 12(b) of the Act: the following, which
are registered on the New York Stock Exchange, Inc.:
Class A Common Stock, par value $0.01 per share
7.2% Trust Preferred Securities, Series A, issued by Hartford Life
Capital I
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. [ X ]
As of February 26, 1999, there were outstanding 25,928,071 shares of Class A
Common Stock, $0.01 par value per share, and 114,000,000 of Class B Common
Stock, $0.01 par value per share, of the registrant. The aggregate market value
of the shares of the registrant's common equity held by non-affiliates of the
registrant was $1,494,568,592 based on the closing price of $58.00 per share of
Class A Common Stock on the New York Stock Exchange on February 26, 1999.
Documents Incorporated by Reference:
Portions of the Registrant's definitive proxy statement for its 1999 annual
meeting of shareholders are incorporated by reference in Part III of this Form
10-K.
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[HARTFORD LIFE LOGO]
Hartford Life, Inc. and its subsidiaries (Hartford Life) is a leading financial
services and insurance organization providing investment products such as
variable annuities and mutual funds, individual and corporate owned life
insurance and employee benefits products.
A majority owned subsidiary of The Hartford Financial Services Group, Inc.,
Hartford Life is the nation's largest writer of individual variable annuities,
the number two writer of group disability insurance, a top provider of
individual variable life insurance and offers the fastest growing
non-proprietary family of mutual funds.
CONTENTS
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ITEM DESCRIPTION PAGE
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PART I 1 Business of Hartford Life 3
2 Properties 12
3 Legal Proceedings 12
4 Submission of Matters to a Vote of Security Holders 12
PART II 5 Market for Hartford Life's Common Stock and Related
Stockholder Matters 12
6 Selected Financial Data 13
7 Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
7A Quantitative and Qualitative Disclosures About Market Risk 35
8 Financial Statements and Supplementary Data 35
9 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 35
PART III 10 Directors and Executive Officers of Hartford Life 35
11 Executive Compensation 35
12 Security Ownership of Certain Beneficial Owners and Management 35
13 Certain Relationships and Related Transactions 35
PART IV 14 Exhibits, Financial Statements, Schedules and Reports on Form
8-K 35
Signatures II-1
Exhibits Index II-2
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PART I
ITEM 1. BUSINESS OF HARTFORD LIFE
(Dollar amounts in millions, except for share data, unless otherwise stated)
GENERAL
Hartford Life, Inc. and its subsidiaries ("Hartford Life" or the "Company"), an
indirect subsidiary of The Hartford Financial Services Group, Inc. (The
Hartford), is headquartered in Simsbury, Connecticut, and is a leading financial
services and insurance organization. Hartford Life provides (i) investment
products, such as annuities, including individual variable annuities and fixed
market value adjusted (MVA) annuities, deferred compensation and retirement plan
services and mutual funds for the savings and retirement needs of over 1 million
customers, (ii) life insurance for income protection and estate planning to
approximately 500,000 customers, (iii) employee benefits products such as group
life and group disability insurance for the benefit of millions of individuals
and (iv) corporate owned life insurance. According to the latest publicly
available data, with respect to the United States, the Company is the largest
writer of individual variable annuities based on sales for the year ended
December 31, 1998; the second largest writer of group disability insurance and
the third largest writer of group life insurance both based on premiums written
for the nine months ended September 30, 1998; as well as, the fourth largest
consolidated life insurance company based on statutory assets as of December 31,
1997. In addition, the Company has the fastest growing non-proprietary family of
mutual funds. The Company's strong position in each of its core businesses
provides an opportunity to increase the sale of Hartford Life'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.
Hartford Life strives to maintain and enhance its position as a market leader
within the financial services industry and to maximize shareholder value. The
Company has pursued a strategy of developing and selling diverse and innovative
products through multiple distribution channels, continuously developing and
expanding those distribution channels, achieving cost efficiencies through
economies of scale and improved technology, maintaining effective risk
management and prudent underwriting techniques and capitalizing on its brand
name and customer recognition of The Hartford Stag Logo, one of the most
recognized symbols in the financial services industry. In the past year, the
Company's total assets under management, which includes assets invested in the
Company's retail mutual funds, increased 22% to $124.5 billion and total
stockholders' equity was $2.5 billion as of December 31, 1998. In addition,
Hartford Life generated $5.8 billion in revenues and $386 in net income in 1998.
The Company's return on shareholders' equity, excluding net unrealized capital
gains on securities, was 18.7% in 1998.
ORGANIZATION
Hartford Life, Inc., a Delaware corporation, was formed in December 1996 as a
direct subsidiary of Hartford Accident and Indemnity Company (HA&I) and an
indirect subsidiary of The Hartford. Pursuant to an initial public offering (the
"IPO") of 26 million shares of the Company's Class A Common Stock on May 22,
1997, Hartford Life became a publicly traded company representing approximately
18.6% of the equity ownership in the Company. Additional information regarding
the organization of the business and the IPO may be found in Notes 1 and 3 of
Notes to Consolidated Financial Statements, respectively.
As a holding company, Hartford Life, Inc. has no significant business operations
of its own and, therefore, primarily 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 (primarily debt obligations)
and pay stockholder dividends. Statutory net income and statutory capital and
surplus, key determinants in the amount of dividend capacity available in the
insurance company subsidiaries, have grown significantly over the past several
years. Statutory net income was $265 in 1998, 19% higher than in 1997 and more
than three and one-half times the level in 1994. Statutory capital and surplus
as of December 31, 1998 was $2.0 billion, more than 50% above the level as of
December 31, 1996. Additional information regarding the cash flow and liquidity
needs of Hartford Life, Inc. may be found in the Capital Resources and Liquidity
section of the Management's Discussion and Analysis of Financial Condition and
Results of Operations (MD&A).
DISTRIBUTION
Hartford Life utilizes a multiple channel distribution network which provides a
distinct competitive advantage in selling products and services to a broad
cross-section of customers throughout varying economic and market cycles. In
particular, the Company has developed an extensive network of banks and
broker-dealers, which is one of the largest in the industry, including over
1,350 national and regional broker-dealers and approximately 450 banks.
Consistent with this strategy, in August 1998, the Company purchased all of the
outstanding shares of PLANCO Financial Services, Inc. and its affiliate, PLANCO,
Incorporated (collectively, "PLANCO"), the nation's largest wholesaler of
individual annuities and the Company's primary wholesale distributor of its
Director(R) variable annuity (the number one selling retail variable annuity in
the United States) and retail mutual funds, thus securing an important
distribution channel. This broad network has enabled the Company to introduce
new products and services in an effective manner and allows the
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Company significant opportunity to access its customer base. Hartford Life sells
variable annuities, mutual funds, fixed MVA annuities, variable life insurance
and retirement plan services through its broker-dealer and bank distribution
systems.
PRODUCTS
Hartford Life provides its customers an innovative and diverse mix of products
and services directed at serving people's needs throughout the different stages
of their lives and during varying economic cycles. The Company offers a variety
of products including variable annuities, retail mutual funds, individual life
insurance and group life and disability insurance. The Company regularly
introduces new and innovative products and services to the market.
CUSTOMER SERVICE, TECHNOLOGY AND ECONOMIES OF SCALE
Hartford Life maintains advantageous economies of scale and operating
efficiencies due to its continued growth, attention to expense management and
commitment to customer service and technology. These advantages allow the
Company to competitively price its products for its distribution network and
policyholders. The Company has achieved operating efficiencies as expenses
associated with its individual annuity products as a percentage of total
individual annuity account value continue to decline from prior year levels. In
addition, the Company utilizes computer technology to enhance communications
within the Company and throughout its distribution network in order to improve
the Company's efficiency in marketing, selling and servicing its products; and,
as a result, provides high-quality customer service. In recognition of
excellence in customer service for variable annuities, Hartford Life and Putnam
Financial Services, Inc. (Putnam) have been awarded the Annuity Service Award by
DALBAR Inc., a recognized independent financial services research organization,
for three consecutive years. Additional information related to Hartford Life's
technology in respect of Year 2000 issues may be found in the Regulatory
Initiatives and Contingencies section of the MD&A.
RISK MANAGEMENT
Hartford Life's product designs, prudent underwriting standards and risk
management techniques protect it against disintermediation risk and greater than
expected mortality and morbidity experience. As of December 31, 1998, the
Company had limited exposure to disintermediation risk on approximately 99% of
its insurance liabilities through the use of non-guaranteed separate accounts,
MVA features, policy loans, surrender charges and non-surrenderability
provisions. With respect to the Company's individual annuities, 97% of the
related total account value was subject to surrender charges as of December 31,
1998. The Company effectively utilizes prudent underwriting to select and price
insurance risks and regularly monitors mortality and morbidity assumptions to
determine if experience remains consistent with these assumptions and to ensure
that its product pricing remains appropriate. The Company also enforces
disciplined claims management to protect itself against greater than expected
morbidity experience.
BRAND NAME AND FINANCIAL STRENGTH
The Hartford Stag Logo is one of the most recognized symbols in the insurance
and financial services industry. This brand recognition, coupled with a strong
balance sheet and sound ratings, has enabled the Company to establish the
reputation and financial strength necessary to maintain distribution
relationships, make strategic acquisitions and enhance important alliances, and
generate new customer sales. Pursuant to a Master Intercompany Agreement with
The Hartford, the Company has been granted a perpetual non-exclusive license to
use the Stag Logo in connection with the sale of Hartford Life's products and
services. However, in the event that The Hartford reduces its beneficial
ownership below 50% of the combined voting power of the Company's then
outstanding securities, the license may be revoked upon the later of the fifth
anniversary of the date of consummation of the Company's IPO of its Class A
Common Stock or one year after receipt by the Company of written notice of The
Hartford's intention to revoke the license.
REPORTING SEGMENTS
Hartford Life has the following reportable operating segments: Investment
Products, Individual Life, Employee Benefits and Corporate Owned Life Insurance
(COLI). The Company includes in "Other" corporate items not directly allocable
to any of its reportable segments as well as its international operations. The
following is a description of each segment, including a discussion of principal
products, methods of distribution and competitive environments. Additional
information on Hartford Life's segments may be found in the MD&A on pages 14 to
34 and Note 17 of Notes to Consolidated Financial Statements.
INVESTMENT PRODUCTS
The Investment Products segment focuses on the savings and retirement needs of
the growing number of individuals who are preparing for retirement or have
already retired through the sale of individual annuities and other investment
products. The individual annuity products offered include individual variable
annuities, fixed MVA annuities and fixed and variable immediate annuities. The
other investment products offered include mutual funds, deferred compensation
and retirement plan services for municipal governments, teachers, hospitals and
corporations; structured settlement contracts and other special purpose annuity
contracts; and, investment management services. From 1994 to 1998 this segment's
separate account assets grew to $74.5 billion from $21.4 billion, a compounded
annual growth rate of 37%. This growth has been driven primarily by strong net
cash flow of individual variable
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annuities, the result of a high volume of sales and favorable persistency, as
well as significant market appreciation in the separate accounts of the
Company's individual and group variable annuities. Investment Products generated
revenues of $1.8 billion and $1.5 billion in 1998 and 1997, respectively. Net
income in the Investment Products segment was $266 in 1998, a 32% increase over
1997.
Hartford Life is the market leader in the annuity industry and was the number
one writer of individual variable annuities for the years ended December 31,
1998 and 1997, with total individual annuity sales of $10.0 billion and $10.2
billion, respectively. The Company sells both variable and fixed individual
annuity products, through a wide distribution network of national and regional
broker-dealer organizations, banks and other financial institutions and
independent financial advisors. Individual variable annuity sales were $9.9
billion and $9.7 billion in 1998 and 1997, respectively. The Company was ranked
the number one writer of individual variable annuities in the United States for
1998 according to Variable Annuity and Research Data Service (VARDS) and the
number one seller of individual variable annuities through banks, according to
Kenneth Kehrer and Associates.
The Company's total account value related to individual annuity products was
$70.8 billion as of December 31, 1998. Of the total account value, $62.2
billion, or 88%, related to individual variable annuity products and $8.6
billion, or 12%, related primarily to fixed MVA annuity products.
Hartford Life is also beginning to emerge as a significant participant in the
retail mutual fund business. The Company surpassed $1.0 billion in assets under
management in January 1998, only eighteen months after it first entered this
market. According to Strategic Insight, this made Hartford Life the fastest
non-proprietary fund family in history to reach this level. During 1998, the
Company had mutual fund sales of $1.6 billion bringing total mutual fund assets
under management to $2.5 billion as of December 31, 1998.
The Company is among the top providers of retirement products and services,
including asset management and plan administration, to municipalities pursuant
to Section 457 and plans to corporations under Section 401(k) of the Internal
Revenue Code of 1986, as amended (herein after referred to as "Section 457" and
"Section 401(k)", respectively). The Company presently administers over 1,200
Section 457 plans and over 750 Section 401(k) plans. The Company also provides
products and services to plans created under Section 403(b) of the Internal
Revenue Code of 1986, as amended (herein after referred to as "Section 403(b)"),
as well as structured settlement contracts and terminal funding products.
Products
Individual Variable Annuities -- Hartford Life earns fees for managing variable
annuity assets and maintaining policyholder accounts, which are based on the
policyholders' account values. The Company uses specified portions of the
periodic premiums of a customer to purchase units in one or more mutual funds,
as directed by the customer, who then assumes the investment performance risks
and rewards. As a result, variable annuities permit policyholders to choose
aggressive or conservative investment strategies as they deem appropriate
without affecting the composition and quality of assets in the Company's general
account. These products offer the policyholder a variety of equity and fixed
income options, as well as the ability to earn a guaranteed rate of interest in
the general account of the Company. The Company offers an enhanced guaranteed
rate of interest for a specified period of time (no longer than twelve months)
if the policyholder elects to dollar-cost average (DCA) funds from the Company's
general account into one or more non-guaranteed separate accounts. Due to this
enhanced rate and the volatility experienced in the overall equity markets, this
option has become very popular with policyholders. Deposits of varying amounts
may be made at regular or irregular intervals and the value of these assets
fluctuates in accordance with the investment performance of the funds selected
by the policyholder. To encourage persistency, the Company's individual variable
annuities are subject to withdrawal restrictions and surrender charges ranging
initially from 6% to 7% of the contract's face amount which reduce to zero on a
sliding scale, usually within seven policy years. In 1998, significant
volatility experienced by the equity markets did not cause increased levels of
variable annuity surrenders demonstrating that policyholders are aware of the
long-term nature of these products. Individual variable annuity account value of
$62.2 billion as of December 31, 1998, has grown significantly from $9.7 billion
as of December 31, 1993 due to strong net cash flow, the result of a high level
of sales and consistent low levels of surrenders, coupled with significant
market appreciation in both the equity and fixed income allocations of the
policyholders' account value. Approximately 94% of the individual variable
annuity account value was held in non-guaranteed separate accounts as of
December 31, 1998.
The assets underlying the Company's variable annuities are managed both
internally and by outside money managers, while the Company provides all policy
administration services. The Company utilizes a select group of money managers,
such as Wellington Management Company, LLP (Wellington), Putnam, and Dean Witter
InterCapital, Inc., who have an interest in the continued growth in sales of the
Company's products and greatly enhance the marketability of the Company's
annuities and the strength of its product offerings. Two of the industry's four
leading variable annuities, The Director and Putnam Hartford Capital Manager
Variable Annuity (based on sales for the year ended 1998) are sponsored by
Hartford Life and are managed in part by Wellington and Putnam, respectively.
Fixed MVA Annuities -- Fixed MVA annuities are fixed rate annuity contracts
which guarantee a specific sum of money to be paid in the future, either as a
lump sum or as monthly income. In the event that a policyholder surrenders a
policy prior to the end of the guarantee period, the MVA feature increases or
decreases the cash surrender value of the annuity in respect of any interest
rate decreases or increases, respectively, thereby protecting the Company from
losses due to higher interest rates at the time of surrender.
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The amount of payment will not fluctuate due to adverse changes in the Company's
investment return, mortality experience or expenses. The Company's primary fixed
MVA annuities have terms varying from one to ten years with an average term of
approximately seven years. Sales of the Company's fixed MVA annuities have been
relatively minor over the past two years due to the low interest rate
environment. Account value of fixed MVA annuities was $8.6 billion and $9.3
billion as of December 31, 1998 and 1997, respectively.
Mutual Funds -- In September 1996, the Company launched a new family of retail
mutual funds. In its second year of existence, the Company's family of
non-proprietary mutual funds was designated the fastest growing in United States
history according to a 1998 report by Strategic Insight, an industry research
organization. These funds are managed by Wellington and Hartford Investment
Management Company, a wholly owned subsidiary of The Hartford. The Company has
entered into agreements with over 400 financial services firms to distribute
these mutual funds.
Retirement Plans -- With respect to retirement products and services, Section
457 plans comprise approximately 80% of the related assets under management.
These assets have traditionally been held in the Company's general account, but
increasingly plan beneficiaries are transferring assets into mutual funds held
in separate accounts. The Company offers a number of different funds, both fixed
income and equity, to the employees in Section 457 plans. Generally, the Company
manages the fixed income plans and certain other outside money managers act as
advisors to the equity funds offered in Section 457 plans administered by the
Company. The Company also sells Section 401(k) products targeting the small and
medium case markets since the Company believes these markets are underpenetrated
in comparison to the large case market. Additionally, the Company markets
Section 403(b) products for teachers and hospitals.
Institutional Liabilities -- Hartford Life also sells structured settlement
contracts, which provide for periodic payments to an injured person or survivor
for a generally determinable number of years, typically in settlement of a claim
under a liability policy in lieu of a lump sum settlement. The Company's
structured settlements are sold through The Hartford's property-casualty
insurance operations as well as specialty brokers. The Company also markets
other annuity contracts for special purposes such as the funding of terminated
defined benefit pension plans. In addition, the Company offers guaranteed
investment contracts (GIC) business. Prior to 1995, the Company was a sizable
participant in the GIC market, selling over $5.0 billion in new business from
1992 through 1994. The Company decided in 1995, after a thorough review of the
GIC market, to de-emphasize its GIC product. Correspondingly, from 1996 through
1998, the Company sold less than $1.0 billion in new GIC business.
Marketing and Distribution
The Investment Products distribution network has been developed based on
management's strategy of utilizing multiple and competing distribution channels
in an effort to achieve the broadest distribution and reach target customers.
The success of the Company's marketing and distribution system depends on its
product offerings, fund performance, successful utilization of wholesaling
organizations, relationships with national and regional broker-dealer firms,
banks and other financial institutions, and independent financial advisors
(through which the sale of the Company's individual annuities to customers is
consummated) and quality of customer service.
Hartford Life maintains a network of approximately 1,350 broker-dealers and
approximately 450 banks (including 23 of the 25 largest banks in the United
States) through the use of wholesaling organizations and strategic alliances,
principally PLANCO and Putnam. The Company periodically negotiates provisions
and terms of its relationships with unaffiliated parties and there can be no
assurance that such terms will remain acceptable to the Company or such third
parties. In August 1998, the Company completed the purchase of all outstanding
shares of PLANCO, a primary distributor of the Company's individual annuity and
mutual funds. PLANCO is the nation's largest wholesaler of individual annuities
and has played a significant role in Hartford Life's growth over the past
decade. As a wholesaler, PLANCO distributes Hartford Life's fixed and variable
annuities, mutual funds and single premium variable life insurance, as well as
providing sales support to registered representatives, financial planners and
broker-dealers at brokerage firms and banks across the United States. The
acquisition secures an important distribution channel for the Company and gives
the Company a wholesale distribution platform which it can expand in terms of
both the number of individuals wholesaling its products and the portfolio of
products in which they wholesale. In addition, the Company uses internal
personnel with extensive experience in the Section 457 market, as well as access
to the Section 401(k) market, to sell its products and services in the deferred
compensation and retirement plan market.
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Competition
The Investment Products segment competes with numerous other insurance companies
as well as certain banks, securities brokerage firms, investment advisors and
other financial intermediaries marketing annuities, mutual funds and other
retirement-oriented products. As the industry continues to consolidate, some of
these companies have or will gain greater financial strength and resources than
Hartford Life. In particular, national banks may become more significant
competitors in the future for insurers who sell annuities as a result of court
decisions and regulatory actions, particularly the recent Financial Services Act
of 1998 (H.R. 10) which is being proposed in Congress. Product sales are
affected by competitive factors such as investment performance ratings, product
design, visibility in the marketplace, financial strength ratings, distribution
capabilities, levels of charges and credited rates, reputation and customer
service.
INDIVIDUAL LIFE
The Individual Life segment, which focuses on the high end estate and business
planning markets, sells a variety of products including variable life, universal
life, interest-sensitive whole life and term life insurance. The Company's in
force block also includes whole life, which was sold in prior years, and
modified guaranteed whole life, which was acquired from Fidelity Bankers Life
Insurance Company in 1993 and Pacific Standard Life Insurance Company in 1994.
Life insurance in force increased to $61.1 billion from $55.4 billion as of
December 31, 1998 and 1997, respectively, and account value grew 19% to $4.5
billion in 1998 from $3.8 billion in 1997. The Individual Life segment generated
revenues of $567 and $510 in 1998 and 1997, respectively. Net income in the
Individual Life segment was $65 in 1998, a 16% increase over 1997.
Products
The recent trend in the individual life industry has been a shift away from
traditional products and fixed universal life insurance towards variable life
(including variable universal life) insurance products. Hartford Life has been
on the leading edge of this industry trend and is now a top five writer of new
variable life sales according to Tillinghast-Towers Perrin. In 1998, of the
Company's new sales of Individual Life insurance, 78% was variable life and 18%
was either universal life or interest-sensitive life. The Company also sold a
small amount of term life insurance.
Variable Life -- Variable life insurance provides a return linked to an
underlying investment portfolio and the Company allows policyholders to
determine their desired asset mix among a variety of underlying mutual funds. As
the return on the investment portfolio increases or decreases, as the case may
be, the death benefit or surrender value of the variable life policy may
increase or decrease. The Company's single premium variable life product
provides a death benefit to the policy beneficiary based on a single premium
deposit. The Company's second-to-die products are distinguished from other
products in that two lives are insured rather than one, and the policy proceeds
are paid upon the second death of the two insureds. Second-to-die policies are
frequently used in estate planning, often to fund estate taxes for a married
couple. Variable life account values were $1.7 billion and $1.1 billion as of
December 31, 1998 and 1997, respectively.
Universal Life and Interest-Sensitive Whole Life -- Universal life and
interest-sensitive whole life insurance coverages provide life insurance with
adjustable rates of return based on current interest rates. The Company offers
both flexible and fixed premium policies and provides policyholders with
flexibility in the available coverage, the timing and amount of premium payments
and the amount of the death benefit provided there are sufficient policy funds
to cover all policy charges for the coming period. Universal life and
interest-sensitive whole life represented 18% of new annualized premium sales of
individual life insurance in 1998. The Company also sells universal life
insurance policies with a second-to-die feature similar to that of the variable
life insurance product offered. Universal life and interest-sensitive whole life
account values were $2.0 billion and $1.9 billion as of December 31, 1998 and
1997, respectively.
Marketing and Distribution
Consistent with the Company's strategy to access multiple distribution outlets,
the Individual Life distribution organization has been developed to penetrate a
multitude of retail sales channels. These include independent life insurance
sales professionals; agents of other companies; national, regional and
independent broker-dealers; banks; and property-casualty insurance
organizations. The primary organization used to wholesale Hartford Life's
products to these outlets is a group of highly qualified life insurance
professionals with specialized training in sophisticated life insurance sales,
particularly as it pertains to estate and business planning. These individuals
are generally employees of Hartford Life, who are managed through a regional
sales office system. The Company has grown this organization rapidly the past
few years, to 160 individuals, and expects to continue to increase the number of
wholesalers in the future.
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Competition
The Individual Life segment competes with over 2,000 life insurance companies in
the United States, as well as other financial intermediaries marketing insurance
products. Competitive factors related to this segment are primarily the breadth
and quality of life insurance products offered, competitiveness of pricing,
relationships with third-party distributors and the quality of underwriting and
customer service.
EMPLOYEE BENEFITS
The Employee Benefits segment primarily sells group life and group disability
insurance, as well as other products, including stop loss and supplementary
medical coverage to employers and employer sponsored plans, accidental death and
dismemberment, travel accident, long-term care insurance and other special risk
coverages to employers and associations. The Company also offers disability
underwriting, administration, claims processing services and reinsurance to
other insurers and self-funded employer plans. According to the latest results
published by Life Insurance Marketing and Research Association (LIMRA), the
Company was the second largest provider of group disability insurance and the
third largest writer of group life insurance in the United States for the nine
months ended September 30, 1998. Generally, policies sold in this segment are
term insurance, typically with one- or two-year rate guarantees. This allows the
Company to make adjustments in rate or terms of its policies in order to
minimize the adverse effect of various market trends. In the disability market,
the Company focuses on strong underwriting and claims management to derive a
competitive advantage. Employee Benefits generated premiums of $1.6 billion in
1998 of which $637 was attributable to group disability coverage and $557 was
attributable to group life coverage. As of December 31, 1998, the Company's
Consolidated Balance Sheet included disability reserves of $1.6 billion and
group life reserves of $511. The Employee Benefits segment generated revenues of
$1.8 billion and $1.7 billion in 1998 and 1997, respectively. Net income in the
Employee Benefits segment was $71 in 1998, a 22% increase over 1997.
Products
Group Disability -- Hartford Life is one of the largest participants in the
"large case" market of the group disability insurance business. The large case
market, as defined by the Company, generally consists of group disability
policies covering over 1,000 employees in a particular company. The Company is
continuing to expand its operations in the "small" and "medium case" group
markets, emphasizing name recognition and reputation as well as the Company's
managed disability approach to claims and administration. The Company's efforts
in the group disability market focus on early intervention, return-to-work
programs, reduction of long-term disability claims and successful
rehabilitation. The focus of new disability products introduced is to provide
incentives for employees to return to independence. The Company also works with
disability claimants to improve the receipt rate of Social Security offsets
(i.e. reducing payment of benefits by the amount of Social Security payments
received).
Hartford Life has concentrated on a managed disability approach, which
emphasizes early claimant intervention in an effort to facilitate a disabled
claimant's return to work and thereby contain costs. This approach, coupled with
an individualized approach to claim servicing, and an incentive to contain
costs, leads to an overall reduction in the cost of disability coverage for
employers. The Company's short-term disability benefit plans provide a weekly
benefit amount (typically 60% to 70% of the employee's earned income up to a
specified maximum benefit) to insured employees when they are unable to work due
to an accident or illness. Long-term disability insurance provides a monthly
benefit for those periods of time not covered by a short-term disability
benefits plan when insured employees are unable to work due to disability.
Employees may receive total or partial disability benefits. Most of these
policies usually begin providing benefits following a 90- or 180-day waiting
period and continue providing benefits until the employee reaches age 65-70.
Long-term disability benefits are paid monthly and are limited to a portion,
generally 50-70%, of the employee's earned income up to a specified maximum
benefit.
Group Life -- Group term life insurance provides term coverage to employees and
their dependents for a specified period and has no accumulation of cash values.
The Company offers innovative options for its basic group life insurance
coverage, including portability of coverage and a living benefit option, whereby
terminally ill policyholders can receive death benefits prior to their death. In
addition, the Company offers employee groups accidental death and dismemberment
coverage.
Other -- Hartford Life also provides long-term care, travel accident, hospital
indemnity, Medicare Supplement and other coverages primarily to individual
members of various associations as well as employee groups. The Company provides
excess of loss medical coverage (known as "stop loss" insurance) to employers
who self-fund their medical plans and pay claims using the services of a third
party administrator.
Marketing and Distribution
Hartford Life uses an experienced group of Company employees, managed through a
regional sales office system, to distribute its group insurance products and
services through a variety of distribution outlets. The Company sells its
product line to employers through brokers, consultants and third-party
administrators as well as to multiple employer groups through its relationships
with trade associations.
8
<PAGE> 9
Competition
Competitive factors primarily affecting Employee Benefits are the variety and
quality of products offered, the price quoted for coverage and services, the
Company's relationships with its third-party distributors and the quality of
customer service. Employee Benefits competes with numerous other insurance
companies and other financial intermediaries marketing insurance products.
However, many of these businesses have relatively high barriers to entry and
have had very few new entrants over the past few years, while other major
carriers have exited the market.
CORPORATE OWNED LIFE INSURANCE (COLI)
Hartford Life is a leader in the COLI market, which includes life insurance
policies purchased by a company on the lives of its employees, with the company
named as the beneficiary under the policy. Until the Health Insurance
Portability Act of 1996 (HIPA Act of 1996), the Company sold two principal types
of COLI, leveraged and variable products. Leveraged COLI is a fixed premium life
insurance policy owned by a company or a trust sponsored by a company. The HIPA
Act of 1996 phased out the deductibility of interest on policy loans under
leveraged COLI at the end of 1998, thus virtually eliminating all future sales
of leveraged COLI. Variable COLI continues to be a product used by employers to
fund non-qualified benefits or other post-employment benefit liabilities.
Products marketed in this segment also include coverage owned by employees under
business sold through corporate sponsorship. During 1998, the Company recorded
$4.1 billion of deposits of new variable COLI business, increasing variable COLI
account value to $13.0 billion as of December 31, 1998 compared to $8.5 billion
as of December 31, 1997.
In November 1998, Hartford Life recaptured an in force block of leveraged COLI
business from MBL Life Assurance Co. of New Jersey (MBL Life). The transaction
was consummated through the assignment of a reinsurance arrangement between
Hartford Life and MBL Life to a Hartford Life subsidiary. Hartford Life
originally assumed the life insurance block in 1992 from Mutual Benefit Life
Insurance Company (Mutual Benefit Life), which was placed in court-supervised
rehabilitation in 1991, and reinsured a portion of those polices back to MBL
Life. MBL Life, previously a Mutual Benefit Life subsidiary, operates under the
Rehabilitation Plan for Mutual Benefit Life. Primarily as a result of this
transaction, leveraged COLI account value increased to $7.4 billion as of
December 31, 1998 compared to $3.8 billion as of December 31, 1997. This also
impacted COLI revenues, which were $1.6 billion and $980 in 1998 and 1997,
respectively. COLI segment earnings, however, declined 11%, to $24 in 1998, due
to reduced profits on the block of leveraged COLI the Company had prior to the
HIPA Act of 1996.
OTHER MATTERS
RESERVES
In accordance with applicable insurance regulations under which Hartford Life
operates, life insurance subsidiaries of the Company establish and carry as
liabilities actuarially determined reserves which are calculated to meet
Hartford Life'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, which are modified to
reflect Hartford Life'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 Company's policy obligations at their
maturities or in the event of an insured's death. Reserves also include unearned
premiums, premium deposits, claims incurred but not reported and claims reported
but not yet paid. Reserves for assumed reinsurance are computed on bases
essentially comparable to direct insurance reserves.
For Hartford Life's universal life and interest-sensitive whole life policies,
reserves are set according to premiums collected, plus interest credited, less
charges. Other fixed death benefit and individual life 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 persistency of Hartford Life'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, which is usually at least 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 Company 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.
9
<PAGE> 10
Hartford Life's reserves comply, in all material respects, with state insurance
department statutory accounting practices; however, in the Company's
Consolidated Financial Statements, life insurance reserves are determined in
accordance with generally accepted accounting principles, which may vary from
statutory accounting practices.
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.
Most states have enacted legislation which regulates insurance holding company
systems such as Hartford Life. 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.
REINSURANCE
In accordance with normal industry practice, Hartford Life is involved in both
the cession and assumption of insurance with other insurance and reinsurance
companies. As of December 31, 1998, the maximum amount of life insurance
retained on any one life by any of the life operations is approximately $2.5,
excluding accidental death benefits.
INVESTMENT OPERATIONS
The Company's investment operations are managed by its investment strategy group
which reports directly to senior management of the Company. Hartford Life's
investments have been separated into specific portfolios which support specific
classes of product liabilities. The investment strategy group works closely with
the product lines to develop investment guidelines, including duration targets,
asset allocation and convexity constraints, asset/liability mismatch tolerances
and return objectives, to ensure that the product line's individual risk and
return objectives are met. The Company's primary investment objective for its
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.
For further discussion of Hartford Life's investment operations and the
Company's approach to managing investment risk, see the Investments section and
the Capital Markets Risk Management section of the MD&A, as well as Notes 2(e),
2(f) and 4 of Notes to Consolidated Financial Statements.
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 and Contingencies section of the
MD&A under "Legislative Initiatives".
10
<PAGE> 11
INSOLVENCY FUND
Reference is made to the Regulatory Initiatives and Contingencies section of the
MD&A under "Insolvency Fund".
NAIC PROPOSALS
Reference is made to the Regulatory Initiatives and Contingencies section of the
MD&A under "NAIC Proposals".
DEPENDENCE ON CERTAIN THIRD PARTY RELATIONSHIPS
Reference is made to the Regulatory Initiatives and Contingencies section of the
MD&A under "Dependence on Certain Third Party Relationships".
YEAR 2000
Reference is made to the Regulatory Initiatives and Contingencies section of the
MD&A under "Year 2000".
EMPLOYEES
Hartford Life had approximately 4,500 employees at February 26, 1999.
EXECUTIVE OFFICERS OF HARTFORD LIFE
Information about the executive officers of Hartford Life who are also directors
and/or nominees for election as directors is set forth in Hartford Life's 1999
Proxy Statement. In addition to those executive officers who are listed in the
1999 Proxy Statement, listed below are other Company executive officers:
GREGORY A. BOYKO, 47, is Senior Vice President and Director of the Company's
international operations since November 1997. He joined Hartford Life in 1995 as
Controller. In 1996, he became the Company's Chief Financial Officer and
Treasurer, which position he held until August 1998. He previously worked at ING
America Life Insurance Company where he held the position of Senior Vice
President and Chief Financial Officer. His prior experience included positions
at Connecticut Mutual Life Insurance Company (CML), where he progressed from
Controller of CML to Chief Financial Officer of Connecticut Mutual Insurance
Services. Mr. Boyko holds a Juris Doctor degree and is a Certified Public
Accountant, Chartered Life Underwriter and Chartered Financial Consultant. He is
a member of the Connecticut and American Bar Associations and the Connecticut
Society of Certified Public Accountants.
DAVID T. FOY, 32, is Senior Vice President, Director of Finance and Treasurer.
Mr. Foy was appointed to his current position in August 1998. He joined Hartford
Life in 1993 in the individual annuity product management area and assumed the
position of Director of Strategic Planning in 1995. He was promoted to Assistant
Vice President and Director of Finance in 1997. He began his career in 1989 at
Milliman & Robertson, an actuarial consulting firm. He is a Fellow of the
Society of Actuaries and a member of the American Academy of Actuaries.
LYNDA GODKIN, 44, is Senior Vice President and General Counsel. She joined
Hartford Life in 1990 as Counsel for the Employee Benefits Segment. In 1994 she
was named Assistant General Counsel and Director of Hartford Life's Law
Department. In 1996 she was named General Counsel of Hartford Life. She
previously practiced law at CIGNA Corporation. She began her legal career in
1981 at the law firm of Day, Berry & Howard in Hartford, Connecticut. She is a
member of the Connecticut and American Bar Associations.
RAYMOND P. WELNICKI, 50, is Senior Vice President and heads the Strategic
Operations Unit since February 1999. He joined Hartford Life in 1992 as Actuary,
Director of Group Actuarial and Long-Term Care. He was named Vice President of
Hartford Life in 1993. He served as Senior Vice President and Director of
Employee Benefits since 1994. Prior to 1992, he was employed with Aetna Life &
Casualty Company as Assistant Vice President, Issues and Strategic Management.
He is a Fellow of the Society of Actuaries.
LIZABETH H. ZLATKUS, 40, is Senior Vice President and Director of Employee
Benefits since February 1999. Ms. Zlatkus has held positions of increasing
responsibility since joining The Hartford in 1983. She was named Senior Vice
President and Director of Group Life and Disability in 1997. Prior to that time,
she served as Vice President and Director of Risk Management and Business
Operations. She began her career at Peat, Marwick, Mitchell & Company. She
became a Certified Public Accountant in 1982.
DAVID M. ZNAMIEROWSKI, 38, is Senior Vice President and Director of
Investment Strategy. Mr. Znamierowski joined Hartford Life in 1996 as
Director of Risk Management. Previously, he held various positions with
Aetna Life & Casualty Company, including Vice President, Investment Strategy
and Policy. From 1986 through 1991, Mr. Znamierowski held positions with
Salomon Brothers Inc.
11
<PAGE> 12
ITEM 2. PROPERTIES
Hartford Life's principal executive offices are located in Simsbury,
Connecticut. The Company's home office complex consists of approximately 615
thousand square feet, and is leased from a third party by Hartford Fire
Insurance Company (Hartford Fire), an indirect subsidiary of The Hartford. This
lease expires in the year 2009. Expenses associated with these offices are
allocated on a direct and indirect basis to Hartford Life by Hartford Fire.
ITEM 3. LEGAL PROCEEDINGS
Hartford Life is involved in pending and threatened litigation in the normal
course of its business in which claims for monetary and punitive damages have
been asserted. Although there can be no assurances, at the present time the
Company does not anticipate that the ultimate liability arising from such
pending or threatened litigation, after consideration of provisions made for
potential losses and costs of defense, will have a material adverse effect on
the financial condition or operating results of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders of Hartford Life during
the fourth quarter of the fiscal year covered by this report.
PART II
ITEM 5. MARKET FOR HARTFORD LIFE'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Hartford Life's Class A Common Stock is traded on the New York Stock Exchange
(NYSE) under the trading symbol "HLI". Hartford Life's Class B Common Stock is
held by Hartford Accident and Indemnity Insurance Company (HA&I), an indirect
wholly-owned subsidiary of The Hartford. As such, the Class B Common Stock is
not listed on any exchange and there is no established public trading market for
it.
The following table presents high and low closing prices for the Class A Common
Stock of Hartford Life on the NYSE for the periods indicated, and the quarterly
dividends declared per share on Class A and Class B Common Stock:
<TABLE>
<CAPTION>
1998 1997
-------------------------------------------------- ---------------------------------------------
1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr. 1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Common Stock Price
High ............... $50.00 $56.94 $62.19 $58.38 N/A $37.50 $41.75 $45.31
Low ................ $40.00 $46.75 $42.25 $33.88 N/A $32.13 $33.94 $34.63
Dividends Declared (1) $ 0.09 $ 0.09 $ 0.09 $ 0.09 -- -- $ 0.09 $ 0.09
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Dividends declared exclude amounts paid to Hartford Life's parent prior to
the Company's initial public offering.
N/A - Not applicable.
As of February 26, 1999, there were approximately 600 shareholders of record of
Hartford Life's Class A Common Stock and HA&I was the only holder of Class B
Common Stock.
Dividend decisions will be based on, and affected by, a number of factors,
including the operating results and financial requirements of Hartford Life on a
stand-alone basis and the impact of regulatory restrictions discussed in the
Liquidity Requirements section of the Management's Discussion and Analysis of
Financial Condition and Results of Operations (MD&A).
There are also various legal limitations governing the extent to which Hartford
Life's insurance subsidiaries may pay dividends, extend credit or otherwise
provide funds to Hartford Life, Inc. as discussed in the Capital Resources and
Liquidity section of the MD&A under "Liquidity Requirements".
12
<PAGE> 13
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
(In millions, except for per share data) 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (1)
General account invested assets $ 24,882 $ 20,970 $19,830 $20,072 $18,078
Separate account assets (2) 90,628 69,362 49,770 36,296 22,847
All other assets 6,512 10,648 10,333 9,594 9,324
- ---------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $122,022 $100,980 $79,933 $65,962 $50,249
- ---------------------------------------------------------------------------------------------------------------------
Policy liabilities $ 25,484 $ 26,078 $26,239 $26,318 $25,208
Separate account liabilities (2) 90,628 69,362 49,770 36,296 22,847
Allocated advances from parent (3) -- -- 893 732 525
Debt (3) 650 700 -- -- --
Company obligated mandatorily
redeemable preferred
securities of subsidiary trust
holding solely parent
junior subordinated debentures (4) 250 -- -- -- --
All other liabilities 2,517 2,696 1,757 1,439 1,283
- ---------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES $119,529 $ 98,836 $78,659 $64,785 $49,863
- ---------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY $ 2,493 $ 2,144 $ 1,274 $ 1,177 $ 386
- ---------------------------------------------------------------------------------------------------------------------
INCOME STATEMENT DATA (1)
Total revenues $ 5,788 $ 4,699 $ 4,384 $ 4,090 $ 3,543
Total expenses 5,402 4,393 4,360 3,940 3,392
- ---------------------------------------------------------------------------------------------------------------------
NET INCOME (5) $ 386 $ 306 $ 24 $ 150 $ 151
- ---------------------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE DATA
Basic earnings per share (6) $ 2.76 $ 2.28 $ 0.19 $ -- $ --
Diluted earnings per share (6) $ 2.75 $ 2.28 $ 0.19 $ -- $ --
Dividends declared per common share (7) $ 0.36 $ 0.18 $ -- $ -- $ --
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) On November 10, 1998, the Company recaptured an in force block of
corporate owned life insurance (COLI) business from MBL Life Assurance Co.
of New Jersey (MBL Life). For additional information, see the COLI section
as well as the MBL Recapture discussion under "Purchases of Affiliates and
Other" within the Capital Resources and Liquidity section of the
Management's Discussion and Analysis of Financial Condition and Results of
Operations (MD&A).
(2) Includes both non-guaranteed and guaranteed separate accounts.
(3) For financial reporting purposes, the Company has treated certain amounts
previously allocated by The Hartford Financial Services Group, Inc. (The
Hartford) to the Company's life insurance subsidiaries as allocated
advances from parent. Cash received in respect of allocated advances from
parent was used to support the growth of the life insurance subsidiaries.
For additional information, see Note 7 of Notes to Consolidated Financial
Statements.
(4) On June 29, 1998, Hartford Life Capital I, a special purpose Delaware
trust formed by Hartford Life, issued 10,000,000, 7.2% Trust Preferred
Securities, Series A (Series A Preferred Securities). The proceeds from
the sale of the Series A Preferred Securities were used to acquire $250 of
7.2% Series A Junior Subordinated Deferrable Interest Debentures (Junior
Subordinated Debentures) issued by Hartford Life. For additional
information, see Note 8 of Notes to Consolidated Financial Statements.
(5) 1996 includes realized losses of $225 primarily resulting from actions
taken in the third quarter of 1996 related to the Company's guaranteed
investment contract business. For additional information, see the
Investment Products section of the MD&A.
(6) Pro forma effect on basic and diluted earnings per share has been given
for the 1997 and 1996 periods presented for the conversion of 1,000 shares
of common stock into 114 million shares of Class B Common Stock, which
occurred on April 3, 1997, prior to the Company's initial public offering
(IPO). For information regarding the IPO and earnings per share data, see
Notes 3 and 10 of Notes to Consolidated Financial Statements,
respectively.
(7) Dividends per common share represent amounts declared subsequent to the
Company's IPO on May 22, 1997. (For information regarding the IPO, see
Note 3 of Notes to Consolidated Financial Statements.) The table does not
include dividends paid to the parent in periods prior to the IPO.
13
<PAGE> 14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Dollar amounts in millions, except for share data, unless otherwise stated)
Management's Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with the Consolidated Financial
Statements and related Notes beginning on page F-1.
Certain statements contained in this discussion, other than statements of
historical fact, are forward-looking statements. These statements are made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995 and include estimates and assumptions related to economic,
competitive and legislative developments. These forward-looking statements are
subject to change and uncertainty which are, in many instances, beyond the
Company's control and have been made based upon management's expectations and
beliefs concerning future developments and their potential effect on Hartford
Life, Inc. and subsidiaries ("Hartford Life" 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 Hartford Life will be
those anticipated by management. Actual results could differ materially from
those expected by the Company, depending on the outcome of certain factors,
including those described in the forward-looking statements.
Certain reclassifications have been made to prior year financial information to
conform to the current year presentation.
INDEX
<TABLE>
<S> <C> <C> <C>
Consolidated Results of Operations 14 Investments 20
Investment Products 16 Capital Markets Risk Management 22
Individual Life 17 Capital Resources and Liquidity 30
Employee Benefits 18 Regulatory Initiatives and Contingencies 32
Corporate Owned Life Insurance (COLI) 19 Effect of Inflation 34
Reserves 20 Accounting Standards 34
</TABLE>
CONSOLIDATED RESULTS OF OPERATIONS
Hartford Life is a leading financial services and insurance company providing
investment products such as variable and fixed annuities, retirement plan
services and mutual funds; individual and corporate owned life insurance; and,
employee benefit products such as group life and disability insurance.
The Company derives its revenues principally from: (a) asset management fees on
separate accounts and mutual fund assets and mortality and expense fees; (b)
fully insured premiums; (c) net investment income on general account assets;
and, (d) certain other fees earned by the Company. Asset management fees and
mortality and expense fees are primarily generated from separate account assets
which are deposited with the Company through the sale of variable annuity and
variable life products and from mutual fund sales. Premium revenues are derived
primarily from the sale of group life and group disability insurance products.
Hartford Life's operating expenses primarily consist of interest credited to
policyholders on general account liabilities, insurance benefits provided,
dividends to policyholders, costs of selling and servicing the various products
offered by the Company, and other general business expenses. Hartford Life's
profitability depends largely on the amount of assets under management, the
level of fully insured premiums, the adequacy of product pricing and
underwriting discipline, and its ability to earn target spreads between earned
investment rates on general account assets and credited rates to customers.
OPERATING SUMMARY
<TABLE>
<CAPTION>
1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Premiums and other considerations $ 3,833 $ 3,163 $ 3,069
Net investment income 1,955 1,536 1,534
Net realized capital losses -- -- (219)
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL REVENUES 5,788 4,699 4,384
----------------------------------------------------------------------------------------------------------------------------
Benefits, claims and claim adjustment expenses 3,227 2,671 2,727
Amortization of deferred policy acquisition costs 441 345 241
Dividends to policyholders 330 241 635
Other expenses 1,205 962 750
----------------------------------------------------------------------------------------------------------------------------
TOTAL BENEFITS, CLAIMS AND EXPENSES 5,203 4,219 4,353
----------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAX EXPENSE 585 480 31
Income tax expense 199 174 7
----------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 386 $ 306 $ 24
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE> 15
Hartford Life has the following reportable segments: Investment Products,
Individual Life, Employee Benefits and Corporate Owned Life Insurance (COLI).
The Company reports in "Other" corporate items not directly allocable to any of
its segments, principally interest expense, as well as its international
operations, which are primarily located in Latin America. For information
regarding the Company's reportable segments as they relate to SFAS No. 131, see
Note 17 of Notes to Consolidated Financial Statements.
Revenues increased $1.1 billion, or 23%, to $5.8 billion in 1998 from $4.7
billion in 1997. The increase was due in part to the continued growth in
revenues in Investment Products of $274 and Individual Life of $57 as a result
of higher aggregate fees earned on growth in account values due to strong sales
and equity market appreciation. Additionally, Employee Benefits revenues
increased $109 primarily due to strong sales and good persistency. Also
contributing to the increase were COLI revenues which grew $587 primarily due to
the recapture of an in force block of COLI business (referred to as "MBL
Recapture") previously ceded to MBL Life Assurance Co. of New Jersey (MBL Life)
transacted in the fourth quarter 1998.
Total benefits, claims and expenses increased $984, or 23%, to $5.2 billion in
1998 from $4.2 billion in 1997. Benefits, claims and claim adjustment expenses
increased $556 and dividends to policyholders increased $89 which were primarily
attributable to the COLI segment where benefits, claims and claim adjustment
expenses increased $485 and dividends to policyholders increased $89 primarily
related to the MBL Recapture. In addition, increased benefits, claims and claim
adjustment expenses in Employee Benefits of $34 and Individual Life of $18 were
associated with the growth in these segments. Higher amortization of deferred
policy acquisition costs (DPAC) of $96 in 1998 was a result of the large volume
of sales in Investment Products and Individual Life in the past several years.
Also, other expenses increased $243 in 1998 as a result of higher commissions
and operating expenses in Investment Products and Employee Benefits primarily
related to the growth in these segments.
Revenues increased $315, or 7%, to $4.7 billion in 1997 from $4.4 billion in
1996. This increase was primarily due to Investment Products, where revenues
increased $503 in 1997 from 1996 as a result of fee income earned on growth in
separate account assets due to strong annuity sales and equity market
appreciation. Investment Products revenues were also impacted by the guaranteed
investment contract (GIC) business, where revenues increased $205, primarily as
a result of net realized capital losses in the third quarter of 1996.
Additionally, revenues in Employee Benefits increased $237 due to sales growth.
Higher revenues in Individual Life of $38, reflecting the impact of applying
cost of insurance charges and variable life fees to a larger block of business,
also contributed to the increase. Partially offsetting these increases was a
decrease in COLI revenues of $380 due to the Health Insurance Portability and
Accountability Act of 1996 (HIPA Act of 1996), which phased out the
deductibility of interest expense on policy loans by the end of 1998, virtually
eliminating all new sales of leveraged COLI.
Total benefits, claims and expenses decreased $134 in 1997 as compared to 1996.
This decrease was primarily driven by COLI, where dividends to policyholders
declined $394 in 1997 due to the HIPA Act of 1996, as discussed above. Partially
offsetting this decrease was an increase in benefits, claims and expenses of
$215 in Employee Benefits associated with the growth in this segment.
Additionally, benefits, claims and expenses increased $67 in Investment Products
primarily related to individual annuity products, partially offset by declines
related to GIC business.
Net income totaled $386 in 1998 as compared to $306 in 1997 and $24 in 1996. The
improvement in earnings for both comparative periods was primarily driven by
higher aggregate fee income earned on growth in the Company's account values due
to strong sales and equity market appreciation in Investment Products and
Individual Life. Additionally, the improvement in earnings for these comparative
periods was impacted by strong sales and favorable mortality and morbidity
experience in Employee Benefits. Also contributing to the improvement in 1997
was the reduction in losses resulting from actions taken in the third quarter of
1996 related to the Company's GIC business.
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 Company's asset and fully insured premium growth and
to maximize shareholder value. Hartford Life's strong market position in each of
its primary businesses, coupled with the growth potential management believes
exists in its markets, provides opportunities to increase sales of the Company'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.
Certain proposed legislative initiatives which could impact Hartford Life are
discussed in the Regulatory Initiatives and Contingencies section.
15
<PAGE> 16
SEGMENT RESULTS
Below is a summary of net income (loss) by segment.
<TABLE>
<CAPTION>
1998 1997 1996
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment Products $ 266 $ 202 $ (80)
Individual Life 65 56 44
Employee Benefits 71 58 45
Corporate Owned Life Insurance 24 27 26
Other (40) (37) (11)
- ---------------------------------------------------------------------------------------------
NET INCOME $ 386 $ 306 $ 24
- ---------------------------------------------------------------------------------------------
</TABLE>
A description of each segment as well as an analysis of the operating results
summarized above is included on the following pages. Reserves and Investments
are discussed in separate sections.
INVESTMENT PRODUCTS
OPERATING SUMMARY
<TABLE>
<CAPTION>
1998 1997 1996
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Premiums and other considerations $ 1,045 $ 771 $ 541
Net investment income 739 739 685
Net realized capital losses -- -- (219)
- --------------------------------------------------------------------------------------------------------------------------
TOTAL REVENUES 1,784 1,510 1,007
-------------------------------------------------------------------------------------------------------------------
Benefits, claims and claim adjustment expenses 671 677 748
Amortization of deferred policy acquisition costs 326 250 175
Other expenses 376 269 206
- --------------------------------------------------------------------------------------------------------------------------
TOTAL BENEFITS, CLAIMS AND EXPENSES 1,373 1,196 1,129
-------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAX EXPENSE (BENEFIT) 411 314 (122)
Income tax expense (benefit) 145 112 (42)
- --------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ 266 $ 202 $ (80)
-------------------------------------------------------------------------------------------------------------------
</TABLE>
The Investment Products segment focuses on the savings and retirement needs of
the growing number of individuals who are preparing for retirement or have
already retired through the sale of individual annuities and other investment
products. The individual annuity products offered include individual variable
annuities, fixed market value adjusted annuites (MVA) annuities and fixed and
variable immediate annuities. The other investment products offered include
retail mutual funds, deferred compensation and retirement plan services for
municipal governments, teachers, hospitals and corporations; structured
settlement contracts and other special purpose annuity contracts; and,
investment management services. The Company sells both variable and fixed
individual annuity products through a wide distribution network of national and
regional broker-dealer organizations, banks and other financial institutions,
and independent financial advisors. The Company was ranked the number one writer
of individual variable annuities in the United States for 1998 according to
Variable Annuity and Research Data Service (VARDS) and the number one seller of
individual variable annuities through banks, according to Kenneth Kehrer and
Associates.
Revenues increased $274, or 18%, to $1.8 billion in 1998 from $1.5 billion in
1997. Driven primarily by the individual annuity operation, this improvement was
a result of higher aggregate fees earned on growth in account values due to
strong net cash flow resulting from a high volume of sales and favorable
persistency as well as significant equity market appreciation in the Company's
separate accounts. Fee income related to individual variable annuity products
increased $236 as related average account values grew $14.9 billion, or 38%, to
$54.6 billion in 1998 from $39.7 billion in 1997. This growth was a result of
strong individual variable annuity sales of $9.9 billion in 1998 as well as
equity market appreciation. In addition, fee income from other investment
products increased $60 primarily as a result of growth in the Company's mutual
fund operations, where assets under management increased $1.5 billion in 1998 to
$2.5 billion as compared to $972 in 1997.
Total benefits, claims and expenses increased $177, or 15%, to $1.4 billion in
1998 from $1.2 billion in 1997 as a result of the continued growth in this
segment. Other expenses increased $107 in 1998 as compared to 1997 primarily due
to growth in the mutual funds and individual annuity operations. Amortization of
DPAC grew $76 primarily due to individual annuity products as sales remained
strong. A 38% growth in average variable annuity account value in 1998, coupled
with a reduction in individual annuity operating expenses as a percentage of
total individual annuity account value to 23 basis points in 1998 from 25 basis
points in 1997, contributed to the increase in net income of $64, or 32%, to
$266 in 1998 from $202 in 1997.
16
<PAGE> 17
Revenues increased $503, or 50%, to $1.5 billion in 1997 from $1.0 billion in
1996. This increase was primarily driven by the individual annuity operation,
whose revenues increased $253, reflecting a substantial improvement in aggregate
fees earned as a result of this segment's growing account values. Average
individual variable annuity account values increased $13.1 billion, or 49%, to
$39.7 billion in 1997 from $26.6 billion in 1996, primarily due to strong net
cash flow resulting from a high volume of sales and favorable persistency as
well as significant equity market appreciation in the Company's separate
accounts. In addition, within other investment products, $205 of the segment's
increase in revenues was related to GIC business, which was primarily impacted
by $219 of net realized capital losses primarily resulting from actions taken in
the third quarter of 1996. Associated with strong sales and continued growth in
this segment, benefits, claims and expenses grew $67, or 6%, over the prior
year. A 27% growth in total average account value in 1997, coupled with
operating efficiencies and a reduction in losses of $225 primarily as a result
of actions taken in the third quarter of 1996 related to the Company's GIC
business, increased net income $282 to $202 in 1997 from $(80) in 1996.
OUTLOOK
The market for retirement products continues to expand as individuals
increasingly save and plan for retirement. Demographic trends suggest that as
the baby boom generation matures, a significant portion of the United States
population will allocate a greater percentage of their disposable incomes to
saving for their retirement years due to uncertainty surrounding the Social
Security system and increases in average life expectancy. As this market grows,
particularly for variable annuities and mutual funds, new companies are
continually entering the market and aggressively seeking distribution
capabilities and pursuing market share. This trend is not expected to subside,
particularly in light of pending legislation to deregulate the financial
services industry.
Management believes that it has developed and implemented strategies to maintain
and enhance its position as a market leader in the financial services industry.
INDIVIDUAL LIFE
OPERATING SUMMARY
<TABLE>
<CAPTION>
1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Premiums and other considerations $378 $339 $313
Net investment income 189 171 159
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL REVENUES 567 510 472
-----------------------------------------------------------------------------------------------------------------------------
Benefits, claims and claim adjustment expenses 269 251 266
Amortization of deferred policy acquisition costs 108 87 63
Dividends to policyholders 1 1 1
Other expenses 88 84 74
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL BENEFITS, CLAIMS AND EXPENSES 466 423 404
-----------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAX EXPENSE 101 87 68
Income tax expense 36 31 24
- ------------------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 65 $ 56 $ 44
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Individual Life segment, which focuses on the high end estate and business
planning markets, sells a variety of life insurance products, including variable
life, universal life, interest-sensitive whole life and term life insurance.
Revenues in 1998 increased $57, or 11%, to $567 from $510 in 1997, reflecting
the impact of applying cost of insurance charges and variable life fees on the
growing block of variable life insurance. Variable life average account values
increased $562, or 67%, to $1.4 billion in 1998 from $840 in 1997 due to strong
sales and equity market appreciation. In 1998, higher variable life sales of
$29, or 30%, constituted the majority of increased total sales over 1997. Total
benefits, claims and expenses increased $43, or 10%, to $466 in 1998 from $423
in 1997. This increase was the result of an increase in amortization of DPAC of
$21 and benefits, claims and claim adjustment expenses of $18 in 1998 related to
the growth in this segment. As a result of growth in account values, primarily
variable life, net income increased $9, or 16%, in 1998 as compared to 1997.
Revenues in 1997 increased $38, or 8%, to $510 from $472 in 1996. In the first
quarter of 1996, a block of business was assumed from Investors Equity Life
Insurance Company (IEL) which increased 1996 revenues by $9. Excluding this
transaction, 1997 revenues increased $47, or 10%, as compared to 1996,
reflecting the impact of applying cost of insurance charges and variable life
fees to a larger block of business. Total account values increased $555, or 17%,
to $3.8 billion in 1997 from $3.2 billion in 1996. Sales were $140 in 1997, an
increase of 8% over 1996. Variable life sales constituted 70%, or $98, of total
1997 sales and grew $23, or 31%, over 1996 levels. Total benefits, claims and
expenses increased $19, or 5%, to $423 in 1997 from $404 in 1996. Total
benefits, claims and expenses, excluding IEL, increased $28, or 7%, in 1997.
This increase was primarily driven by an increase in amortization of DPAC of $24
in 1997 related to the growth in new variable life business. The growth in this
segment's account values, particularly variable life, along with favorable
mortality experience, contributed to an increase in net income of $12, or 27%,
in 1997 from 1996.
17
<PAGE> 18
OUTLOOK
Management believes that the Company's strong market position will provide
opportunities for growth in this segment as individuals increasingly prepare
their estates for an efficient transfer of wealth between generations.
EMPLOYEE BENEFITS
OPERATING SUMMARY
<TABLE>
<CAPTION>
1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Premiums and other considerations $1,629 $1,538 $1,329
Net investment income 180 162 134
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL REVENUES 1,809 1,700 1,463
-----------------------------------------------------------------------------------------------------------------------------
Benefits, claims and claim adjustment expenses 1,335 1,301 1,140
Amortization of deferred policy acquisition costs 7 6 4
Other expenses 369 303 251
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL BENEFITS, CLAIMS AND EXPENSES 1,711 1,610 1,395
-----------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAX EXPENSE 98 90 68
Income tax expense 27 32 23
- ------------------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 71 $ 58 $ 45
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Employee Benefits segment primarily sells group life and group disability
insurance as well as other products including, stop loss and supplementary
medical coverage to employers and employer sponsored plans, accidental death and
dismemberment, travel accident, long-term care insurance and other special risk
coverages to employers and associations. The Company also offers disability
underwriting, administration, claims processing services and reinsurance to
other insurers and self-funded employer plans. According to the latest results
published by Life Insurance Marketing and Research Association (LIMRA), the
Company was the second largest provider of group disability insurance and the
third largest writer of group life insurance in the United States for the nine
months ended September 30, 1998.
Revenues increased $109, or 6%, to $1.8 billion in 1998 as compared to $1.7
billion in 1997. This increase was driven by growth in fully insured premiums,
excluding buyouts, which increased $181, or 13%, in 1998. This increase was
primarily due to group life and group disability, where ongoing premiums
increased $69 and $55, respectively, in 1998 as compared to 1997 due to strong
sales and good persistency. Sales of fully insured business, excluding buyouts,
were $397 in 1998, an increase of $68, or 21%, over 1997; of which, group life
and group disability business were each $148 in 1998, an increase of $26 and
$23, respectively, as compared to 1997.
Total benefits, claims and expenses increased $101, or 6%, to $1.7 billion in
1998 from $1.6 billion in 1997. The increase was the result of higher benefits,
claims and claim adjustment expenses, which, excluding buyouts, increased $121
due to the growth in this segment; however, the ratio of benefits, claims and
claim adjustment expenses as a percentage of premiums and other considerations
(excluding buyouts) improved to 81.5% in 1998 from 83.2% in 1997. This
improvement was partially offset by an increase in other expenses of $66,
whereby other expenses as a percentage of premiums and other considerations,
excluding buyouts, increased to 23.3% in 1998 from 21.5% in 1997. This trend is
due to the Company's continued investment in claims management initiatives which
result in higher operating expenses, but improve benefits, claims and claim
adjustment expenses.
The segment's effective income tax rate was reduced to 28% in 1998 as compared
to 36% in 1997 as a result of increasing the level of investment in tax-exempt
securities, which resulted in an improvement in the after-tax investment yield
to 5.2% in 1998 from 5.0% in 1997, even though the rate of interest for
marketable securities decreased during 1998.
As a result of increased premium revenue, an improved after-tax investment yield
and favorable mortality and morbidity experience, Employee Benefits net income
grew $13, or 22%, to $71 in 1998 from $58 in 1997.
Revenues increased $237, or 16%, to $1.7 billion in 1997 as compared to $1.5
billion in 1996. This increase was due to growth in fully insured premiums,
excluding buyouts, attributable to group disability business of $107, or 25%,
and group life business of $79, or 19%, in 1997 as compared to 1996. Sales of
fully insured business, excluding buyouts, increased $91, or 38%, to $329 in
1997 as compared to 1996. Included in the 1997 results are group disability and
group life premiums of $89 and $16, respectively, as a result of the acquisition
of a block of business from the United States branch of Confederation Life
Insurance Company. The 1996 results include $78 of group disability premiums and
$23 of group life premiums related to the acquisition of a block of business
from North American Life Assurance Company of Toronto. Benefits, claims and
expenses increased $215, or 15%, to $1.6 billion in 1997 from $1.4 billion in
1996 primarily attributable to growth in the Company's group life and group
disability business. As a result of the premium growth in this segment, net
income grew $13, or 29%, to $58 in 1997 from $45 in 1996.
18
<PAGE> 19
OUTLOOK
As employers continue to offer benefit plans in order to attract and retain
valued employees, management expects that the need for group life and group
disability insurance will continue to expand and believes the Company is well
positioned to take advantage of this growth potential.
CORPORATE OWNED LIFE INSURANCE (COLI)
OPERATING SUMMARY
<TABLE>
<CAPTION>
1998 1997 1996
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Premiums and other considerations $ 774 $ 551 $ 880
Net investment income 793 429 480
- ----------------------------------------------------------------------------------------------------
TOTAL REVENUES 1,567 980 1,360
---------------------------------------------------------------------------------------------
Benefits, claims and claim adjustment expenses 924 439 545
Dividends to policyholders 329 240 634
Other expenses 278 259 144
- ----------------------------------------------------------------------------------------------------
TOTAL BENEFITS, CLAIMS AND EXPENSES 1,531 938 1,323
---------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAX EXPENSE 36 42 37
Income tax expense 12 15 11
- ----------------------------------------------------------------------------------------------------
NET INCOME $ 24 $ 27 $ 26
---------------------------------------------------------------------------------------------
</TABLE>
Hartford Life is a leader in the COLI market, which includes life insurance
policies purchased by a company on the lives of its employees, with the company
named as the beneficiary under the policy. Until the HIPA Act of 1996, the
Company sold two principal types of COLI business, leveraged and variable
products. Leveraged COLI is a fixed premium life insurance policy owned by a
company or a trust sponsored by a company. The HIPA Act of 1996 phased out the
deductibility of interest on policy loans under leveraged COLI at the end of
1998, virtually eliminating all future sales of this product. Variable COLI
continues to be a product used by employers to fund non-qualified benefits or
other post-employment benefit liabilities. Products marketed in this segment
also include coverage owned by employees under business sold through corporate
sponsorship.
Revenues in this operation increased $587, or 60%, to $1.6 billion in 1998 from
$980 in 1997. This increase was primarily related to the recapture of an in
force block of COLI business, previously ceded to MBL Life, which was transacted
in the fourth quarter 1998. (For additional information regarding the MBL
Recapture, see "Purchases of Affiliates and Other" under the Capital Resources
and Liquidity section.) The MBL Recapture, which was retroactive to January 1,
1998, resulted in an increase in COLI revenues of $624 and is comprised of $245
of premiums and other considerations and $379 of net investment income. Higher
fee income on the segment's growing block of variable COLI account values also
contributed to the increase in revenues. Partially offsetting these increases
was a decline in premiums and other considerations on leveraged COLI as that
block of business continues to decline due to the implications of the HIPA Act
of 1996 (discussed above).
Benefits, claims and expenses increased $593, or 63%, to $1.5 billion in 1998
from $938 in 1997. The MBL Recapture resulted in an increase in benefits, claims
and expenses of $624 and is comprised of $478 of benefits, claims and other
expenses and $146 of dividends to policyholders. The increase in benefits,
claims and expenses was also a result of the growth in the segment's variable
COLI block of business, which was partially offset by a decrease in benefits,
claims and expenses related to leveraged COLI.
Net income declined $3, or 11%, to $24 in 1998 from $27 in 1997 as the growth in
the Company's variable COLI business was offset by the declining block of
leveraged COLI the Company had prior to passage of the HIPA Act of 1996. The MBL
Recapture had no impact on earnings in 1998.
COLI revenues decreased $380, or 28%, to $980 in 1997 from $1.4 billion in 1996.
COLI expenses also declined, primarily due to a $394 decrease in dividends to
policyholders. These decreases were primarily the result of the HIPA Act of 1996
discussed above. Net income of $27 in 1997 was consistent with 1996 results.
19
<PAGE> 20
OUTLOOK
The focus of this segment is variable COLI, which continues to be a product
generally used by employers to fund non-qualified benefits or other
post-employment benefit liabilities. The leveraged COLI product has been an
important contributor to Hartford Life's profitability in recent years and will
continue to contribute to the profitability of Hartford Life in the future,
although the level of profit is expected to decline. COLI is subject to a
changing legislative and regulatory environment that could have a material
adverse affect on its business.
Certain proposed legislative initiatives which could impact Hartford Life are
discussed in the Regulatory Initiatives and Contingencies section.
RESERVES
In accordance with applicable insurance regulations under which Hartford Life
operates, life insurance subsidiaries of the Company establish and carry as
liabilities actuarially determined reserves which are calculated to meet
Hartford Life'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, which are modified to
reflect Hartford Life'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 Company's policy obligations at their
maturities or in the event of an insured's death. Reserves include unearned
premiums, premium deposits, claims incurred but not reported and claims reported
but not yet paid. Reserves for assumed reinsurance are computed on bases
essentially comparable to direct insurance reserves.
INVESTMENTS
GENERAL
The Company's investments are managed by its investment strategy group, which
consists of a risk management unit and a portfolio management unit and reports
directly to senior management of the Company. The risk management unit is
responsible for monitoring and managing the Company's asset/liability profile
and establishing investment objectives and guidelines. The portfolio management
unit is responsible for determining, within specified risk tolerances and
investment guidelines, the appropriate asset allocation, duration, and convexity
characteristics of the Company's general account and guaranteed separate account
investment portfolios. The Hartford Investment Management Company, a wholly
owned subsidiary of The Hartford Financial Services Group, Inc., executes the
investment plan of the investment strategy group, including the identification
and purchase of securities that fulfill the objectives of the strategy group.
The primary investment objective of the Company'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 relative to that of policyholder obligations). The Company does
not hold any financial instruments purchased for trading purposes. The Company
is exposed to two primary sources of investment risk: credit risk, relating to
the uncertainty associated with an obligor's continued ability to make timely
payment of principal and/or interest, and interest rate risk, relating to the
market price and/or cash flow variability associated with changes in market
yield curves. See the Capital Markets Risk Management section for further
discussion of the Company's approach to managing these investment risks.
The Company's separate accounts reflect two categories of risk assumption:
non-guaranteed separate accounts totaling $80.6 billion and $58.7 billion as of
December 31, 1998 and 1997, respectively, wherein the policyholder assumes
substantially all the investment risk and reward, and guaranteed separate
accounts totaling $10.0 billion and $10.7 billion as of December 31, 1998 and,
1997, respectively, wherein Hartford Life contractually guarantees either a
minimum return or account value to the policyholder. Non-guaranteed separate
account products include variable annuities, variable life insurance contracts
and COLI. Guaranteed separate account products primarily consist of modified
guaranteed individual annuities and modified guaranteed life insurance and
generally include market value adjustment features to mitigate the risk of
disintermediation.
The Company's general account consists of a diversified portfolio of
investments. Although all the assets of the general account support all the
Company's liabilities, the Company's investment strategy group has developed
separate investment portfolios for specific classes of product liabilities
within the general account. The strategy group works closely with the business
lines to develop specific investment guidelines, including duration targets,
asset allocation and convexity constraints, asset/liability mismatch tolerances
and return objectives for each product line in order to achieve each product
line's individual risk and return objectives.
Invested assets in the Company's general account totaled $24.9 billion as of
December 31, 1998 and were comprised of $17.7 billion of fixed maturities, $6.7
billion of policy loans and other investments of $503. As of December 31, 1997,
general account invested assets totaled $21.0 billion and were comprised of
$16.8 billion of fixed maturities, $3.8 billion of policy loans and other
investments of $363. Policy loans, which had a weighted-average interest rate of
9.9% and 11.2%, as of December 31, 1998 and 1997,
20
<PAGE> 21
respectively, increased primarily as a result of the MBL Recapture. These loans
are secured by the cash value of the underlying life insurance policies and do
not mature in a conventional sense, but expire in conjunction with the related
policy liabilities.
The following table sets forth by type the fixed maturity securities held in the
Company's general account as of December 31, 1998 and 1997.
<TABLE>
<CAPTION>
1998 1997
-----------------------------------------------------
FIXED MATURITIES BY TYPE FAIR VALUE PERCENT FAIR VALUE PERCENT
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Corporate $ 7,898 44.6% $ 7,970 47.3%
Asset backed securities 2,465 13.9% 3,199 19.0%
Short-term 2,119 12.0% 1,395 8.3%
Commercial mortgage backed securities 2,036 11.5% 1,606 9.5%
Municipal - tax-exempt 916 5.2% 171 1.0%
Collateralized mortgage obligations 831 4.7% 978 5.8%
Government/Government agencies - foreign 530 3.0% 502 3.0%
Mortgage backed securities - agency 503 2.9% 514 3.1%
Municipal - taxable 223 1.3% 267 1.6%
Government/Government agencies - U.S. 166 0.9% 241 1.4%
Redeemable preferred stock 5 -- 5 --
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL FIXED MATURITIES $17,692 100.0% $16,848 100.0%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
During 1998, the Company, in executing its investment strategy, increased its
allocation to municipal tax-exempt securities with the objective of increasing
after-tax yields, and also increased its allocation to commercial mortgage
backed securities while decreasing its allocation to asset backed securities.
The increase in short-term investments as of December 31, 1998 as compared to
1997 was impacted by the settlement of the MBL Recapture in the fourth quarter
1998 (as discussed in the COLI section), which resulted in short-term investment
proceeds of approximately $300.
Approximately 22.8% and 22.6% of the Company's fixed maturity portfolio was
invested in private placement securities (including Rule 144A offerings) as of
December 31, 1998 and 1997, respectively. Private placement securities are
generally less liquid than public securities; however, covenants for private
placements are designed to mitigate liquidity risk. Most of the private
placement securities in the Company's portfolio are rated by nationally
recognized rating organizations. For further discussion of the Company's
investment credit policies, see the Capital Markets Risk Management section
under "Credit Risk".
INVESTMENT RESULTS
The table below summarizes Hartford Life's investment results for the past three
years.
<TABLE>
<CAPTION>
(Before-tax) 1998 1997 1996
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net investment income - excluding policy loan income $1,166 $1,111 $ 1,057
Policy loan income 789 425 477
- -------------------------------------------------------------------------------------
Net investment income - total $1,955 $1,536 $ 1,534
- -------------------------------------------------------------------------------------
Yield on average invested assets (1) 7.9% 7.6% 7.7%
- -------------------------------------------------------------------------------------
Net realized capital losses $ -- $ -- $ (219)
- -------------------------------------------------------------------------------------
</TABLE>
(1) Represents net investment income (excluding net realized capital
losses) divided by average invested assets at cost (fixed maturities at
amortized cost). In 1998, average invested assets were calculated
assuming the MBL Recapture proceeds were received on January 1, 1998.
Total net investment income, before-tax, increased $419, or 27%, to $2.0 billion
in 1998 from $1.5 billion in 1997, principally due to an increase in policy loan
income of $364 which is primarily due to the MBL Recapture. (For additional
information on the MBL Recapture, see the COLI section.) Yields on average
invested assets, before-tax, increased to 7.9% in 1998 from 7.6% in 1997
primarily due to the increase in policy loan income that resulted from the MBL
Recapture as well as an increase in fixed maturities rated BBB. There were no
net realized capital gains or losses for the years ended December 31, 1998 and
1997. During 1998, realized capital gains from the sale of fixed maturities and
equity securities were offset by realized capital losses, including $21,
after-tax, related to the other than temporary impairment charge associated with
asset backed securities securitized and serviced by Commercial Financial
Services, Inc. (CFS). (For additional information on CFS, see Note 16,
Commitments and Contingencies, of Notes to Consolidated Financial Statements.)
Total net investment income, before-tax, totaled $1.5 billion in 1997, unchanged
from 1996. Total yields on average invested assets, before-tax, decreased to
7.6% in 1997 from 7.7% in 1996 primarily attributable to declining market
interest rates. In 1996, net realized capital losses of $219 were primarily
attributable to the writedown and sale of certain securities within the
Company's GIC business.
21
<PAGE> 22
CAPITAL MARKETS RISK MANAGEMENT
As described below, credit risk and market risk are the primary sources of
investment risk to the Company. The following discussion identifies the
Company's policies and procedures for managing these risks and monitoring the
results of the Company's risk management activities.
CREDIT RISK
Hartford Life has established investment credit policies that focus on the
credit quality of obligors and counterparties, limit credit concentrations,
encourage diversification and require frequent creditworthiness reviews.
Investment activity, including setting of policy and defining acceptable risk
levels, is subject to regular review and approval by senior management and
frequent review by Hartford Life's Finance Committee.
The Company invests primarily in securities rated investment grade and has
established exposure limits, diversification standards and review procedures for
all credit risks including borrower, issuer and counterparty. Creditworthiness
of specific obligors is determined by an internal credit evaluation supplemented
by consideration of external determinants of creditworthiness, typically ratings
assigned by nationally recognized ratings agencies. Obligor, asset sector and
industry concentrations are subject to established limits and monitored at
regular intervals.
The following table identifies fixed maturity securities for the Company's
operations by credit quality. The ratings referenced in the tables are based on
the ratings of nationally recognized rating organizations or, if not rated,
assigned based on the Company's internal analysis of such securities.
As of December 31, 1998 and 1997, over 98% of the fixed maturity portfolio,
including guaranteed separate accounts, was invested in investment-grade
securities.
<TABLE>
<CAPTION>
1998 1997
-------------------------------------------------
FIXED MATURITIES BY CREDIT QUALITY FAIR VALUE PERCENT FAIR VALUE PERCENT
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government/Government agencies $ 2,596 9.5% $ 2,907 10.7%
AAA 3,542 12.9% 3,974 14.6%
AA 2,674 9.7% 2,967 10.9%
A 8,878 32.3% 9,351 34.3%
BBB 7,019 25.6% 5,966 21.9%
BB & below 492 1.8% 205 0.7%
Short-term 2,265 8.2% 1,869 6.9%
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL FIXED MATURITIES $27,466 100.0% $27,239 100.0%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Company also maintains credit policies regarding the financial stability and
credit standing of its major derivatives' counterparties and typically requires
credit enhancement provisions to further reduce its credit risk. Credit risk for
derivatives contracts is limited to the amounts calculated to be due to the
Company on such contracts based on current market conditions and potential
payment obligations between the Company and its counterparties. Credit exposures
are quantified weekly and netted, and collateral is pledged to or held by the
Company to the extent the current value of derivatives exceeds exposure policy
thresholds.
22
<PAGE> 23
MARKET RISK
Hartford Life's general and guaranteed separate account exposure to market risk
relates to the market price and/or cash flow variability associated with changes
in market interest rates. The following discussion focuses on the Company's
exposure to interest rate risk, asset/liability management strategies utilized
to manage this risk, and characteristics of the Company's insurance liabilities
and their sensitivity to movements in interest rates.
INTEREST RATE RISK
Changes in interest rates can potentially impact the Company's profitability.
Under certain circumstances of interest rate volatility, the Company could be
exposed to disintermediation risk and reduction in net interest rate spread or
profit margins. For non-guaranteed separate accounts, the Company's exposure is
not significant since the policyholder assumes substantially all of the
investment risk.
The Company's general account and guaranteed separate account investment
portfolios primarily consist of investment grade, fixed maturity securities,
including corporate bonds, asset backed securities, collateralized mortgage
obligations and mortgage backed securities. The fair value of these and the
Company's other invested assets fluctuates depending on the interest rate
environment and other general economic conditions. During periods of declining
interest rates, paydowns on mortgage backed securities and collateralized
mortgage obligations increase as the underlying mortgages are prepaid. In
addition, during such periods, the Company generally will not be able to
reinvest the proceeds of any such prepayments at comparable yields. Conversely,
during periods of rising interest rates, the rate of prepayments generally
declines exposing the Company to the possibility of asset/liability cash flow
and yield mismatch. For a discussion of the Company's risk management techniques
to manage this market risk, see "Asset/Liability Management Strategies Used to
Manage Market Risk" below.
As described above, the Company holds a significant fixed maturity portfolio,
which includes both fixed and variable rate features. The following table
reflects the principal amounts of the fixed and variable rate fixed maturity
portfolio, along with the respective weighted average coupons by estimated
maturity year as of December 31, 1998. Comparative totals are included for
December 31, 1997. Expected maturities differ from contractual maturities due to
call or prepayment provisions. The weighted average coupon on variable rate
securities is based on spot rates as of December 31, 1998 and 1997, and is
primarily based on the London Interbank Offered Rate (LIBOR). Callable bonds and
notes are distributed to either call dates or maturity, depending on which date
produces the most conservative yield. Asset backed securities, collateralized
mortgage obligations and mortgage backed securities are distributed to maturity
year based on estimates of the rate of future prepayments of principal over the
remaining life of the securities. These estimates are developed using prepayment
speeds provided in broker consensus data. Such estimates are derived from
prepayment speeds previously experienced at the interest rate levels projected
for the underlying collateral. Actual prepayment experience may vary from these
estimates. Financial instruments with certain leverage features have been
included in each of the fixed maturity categories. These instruments have not
been separately displayed because they were immaterial to the Company's
investment portfolio.
23
<PAGE> 24
<TABLE>
<CAPTION>
1998 1997
1999 2000 2001 2002 2003 Thereafter TOTAL Total
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BONDS AND NOTES - CALLABLE
Fixed Rate
Par value $ 49 $ 31 $ 53 $ 40 $ 56 $ 854 $ 1,083 $ 706
Weighted average coupon 7.8% 7.3% 5.8% 7.1% 8.4% 5.1% 5.6% 6.0%
Fair value $ 1,080 $ 668
Variable Rate
Par value $ 40 $ 52 $ 39 $ 14 $ -- $ 937 $ 1,082 $ 1,167
Weighted average coupon 6.7% 7.3% 5.4% 5.9% -- 5.9% 6.0% 6.5%
Fair value $ 982 $ 1,106
BONDS AND NOTES - OTHER
Fixed Rate
Par value $ 2,871 $ 1,352 1,291 $ 988 $ 1,087 $ 7,701 $ 15,290 $ 14,999
Weighted average coupon 6.6% 7.0% 7.4% 7.5% 6.8% 5.7% 6.3% 5.9%
Fair value $ 15,315 $ 14,815
Variable Rate
Par value $ 90 $ 176 $ 14 $ 81 $ 90 $ 702 $ 1,153 $ 1,309
Weighted average coupon 5.1% 5.9% 5.4% 5.4% 5.4% 5.9% 5.8% 5.3%
Fair value $ 1,114 $ 1,352
ASSET BACKED SECURITIES
Fixed Rate
Par value $ 472 $ 442 $ 436 $ 209 $ 145 $ 449 $ 2,153 $ 2,288
Weighted average coupon 6.7% 6.9% 6.8% 6.7% 6.4% 6.9% 6.8% 7.0%
Fair value $ 2,074 $ 2,325
Variable Rate
Par value $ 187 $ 256 $ 356 $ 208 $ 193 $ 530 $ 1,730 $ 1,959
Weighted average coupon 6.1% 6.1% 6.3% 5.9% 6.6% 6.0% 6.1% 6.4%
Fair value $ 1,683 $ 1,959
COLLATERALIZED MORTGAGE
OBLIGATIONS
Fixed Rate
Par value $ 456 $ 400 $ 167 $ 129 $ 88 $ 185 $ 1,425 $ 1,739
Weighted average coupon 6.0% 6.0% 6.0% 6.7% 7.0% 7.2% 6.5% 5.9%
Fair value $ 1,371 $ 1,695
Variable Rate
Par value $ 43 $ 20 $ 8 $ 6 $ 6 $ 183 $ 266 $ 446
Weighted average coupon 6.3% 6.8% 7.2% 8.4% 8.4% 6.0% 6.2% 7.3%
Fair value $ 264 $ 424
COMMERCIAL MORTGAGE BACKED
SECURITIES
Fixed Rate
Par value $ 53 $ 112 $ 133 $ 139 $ 96 $ 1,234 $ 1,767 $ 1,448
Weighted average coupon 7.6% 6.7% 7.6% 7.1% 6.8% 7.1% 7.1% 7.3%
Fair value $ 1,784 $ 1,441
Variable Rate
Par value $ 109 $ 235 $ 50 $ 135 $ 132 $ 499 $ 1,160 $ 810
Weighted average coupon 6.7% 6.6% 7.0% 6.3% 6.9% 6.9% 6.7% 7.0%
Fair value $ 1,075 $ 821
MORTGAGE BACKED SECURITIES
Fixed Rate
Par value $ 88 $ 82 $ 73 $ 60 $ 52 $ 368 $ 723 $ 576
Weighted average coupon 7.1% 6.9% 6.7% 6.7% 6.7% 8.3% 7.6% 7.3%
Fair value $ 682 $ 590
Variable Rate
Par value $ 1 $ 2 $ 1 $ 1 $ 1 $ 5 $ 11 $ 24
Weighted average coupon 7.8% 8.4% 8.6% 8.6% 8.6% 8.8% 8.6% 6.5%
Fair value $ 10 $ 24
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
24
<PAGE> 25
The table below provides information as of December 31, 1998 and 1997 on debt
obligations and reflects principal cash flows and related weighted average
interest rate by maturity year.
<TABLE>
<CAPTION>
1998 1997
1999 2000 2001 2002 2003 Thereafter TOTAL Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SHORT-TERM DEBT
Fixed Rate
Amount $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ 50
Weighted average effective interest rate -- -- -- -- -- -- -- 5.8%
Fair value $ -- $ 50
LONG-TERM DEBT
Fixed Rate
Amount $ -- $ -- $ -- $ -- $ -- $ 650 $ 650 $ 650
Weighted average effective interest rate -- -- -- -- -- 7.4% 7.4% 7.4%
Fair value $ 710 $ 674
TruPS (1)
Fixed Rate
Amount $ -- $ -- $ -- $ -- $ -- $ 250 $ 250 $ --
Weighted average effective interest rate -- -- -- -- -- 7.4% 7.4% --
Fair value $ 254 $ --
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Represents company obligated mandatorily redeemable preferred
securities of subsidiary trust holding solely parent junior
subordinated debentures.
ASSET/LIABILITY MANAGEMENT STRATEGIES USED TO MANAGE MARKET RISK
The Company employs several risk management tools to quantify and manage market
risk arising from its investments and interest sensitive liabilities. For
certain portfolios, 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 efficiently fund obligations, hedge against
risks that affect the value of certain liabilities and adjust broad investment
risk characteristics as a result of any significant changes in market risks. The
Company uses a variety of derivatives, including swaps, caps, floors, forwards
and exchange-traded financial futures and options, in order to hedge exposure
primarily to interest rate risk on anticipated investment purchases or existing
assets and liabilities. The Company does not make a market or trade derivatives
for the express purpose of earning trading profits. The Company's derivative
program is monitored by an internal compliance unit and is reviewed frequently
by senior management and reported to Hartford Life's Finance Committee. The
notional amounts of derivative contracts, which represent the basis upon which
pay or receive amounts are calculated and are not reflective of credit risk,
totaled $11.2 billion as of December 31, 1998 ($6.0 billion related to insurance
investments and $5.2 billion related to life insurance liabilities). As of
December 31, 1997, the notional amounts pertaining to derivatives totaled $10.9
billion ($6.6 billion related to insurance investments and $4.3 billion related
to life insurance liabilities).
The strategies described below are used to manage the aforementioned risks.
Anticipatory Hedging -- For certain liabilities, the Company commits to the
price of the product prior to receipt of the associated premium or deposit.
Anticipatory hedges are routinely executed to offset the impact of changes in
asset prices arising from interest rate changes pending the receipt of premium
or deposit and the subsequent 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, 1998 and 1997 was $712 and $255, respectively.
Liability Hedging -- Several products obligate the Company to credit a return to
the contract holder which is indexed to a market rate. To hedge risks associated
with these products, the Company 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 Company to customize contract terms
and conditions to customer objectives and satisfies the operation'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 hedges as of December 31, 1998 and 1997 was $5.2
billion and $4.3 billion, respectively.
25
<PAGE> 26
Asset Hedging -- To meet the various policyholder obligations and to provide
cost effective prudent investment risk diversification, the Company may combine
two or more financial instruments to achieve the investment characteristics of a
fixed maturity security or that match an associated liability. The use of
derivative instruments in this regard effectively transfers unwanted investment
risks or attributes to others. The selection of the appropriate derivative
instruments 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, 1998 and 1997 was $3.8 billion and $3.2 billion,
respectively.
Portfolio Hedging -- The Company 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 desired levels.
Portfolio hedges reduce the mismatch between assets and liabilities and offset
the potential impact to cash flows caused by changes in interest rates. The
notional amount of portfolio hedges as of December 31, 1998 and 1997 was $1.5
billion and $3.1 billion, respectively.
The following tables provide information as of December 31, 1998, with
comparative totals for December 31, 1997, on derivative instruments used in
accordance with the aforementioned hedging strategies. For interest rate swaps,
caps and floors, the tables present notional amounts with weighted average pay
and received rates for swaps and weighted average strike rates for caps and
floors by maturity year. For interest rate futures, the table presents contract
amount and weighted average settlement price by expected maturity year.
<TABLE>
<CAPTION>
1998 1997
INTEREST RATE SWAPS 1999 2000 2001 2002 2003 Thereafter TOTAL Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Pay Fixed/Receive Variable
Notional value $ 125 $ 96 $ 148 $ 222 $ 110 $ 682 $ 1,383 $ 874
Weighted average pay rate 6.1% 5.0% 6.1% 5.1% 5.9% 6.1% 5.9% 6.5%
Weighted average receive rate 5.7% 5.4% 5.3% 5.4% 5.4% 5.4% 5.4% 6.1%
Fair value $ (66) $ (19)
Pay Variable/Receive Fixed
Notional value $ 975 $ 552 $ 274 $ 379 $ 605 $ 2,140 $ 4,925 $ 4,212
Weighted average pay rate 5.3% 5.3% 5.3% 5.3% 5.3% 5.3% 5.3% 5.9%
Weighted average receive rate 6.5% 6.5% 7.2% 6.4% 5.8% 6.2% 6.3% 6.9%
Fair value $ 160 $ 172
Pay Variable/Receive Different
Variable
Notional value $ 157 $ 210 $ 91 $ 235 $ 83 $ 627 $ 1,403 $ 1,581
Weighted average pay rate 5.4% 5.5% 5.4% 5.0% 4.9% 5.5% 5.2% 6.4%
Weighted average receive rate 6.8% 5.5% 7.3% 5.2% 4.9% 5.8% 5.8% 6.7%
Fair value $ (2) $ (3)
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
1998 1997
INTEREST RATE CAPS - LIBOR BASED (1) 1999 2000 2001 2002 2003 Thereafter TOTAL Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Purchased
Notional value $-- $ -- $ 5 $ -- $ 11 $ 26 $ 42 $ 43
Weighted average strike rate -- -- 5.9% -- 5.3% 5.1% 5.2% 5.2%
(4.0 - 5.9%)
Fair value $ 1 $ 3
Notional value $-- $ -- $ -- $ -- $ -- $ 35 $ 35 $ 85
Weighted average strike rate
(6.0 - 7.9%) -- -- -- -- -- 6.6% 6.6% 6.8%
Fair value $ 1 $ 1
Notional value $-- $ -- $ -- $ 10 $ 68 $ 122 $ 200 $ 260
Weighted average strike rate
(8.0 - 9.9%) -- -- -- 8.9% 8.6% 8.4% 8.5% 8.5%
Fair value $ 1 $ 2
Notional value $ 5 $10 $ -- $ 26 $ -- $ -- $ 41 $ 52
Weighted average strike rate 11.8% 11.5% -- 10.1% -- -- 10.7% 10.9%
(10.0 - 11.9%)
Fair value $ -- $ --
Issued
Notional value $-- $-- $ -- $ -- $ -- $ 13 $ 13 $ 63
Weighted average strike rate -- -- -- -- -- 7.2% 7.2% 7.0%
(6.0 - 7.9%)
Fair value $ -- $ --
Notional value $-- $-- $ -- $ -- $ 7 $ 6 $ 13 $ 17
Weighted average strike rate
(8.0 - 9.9%) -- -- -- -- 8.2% 8.6% 8.3% 8.5%
Fair value $ -- $ --
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) LIBOR represents the London Interbank Offered Rate.
26
<PAGE> 27
<TABLE>
<CAPTION>
1998 1997
INTEREST RATE CAPS - CMT BASED (1) 1999 2000 2001 2002 2003 Thereafter TOTAL Total
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Purchased
Notional value $ -- $ 344 $ -- $ -- $ 250 $ 17 $ 611 $ 561
Weighted average strike rate
(6.0 - 7.9%) -- 7.8% -- -- 7.7% 7.0% 7.7% 7.6%
Fair value $ -- $ --
Notional value $ -- $ -- $ 100 $ 100 $ 250 $ 500 $ 950 $ 295
Weighted average strike rate
(8.0 - 9.9%) -- -- 8.0% 9.5% 8.7% 8.7% 8.7% 8.5%
Fair value $ 1 $ --
Issued
Notional value $ -- $ 344 $ -- $ -- $ -- $ 17 $ 361 $ 361
Weighted average strike rate
(6.0 - 7.9%) -- 7.8% -- -- -- 7.5% 7.8% 7.8%
Fair value $ -- $ --
Notional value $ -- $ -- $ 100 $ 100 $ -- $ -- $ 200 $ 200
Weighted average strike rate
(8.0 - 9.9%) -- -- 8.0% 9.5% -- -- 8.8% 8.8%
Fair value $ -- $ --
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) CMT represents the Constant Maturity Treasury rate.
<TABLE>
<CAPTION>
1998 1997
INTEREST RATE FLOORS - LIBOR BASED 1999 2000 2001 2002 2003 Thereafter TOTAL Total
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Purchased
Notional value $ 100 $ -- $ -- $ -- $ -- $ -- $ 100 $ 100
Weighted average strike rate (4.0 - 5.9%) 4.2% -- -- -- -- -- 4.2% 4.2%
Fair value $ -- $ --
Notional value $ -- $ -- $ -- $ -- $ -- $ 65 $ 65 $ 65
Weighted average strike rate (6.0 - 7.9%) -- -- -- -- -- 7.0% 7.0% 7.0%
Fair value $ 7 $ 5
Issued
Notional value $ -- $ 10 $ 10 $ 36 $ 68 $ 116 $ 240 $ 263
Weighted average strike rate (4.0 - 5.9%) -- 5.1% 4.9% 5.3% 5.4% 5.3% 5.3% 5.3%
Fair value $ (7) $ (4)
Notional value $ -- $ -- $ -- $ -- $ -- $ 27 $ 27 $ 27
Weighted average strike rate (6.0 - 7.9%) -- -- -- -- -- 7.8% 7.8% 7.8%
Fair value $ (4) $ (3)
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
1998 1997
INTEREST RATE FLOORS - CMT BASED 1999 2000 2001 2002 2003 Thereafter TOTAL Total
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Purchased
Notional value $ -- $ 100 $ -- $ -- $ 150 $ -- $ 250 $550
Weighted average strike rate (4.0 - 5.9%) -- 5.8% -- -- 5.5% -- 5.6% 5.7%
Fair value $ 8 $ 4
Notional value $ 40 $ 10 $ -- $ -- $ -- $ -- $ 50 $631
Weighted average strike rate (6.0 - 7.9%) 6.5% 6.0% -- -- -- -- 6.4% 6.1%
Fair value $ 1 $ 9
Issued
Notional value $ -- $ -- $ -- $ -- $ -- $ -- $ -- $540
Weighted average strike rate (4.0 - 5.9%) -- -- -- -- -- -- -- 5.0%
Fair value $ -- $ (2)
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
27
<PAGE> 28
<TABLE>
<CAPTION>
1998 1997
INTEREST RATE FUTURES 1999 2000 2001 2002 2003 Thereafter TOTAL Total
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Long
Contract amount / Notional $ 12 $ -- $ -- $ -- $ -- $ -- $ 12 $ 19
Weighted average settlement
price $ 106 $ -- $ -- $ -- $ -- $ -- $ 106 $ 121
Short
Contract amount / Notional $ 220 $ 20 $ -- $ -- $ -- $ -- $ 240 $ 50
Weighted average settlement
price $ 127 $ 95 $ -- $ -- $ -- $ -- $ 124 $ 94
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
Note: Fair value is not applicable.
LIFE INSURANCE LIABILITY CHARACTERISTICS
Hartford Life's insurance liabilities, other than non-guaranteed separate
accounts, are primarily related to accumulation vehicles such as fixed or
variable annuities and investment contracts and other insurance products such as
long-term disability and term life insurance.
Asset Accumulation Vehicles
While interest rate risk associated with these insurance products has been
reduced through the use of market value adjustment features and 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
targeted returns.
Fixed Rate -- Products in this category require the Company 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. Product examples include fixed rate annuities with a market
value adjustment and fixed rate guaranteed investment contracts. Contract
duration is dependent on the policyholder's choice of guarantee period.
Indexed -- Products in this category are similar to the fixed rate asset
accumulation vehicles but require the Company 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.
Interest Credited -- 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.
Product examples include universal life contracts and the general account
portion of the Company's variable annuity products. Liability duration is short-
to intermediate-term.
Other Insurance Products
Long-term Pay Out Liabilities -- Products in this category are long-term in
nature and may contain significant actuarial (including mortality and morbidity)
pricing and cash flow risks. The cash flows associated with these policy
liabilities are not interest rate 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 that the actual
timing of the cash flows will differ from those anticipated resulting in an
investment return lower than that 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.
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 and the variability in the timing of the expected cash flows.
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.
28
<PAGE> 29
Management of the duration of investments with respective policyholder
obligations is an explicit objective of the Company's management strategy. The
estimated cash flows of insurance policy liabilities based upon internal
actuarial assumptions as of December 31, 1998 are reflected in the table below
by expected maturity year. Comparative totals are included for December 31,
1997.
<TABLE>
<CAPTION>
(Dollars in billions)
- ----------------------------------------------------------------------------------------------------------------------------------
1998 1997
DESCRIPTION (1) 1999 2000 2001 2002 2003 Thereafter TOTAL Total
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed rate asset accumulation vehicles $ 2.1 $ 1.8 $ 1.3 $ 0.7 $ 1.4 $ 3.6 $10.9 $12.7
Weighted average credited rate 6.6% 7.0% 6.8% 6.4% 5.4% 7.0% 6.6% 6.8%
Indexed asset accumulation vehicles $ 0.2 $ 0.1 $ -- $ -- $ -- $ -- $ 0.3 $ 0.2
Weighted average credited rate 5.2% 5.1% -- -- -- -- 5.1% 5.9%
Interest credited asset
accumulation vehicles $ 5.0 $ 0.7 $ 0.9 $ 0.6 $ 0.5 $ 5.6 $13.3 $10.8
Weighted average credited rate 5.9% 5.7% 5.7% 5.9% 5.9% 5.9% 5.9% 5.8%
Long-term pay out liabilities $ 0.4 $ 0.4 $ 0.2 $ 0.2 $ 0.2 $ 1.3 $ 2.7 $ 2.3
Short-term pay out liabilities $ 0.7 $ -- $ -- $ -- $ -- $ -- $ 0.7 $ 0.5
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) As of December 31, 1998 and 1997, the fair value of the Company's
investment contracts, including guaranteed separate accounts, was $21.7
billion and $21.9 billion, respectively.
CURRENCY EXCHANGE RISK
Hartford Life's international holdings as of December 31, 1998 totaled
approximately $100, which are primarily located in Latin America and are
inherently affected by currency fluctuations. The Company's primary currency
exposure relates to the Brazilian real and the Argentine peso and is not
expected to have a material impact on the Company's liquidity or financial
condition.
SENSITIVITY TO CHANGES IN INTEREST RATES
For liabilities whose cash flows are not substantially affected by changes in
interest rates (fixed liabilities) and where investment experience is
substantially absorbed by the Company, the sensitivity of the net economic value
(discounted present value of asset cash flows less the discounted present value
of liability cash flows) of those portfolios to 100 basis point shifts in
interest rates is shown in the table below. These fixed liabilities represent
approximately 60% of the Company's general and guaranteed separate account
liabilities at both December 31, 1998 and 1997. The remaining liabilities
generally allow the Company significant flexibility to adjust credited rates to
reflect actual investment experience and thereby pass through a substantial
portion of actual investment experience to the policyholder. The fixed liability
portfolios are managed and monitored relative to defined objectives and are
analyzed regularly by management for internal risk management purposes using
scenario simulation techniques, and evaluated annually consistent with
regulatory requirements.
<TABLE>
<CAPTION>
CHANGE IN NET ECONOMIC
VALUE
------------------------
Basis Point Shift -100 +100
-------------------------------------------------
<S> <C> <C>
DECEMBER 31, 1998
Amount $ 7 $ (16)
Percent of liability
value 0.05% (0.1)%
-------------------------------------------------
DECEMBER 31, 1997
Amount $ 5 $ (10)
Percent of liability
value 0.03% (0.06)%
-------------------------------------------------
</TABLE>
29
<PAGE> 30
CAPITAL RESOURCES AND LIQUIDITY
Capital resources and liquidity represent the overall financial strength of
Hartford Life 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 Company maintained cash and short-term investments totaling
$2.2 billion, $1.5 billion and $837 as of December 31, 1998, 1997 and 1996,
respectively. The capital structure of Hartford Life consists of debt and
equity, and is summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Short-term debt $ -- $ 50 $ --
Long-term debt 650 650 --
Company obligated mandatorily redeemable preferred
securities of subsidiary trust holding solely
parent junior subordinated debentures (TruPS) 250 -- --
Allocated advances from parent -- -- 893
- --------------------------------------------------------------------------------------
TOTAL DEBT $ 900 $ 700 $ 893
- --------------------------------------------------------------------------------------
Equity excluding net unrealized capital gains on
securities, net of tax $2,230 $1,907 $1,245
Net unrealized capital gains on securities, net of tax 263 237 29
- --------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY $2,493 $2,144 $1,274
- --------------------------------------------------------------------------------------
TOTAL CAPITALIZATION (1) $3,130 $2,607 $2,138
- --------------------------------------------------------------------------------------
Debt to equity (1) 40% 37% 72%
Debt to capitalization (1) 29% 27% 42%
- --------------------------------------------------------------------------------------
</TABLE>
(1) Excludes net unrealized capital gains on securities, net of tax.
CAPITALIZATION
The Company's total capitalization, excluding net unrealized capital gains on
securities, net of tax, increased $523, or 20%, in 1998 and $469, or 22%, in
1997. In 1998, the increase was primarily the result of net income of $386 and
the issuance of TruPS of $250, which were partially offset by the retirement of
$50 in commercial paper, dividends declared of $50 and the repurchase of
treasury stock, net of reissuances, of $8. In 1997, the increase was primarily
the result of net income of $306 and net proceeds from the IPO of $687, which
were partially offset by a net reduction in debt of $193 and dividends of $341.
As a result, both the debt to equity and debt to capitalization ratios (both
exclude net unrealized capital gains on securities, net of tax) increased to 40%
and 29% as of December 31, 1998, respectively, from 37% and 27% as of December
31, 1997, respectively.
INITIAL PUBLIC OFFERING
For a discussion of Hartford Life's IPO, see Note 3 of Notes to Consolidated
Financial Statements.
DEBT
For a discussion of Debt, see Note 7 of Notes to Consolidated Financial
Statements.
COMPANY OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF SUBSIDIARY
TRUST HOLDING SOLELY PARENT JUNIOR SUBORDINATED DEBENTURES
For a discussion of Company Obligated Mandatorily Redeemable Preferred
Securities of Subsidiary Trust Holding Solely Parent Junior Subordinated
Debentures, see Note 8 of Notes to Consolidated Financial Statements.
DIVIDENDS
In 1998, a total of $50 in dividends was declared to holders of Class A and
Class B Common Stock. See "Debt" discussion above for 1997 dividend payments
made prior to the IPO.
Dividend decisions will be based on, and affected by, a number of factors,
including the operating results and financial requirements of Hartford Life on a
stand-alone basis and the impact of the regulatory restrictions discussed in
Liquidity Requirements below.
As a holding company, Hartford Life, Inc. has no significant business operations
of its own and, therefore, primarily 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 (primarily debt obligations)
and pay stockholder dividends. Hartford Life, Inc. received dividends from its
regulated life insurance subsidiaries of $76 in 1998. Statutory net income and
statutory capital and surplus, key determinants in the amount of dividend
capacity available in the insurance company subsidiaries, has grown
significantly over the past several years.
30
<PAGE> 31
Statutory net income was $265 in 1998, 19% higher than in 1997 and more than
three and one-half times the level in 1994. Statutory capital and surplus as of
December 31, 1998 was $2.0 billion, more than 50% above the level as of December
31, 1996.
TREASURY STOCK
During 1998, to make shares available to employees pursuant to stock-based
benefit plans, the Company repurchased 285,000 shares of its Class A Common
Stock in the open market at a total cost of $15. Shares repurchased in the open
market are carried at cost and reflected as a reduction to stockholders' equity.
Treasury shares subsequently reissued are reduced from treasury stock on a
weighted average cost basis. The Company currently intends to purchase
additional shares of its Class A Common Stock to make shares available for its
various employee stock-based benefit plans.
RATINGS
The following table summarizes Hartford Life's significant U.S. member
companies' financial ratings from the major independent rating organizations as
of February 17, 1999:
<TABLE>
<CAPTION>
DUFF & STANDARD &
A.M. BEST PHELPS MOODY'S POOR'S
----------------------------------------------------------------
<S> <C> <C> <C> <C>
INSURANCE RATINGS
Hartford Life Insurance A+ AA+ Aa3 AA
Company
Hartford Life and A+ AA+ Aa3 AA
Accident
Hartford Life and A+ AA+ Aa3 AA
Annuity
----------------------------------------------------------------
OTHER RATINGS
Hartford Life, Inc.
Senior debt a+ A+ A2 A
Commercial paper - D-1 P-1 A-1
Hartford Life Capital I
Trust preferred a+ A a2 BBB+
securities
----------------------------------------------------------------
</TABLE>
Ratings are an important factor in establishing the competitive position of an
insurance company such as Hartford Life. There can be no assurance that the
Company's ratings will continue for any given period of time or that they will
not be changed. In the event that the Company's ratings are downgraded, the
level of sales or the persistency of the Company's block of in force business
may be adversely impacted.
LIQUIDITY REQUIREMENTS
The liquidity requirements of Hartford Life 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. Hartford
Life is a holding company which receives operating cash flow in the form of
dividends from its subsidiaries, enabling it to service its debt.
Dividends to Hartford Life, Inc. from its subsidiaries are subject to
restriction. The payment of dividends by Connecticut-domiciled insurers is
limited under the insurance holding company laws of Connecticut. Hartford Life
and Accident (HLA), a direct subsidiary of the Company, 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. The total amount of statutory dividends
which may be paid by the insurance subsidiaries of the Company without prior
approval in 1999 is estimated to be $201.
The insurance holding company laws of the other jurisdictions in which Hartford
Life'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, Hartford Life
carries a significant short-term investment position and accordingly does not
anticipate selling intermediate-
31
<PAGE> 32
and long-term fixed maturity investments to meet any liquidity needs. For a
discussion of the Company's investment objectives and strategies, see the
Investments section.
RISK-BASED CAPITAL
The National Association of Insurance Commissioners (NAIC) adopted regulations
establishing minimum capitalization requirements based on Risk-Based Capital
(RBC) formulas for life insurance companies (effective December 31, 1993). The
requirements consist of formulas which identify companies that are
undercapitalized and require specific regulatory actions. The RBC formula for
life insurance companies establishes capital requirements relating to insurance,
business, asset and interest rate risks. The RBC ratios for each of the major
life insurance subsidiaries are in excess of 200% as of December 31, 1998.
CASH FLOW
<TABLE>
<CAPTION>
1998 1997 1996
- -----------------------------------------------------------------
<S> <C> <C> <C>
Cash provided by operating
activities $ 667 $ 1,147 $ 338
Cash provided by (used for)
investing activities 87 (650) 58
Cash used for financing activities (803) (480) (394)
Cash - end of year 36 88 72
- -----------------------------------------------------------------
</TABLE>
In 1998, the change in cash provided by operating activities was primarily the
result of timing in the settlement of receivables and payables as well as an
increase in income taxes paid. The change in cash provided by or used for
investing activities primarily reflects a decrease in policy loans resulting
from the reduction of COLI account values in conjunction with the decline of the
block of leveraged COLI offset by the investment of cash from operating and
financing activities. The change in cash used for financing activities was
primarily due to declines in GIC and COLI account values as well as proceeds
from the IPO in May 1997, partially offset by changes in debt, dividends paid
and proceeds from the TruPS offering.
During 1997, cash provided by operating activities increased from the prior year
due primarily to growth in the Individual Life segment and the Employee Benefits
segment. The change in cash used for investing activities primarily reflects the
investment of cash from operating activities. The change in cash used for
financing activities was primarily due to declines in investment-type contracts
and changes in debt and dividends paid to the Company's parent, which were
partially offset by proceeds from the IPO.
Operating cash flows in the periods presented have been more than adequate to
meet liquidity requirements.
PURCHASES OF AFFILIATES AND OTHER
Planco -- On August 26, 1998, the Company completed the purchase of all
outstanding shares of PLANCO Financial Services, Inc. and its affiliate, PLANCO,
Incorporated (collectively, "PLANCO"). PLANCO, a primary distributor of the
Company's annuities and mutual funds, is the nation's largest wholesaler of
individual annuities and has played a significant role in Hartford Life's growth
over the past decade. As a wholesaler, PLANCO distributes Hartford Life's fixed
and variable annuities, mutual funds and single premium variable life insurance,
as well as providing sales support to registered representatives, financial
planners and broker-dealers at brokerage firms and banks across the United
States. The acquisition has been accounted for as a purchase and accordingly,
the results of PLANCO's operations have been included in the Company's
consolidated financial statements from the closing date of the transaction.
MBL Recapture -- On November 10, 1998, the Company recaptured an in force block
of COLI business (referred to as "MBL Recapture") previously ceded to MBL Life
Assurance Co. of New Jersey (MBL Life), as well as purchased the outstanding
interest in International Corporate Marketing Group, Inc. (ICMG), which was
previously 40% owned by MBL Life. The transaction was consummated through the
assignment of a reinsurance arrangement between Hartford Life and MBL Life to a
Hartford Life subsidiary. Hartford Life originally assumed the life insurance
block in 1992 from Mutual Benefit Life, which was placed in court-supervised
rehabilitation in 1991, and reinsured a portion of those polices back to MBL
Life. MBL Life, previously a Mutual Benefit Life subsidiary, operates under the
Rehabilitation Plan for Mutual Benefit Life. The MBL Recapture has been recorded
retroactive to January 1, 1998 with respect to results of operations. The
transaction resulted in a decrease in reinsurance recoverables of $4.5 billion
with an offset primarily in policy loans and other investments.
REGULATORY INITIATIVES AND CONTINGENCIES
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. Current and proposed Federal measures which may significantly
affect the life insurance business include tax law changes affecting the tax
treatment of life insurance products and its impact on the relative desirability
of
32
<PAGE> 33
various personal investment vehicles, medical testing for insurability, and
proposed legislation to prohibit the use of gender in determining insurance and
pension rates and benefits. In particular, President Clinton's 1999 Federal
Budget Proposal currently contains certain recommendations for modifying tax
rules related to the treatment of COLI by contractholders which, if enacted as
described, could have a material adverse impact on the Company's sales of these
products. The budget proposal also includes provisions which would result in a
significant increase in the "DAC tax" on certain of the Company's products and
would apply a tax to the Company's policyholder surplus account. (For further
discussion on policyholder surplus accounts and related tax treatment as of
December 31, 1998, see Note 14 of Notes to Consolidated Financial Statements.)
It is too early to determine whether these tax proposals will ultimately be
enacted by Congress. Therefore, the potential impact to the Company's financial
condition or results of operations cannot be reasonably estimated at this time.
INSOLVENCY FUND
See Note 16 (b) of Notes to Consolidated Financial Statements.
NAIC PROPOSALS
The NAIC has been developing several model laws and regulations, including a
Model Investment Law and amendments to the Model Holding Company System
Regulatory Act (the "Holding Act Amendments"). The Model Investment Law defines
the investments which are permissible for life insurers to hold, and the Holding
Act Amendments address the types of activities in which subsidiaries and
affiliates may engage. The NAIC adopted these models in 1997 and 1996, but the
laws have not been enacted for insurance companies domiciled in the State of
Connecticut, such as Hartford Life. Even if enacted in Connecticut or other
states in which Hartford Life's subsidiaries are domiciled, it is expected that
these laws will neither significantly change Hartford Life's investment
strategies nor have any material adverse effect on Hartford Life's liquidity or
financial position.
The NAIC adopted the Codification of Statutory Accounting Principles (SAP) in
March 1998. The proposed effective date for the statutory accounting guidance is
January 1, 2001. It is expected that Hartford Life's domiciliary state will
adopt the SAP and the Company will make the necessary changes required for
implementation. These changes are not anticipated to have a material impact on
the statutory financial statements of Hartford Life.
DEPENDENCE ON CERTAIN THIRD PARTY RELATIONSHIPS
Hartford Life distributes its annuity and life insurance products through a
variety of distribution channels, including broker-dealers, banks, wholesalers,
its own internal sales force and other third party marketing organizations. The
Company periodically negotiates provisions and renewals of these relationships
and there can be no assurance that such terms will remain acceptable to the
Company or such service providers. An interruption in the Company's continuing
relationship with certain of these third parties could materially affect the
Company's ability to market its products.
YEAR 2000
In General
The Year 2000 issue relates to the ability or inability of computer hardware,
software and other information technology (IT) systems, as well as non-IT
systems, such as equipment and machinery with imbedded chips and
microprocessors, to properly process information and data containing or related
to dates beginning with the year 2000 and beyond. The Year 2000 issue exists
because, historically, many IT and non-IT systems that are in use today were
developed years ago when a year was identified using a two-digit date field
rather than a four-digit date field. As information and data containing or
related to the century date are introduced to date sensitive systems, these
systems may recognize the year 2000 as "1900", or not at all, which may result
in systems processing information incorrectly. This, in turn, may significantly
and adversely affect the integrity and reliability of information databases of
IT systems, may cause the malfunctioning of certain non-IT systems, and may
result in a wide variety of adverse consequences to a company. In addition, Year
2000 problems that occur with third parties with which a company does business,
such as suppliers, computer vendors, distributors and others, may also adversely
affect any given company.
The integrity and reliability of Hartford Life's IT systems, as well as the
reliability of its non-IT systems, are integral aspects of Hartford Life's
business. Hartford Life issues insurance policies, annuities, mutual funds and
other financial products to individual and business customers, nearly all of
which contain date sensitive data, such as policy expiration dates, birth dates
and premium payment dates. In addition, various IT systems support
communications and other systems that integrate Hartford Life's various business
segments and field offices, including Hartford Life's foreign operations.
Hartford Life also has business relationships with numerous third parties that
affect virtually all aspects of Hartford Life's business, including, without
limitation, suppliers, computer hardware and software vendors, insurance agents
and brokers, securities broker-dealers and other distributors of financial
products, many of which provide date sensitive data to Hartford Life, and whose
operations are important to Hartford Life's business.
Internal Year 2000 Efforts and Timetable
33
<PAGE> 34
Beginning in 1990, Hartford Life began working on making its IT systems Year
2000 ready, either through installing new programs or replacing systems. Since
January 1998, Hartford Life's Year 2000 efforts have focused on the remaining
Year 2000 issues related to IT and non-IT systems in all of Hartford Life's
business segments. These Year 2000 efforts include the following five main
initiatives: (1) identifying and assessing Year 2000 issues; (2) taking actions
to remediate IT and non-IT systems so that they are Year 2000 ready; (3) testing
IT and non-IT systems for Year 2000 readiness; (4) deploying such remediated and
tested systems back into their respective production environments; and (5)
conducting internal and external integrated testing of such systems. As of
December 31, 1998, Hartford Life substantially completed initiatives (1) through
(4) of its internal Year 2000 efforts. Hartford Life has begun initiative (5)
and management currently anticipates that such activity will continue into the
fourth quarter of 1999.
Third Party Year 2000 Efforts and Timetable
Hartford Life's Year 2000 efforts include assessing the potential impact on
Hartford Life of third parties' Year 2000 readiness. Hartford Life's third party
Year 2000 efforts include the following three main initiatives: (1) identifying
third parties which have significant business relationships with Hartford Life,
including, without limitation, insurance agents, brokers, third party
administrators, banks and other distributors and servicers of financial
products, and inquiring of such third parties regarding their Year 2000
readiness; (2) evaluating such third parties' responses to Hartford Life's
inquiries; and (3) based on the evaluation of third party responses (or a third
party's failure to respond) and the significance of the business relationship,
conducting additional activities with respect to third parties as determined to
be necessary in each case. These activities may include conducting additional
inquiries, more in-depth evaluations of Year 2000 readiness and plans, and
integrated IT systems testing. Hartford Life has completed the first third party
initiative and, as of early 1999, had substantially completed evaluating third
party responses received. Hartford Life has begun conducting the additional
activities described in initiative (3) and management currently anticipates that
it will continue to do so through the end of 1999. However, notwithstanding
these third party Year 2000 efforts, Hartford Life does not have control over
these third parties and, as a result, Hartford Life cannot currently determine
to what extent future operating results may be adversely affected by the failure
of these third parties to adequately address their Year 2000 issues.
Year 2000 Costs
The costs of Hartford Life's Year 2000 program that were incurred through the
year ended December 31, 1997 were not material to Hartford Life's financial
condition or results of operations. The after-tax costs of Hartford Life's Year
2000 efforts for the year ended December 31, 1998 were approximately $4.
Management currently estimates that after-tax costs related to the Year 2000
program to be incurred in 1999 will be less than $10. These costs are being
expensed as incurred.
Risks and Contingency Plans
If significant Year 2000 problems arise, including problems arising with third
parties, failures of IT and non-IT systems could occur, which in turn could
result in substantial interruptions in Hartford Life's business. In addition,
Hartford Life's investing activities are an important aspect of its business and
Hartford Life may be exposed to the risk that issuers of investments held by it
will be adversely impacted by Year 2000 issues. Given the uncertain nature of
Year 2000 problems that may arise, especially those related to the readiness of
third parties discussed above, management cannot determine at this time whether
the consequences of Year 2000 related problems that could arise will have a
material impact on Hartford Life's financial condition or results of operations.
Hartford Life is in the process of developing certain contingency plans so that
if, despite its Year 2000 efforts, Year 2000 problems ultimately arise, the
impact of such problems may be avoided or minimized. These contingency plans are
being developed based on, among other things, known or reasonably anticipated
circumstances and potential vulnerabilities. The contingency planning also
includes assessing the dependency of Hartford Life's business on third parties
and their Year 2000 readiness. Hartford Life currently anticipates that internal
and external contingency plans will be substantially complete by the end of the
second quarter of 1999. However, in many contexts, Year 2000 issues are dynamic,
and ongoing assessments of business functions, vulnerabilities and risks must be
made. As such, new contingency plans may be needed in the future and/or existing
plans may need to be modified as circumstances warrant.
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
Hartford Life during the three most recent fiscal years.
ACCOUNTING STANDARDS
For a discussion of accounting standards, see Note 2 of Notes to Consolidated
Financial Statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
34
<PAGE> 35
The information called for by Item 7A is set forth in the Capital Markets Risk
Management section of the Management's Discussion and Analysis of Financial
Condition and Results of Operations and is incorporated herein by reference.
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 HARTFORD LIFE
Certain of the information called for by Item 10 is set forth in the definitive
proxy statement for the 1999 annual meeting of shareholders (the "Proxy
Statement") filed or to be filed by Hartford Life with the Securities and
Exchange Commission within 120 days after the end of the fiscal year covered by
this Form 10-K under the caption "Item 1. Election of Directors" and "The Board
of Directors and Its Committees" and is incorporated herein by reference.
Additional information required by Item 10 regarding Hartford Life's executive
officers is set forth in Item 1 of this Form 10-K under the caption "Executive
Officers of Hartford Life" 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", "The Board of Directors and
its Committees - Directors' Compensation" and "Compensation Committee Interlocks
and Insider Participation" 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
The information called for by Item 13 is set forth in the Proxy Statement under
the caption "Certain Relationships with The Hartford" and is incorporated herein
by reference.
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 and Schedules elsewhere herein.
2. CONSOLIDATED FINANCIAL STATEMENT SCHEDULES. See Index to Consolidated
Financial Statement and Schedules elsewhere herein.
3. EXHIBITS. See Exhibit Index elsewhere herein.
(b) Reports on Form 8-K - None.
(c) See Item 14(a)(3).
(d) See Item 14(a)(2).
35
<PAGE> 36
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
<TABLE>
<CAPTION>
Page(s)
<S> <C>
Report of Management F-1
Report of Independent Public Accountants F-2
Consolidated Statements of Income for the years ended December 31, 1998, 1997 and 1996 F-3
Consolidated Balance Sheets as of December 31, 1998 and 1997 F-4
Consolidated Statements of Changes in Stockholders' Equity for the years ended
December 31, 1998, 1997 and 1996 F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1998,
1997 and 1996 F-6
Notes to Consolidated Financial Statements F-7 - 27
Schedule I -- Summary of Investments - Other Than Investments in Affiliates S-1
Schedule II -- Condensed Financial Information of Hartford Life, Inc. S-2 - 3
Schedule III -- Supplementary Insurance Information S-4
Schedule IV -- Reinsurance S-5
Schedule V -- Valuation and Qualifying Accounts S-6
</TABLE>
REPORT OF MANAGEMENT
The management of Hartford Life, Inc. (Hartford Life) is responsible for the
preparation and integrity of information contained in the accompanying
Consolidated Financial Statements and other sections of the Annual Report. The
Consolidated 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 consolidated statements present fairly Hartford Life's financial position
and results of operations, and, that any other information contained in the
Annual Report is consistent with the Consolidated Financial Statements.
Management has made available Hartford Life's financial records and related data
to Arthur Andersen LLP, independent public accountants, in order for them to
perform an audit of Hartford Life's Consolidated Financial Statements. Their
report appears on page F-2.
An essential element in meeting management's financial responsibilities is
Hartford Life'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 Hartford Life's internal auditors independently assess the effectiveness
of the controls and make recommendations for improvement. Also, Arthur Andersen
LLP took into consideration Hartford Life's system of internal controls in
determining the nature, timing and extent of their audit tests.
Another important element is management's recognition of its responsibility for
fostering a strong, ethical climate, thereby ensuring that Hartford Life's
affairs are transacted according to the highest standards of personal and
professional conduct. Hartford Life 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 Hartford Life (the
"Committee"), 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 ensure their
independence and free access to the Committee.
F-1
<PAGE> 37
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO HARTFORD LIFE, INC.:
We have audited the accompanying Consolidated Balance Sheets of Hartford Life,
Inc. (Hartford Life) (a Delaware corporation) and subsidiaries as of December
31, 1998 and 1997, and the related Consolidated Statements of Income, Changes in
Stockholders' Equity and Cash Flows for each of the three years in the period
ended December 31, 1998. These Consolidated Financial Statements and the
schedules referred to below are the responsibility of Hartford Life's
management. Our responsibility is to express an opinion on these financial
statements and 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 Hartford Life and
subsidiaries as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998 in conformity with generally accepted accounting principles.
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
January 26, 1999
F-2
<PAGE> 38
HARTFORD LIFE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the years ended December 31,
-----------------------------------
(In millions, except for per share data) 1998 1997 1996
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Premiums and other considerations $3,833 $3,163 $ 3,069
Net investment income 1,955 1,536 1,534
Net realized capital losses -- -- (219)
- --------------------------------------------------------------------------------------------
TOTAL REVENUES 5,788 4,699 4,384
------------------------------------------------------------------------------------
BENEFITS, CLAIMS AND EXPENSES
Benefits, claims and claim adjustment expenses 3,227 2,671 2,727
Amortization of deferred policy acquisition costs 441 345 241
Dividends to policyholders 330 241 635
Interest expense 58 58 55
Other expenses 1,147 904 695
- --------------------------------------------------------------------------------------------
TOTAL BENEFITS, CLAIMS AND EXPENSES 5,203 4,219 4,353
------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAX EXPENSE 585 480 31
Income tax expense 199 174 7
- --------------------------------------------------------------------------------------------
NET INCOME $ 386 $ 306 $ 24
------------------------------------------------------------------------------------
Basic earnings per share (1) $ 2.76 $ 2.28 $ 0.19
Diluted earnings per share (1) $ 2.75 $ 2.28 $ 0.19
- --------------------------------------------------------------------------------------------
Weighted average common shares outstanding (1) 140.0 134.0 125.0
Weighted average common shares outstanding and
dilutive potential common shares (1) 140.2 134.1 125.0
- --------------------------------------------------------------------------------------------
Cash dividends declared per share (2) $ 0.36 $ 0.18 $ --
- --------------------------------------------------------------------------------------------
</TABLE>
(1) Pro forma in 1997 and 1996; see Note 10 of Notes to Consolidated Financial
Statements for further explanation.
(2) Cash dividends declared exclude amounts paid to the Company's parent prior
to the Company's Initial Public Offering (May 22, 1997).
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-3
<PAGE> 39
HARTFORD LIFE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
As of December 31,
---------------------------
(In millions, except for share data) 1998 1997
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments
Fixed maturities, available for sale, at fair value
(amortized cost of $17,271 and $16,475) $ 17,692 $ 16,848
Equity securities, at fair value 140 181
Policy loans, at outstanding balance 6,687 3,759
Other investments, at cost 363 182
- ------------------------------------------------------------------------------------------------
Total investments 24,882 20,970
Cash 36 88
Premiums receivable and agents' balances 166 147
Reinsurance recoverables 900 5,765
Deferred policy acquisition costs 3,842 3,361
Deferred income tax 456 397
Other assets 1,112 890
Separate account assets 90,628 69,362
- ------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 122,022 $ 100,980
=======================================================================================
LIABILITIES
Future policy benefits $ 5,717 $ 4,939
Other policyholder funds 19,767 21,139
Short-term debt -- 50
Long-term debt 650 650
Company obligated mandatorily redeemable preferred securities
of subsidiary trust holding solely parent junior
subordinated debentures 250 --
Other liabilities 2,517 2,696
Separate account liabilities 90,628 69,362
- ------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 119,529 98,836
--------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Class A common stock - 600,000,000 shares authorized;
26,077,320 and 26,061,837 shares issued, par value $0.01 -- --
Class B common stock - 600,000,000 shares authorized;
114,000,000 shares issued and outstanding, par value $0.01 1 1
Capital surplus 1,281 1,283
Treasury stock, at cost - 161,984 and 35,684 shares (9) (1)
Accumulated other comprehensive income
Net unrealized capital gains on securities, net of tax 263 237
Cumulative translation adjustments (7) (4)
---------------------------
Total accumulated other comprehensive income 256 233
---------------------------
Retained earnings 964 628
- ------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 2,493 2,144
-------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 122,022 $ 100,980
---------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-4
<PAGE> 40
HARTFORD LIFE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ACCUMULATED OTHER
COMPREHENSIVE INCOME
------------------------
NET
UNREALIZED
CAPITAL
GAINS
(LOSSES)
CLASS A CLASS B TREASURY ON CUMULATIVE TOTAL
COMMON COMMON CAPITAL STOCK, SECURITIES, TRANSLATION RETAINED STOCKHOLDERS
(In millions) STOCK STOCK SURPLUS AT COST NET OF TAX ADJUSTMENTS EARNINGS EQUITY
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1998
Balance, December 31, 1997 $ -- $1 $ 1,283 $ (1) $ 237 $(4) $ 628 $ 2,144
Comprehensive income
Net income -- - -- -- -- -- 386 386
-------
Other comprehensive income, net of
tax (1)
Changes in net unrealized
capital gains on securities (2) -- - -- -- 26 -- -- 26
Cumulative translation
adjustments -- - -- -- -- (3) -- (3)
-------
Total other comprehensive income 23
-------
Total comprehensive income 409
-------
Dividends -- - -- -- -- -- (50) (50)
Issuance of shares under incentive
and stock purchase plans -- - (2) 7 -- -- -- 5
Treasury stock acquired -- - -- (15) -- -- -- (15)
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1998 $ -- $1 $ 1,281 $ (9) $ 263 $(7) $ 964 $ 2,493
- ----------------------------------------------------------------------------------------------------------------------------------
1997
Balance, December 31, 1996 $ -- $- $ 585 $ -- $ 29 $(3) $ 663 $ 1,274
Comprehensive income
Net income -- - -- -- -- -- 306 306
-------
Other comprehensive income, net of
tax (1) Changes in net unrealized
capital gains on securities (2) -- - -- -- 208 -- -- 208
Cumulative translation
adjustments -- - -- -- -- (1) -- (1)
-------
Total other comprehensive income 207
-------
Total comprehensive income 513
-------
Issuance of Class A Common Stock -- - 687 -- -- -- -- 687
Conversion to Class B Common Stock -- 1 (1) -- -- -- -- --
Capital contribution -- - 12 -- -- -- -- 12
Dividends -- - -- -- -- -- (341) (341)
Issuance of shares under incentive
and
stock purchase plans -- - -- 3 -- -- -- 3
Treasury stock acquired -- - -- (4) -- -- -- (4)
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1997 $ -- $1 $ 1,283 $ (1) $ 237 $(4) $ 628 $ 2,144
- ----------------------------------------------------------------------------------------------------------------------------------
1996
Balance, December 31, 1995 $ -- $- $ 585 $ -- $ (44) $(3) $ 639 $ 1,177
Comprehensive income
Net income -- - -- -- -- -- 24 24
-------
Other comprehensive income, net of
tax (1)
Changes in net unrealized
capital gains
(losses) on securities (2) -- - -- -- 73 -- -- 73
-------
Total other comprehensive income 73
-------
Total comprehensive income 97
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1996 $ -- $- $ 585 $ -- $ 29 $(3) $ 663 $ 1,274
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Net unrealized capital gains on securities is reflected net of tax of $14,
$112 and $39 as of December 31, 1998, 1997 and 1996, respectively. There
is no tax effect on cumulative translation adjustments.
(2) There was no reclassification adjustment for after-tax gains (losses)
realized in net income for the years ended December 31, 1998 and 1997.
December 31, 1996 is net of a $142 reclassification adjustment for
after-tax losses realized in net income.
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-5
<PAGE> 41
HARTFORD LIFE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the years ended December 31,
----------------------------------------
(In millions) 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 386 $ 306 $ 24
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING
ACTIVITIES
Depreciation and amortization 30 23 12
Net realized capital losses -- -- 219
(Increase) decrease in premiums receivable and agents' balances (19) 23 (13)
(Decrease) increase in other liabilities (4) 258 433
Change in receivables, payables and accruals 67 77 2
Increase (decrease) in accrued taxes 43 143 (90)
(Increase) decrease in deferred income tax (71) 37 (137)
Increase in deferred policy acquisition costs (481) (561) (580)
Increase in future policy benefits 778 956 472
Increase in reinsurance recoverables and other related assets (62) (115) (4)
- -------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 667 1,147 338
- --------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchases of investments (7,846) (8,499) (7,438)
Sales of investments 6,247 5,360 4,604
Maturity of investments 1,885 2,513 2,890
Purchases of affiliates and other (199) (24) 2
- -------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES 87 (650) 58
- --------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
(Decrease) increase in short-term debt (50) 50 --
Proceeds from issuance of long-term debt -- 650 --
(Decrease) increase in allocated advances from parent -- (893) 115
Proceeds from issuance of company obligated mandatorily
redeemable preferred securities of subsidiary trust holding solely
parent junior subordinated debentures 250 -- --
Dividends paid (38) (329) (19)
Net disbursements for investment and universal life-type contracts charged
against policyholder accounts (957) (644) (490)
Net proceeds from the sale of common stock -- 687 --
Acquisition of treasury stock, net (8) (1) --
- -------------------------------------------------------------------------------------------------------------------------
NET CASH USED FOR FINANCING ACTIVITIES (803) (480) (394)
- --------------------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash (49) 17 2
Impact of foreign exchange (3) (1) --
Cash - beginning of year 88 72 70
- -------------------------------------------------------------------------------------------------------------------------
CASH - END OF YEAR $ 36 $ 88 $ 72
- -------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
NET CASH PAID DURING THE YEAR FOR
Income taxes $ 257 $ 45 $ 166
Interest $ 54 $ 55 $ 55
NONCASH INVESTING AND FINANCING ACTIVITIES
Capital contribution $ -- $ 12 $ --
Increase in allocated advances from parent for other assets $ -- $ -- $ 46
</TABLE>
In 1998, due to the recapture of an in force block of business previously ceded
to MBL Life Assurance Co. of New Jersey, reinsurance recoverables of $4,546 were
exchanged for the fair value of assets comprised of $4,354 in policy loans and
$192 in other assets.
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-6
<PAGE> 42
HARTFORD LIFE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in millions, except for share data, unless otherwise stated)
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
Hartford Life, Inc. (a Delaware corporation) together with its consolidated
subsidiaries ("Hartford Life" or the "Company") is a leading financial services
and insurance organization which provides, primarily in the United States, pre-
and post-retirement savings and mutual funds, estate planning and employee
benefits products. Hartford Life was formed on December 13, 1996 and capitalized
on December 16, 1996 with the contribution of all the outstanding common stock
of Hartford Life and Accident Insurance Company (HLA). Pursuant to an initial
public offering ("IPO" or "the Offering") of 26 million shares of the Company's
Class A Common Stock on May 22, 1997, Hartford Life became a publicly traded
company (see Note 3). The Company is a direct subsidiary of Hartford Accident
and Indemnity Company (HA&I) and is ultimately a subsidiary of The Hartford
Financial Services Group, Inc. (The Hartford). On December 19, 1995, ITT
Industries, Inc. (formerly ITT Corporation) (ITT) distributed all the
outstanding shares of capital stock of The Hartford to ITT stockholders of
record on such date (the transactions relating to such distribution are referred
to herein as the "ITT Spin-off"). As a result of the ITT Spin-off, The Hartford
became an independent, publicly traded company. Hartford Life, Inc. is a holding
company and as such has no material business of its own.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) BASIS OF PRESENTATION
The accompanying Consolidated Financial Statements present the financial
position, results of operations and cash flows of Hartford Life, Inc. and
subsidiaries, including HLA, on the basis of historical cost, in a manner
similar to pooling of interests accounting. HLA owns all outstanding shares of
ITT Hartford Life Insurance Company of Canada, Hartford Financial Services, LLC
and Hartford Life Insurance Company, which in turn owns all outstanding shares
of Hartford Life and Annuity Insurance Company and Hartford International Life
Reassurance Corporation.
These financial statements present the financial position, results of operations
and cash flows of Hartford Life as if it were a separate entity for all periods
presented. All material intercompany transactions and balances between Hartford
Life, 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 statutory accounting practices
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 and other policyholder funds. 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 the current year presentation.
(b) CHANGES IN ACCOUNTING PRINCIPLES
In November 1998, the Emerging Issues Task Force (EITF) reached consensus on
Issue No. 98-15, "Structured Notes Acquired for a Specific Investment Strategy".
This EITF issue requires companies to account for structured notes acquired for
a specific investment strategy, as a unit. Affected companies that entered into
these notes prior to September 25, 1998 are required to either restate prior
period financial statements to conform with the prescribed unit accounting model
or disclose the related impact on earnings for all periods presented and
cumulatively over the life of the instruments had the registrant accounted for
the structure as a unit. Based upon recently prescribed current generally
accepted accounting principles for such types of transactions entered into after
September 24, 1998, there was no additional earnings impact to the Company
related to combined structured note transactions. As of December 31, 1998, the
Company does not hold any combined structured notes.
F-7
<PAGE> 43
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities". The new standard establishes accounting and
reporting guidance for derivative instruments, including certain derivative
instruments embedded in other contracts. The standard requires, among other
things, that all derivatives be carried on the balance sheet at fair value. The
standard also specifies hedge accounting criteria under which a derivative can
qualify for special accounting. In order to receive special accounting, the
derivative instrument must qualify as either a hedge of the fair value or the
variability of the cash flow of a qualified asset or liability. Special
accounting for qualifying hedges provides for matching the timing of gain or
loss recognition on the hedging instrument with the recognition of the
corresponding changes in value of the hedged item. SFAS No. 133 will be
effective for fiscal years beginning after June 15, 1999. Initial application
for Hartford Life will begin for the first quarter of the year 2000. While
Hartford Life is currently in the process of quantifying the impact of SFAS No.
133, the Company is reviewing its derivative holdings in order to take actions
needed to minimize potential volatility, while at the same time maintaining the
economic protection needed to support the goals of its business.
In March 1998, the American Institute of Certified Public Accountants (AICPA)
issued Statement of Position (SOP) No. 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use". The SOP provides
guidance on accounting for the costs of internal use software and in determining
whether the software is for internal use. The SOP defines internal use software
as software that is acquired, internally developed, or modified solely to meet
internal needs and identifies stages of software development and accounting for
the related costs incurred during the stages. This statement is effective for
fiscal years beginning after December 15, 1998 and is not expected to have a
material impact on the Company's financial condition or results of operations.
Effective January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income", which establishes standards for reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements. The objective of this statement is to report a measure of
all changes in equity of an enterprise that result from transactions and other
economic events of the period other than transactions with owners. Comprehensive
income is the total of net income and all other non-owner changes in equity.
Accordingly, the Company has reported comprehensive income in the Consolidated
Statements of Changes in Stockholders' Equity.
In December 1997, the AICPA issued SOP No. 97-3, "Accounting by Insurance and
Other Enterprises for Insurance Related Assessments". This SOP provides guidance
on accounting by insurance and other enterprises for assessments related to
insurance activities. Specifically, the SOP provides guidance on when a guaranty
fund or other assessment should be recognized, how to measure the liability, and
what information should be disclosed. This SOP will be effective for fiscal
years beginning after December 15, 1998. Adoption of SOP 97-3 is not expected to
have a material impact on the Company's financial condition or results of
operations.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information". The new standard requires public business
enterprises to disclose certain financial and descriptive information about
reportable operating segments in annual financial statements and in condensed
financial statements of interim periods. Operating segments are components of an
enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker deciding how to
allocate resources and assessing performance. SFAS No. 131 also establishes
standards for related disclosures about products and services, geographic areas
and major customers. The Company adopted SFAS No. 131 in 1998. For additional
information, see Note 17.
In February 1997, the FASB issued SFAS No. 128, "Earnings per Share". This
statement established new standards for computing and presenting earnings per
share (EPS) and applies to entities with publicly held common stock or potential
common stock. This statement simplifies the standards for computing earnings per
share previously found in Accounting Principles Board Opinion No. 15, "Earnings
per Share", and makes them comparable to international EPS standards. It
replaces the presentation of primary EPS with the presentation of basic EPS. It
also requires dual presentation of basic and diluted EPS on the face of the
income statement for all entities with complex capital structures and requires a
reconciliation of the numerator and denominator of the basic EPS computation to
the numerator and denominator of the diluted EPS computation. This statement is
effective for financial statements for both interim and annual periods ending
after December 15, 1997. For additional information, see Note 10.
On November 14, 1996, the EITF reached a consensus on Issue No. 96-12,
"Recognition of Interest Income and Balance Sheet Classification of Structured
Notes". This EITF 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 FASB issued 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. Adoption of SFAS No. 125 did not have a material
effect on the Company's financial condition or results of operations.
F-8
<PAGE> 44
Effective January 1, 1996, Hartford Life 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. Adoption of SFAS No. 121 did not have a
material effect on the Company's financial condition or results of operations.
The Company's cash flows were not impacted by these changes in accounting
principles.
(c) REVENUE RECOGNITION
Revenues for investment products and universal life-type policies consist of
policy charges for policy administration, cost of insurance and surrender
charges assessed to policy account balances and are recognized in the period in
which services are provided. Premiums for traditional life insurance and
disability policies are recognized as revenues when they are due from
policyholders.
(d) FUTURE POLICY BENEFITS AND OTHER POLICYHOLDER FUNDS
Liabilities for future policy benefits are computed by the net level premium
method using interest rate assumptions varying from 3% to 11% and withdrawal and
mortality assumptions appropriate at the time the policies were issued. Claim
reserves, which are the result of sales of group long-term and short-term
disability, stop loss and Medicare Supplement, 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.
(e) INVESTMENTS
Hartford Life's investments in fixed maturities include bonds and commercial
paper which are considered "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 "net unrealized capital gains (losses) on
securities, net of tax". Equity securities, which include common and
non-redeemable preferred stocks, are carried at fair values with the after-tax
difference from cost reflected in stockholders' equity. Policy loans are carried
at outstanding balance which approximates fair value. Realized capital gains and
losses on security transactions associated with the Company's immediate
participation guaranteed contracts are excluded from revenues and deferred over
the expected maturity of the securities, 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. Net realized capital gains and losses,
excluding those related to immediate participation guaranteed contracts, are
reported as a component of revenue and are determined on a specific
identification basis.
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, for securities expected to be sold, an other than
temporary impairment charge is recognized if the Company does not expect the
fair value of a security to recover to cost or amortized cost prior to the
expected date of sale. Once an impairment charge has been recorded, the Company
then continues to review the other than temporarily impaired securities for
additional impairment, if necessary.
F-9
<PAGE> 45
(f) DERIVATIVE INSTRUMENTS
Hartford Life uses a variety of derivative 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 liabilities. Hartford Life does not
hold or issue derivative instruments for trading purposes. Hartford Life's
accounting for derivative 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", AICPA SOP 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. Derivative instruments used
to hedge fixed maturities or equity securities are carried at fair value with
the after-tax difference from cost reflected in stockholders' equity. Derivative
instruments used to hedge other invested assets or liabilities are carried at
cost. For a discussion of SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities", issued in June 1998, see (b) Changes in Accounting
Principles.
Derivative instruments must be designated at inception as a hedge and measured
for effectiveness both at inception and on an ongoing basis. Hartford Life's
correlation threshold for hedge designation is 80% to 120%. If correlation,
which is assessed monthly and measured based on a rolling three month average,
falls outside the 80% to 120% range, hedge accounting will be terminated.
Derivative instruments 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. Consistent with
industry practice, synthetic instruments are accounted for like the financial
instrument they are intended to replicate. Derivative instruments which fail to
meet risk management criteria, subsequent to acquisition, 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 investment of future receipt of product cash flows are deferred and, at the
time of the ultimate investment purchase, reflected as an adjustment to the cost
basis of the purchased asset. Gains or losses on futures used in invested asset
risk management are deferred and adjusted into the cost 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 accounted for at settlement by recording the purchase
of the specified securities at the previously committed price. Gains or losses
resulting from the termination of 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 option. 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 investment 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 net investment income. 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 capital 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. Cash flows
from futures, options, and swaps, accounted for as hedges, are included with the
cash flows of the item being hedged.
F-10
<PAGE> 46
(g) SEPARATE ACCOUNTS
Hartford Life maintains separate account assets and liabilities which are
reported at fair value. Separate account assets are segregated from other
investments. Separate accounts reflect two categories of risk assumption:
non-guaranteed separate accounts, wherein the policyholder assumes the
investment risk and rewards, and guaranteed separate account assets, wherein the
Company contractually guarantees either a minimum return or account value to the
policyholder.
(h) DEFERRED POLICY ACQUISITION COSTS
Policy acquisition costs, which include commissions and certain underwriting
expenses associated with acquiring business, are deferred and amortized over the
estimated lives of the contracts, usually 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
charges, 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
re-estimated and adjusted by a cumulative charge or credit to income.
Acquisition costs and their related deferral are included in the Company's other
expenses as follows:
<TABLE>
<CAPTION>
1998 1997 1996
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Commissions $ 1,202 $ 1,073 $ 949
Deferred acquisition costs (908) (881) (836)
Other 853 712 582
- --------------------------------------------------------------------------------------------
Total other expenses $ 1,147 $ 904 $ 695
- --------------------------------------------------------------------------------------------
</TABLE>
(i) CLAIM RESERVES
The following table displays the development of claim reserves (included in
future policy benefits on the Consolidated Balance Sheets) resulting primarily
from group disability products as of December 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
----------------------------------------
<S> <C> <C> <C>
CLAIM RESERVES, JANUARY 1 $ 1,746 $ 1,496 $ 1,254
- -----------------------------------------------------------------------------------------
Less: Reinsurance recoverables, January 1 71 53 35
- -----------------------------------------------------------------------------------------
Incurred expenses related to:
Current year 902 890 799
Prior years (48) (51) (66)
- -----------------------------------------------------------------------------------------
Total incurred 854 839 733
- -----------------------------------------------------------------------------------------
Paid expenses related to:
Current year 334 274 236
Prior years 382 333 273
- -----------------------------------------------------------------------------------------
Total paid 716 607 509
- -----------------------------------------------------------------------------------------
Add: Reinsurance recoverables, December 31 125 71 53
- -----------------------------------------------------------------------------------------
CLAIM RESERVES, DECEMBER 31 $ 1,938 $ 1,746 $ 1,496
- -----------------------------------------------------------------------------------------
</TABLE>
F-11
<PAGE> 47
(j) 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 international
operations are generally their functional currencies.
(k) DIVIDENDS TO POLICYHOLDERS
Certain life insurance policies contain dividend payment provisions that enable
the policyholder to participate in the earnings on that participating block of
business of the life insurance subsidiaries of the Company. The participating
insurance in force accounted for 44%, 33% and 25% in 1998, 1997 and 1996,
respectively, of total insurance in force.
3. INITIAL PUBLIC OFFERING
Pursuant to the Offering on May 22, 1997, Hartford Life sold to the public 26
million shares of Class A Common Stock at $28.25 per share and received
proceeds, net of offering expenses, of $687. Of the proceeds, $527 was used to
retire promissory notes outstanding and the line of credit discussed in Note 7,
and the remaining $160 was contributed to the Company's insurance subsidiaries
to be used for growth in the Company's core businesses.
The 26 million shares sold in the Offering represented approximately 18.6% of
the equity ownership in Hartford Life and approximately 4.4% of the combined
voting power of Hartford Life's Class A and Class B Common Stock. The Hartford
owns all of the 114 million outstanding shares of Class B Common Stock of
Hartford Life, representing approximately 81.4% of the equity ownership in the
Company and approximately 95.6% of the combined voting power of Hartford Life's
Class A and Class B Common Stock. Holders of Class A Common Stock generally have
identical rights to the holders of Class B Common Stock except that the holders
of Class A Common Stock are entitled to one vote per share while holders of
Class B Common Stock are entitled to five votes per share on all matters
submitted to a vote of the Company's stockholders.
On April 3, 1997, the Company reclassified the authorized shares of common
stock, par value $0.01 per share, of the Company into Class B Common Stock, par
value $0.01 per share (the "Class B Common Stock"), and authorized Class A
Common Stock, par value $0.01 per share (the "Class A Common Stock") and
preferred stock, par value $0.01 per share (the "Preferred Stock").
Holders of Class A Common Stock are entitled to receive ratably such dividends,
if any, as may be declared by the Board of Directors, subject to any
preferential dividend rights of any outstanding Preferred Stock, and generally
have identical voting rights and vote together (not as separate classes), except
that holders of Class A Common Stock are entitled to one vote per share while
holders of Class B Common Stock are entitled to five votes per share. Also, each
share of Class B Common Stock is convertible into a share of Class A Common
Stock (a) upon the transfer of such share of Class B Common Stock by the holder
thereof to a non-affiliate (except where the shares of Class B Common Stock so
transferred represent 50% or more of all the outstanding shares of common stock,
calculated without regard to the difference in voting rights between the classes
of common stock) or (b) in the event that the number of shares of outstanding
Class B Common Stock is less than 50% of all the common stock then outstanding.
F-12
<PAGE> 48
4. INVESTMENTS AND DERIVATIVE INSTRUMENTS
<TABLE>
<CAPTION>
For the years ended December 31,
----------------------------------------
1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(a) COMPONENTS OF NET INVESTMENT INCOME
Interest income from fixed maturities $ 1,129 $ 1,094 $ 1,040
Interest income from policy loans 789 425 477
Income from other investments 53 35 32
- -----------------------------------------------------------------------------------------------------------------------
Gross investment income 1,971 1,554 1,549
Less: Investment expenses 16 18 15
- -----------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME $ 1,955 $ 1,536 $ 1,534
- -----------------------------------------------------------------------------------------------------------------------
(b) COMPONENTS OF NET REALIZED CAPITAL GAINS (LOSSES)
Fixed maturities $ (31) $ (11) $ (214)
Equity securities 21 12 2
Real estate and other 10 (1) (4)
Less: Decrease in liability to policyholders for realized capital gains -- -- (3)
- -----------------------------------------------------------------------------------------------------------------------
NET REALIZED CAPITAL LOSSES $ -- $ -- $ (219)
- -----------------------------------------------------------------------------------------------------------------------
(c) NET UNREALIZED CAPITAL GAINS (LOSSES) ON EQUITY SECURITIES
Gross unrealized capital gains $ 17 $ 22 $ 7
Gross unrealized capital losses (1) -- (1)
- -----------------------------------------------------------------------------------------------------------------------
Net unrealized capital gains 16 22 6
Deferred income tax expense 5 8 2
- -----------------------------------------------------------------------------------------------------------------------
Net unrealized capital gains, net of tax 11 14 4
Balance - beginning of year 14 4 2
- -----------------------------------------------------------------------------------------------------------------------
NET CHANGE IN UNREALIZED CAPITAL GAINS ON EQUITY SECURITIES $ (3) $ 10 $ 2
- -----------------------------------------------------------------------------------------------------------------------
(d) NET UNREALIZED CAPITAL GAINS (LOSSES) ON FIXED MATURITIES
Gross unrealized capital gains $ 546 $ 461 $ 425
Gross unrealized capital losses (125) (88) (373)
Unrealized capital gains credited to policyholders (32) (30) (13)
- -----------------------------------------------------------------------------------------------------------------------
Net unrealized capital gains 389 343 39
Deferred income tax expense 137 120 14
- -----------------------------------------------------------------------------------------------------------------------
Net unrealized capital gains, net of tax 252 223 25
Balance - beginning of year 223 25 (46)
- -----------------------------------------------------------------------------------------------------------------------
NET CHANGE IN UNREALIZED CAPITAL GAINS (LOSSES) ON FIXED MATURITIES $ 29 $ 198 $ 71
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
F-13
<PAGE> 49
(e) FIXED MATURITY INVESTMENTS
<TABLE>
<CAPTION>
As of December 31, 1998
---------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized
Cost Gains Losses Fair Value
- ------------------------------------------------------------------------------------- --------------------------
<S> <C> <C> <C> <C>
U.S. Government and Government agencies and authorities
(guaranteed and sponsored) $ 164 $ 2 $ -- $ 166
U.S. Government and Government agencies and authorities
(guaranteed and sponsored) - asset-backed 1,138 24 (8) 1,154
States, municipalities and political subdivisions 1,107 33 (1) 1,139
International governments 497 43 (10) 530
Public utilities 935 37 (3) 969
All other corporate including international 6,170 320 (47) 6,443
All other corporate - asset backed 4,654 74 (47) 4,681
Short-term investments 2,017 1 (1) 2,017
Certificates of deposit 584 12 (8) 588
Redeemable preferred stock 5 - - 5
- --------------------------------------------------------------------------------------------------------------
TOTAL FIXED MATURITIES $17,271 $546 $(125) $17,692
- -------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
As of December 31, 1997
-------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized
Cost Gains Losses Fair Value
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government and Government agencies and authorities
(guaranteed and sponsored) $ 239 $ 3 $ (1) $ 241
U.S. Government and Government agencies and authorities
(guaranteed and sponsored) - asset-backed 1,366 70 (36) 1,400
States, municipalities and political subdivisions 429 10 (1) 438
International governments 472 33 (3) 502
Public utilities 989 30 (3) 1,016
All other corporate including international 6,058 252 (29) 6,281
All other corporate - asset backed 4,855 53 (10) 4,898
Short-term investments 1,394 -- -- 1,394
Certificates of deposit 668 10 (5) 673
Redeemable preferred stock 5 -- -- 5
- ------------------------------------------------------------------------------------------------------------------------
TOTAL FIXED MATURITIES $16,475 $461 $(88) $16,848
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
The amortized cost and estimated fair value of fixed maturity investments as of
December 31, 1998 by estimated maturity year are shown below. Expected
maturities differ from contractual maturities due to call or prepayment
provisions. Asset backed securities, including mortgage backed securities and
collateralized mortgage obligations, are distributed to maturity year based on
the Company's estimates of the rate of future prepayments of principal over the
remaining lives of the securities. These estimates are developed using
prepayment speeds provided in broker consensus data. Such estimates are derived
from prepayment speeds experienced at the interest rate levels projected for the
applicable underlying collateral and can be expected to vary from actual
experience.
F-14
<PAGE> 50
<TABLE>
<CAPTION>
MATURITY Amortized Cost Fair Value
- --------------------------------------------------------------------------------
<S> <C> <C>
One year or less $ 3,297 $ 3,319
Over one year through five years 5,326 5,404
Over five years through ten years 4,008 4,125
Over ten years 4,640 4,844
- --------------------------------------------------------------------------------
TOTAL $17,271 $17,692
- --------------------------------------------------------------------------------
</TABLE>
Sales of fixed maturities, excluding short-term fixed maturities, for the years
ended December 31, 1998, 1997 and 1996 resulted in proceeds of $4.4 billion,
$5.2 billion and $4.0 billion, gross realized capital gains of $121, $175 and
$102, gross realized capital losses (including writedowns) of $152, $186 and
$316, respectively. In 1996, gross realized capital losses includes an other
than temporary impairment of $137 related to the Company's block of guaranteed
investment contract business written prior to 1995, which could not recover to
amortized cost prior to sale. Sales of equity security investments for the years
ended December 31, 1998, 1997 and 1996 resulted in proceeds of $39, $132 and $74
and gross realized capital gains of $21, $12 and $2, respectively, and no gross
realized capital losses for all periods.
(f) CONCENTRATION OF CREDIT RISK
The Company is not exposed to any significant concentration of credit risk in
fixed maturities of a single issuer greater than 10% of stockholders' equity.
(g) DERIVATIVE INSTRUMENTS
Hartford Life utilizes a variety of derivative instruments, including swaps,
caps, floors, forwards and exchange traded futures and options, in accordance
with Company policy and in order to achieve one of three Company approved
objectives: to hedge risk arising from interest rate, price or currency exchange
rate volatility; to manage liquidity; or, to control transactions costs. The
Company utilizes derivative instruments to manage market risk through four
principal risk management strategies: hedging anticipated transactions, hedging
liability instruments, hedging invested assets and hedging portfolios of assets
and/or liabilities. Hartford Life does not trade in these instruments for the
express purpose of earning trading profits.
The Company maintains a derivatives counterparty exposure policy which
establishes market-based credit limits, favors long-term financial stability and
creditworthiness, and typically requires credit enhancement/credit risk reducing
agreements. Credit risk is measured as the amount owed to Hartford Life based on
current market conditions and potential payment obligations between the Company
and its counterparties. Credit exposures are quantified weekly and netted, and
collateral is pledged to or held by the Company to the extent the current value
of derivatives exceeds exposure policy thresholds.
The Company's derivative program is monitored by an internal compliance unit and
is reviewed by senior management and Hartford Life's Finance Committee of the
Board of Directors. Notional amounts, which represent the basis upon which pay
or receive amounts are calculated and are not reflective of credit risk,
pertaining to derivative financial instruments (excluding the Company's
guaranteed separate account derivative investments), totaled $7.6 billion and
$7.7 billion ($4.9 billion and $5.6 billion related to the Company's
investments, $2.7 billion and $2.1 billion on the Company's liabilities) as of
December 31, 1998 and 1997, respectively.
F-15
<PAGE> 51
The tables below provide a summary of derivative instruments held by Hartford
Life as of December 31, 1998 and 1997, segregated by major investment and
liability category:
<TABLE>
<CAPTION>
1998 AMOUNT HEDGED (NOTIONAL AMOUNTS)
- -----------------------------------------------------------------------------------------------------------------------------------
Total Purchased Interest Foreign Total
Carrying Issued Caps Caps & Futures Rate Currency Notional
ASSETS HEDGED Value & Floors Floors (2) Swaps Swaps (3) Amount
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Asset backed securities (excluding
inverse floaters and anticipatory) $ 5,811 $ -- $203 $ 3 $1,084 $ -- $1,290
Inverse floaters (1) 24 44 55 -- -- -- 99
Anticipatory (4) -- -- -- -- 712 -- 712
Other bonds and notes 9,738 461 597 18 1,599 93 2,768
Short-term investments 2,119 -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL FIXED MATURITIES 17,692 505 855 21 3,395 93 4,869
Equity securities, policy loans and
other investments 7,190 -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS $24,882 505 855 21 3,395 93 4,869
OTHER POLICYHOLDER FUNDS $19,767 1,100 50 -- 1,592 -- 2,742
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL DERIVATIVE INSTRUMENTS - NOTIONAL VALUE $ 1,605 $905 $21 $4,987 $ 93 $7,611
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL DERIVATIVE INSTRUMENTS - FAIR VALUE $ (6) $ 19 $-- $ 55 $ (7) $ 61
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
1997 AMOUNT HEDGED (NOTIONAL AMOUNTS)
- -----------------------------------------------------------------------------------------------------------------------------------
Total Purchased Interest Foreign Total
Carrying Issued Caps Caps & Futures Rate Currency Notional
ASSETS HEDGED Value & Floors Floors (2) Swaps Swaps (3) Amount
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Asset backed securities (excluding
inverse floaters and anticipatory) $ 6,222 $ 500 $1,419 $28 $ 343 $ -- $2,290
Inverse floaters (1) 75 47 80 -- 25 -- 152
Anticipatory (4) -- -- -- 19 236 -- 255
Other bonds and notes 9,156 497 596 22 1,721 94 2,930
Short-term investments 1,395 -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL FIXED MATURITIES 16,848 1,044 2,095 69 2,325 94 5,627
Equity securities, policy loans and
other investments 4,122 -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS $20,970 1,044 2,095 69 2,325 94 5,627
OTHER POLICYHOLDER FUNDS $21,139 10 150 -- 1,889 -- 2,049
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL DERIVATIVE INSTRUMENTS - NOTIONAL VALUE $ 1,054 $2,245 $69 $4,214 $ 94 $7,676
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL DERIVATIVE INSTRUMENTS - FAIR VALUE $ (8) $ 23 $-- $ 37 $ (6) $ 46
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) 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 Company uses a variety of
derivative instruments, primarily interest rate swaps, caps and floors.
(2) As of December 31, 1998 and 1997, approximately 5% and 59%, respectively,
of the notional futures contracts expire within one year.
(3) As of December 31, 1998 and 1997, approximately 11% and 16%, respectively,
of foreign currency swaps expire within one year.
(4) Deferred gains and losses on anticipatory transactions are included in the
carrying value of fixed maturities in the Consolidated Balance Sheets. At
the time of the ultimate purchase, they are reflected as a basis
adjustment to the purchased asset. As of December 31, 1998, the Company
had $0.6 of deferred gains for interest rate swaps. Hartford Life expects
to basis adjust the entire gain in 1999. As of December 31, 1997, the
Company had $2.7 of net deferred gains for futures and interest rate swaps
which were basis adjusted in 1998.
F-16
<PAGE> 52
The following is a reconciliation of notional amounts by derivative type and
strategy as of December 31, 1998 and 1997:
<TABLE>
<CAPTION>
December 31, 1997 Maturities/ December 31,
Notional Amount Additions Terminations (1) 1998 Notional Amount
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BY DERIVATIVE TYPE
Caps $1,265 $1,000 $ 338 $1,927
Floors 1,899 -- 1,316 583
Swaps/Forwards 4,308 2,570 1,798 5,080
Futures 69 32 80 21
Options 135 50 185 --
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL $7,676 $3,652 $3,717 $7,611
- ---------------------------------------------------------------------------------------------------------------------------
BY STRATEGY
Liability $2,049 $1,359 $ 666 $2,742
Anticipatory 255 652 195 712
Asset 2,454 1,396 936 2,914
Portfolio 2,918 245 1,920 1,243
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL $7,676 $3,652 $3,717 $7,611
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) During 1998, the Company had no significant gains or losses on terminations
of hedge positions using derivative financial instruments.
5. FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosure about Fair Value of Financial Instruments", requires
disclosure of fair value information of financial instruments. For certain
financial instruments where quoted market prices are not available, other
independent valuation techniques and assumptions are used. Because considerable
judgment is used, these estimates are not necessarily indicative of amounts that
could be realized in a current market exchange. SFAS No. 107 excludes certain
financial instruments from disclosure, including insurance contracts. Hartford
Life uses the following methods and assumptions in estimating the fair value of
each class of financial instrument.
Fair value for fixed maturities and marketable equity securities approximates
those quotations published by applicable stock exchanges or received from other
reliable sources.
For policy loans, carrying amounts approximate fair value.
Fair value for other invested assets primarily consists of partnerships and
trusts that are based on external market valuations from partnership and trust
management as well as mortgage loans where carrying amounts approximate fair
value.
Other policyholder funds fair value information is determined by estimating
future cash flows, discounted at the current market rate.
Fair value for long-term debt and TruPS (represents company obligated
mandatorily redeemable preferred securities of subsidiary trust holding solely
parent junior subordinated debentures) is based on external valuation using
discounted future cash flows at current market interest rates.
The fair value of derivative financial instruments, including swaps, caps,
floors, futures, options and forward commitments, is determined using a pricing
model which is validated through periodic comparison to dealer quoted prices.
F-17
<PAGE> 53
The carrying amount and fair values of Hartford Life's financial instruments as
of December 31, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
1998 1997
--------------------------------- -----------------------------------
Carrying Amount Fair Value Carrying Amount Fair Value
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Fixed maturities $17,692 $17,692 $16,848 $16,848
Equity securities 140 140 181 181
Policy loans 6,687 6,687 3,759 3,759
Other investments 363 413 182 232
- -----------------------------------------------------------------------------------------------------------------------
LIABILITIES
Other policyholder funds (1) $11,723 $11,740 $11,769 $11,755
Short-term debt -- -- 50 50
Long-term debt 650 710 650 674
TruPS 250 254 -- --
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Excludes corporate owned life insurance and universal life insurance
contracts.
6. SEPARATE ACCOUNTS
Hartford Life maintained separate account assets and liabilities totaling $90.6
billion and $69.4 billion as of December 31, 1998 and 1997, respectively, which
are reported at fair value. Separate account assets, which are segregated from
other investments, reflect two categories of risk assumption: non-guaranteed
separate accounts totaling $80.6 billion and $58.7 billion as of December 31,
1998 and 1997, respectively, wherein the policyholder assumes the investment
risk, and guaranteed separate accounts totaling $10.0 and $10.7 billion as of
December 31, 1998 and 1997, respectively, wherein Hartford Life contractually
guarantees either a minimum return or account value to the policyholder.
Included in non-guaranteed separate account assets were policy loans totaling
$1.8 billion and $1.9 billion as of December 31, 1998 and 1997, 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.
Separate account management fees and other revenues were $908, $699 and $538 in
1998, 1997 and 1996, respectively. The guaranteed separate accounts include
fixed market value adjusted (MVA) individual annuity and modified guaranteed
life insurance. The average credited interest rate on these contracts was 6.6%
and 6.5% as of December 31, 1998 and 1997, respectively. The assets that support
these liabilities were comprised of $9.8 billion and $10.4 billion in fixed
maturities as of December 31, 1998 and 1997, respectively. The portfolios are
segregated from other investments and are managed to minimize liquidity and
interest rate risk. In order to minimize the risk of disintermediation
associated with early withdrawals, fixed MVA 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 $41 and $119 in carrying value and $3.6 billion and
$3.2 billion in notional amounts as of December 31, 1998 and 1997, respectively.
7. DEBT
<TABLE>
<CAPTION>
1998 1997
--------------------------------------------------------------------------------
Weighted Average Weighted Average
Amount Interest Rate (1) Amount Interest Rate (1)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHORT-TERM DEBT
Commercial paper $ - -- $ 50 5.8%
- ------------------------------------------------------------------------------------------------------------------------
TOTAL SHORT-TERM DEBT $ - -- $ 50 5.8%
- ------------------------------------------------------------------------------------------------------------------------
LONG-TERM DEBT
Notes, due 2004 $ 200 7.0% $ 200 7.0%
Notes, due 2007 200 7.2% 200 7.2%
Notes, due 2027 250 7.8% 250 7.8%
- ------------------------------------------------------------------------------------------------------------------------
TOTAL LONG-TERM DEBT $ 650 7.4% $ 650 7.4%
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Represents the weighted average effective interest rate at the end of the
period.
F-18
<PAGE> 54
On February 7, 1997, Hartford Life declared a dividend of $1,184 payable to
HA&I. The Company borrowed $1,084 on February 18, 1997, pursuant to a $1,300
line of credit, with interest payable at the two-month Eurodollar rate plus 15
basis points, which, together with a promissory note in the amount of $100, was
paid as a dividend to HA&I on February 20, 1997. Of the $1,184 dividend, $893
constituted a repayment of the portion of the Company's third party indebtedness
internally allocated, for financial reporting purposes, to the Company's life
insurance subsidiaries (the "Allocated Advances"). Such Allocated Advances were
not treated as liabilities or indebtedness for tax and statutory accounting
purposes. Cash received in respect to Allocated Advances was used to support the
growth of the life insurance subsidiaries and was treated as surplus for
statutory accounting purposes. In addition, on April 4, 1997, the Company
declared and paid a dividend of $25 to its parent in the form of a promissory
note. Subsequently, $12 of this note was forgiven and treated as a capital
contribution from HA&I.
On February 14, 1997, Hartford Life 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. On June 12, 1997,
the Company issued $650 of unsecured redeemable long-term debt in the form of
notes and debentures. Of this amount, $200 was in the form of 6.90% notes due
June 15, 2004, $200 of 7.10% notes due June 15, 2007, and $250 of 7.65%
debentures due June 15, 2027. Interest on each of the notes and debentures is
payable semi-annually on June 15 and December 15 of each year, commencing
December 15, 1997. The Company also issued $50 of short-term debt in the form of
commercial paper which was repaid in the second quarter of 1998. Of the proceeds
from this issuance, $670 was used to retire the remaining balance on the $1,300
line of credit with the remainder being used to fund business growth.
Subsequently, the Company reduced the capacity of its line of credit from $1,300
to $250.
On June 8, 1998, Hartford Life filed an omnibus registration statement with the
Securities and Exchange Commission for the issuance of up to $1.0 billion of
debt and equity securities, including up to $350 of previously registered but
unsold securities. After the issuance of the Company Obligated Mandatorily
Redeemable Preferred Securities of Subsidiary Trust Holding solely Parent Junior
Subordinated Debentures on June 29, 1998, discussed below, Hartford Life had
$750 remaining on this shelf registration as of December 31, 1998.
Interest expense related to short- and long-term debt totaled $49 and $58 for
1998 and 1997, respectively.
8. COMPANY OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF
SUBSIDIARY TRUST HOLDING SOLELY PARENT JUNIOR SUBORDINATED DEBENTURES
On June 29, 1998, Hartford Life Capital I, a special purpose Delaware trust
formed by Hartford Life, issued 10,000,000, 7.2% Trust Preferred Securities,
Series A (Series A Preferred Securities). The proceeds from the sale of the
Series A Preferred Securities were used to acquire $250 of 7.2% Series A Junior
Subordinated Deferrable Interest Debentures (Junior Subordinated Debentures)
issued by Hartford Life. Hartford Life used the proceeds from the offering for
the retirement of its outstanding commercial paper, strategic acquisitions and
other general corporate purposes.
The Series A Preferred Securities represent undivided beneficial interests in
Hartford Life Capital I's assets, which consist solely of the Junior
Subordinated Debentures. Hartford Life owns all of the beneficial interests
represented by Series A Common Securities of Hartford Life Capital I. Holders of
Series A Preferred Securities are entitled to receive cumulative cash
distributions accruing from June 29, 1998, the date of issuance, and payable
quarterly in arrears commencing July 15, 1998 at the annual rate of 7.2% of the
stated 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 Subordinate Debentures at maturity or upon earlier redemption. Hartford
Life has the right to redeem the Junior Subordinated Debentures on or after June
30, 2003 or earlier upon the occurrence of certain events. Holders of Series A
Preferred Securities generally have no voting rights.
The Junior Subordinated Debentures bear interest at the annual rate of 7.2% of
the principal amount, payable quarterly in arrears commencing June 29, 1998, and
mature on June 30, 2038. The Junior Subordinated Debentures are unsecured and
rank junior and subordinate in right of payment to all present and future senior
debt of Hartford Life and are effectively subordinated to all existing and
future liabilities of its subsidiaries.
F-19
<PAGE> 55
Hartford Life has the right at any time, and from time to time, to defer
payments of interest on the Junior Subordinated Debentures for a period not
exceeding 20 consecutive quarters up to the debentures' maturity date. During
any such period, interest will continue to accrue and Hartford Life may not
declare or pay any cash dividends or distributions on, or purchase, Hartford
Life's capital 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. The Company will have the right at any time to dissolve
the Trust and cause the Junior Subordinated Debentures to be distributed to the
holders of the Series A Preferred Securities and the Series A Common Securities.
Hartford Life has guaranteed, on a subordinated basis, all of the Hartford Life
Capital I obligations under the Series A Preferred Securities, including payment
of the redemption price and any accumulated and unpaid distributions upon
dissolution, winding up or liquidation to the extent funds are available.
Interest expense with respect to the Series A Preferred Securities totaled
approximately $9 in 1998.
9. STOCKHOLDERS' EQUITY
(a) PREFERRED STOCK
Hartford Life has 50,000,000 shares of preferred stock authorized, $0.01 par
value. No shares were issued or outstanding as of December 31, 1998.
(b) STATUTORY RESULTS
<TABLE>
<CAPTION>
For the years ended December 31,
------------------------------------------------
1998 1997 1996
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory net income $ 265 $ 223 $ 171
- -----------------------------------------------------------------------------
Statutory surplus $ 2,010 $ 1,672 $ 1,320
- -----------------------------------------------------------------------------
</TABLE>
A significant percentage of the consolidated statutory surplus is permanently
reinvested or is subject to various state regulatory restrictions which limit
the payment of dividends without prior approval. The total amount of statutory
dividends which may be paid by the insurance subsidiaries of the Company in 1999
is estimated to be $201.
The domestic insurance subsidiaries of Hartford Life prepare their statutory
financial statements in accordance with accounting practices prescribed by the
State of Connecticut. Prescribed statutory accounting practices include
publications of the National Association of Insurance Commissioners, as well as
state laws, regulations, and general administrative rules.
10. EARNINGS PER SHARE
The Company adopted SFAS No. 128, "Earnings per Share", effective December 15,
1997. Basic earnings per share are computed based upon the weighted average
number of shares outstanding during the year. Diluted earnings per share include
the dilutive effect of outstanding options, using the treasury stock method, and
also contingently issuable shares. Under the treasury stock method, it is
assumed that options are exercised and the proceeds will be assumed to be used
to purchase common stock at the average market price for the period. The
difference between the number of shares assumed issued and the number of shares
assumed purchased represents the dilutive shares. Contingently issuable shares
are included upon satisfaction of certain conditions related to contingency.
Earnings per share amounts, on a basic and diluted basis, have been calculated
based upon the weighted average common shares deemed to be outstanding during
the respective periods. For periods prior to the closing of the Company's IPO
(May 22, 1997), outstanding shares are based upon 114 million shares of Class B
Common Stock owned by The Hartford plus an assumed issuance of 11 million shares
of Class A Common Stock (the number of shares that, based upon the IPO price and
the underwriting discounts and expenses payable by the Company, would result in
net proceeds equal to the excess of the amount of the February and April 1997
dividends over the 1996 earnings and the Allocated Advances).
Pro forma effect has been given for the 1997 and 1996 periods presented for the
conversion of 1,000 shares of common stock, par value $0.01 per share, into 114
million shares of Class B Common Stock, par value $0.01 per share, which
occurred on April 3, 1997.
F-20
<PAGE> 56
<TABLE>
<CAPTION>
1998 Income Shares Per Share Amount
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BASIC EARNINGS PER SHARE
Amounts available to common shareholders $ 386 140.0 $ 2.76
------------------------
DILUTED EARNINGS PER SHARE
Impact of options and contingently issuable shares -- 0.2
----------------------------
Amounts available to common shareholders plus assumed conversions $ 386 140.2 $ 2.75
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
1997 Income Shares Per Share Amount
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PRO FORMA BASIC EARNINGS PER SHARE
Amounts available to common shareholders $ 306 134.0 $ 2.28
----------------------
PRO FORMA DILUTED EARNINGS PER SHARE
Impact of options and contingently issuable shares -- 0.1
----------------------------
Amounts available to common shareholders plus assumed conversions $ 306 134.1 $ 2.28
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
1996 Income Shares Per Share Amount
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PRO FORMA BASIC EARNINGS PER SHARE
Amounts available to common shareholders $ 24 125.0 $ 0.19
----------------------
PRO FORMA DILUTED EARNINGS PER SHARE
Impact of options and contingently issuable shares -- --
----------------------------
Amounts available to common shareholders plus assumed conversions $ 24 125.0 $ 0.19
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
If earnings per share was calculated based upon 140 million weighted average
shares outstanding for the 1997 and 1996 periods presented (representing the
weighted average shares outstanding at the time of the IPO, May 22, 1997),
earnings per share would have been $2.18 and $0.17, respectively.
11. STOCK COMPENSATION PLANS
During the second quarter of 1997, the Company adopted the 1997 Hartford Life,
Inc. Incentive Stock Plan (the "Plan"). Under the Plan, options granted may be
either non-qualified options or incentive stock options qualifying under Section
422A of the Internal Revenue Code. The aggregate number of shares of Class A
Common Stock which may be awarded in any one year shall be subject to an annual
limit. The maximum number of shares of Class A Common Stock which may be granted
under the Plan in each year shall be 1.5% of the total issued and outstanding
shares of Hartford Life Class A Common Stock and treasury stock as reported in
the Annual Report on Form 10-K of the Company for the preceding year plus unused
portions of such limit from prior years. In addition, no more than 5 million
shares of Class A Common Stock shall be cumulatively available for awards of
incentive stock options under the Plan, and no more than 20% of the total number
of shares on a cumulative basis shall be available for restricted stock and
performance shares.
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 non-performance based 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 non-performance based options
become exercisable over a three year period commencing with the date of grant.
Also included in the Plan are long-term performance awards which become payable
upon the attainment of specific performance goals achieved over a three year
period.
F-21
<PAGE> 57
During the second quarter of 1997, the Company established the Hartford Life,
Inc. Employee Stock Purchase Plan (ESPP). Under this plan, eligible employees of
Hartford Life may purchase Class A 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. The Company sold 121,943 and 54,316 shares under the ESPP in
1998 and 1997, respectively. The weighted average fair value of the discount
under the ESPP was $13.80 per share in 1998 and $9.63 per share in 1997.
The Company applies Accounting Principles Board Opinion No. 25 and related
interpretation in accounting for its stock-based compensation plans.
Accordingly, in the measurement of compensation expense the Company utilizes the
excess of market price over exercise price, on the first date that both the
number of shares and award price are known. The Company does not incur
compensation expense related to its two stock-based compensation plans. Had
compensation cost for the Company's incentive stock plan and ESPP been
determined based on the fair value at the grant dates for awards under those
plans consistent with the method under SFAS No. 123, the Company's net income
and basic and diluted earnings per share would have been reduced to the pro
forma amounts indicated below:
<TABLE>
<CAPTION>
1998 1997
- -----------------------------------------------------------------
<S> <C> <C>
Net income
As reported $386 $306
Pro forma (1) 379 304
- -----------------------------------------------------------------
Basic earnings per share
As reported $2.76 $2.28
Pro forma (1) 2.71 2.27
- -----------------------------------------------------------------
Diluted earnings per share
As reported $2.75 $2.28
Pro forma (1) 2.70 2.27
- -----------------------------------------------------------------
</TABLE>
(1) 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 1998 and 1997: dividend yield of 1.0% for both
1998 and 1997, expected price variability of 33% for 1998 and 29% for 1997,
risk-free interest rates of 4.9% for the 1998 grants and 6.4% for the 1997
grants and expected lives of five years for 1998 and 1997.
A summary of the status of non-qualified options included in the Company's
incentive stock plan as of December 31, 1998 and 1997 and changes during the
year ended December 31, 1998 and through the period ended December 31, 1997 is
presented below:
<TABLE>
<CAPTION>
1998 1997
--------------------------------------- --------------------------------------
Weighted Average Weighted Average
Shares Exercise Price Shares Exercise Price
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 422,512 $31.54 -- --
Granted 1,376,375 43.74 450,377 $31.52
Exercised (15,483) 31.10 -- --
Cancelled (17,007) 40.24 (27,865) 31.31
---------- --------
Outstanding at end of year 1,766,397 $40.96 422,512 $31.54
- ------------------------------------------------------------------------------------------------------------------------------------
Exercisable at end of year 504,562 $37.72 136,532 $31.14
Weighted average fair value of options granted $ 15.13 $ 10.93
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The following table summarizes information about stock options outstanding and
exercisable as of December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------------------------------- -------------------------------------------
Number Outstanding Weighted Average Number Outstanding
Range of as of December 31, Remaining Weighted Average as of December 31, Weighted Average
Exercise Prices 1998 Contractual Life Exercise Price 1998 Exercise Price
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$30.06 - $43.94 1,579,041 9.2 $39.57 504,562 $37.72
$47.50 - $59.38 187,356 9.6 52.65 -- --
- ----------------------------------------------------------------------------------------------------------------------------------
$30.06 - $59.38 1,766,397 9.3 $40.96 504,562 $37.72
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
F-22
<PAGE> 58
12. POSTRETIREMENT BENEFIT AND SAVINGS PLANS
(a) PENSION PLANS
Hartford Life's employees are included in The Hartford's non-contributory
defined benefit pension plans. These plans provide pension benefits that are
based on years of service and the employee's compensation during the last ten
years of employment. The Company's funding policy is to contribute annually an
amount between the minimum funding requirements set forth in the Employee
Retirement Income Security Act of 1974, as amended, and the maximum amount that
can be deducted for U.S. Federal income tax purposes. Generally, pension costs
are funded through the purchase of the Company's group pension contracts. The
cost to the Company was approximately $9 in 1998 and $7 in both 1997 and 1996.
The Company also provides, through The Hartford, certain health care and life
insurance benefits for eligible retired employees. A substantial portion of the
Company's employees may become eligible for these benefits upon retirement. The
Company's contribution for health care benefits will depend on 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 Company 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 benefits expense, allocated by The
Hartford, was immaterial to the results of operations for 1998, 1997 and 1996.
The assumed rate in the per capita cost of health care (the health care trend
rate) was 7.8% for 1998, decreasing ratably to 5.0% in the year 2003. Increasing
the health care trend rates by one percent per year would have an immaterial
impact on the accumulated postretirement benefit obligation and the annual
expense. To the extent that the actual experience differs from the inherent
assumptions, the effect will be amortized over the average future service of
covered employees.
(b) INVESTMENT AND SAVINGS PLAN
Substantially all employees of the Company are eligible to participate in The
Hartford's Investment and Savings Plan. Under this plan, designated
contributions, which may be invested in Class A Common Stock of Hartford Life or
certain other investments, are matched, up to 3% of compensation, by the
Company. The cost to Hartford Life for the above-mentioned plan was
approximately $6 and $5 in 1998 and 1997, respectively.
13. REINSURANCE
Hartford Life cedes insurance to other insurers in order to limit its maximum
loss. Such transfer does not relieve Hartford Life of its primary liability.
Hartford Life also assumes insurance from other insurers. Failure of reinsurers
to honor their obligations could result in losses to Hartford Life. Hartford
Life evaluates the financial condition of its reinsurers and monitors
concentration of credit risk.
Net premiums and other considerations were comprised of the following:
<TABLE>
<CAPTION>
For the years ended December 31,
---------------------------------------------------------------
1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Gross premiums $ 3,946 $ 3,352 $ 3,077
Assumed 98 165 405
Ceded (211) (354) (413)
- ------------------------------------------------------------------------------------------------------------------
NET PREMIUMS AND OTHER CONSIDERATIONS $ 3,833 $ 3,163 $ 3,069
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
Life reinsurance recoveries, which reduce death and other benefits, approximated
$119, $205 and $239 for the years ended December 31, 1998, 1997 and 1996,
respectively.
Hartford Life has no significant reinsurance-related concentrations of credit
risk.
F-23
<PAGE> 59
14. INCOME TAX
Hartford Life and The Hartford have entered into a tax sharing agreement under
which each member in the consolidated U.S. Federal income tax return will make
payments between them such that, with respect to any period, the amount of taxes
to be paid by the Company, subject to certain adjustments, generally will be
determined as though the Company were filing separate Federal, state and local
income tax returns.
As long as The Hartford continues to own at least 80% of the combined voting
power and 80% of the value of the outstanding capital stock of the Company, the
Company will be included for Federal income tax purposes in the affiliated group
of which The Hartford is the common parent. It is the intention of The Hartford
and its non-life subsidiaries to file a single consolidated Federal income tax
return. The life insurance companies will file a separate consolidated federal
income tax return. The Company's effective tax rate was 34%, 36% and 23% in
1998, 1997 and 1996, respectively.
Income tax expense is as follows:
<TABLE>
<CAPTION>
For the years ended December 31,
-------------------------------------------------------------
1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current $ 299 $ 169 $ 134
Deferred (100) 5 (127)
- ----------------------------------------------------------------------------------------------------------------
INCOME TAX EXPENSE $ 199 $ 174 $ 7
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
A reconciliation of the tax provision at the U.S. Federal statutory rate to the
provision (benefit) for income taxes is as follows:
<TABLE>
<CAPTION>
For the years ended December 31,
------------------------------------------------
1998 1997 1996
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tax provision at the U.S. Federal statutory rate $ 205 $ 168 $ 11
Tax-exempt income (9) - (2)
Other 3 6 (2)
- --------------------------------------------------------------------------------------------------------------------
TOTAL $ 199 $ 174 $ 7
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
Deferred tax assets (liabilities) include the following as of December 31:
<TABLE>
<CAPTION>
1998 1997
----------------------------------
<S> <C> <C>
Tax basis deferred policy acquisition costs $ 767 $ 651
Financial statement deferred policy acquisition costs and reserves 95 76
Employee benefits 21 24
Net unrealized capital gains on securities (142) (128)
Investments and other (285) (226)
- -------------------------------------------------------------------------------------------------------------
TOTAL $ 456 $ 397
- -------------------------------------------------------------------------------------------------------------
</TABLE>
Hartford Life had a current tax payable of $71 and $52 as of December 31, 1998
and 1997, respectively.
Prior to the Tax Reform Act of 1984, the Life Insurance Company Income Tax Act
of 1959 permitted the deferral from taxation of a portion of statutory income
under certain circumstances. In these situations, the deferred income was
accumulated in a "Policyholders' Surplus Account" and, based on current tax law,
will be taxable in the future only under conditions which management considers
to be remote; therefore, no Federal income taxes have been provided on this
deferred income. The balance for tax return purposes of the Policyholders'
Surplus Account as of December 31, 1998 was $104.
F-24
<PAGE> 60
15. RELATED PARTY TRANSACTIONS
Transactions of the Company with HA&I and its affiliates relate principally to
tax settlements, reinsurance, insurance coverage, rental and service fees,
payment of dividends and capital contributions. In addition, certain affiliated
insurance companies purchased group annuity contracts from the Company to fund
pension costs and claim annuities to settle casualty claims. Substantially all
general insurance expenses related to the Company, including rent and employee
benefit plan expenses, are initially paid by The Hartford. Direct expenses are
allocated to the Company using specific identification, and indirect expenses
are allocated using other applicable methods. Indirect expenses include those
for corporate areas which, depending on type, are allocated based on either a
percentage of direct expenses or on utilization. Indirect expenses allocated to
the Company by The Hartford were $72, $53 and $45 in 1998, 1997 and 1996,
respectively. Management believes that the methods used are reasonable. Included
in other liabilities are $54 and $80 due The Hartford as of December 31, 1998
and 1997, respectively.
16. COMMITMENTS AND CONTINGENT LIABILITIES
(a) LITIGATION
Hartford Life is involved in pending and threatened litigation in the normal
course of its business in which claims for monetary and punitive damages have
been asserted. Although there can be no assurances, at the present time the
Company does not anticipate that the ultimate liability arising from such
pending or threatened litigation, after consideration of provisions made for
potential losses and costs of defense, will have a material adverse effect on
the financial condition or operating results of the Company.
(b) GUARANTY FUNDS
Under insurance guaranty fund laws in each state, the District of Columbia and
Puerto Rico, insurers licensed to do business can be assessed by state insurance
guaranty associations for certain obligations of insolvent insurance companies
to policyholders and claimants. Recent regulatory actions against certain large
life insurers encountering financial difficulty have prompted various state
insurance guaranty associations to begin assessing life insurance companies for
the deemed losses. Most of these laws do provide, however, that an assessment
may be excused or deferred if it would threaten an insurer's solvency and
further provide annual limits on such assessments. Part of the assessments paid
by the Company's insurance subsidiaries pursuant to these laws may be used as
credits for a portion of the Company's insurance subsidiaries' premium taxes.
The Company paid guaranty fund assessments of approximately $9, $15 and $12 in
1998, 1997 and 1996, respectively, of which $4, $5 and $6, respectively, were
estimated to be creditable against premium taxes.
(c) LEASES
The rent paid to Hartford Fire for space occupied by the Company was $14, $13
and $11 in 1998, 1997 and 1996, respectively. Future minimum rental commitments
are as follows:
<TABLE>
<S> <C>
1999 $ 14
2000 22
2001 22
2002 22
2003 22
Thereafter 133
----------------------------
TOTAL $ 235
----------------------------
</TABLE>
Rental expense is recognized on a level basis over the term of the primary
sublease, which expires on December 31, 2009, and amounted to approximately $16
in both 1998 and 1997 and $14 in 1996.
(d) TAX MATTERS
Hartford Life's Federal income tax returns are routinely audited by the Internal
Revenue Service. The Company is currently under audit for the years 1993 through
1995, with the audit for the years 1996 through 1997 expected to begin during
early 1999. Management believes that adequate provision has been made in the
financial statements for items that may result from tax examinations and other
tax related matters.
F-25
<PAGE> 61
(e) INVESTMENTS
As of December 31, 1998, Hartford Life held $83 of asset backed securities
securitized and serviced by Commercial Financial Services, Inc. (CFS) of which
$62 were included in the Company's general account and $21 in the Company's
guaranteed separate account. In October 1998, the Company became aware of
allegations of improper activities at CFS. On December 11, 1998, CFS filed for
protection under Chapter 11 of the Bankruptcy Code. As of December 31, 1998, CFS
continues to service the asset backed securities, which remain current on
payments of principal and interest, however, the Company does not expect to
recover all of its principal investment. Based upon information available in the
fourth quarter 1998, the Company recognized a $29, after-tax, writedown related
to its holdings in CFS of which $21 was related to the Company's general account
assets. The ultimate realizable amount depends on the outcome of the bankruptcy
of CFS and these estimates are therefore subject to material change as new
information becomes available. The Company is presently unable to determine the
amount of further potential loss, if any, related to the securities.
17. SEGMENT INFORMATION
Hartford Life adopted SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information", during the fourth quarter of 1998. This statement
replaces SFAS No. 14, "Financial Reporting for Segments of a Business
Enterprise", and establishes new standards for reporting information about
operating segments in annual financial statements and in interim financial
reports issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas and major customers.
This statement requires that the reportable operating segments be based on the
Company's internal operations. On this basis, Hartford Life's segments represent
strategic operations which offer different products and services as well as
serve different markets.
Hartford Life is organized into four reportable operating segments which include
Investment Products, Individual Life, Employee Benefits and Corporate Owned Life
Insurance (COLI). Investment Products offers individual variable annuities,
fixed market value adjusted (MVA) annuities and fixed and variable immediate
annuities, mutual funds, deferred compensation and retirement plan services,
structured settlement contracts and other special purpose annuity contracts.
Individual Life sells a variety of life insurance products, including variable
life, universal life, interest-sensitive whole life and term life insurance.
Employee Benefits sells group insurance products, including group life and group
disability insurance as well as other products, including stop loss and
supplementary medical coverage to employers and employer sponsored plans,
accidental death and dismemberment, travel accident, long-term care insurance
and other special risk coverages to employers and associations. COLI primarily
offers variable products used by employers to fund non-qualified benefits or
other post-employment benefit obligations as well as leveraged COLI. The Company
includes in "Other" corporate items not directly allocable to any of its
reportable operating segments, principally interest expense, as well as its
international operations.
The accounting policies of the reportable operating segments are the same as
those described in the summary of significant accounting policies in Note 2.
Hartford Life evaluates performance of its segments based on revenues, net
income and the segment's return on allocated capital. The Company charges direct
operating expenses to the appropriate segment and allocates the majority of
indirect expenses to the segments based on an intercompany expense arrangement.
Intersegment revenues are not significant and primarily occur between corporate
and the operating segments. These amounts include interest income on allocated
surplus and the amortization of net realized capital gains and losses through
net investment income utilizing the duration of the segment's investment
portfolios. The Company's revenues are primarily derived from customers within
the United States. The Company's long-lived assets primarily consist of deferred
policy acquisition costs and deferred tax assets from within the United States.
The following table outlines summarized financial information concerning the
Company's segments. The information for 1997 and 1996 has been restated to
conform to the 1998 presentation.
<TABLE>
<CAPTION>
Investment Individual Employee
1998 Products Life Benefits COLI Other Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total revenues $ 1,784 $ 567 $ 1,809 $ 1,567 $ 61 $ 5,788
Net investment income 739 189 180 793 54 1,955
Amortization of deferred
policy acquisition costs 326 108 7 - - 441
Income tax expense (benefit) 145 36 27 12 (21) 199
Net income (loss) 266 65 71 24 (40) 386
Assets 87,706 5,404 3,068 22,631 3,213 122,022
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
F-26
<PAGE> 62
<TABLE>
<CAPTION>
Investment Individual Employee
1997 Products Life Benefits COLI Other Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total revenues $ 1,510 $ 510 $ 1,700 $ 980 $ (1) $ 4,699
Net investment income 739 171 162 429 35 1,536
Amortization of deferred
policy acquisition costs 250 87 6 - 2 345
Income tax expense (benefit) 112 31 32 15 (16) 174
Net income (loss) 202 56 58 27 (37) 306
Assets 72,799 5,151 2,355 17,800 2,875 100,980
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Investment Individual Employee
1996 Products Life Benefits COLI Other Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total revenues $ 1,007 $ 472 $ 1,463 $ 1,360 $ 82 $ 4,384
Net investment income 685 159 134 480 76 1,534
Amortization of deferred
policy acquisition costs 175 63 4 - (1) 241
Income tax expense (benefit) (42) 24 23 11 (9) 7
Net income (loss) (80) 44 45 26 (11) 24
Assets 57,500 3,968 2,045 14,222 2,198 79,933
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
18. QUARTERLY RESULTS FOR 1998 AND 1997 (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
----------------------------------------------------------------------------------------
March 31, June 30, September 30, December 31,
----------------------------------------------------------------------------------------
1998 1997 1998 1997 1998 1997 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 1,404 $ 1,055 $ 1,155 $ 1,042 $ 1,287 $ 1,058 $ 1,942 $ 1,544
Benefits, claims and expenses 1,275 955 1,013 935 1,135 925 1,780 1,404
Net income 84 63 94 73 100 83 108 87
- ----------------------------------------------------------------------------------------------------------------------------------
Basic earnings per share (1) $ 0.60 $ 0.51 $ 0.67 $ 0.56 $ 0.71 $ 0.59 $ 0.77 $ 0.62
Diluted earnings per share (1) $ 0.60 $ 0.51 $ 0.67 $ 0.56 $ 0.71 $ 0.59 $ 0.77 $ 0.62
- ----------------------------------------------------------------------------------------------------------------------------------
Weighted average common shares
outstanding 140.0 127.1 140.0 130.6 140.0 140.0 139.9 140.0
Weighted average common shares
outstanding and dilutive potential
common shares 140.1 127.1 140.3 130.7 140.2 140.1 140.2 140.1
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Pro forma in 1997; see Note 10.
F-27
<PAGE> 63
HARTFORD LIFE, INC. AND SUBSIDIARIES
SCHEDULE I
SUMMARY OF INVESTMENTS - OTHER THAN INVESTMENTS IN AFFILIATES
<TABLE>
<CAPTION>
(In millions) As of December 31, 1998
----------------------------------------------------------
Amount at which
shown on Balance
Type of Investment Cost Fair Value Sheet
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FIXED MATURITIES
Bonds and Notes
U.S. Government and Government agencies and authorities
(guaranteed and sponsored) $ 164 $ 166 $ 166
U.S. Government and Government agencies and authorities
(guaranteed and sponsored) - asset backed 1,138 1,154 1,154
States, municipalities and political subdivisions 1,107 1,139 1,139
Foreign governments 497 530 530
Public utilities 935 969 969
All other corporate including international 6,170 6,443 6,443
All other corporate - asset backed 4,654 4,681 4,681
Short-term investments 2,017 2,017 2,017
Certificates of deposit 584 588 588
Redeemable preferred stock 5 5 5
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL FIXED MATURITIES 17,271 17,692 17,692
- ----------------------------------------------------------------------------------------------------------------------------------
EQUITY SECURITIES
Common Stocks
Public utilities 5 5 5
Banks, trusts and insurance companies 1 1 1
Industrial and miscellaneous 121 134 134
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL EQUITY SECURITIES 127 140 140
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL FIXED MATURITIES AND EQUITY SECURITIES 17,398 17,832 17,832
- ----------------------------------------------------------------------------------------------------------------------------------
POLICY LOANS 6,687 6,687 6,687
- ----------------------------------------------------------------------------------------------------------------------------------
OTHER INVESTMENTS
Mortgage loans on real estate 211 211 211
Other invested assets 152 202 152
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL OTHER INVESTMENTS 363 413 363
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS $ 24,448 $ 24,932 $ 24,882
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
S-1
<PAGE> 64
HARTFORD LIFE, INC. AND SUBSIDIARIES
SCHEDULE II
CONDENSED FINANCIAL INFORMATION OF HARTFORD LIFE, INC.
(REGISTRANT)
<TABLE>
<CAPTION>
(In millions) As of December 31,
---------------------------------------
CONDENSED BALANCE SHEETS 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Fixed maturities, available for sale, at fair value
(amortized cost of $2 and $-) $ 2 $ --
Investment in subsidiaries 3,393 2,832
Other assets 4 14
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS 3,399 2,846
- ----------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term debt -- 50
Long-term debt 650 650
Company obligated mandatorily redeemable preferred
securities of subsidiary trust holding solely parent
junior subordinated debentures 250 --
Other liabilities 6 2
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 906 702
TOTAL STOCKHOLDERS' EQUITY 2,493 2,144
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,399 $ 2,846
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
(In millions)
CONDENSED STATEMENTS OF INCOME For the years ended December 31,
------------------------------------------------------
1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Earnings of subsidiaries $ 643 $ 538 $ 86
Interest expense 58 58 55
- ------------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAX EXPENSE 585 480 31
Income tax expense 199 174 7
- ------------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 386 $ 306 $ 24
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The financial information of Hartford Life, Inc. (parent company of Hartford
Life) should be read in conjunction with the Consolidated Financial Statements
and Notes to Consolidated Financial Statements.
<PAGE> 65
HARTFORD LIFE, INC. AND SUBSIDIARIES
SCHEDULE II
CONDENSED FINANCIAL INFORMATION OF HARTFORD LIFE, INC. (CONTINUED)
(REGISTRANT)
<TABLE>
<CAPTION>
(In millions)
CONDENSED STATEMENTS OF CASH FLOWS For the years ended December 31,
-------------------------------------------------------------
1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 386 $ 306 $ 24
Undistributed earnings of subsidiaries (348) (279) (5)
Change in other assets and liabilities -- (11) --
- -----------------------------------------------------------------------------------------------------------------------------------
CASH PROVIDED BY OPERATING ACTIVITIES 38 16 19
- -----------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchases of investments (2) -- --
Capital contribution to subsidiary (190) (180) (115)
- -----------------------------------------------------------------------------------------------------------------------------------
CASH USED FOR INVESTING ACTIVITIES (192) (180) (115)
- -----------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
(Decrease) increase in allocated advances from parent -- (893) 115
(Decrease) increase in short-term debt (50) 50 --
Proceeds from issuance of long-term debt -- 650 --
Proceeds from issuance of company obligated mandatorily
redeemable preferred securities of subsidiary trust holding
solely parent junior subordinated debentures 250 -- --
Dividends paid (38) (329) (19)
Net proceeds from the sale of common stock -- 687 --
Acquisition of treasury stock, net (8) (1) --
- -----------------------------------------------------------------------------------------------------------------------------------
CASH PROVIDED BY FINANCING ACTIVITIES 154 164 96
- -----------------------------------------------------------------------------------------------------------------------------------
Net change in cash -- -- --
Cash-- beginning of year -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
CASH-- END OF YEAR $ -- $ -- $ --
- -----------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
NET CASH ACTIVITY DURING THE YEAR FOR:
Interest expense paid $ 54 $ 55 $ 55
Tax refund received $ 20 $ 17 $ --
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES:
Capital contribution $ -- $ 12 $ --
Increase in Allocated Advances for fixed assets $ -- $ -- $ 46
Capital contribution to subsidiaries $ -- $ 46 $ --
</TABLE>
S-3
<PAGE> 66
HARTFORD LIFE, INC. AND SUBSIDIARIES
SCHEDULE III
SUPPLEMENTARY INSURANCE INFORMATION
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(In millions)
<TABLE>
<CAPTION>
Deferred Other
Policy Policy Premiums Net
Acquisition Future Policy -holder and Other Investment Net Realized
Segment Costs Benefits Funds Considerations Income Capital Losses
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1998
Investment Products $2,860 $2,470 $9,226 $ 1,045 $ 739 $ -
Individual Life 958 567 2,307 378 189 -
Employee Benefits 24 2,455 114 1,629 180 -
Corporate Owned Life
Insurance - 225 8,097 774 793 -
Other - - 23 7 54 -
- ---------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED OPERATIONS $3,842 $5,717 $19,767 $ 3,833 $ 1,955 $ -
- ---------------------------------------------------------------------------------------------------------------------------------
1997
Investment Products $2,479 $2,028 $9,621 $ 771 $ 739 $ -
Individual Life 861 566 2,180 339 171 -
Employee Benefits 21 2,261 84 1,538 162 -
Corporate Owned Life
Insurance - 56 9,259 551 429 -
Other - 28 (5) (36) 35 -
- ---------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED OPERATIONS $3,361 $4,939 $21,139 $ 3,163 $ 1,536 $ -
- ---------------------------------------------------------------------------------------------------------------------------------
1996
Investment Products $2,033 $1,507 $10,225 $ 541 $ 685 $ (219)
Individual Life 748 514 2,133 313 159 -
Employee Benefits 18 1,937 72 1,329 134 -
Corporate Owned Life
Insurance - - 9,823 880 480 -
Other 1 28 - 6 76 -
- ---------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED OPERATIONS $2,800 $3,986 $22,253 $ 3,069 $ 1,534 $ (219)
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Benefits, Amortization
Claims and of Deferred
Claim Policy
Adjustment Acquisition Dividends to Other
Segment Expenses Costs Policyholders Expenses*
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1998
Investment Products $ 671 $ 326 $ - $ 376
Individual Life 269 108 1 88
Employee Benefits 1,335 7 - 369
Corporate Owned Life
Insurance 924 - 329 278
Other 28 - - 94
- ---------------------------------------------------------------------------------------------
CONSOLIDATED OPERATIONS $3,227 $ 441 $ 330 $1,205
- ---------------------------------------------------------------------------------------------
1997
Investment Products $ 677 $ 250 $ - $ 269
Individual Life 251 87 1 84
Employee Benefits 1,301 6 - 303
Corporate Owned Life
Insurance 439 - 240 259
Other 3 2 - 47
- ---------------------------------------------------------------------------------------------
CONSOLIDATED OPERATIONS $2,671 $ 345 $ 241 $ 962
- ---------------------------------------------------------------------------------------------
1996
Investment Products $ 748 $ 175 $ - $ 206
Individual Life 266 63 1 74
Employee Benefits 1,140 4 - 251
Corporate Owned Life
Insurance 545 - 634 144
Other 28 (1) - 75
- ---------------------------------------------------------------------------------------------
CONSOLIDATED OPERATIONS $2,727 $ 241 $ 635 $ 750
- ---------------------------------------------------------------------------------------------
</TABLE>
* Includes interest expense.
S-4
<PAGE> 67
HARTFORD LIFE, INC. AND SUBSIDIARIES
SCHEDULE IV
REINSURANCE
<TABLE>
<CAPTION>
Assumed
Ceded to From Percentage of
Gross Other Other Net Amount Assumed
(In millions) Amount Companies Companies Amount to Net
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED DECEMBER 31, 1998
Life insurance in force $ 515,688 $ 194,092 $ 11,659 $ 333,255 3.5%
- -----------------------------------------------------------------------------------------------------------------------------------
PREMIUMS AND OTHER CONSIDERATIONS
Life insurance and annuities $ 2,839 $ 151 $ 62 $ 2,750 2.3%
Accident and health insurance 1,107 60 36 1,083 3.3%
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL PREMIUMS AND OTHER CONSIDERATIONS $ 3,946 $ 211 $ 98 $ 3,833 2.6%
- -----------------------------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1997
Life insurance in force $ 396,736 $ 172,928 $ 42,729 $ 266,537 16.0%
- -----------------------------------------------------------------------------------------------------------------------------------
PREMIUMS AND OTHER CONSIDERATIONS
Life insurance and annuities $ 2,340 $ 273 $ 58 $ 2,125 2.7%
Accident and health insurance 1,012 81 107 1,038 10.3%
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL PREMIUMS AND OTHER CONSIDERATIONS $ 3,352 $ 354 $ 165 $ 3,163 5.2%
- -----------------------------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1996
Life insurance in force $ 300,783 $ 89,388 $ 46,040 $ 257,435 17.9%
- -----------------------------------------------------------------------------------------------------------------------------------
PREMIUMS AND OTHER CONSIDERATIONS
Life insurance and annuities $ 2,338 $ 326 $ 183 $ 2,195 8.3%
Accident and health insurance 739 87 222 874 25.4%
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL PREMIUMS AND OTHER CONSIDERATIONS $ 3,077 $ 413 $ 405 $ 3,069 13.2%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
S-5
<PAGE> 68
HARTFORD LIFE, INC. AND SUBSIDIARIES
SCHEDULE V
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Additions Deductions
------------------------ --------------
Charged to
Balance Costs and Translation Write-offs/ Balance
(In millions) January 1, Expenses Adjustment Payments/Other December 31,
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998
Accumulated depreciation of plant,
property and equipment $ 112 $ 34 $ - $ (9) $ 137
1997
Accumulated depreciation of plant,
property and equipment $ 101 $ 17 $ - $ (6) $ 112
1996
Accumulated depreciation of plant,
property and equipment $ 8 $ - $ - $ 93 $ 101
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
S-6
<PAGE> 69
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.
HARTFORD LIFE, INC.
By: /S/ Mary Jane B. Fortin
--------------------------------
Mary Jane B. Fortin
Chief Accounting Officer
and Assistant Vice President
Date: March 29, 1999
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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/S/ Ramani Ayer Chairman March 29, 1999
- ----------------------------------------
Ramani Ayer
/S/ Lowndes A. Smith Chief Executive Officer, March 29, 1999
- ---------------------------------------- President and Director
Lowndes A. Smith
/s/ Thomas M. Marra Executive Vice President March 29, 1999
- ---------------------------------------- and Director
Thomas M. Marra
/S/ David T. Foy Senior Vice President, March 29, 1999
- ---------------------------------------- Director of Finance and Treasurer
David T. Foy (Chief Financial Officer)
/S/ Mary Jane B. Fortin Chief Accounting Officer March 29, 1999
- ---------------------------------------- and Assistant Vice President
Mary Jane B. Fortin
/S/ Gail Deegan Director March 29, 1999
- ----------------------------------------
Gail Deegan
/S/ Donald R. Frahm Director March 29, 1999
- ----------------------------------------
Donald R. Frahm
/S/ Paul G. Kirk, Jr. Director March 29, 1999
- ----------------------------------------
Paul G. Kirk, Jr.
/S/ Robert E. Patricelli Director March 29, 1999
- ----------------------------------------
Robert E. Patricelli
/S/ H. Patrick Swygert Director March 29, 1999
- ----------------------------------------
H. Patrick Swygert
/S/ DeRoy C. Thomas Director March 29, 1999
- ----------------------------------------
Deroy C. Thomas
/S/ Gordon I. Ulmer Director March 29, 1999
- ----------------------------------------
Gordon I. Ulmer
/S/ David K. Zwiener Director March 29, 1999
- ----------------------------------------
David K. Zwiener
</TABLE>
II-1
<PAGE> 70
HARTFORD LIFE, INC. AND SUBSIDIARIES
FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
EXHIBITS INDEX
<TABLE>
<CAPTION>
EXHIBIT #
<S> <C>
3.01 Amended and Restated Certificate of Incorporation of Hartford Life,
Inc. ("Hartford Life" or the "Company") was filed as Exhibit 3.1
to the Company's Registration Statement on Form S-1 dated February
10, 1997 (Registration No. 333-21459) and is incorporated herein by
reference.
3.02 Amended and Restated By-Laws of the Company, amended effective
December 18, 1997 was filed as Exhibit 3.02 to the Company's Form
10-K filed for the fiscal year ended December 31, 1997 and is
incorporated herein by reference.
4.01 Amended and Restated Certificate of Incorporation and By-Laws of
the Company (included as Exhibits 3.01 and 3.02, respectively).
4.02 Senior Indenture, dated as of May 19, 1997, between the Company and
Citibank, N.A., as trustee, with respect to the Company's 6.90%
Notes due June 15, 2004, 7.10% Notes due June 15, 2007, and 7.65%
Debentures due June 15, 2027, was filed as Exhibit 4.3 to the
Company's Registration Statement on Form S-3 (Amendment No. 2)
dated May 23, 1997, and is incorporated herein by reference.
4.03 Subordinated Indenture between Hartford Life and Wilmington Trust
Company, as Trustee, dated as of June 1, 1998, is filed herewith.
4.04 First Supplemental Indenture, dated as of June 29, 1998 between
Hartford Life, as Issuer, and Wilmington Trust Company, as Trustee,
with respect to 7.2% Junior Subordinated Deferrable Interest
Debentures, due 2038, is filed herewith.
4.05 Form of Junior Subordinated Deferrable Interest Debenture, Series
A, due 2038, included as Exhibit A to Exhibit 4.04 filed herewith.
4.06 Declaration of Trust of Hartford Life Capital I, dated as of June
3, 1998 between the Company, as Sponsor, and Wilmington Trust
Company, as Trustee, is filed herewith.
4.07 Amended and Restated Declaration of Trust of Hartford Life Capital
I, dated as of June 29, 1998 between the Trustee and the Sponsor,
relating to the 7.2% Junior Subordinated Deferrable Interest
Debentures, Series A, due 2038, is filed herewith.
4.08 Form of Preferred Security Certificate for Hartford Capital I,
included as Exhibit A-1 to Exhibit 4.07 filed herewith.
4.09 Preferred Securities Guarantee Agreement, dated as of June 29, 1998
between Hartford Life, as Guarantor, and Wilmington Trust Company,
as Preferred Guarantee Trustee, relating to Hartford Life Capital
I, is filed herewith.
</TABLE>
II-2
<PAGE> 71
<TABLE>
<S> <C>
10.01 Master Intercompany Agreement among the Company, The Hartford
Financial Services Group, Inc. (formerly known as ITT Hartford
Group, Inc.) (The Hartford) and with respect to Articles VI and
XII, Hartford Fire Insurance Company, was filed as Exhibit 10.1 to
the Company's Form 10-Q filed for the quarterly period ended June
30, 1997 and is incorporated herein by reference.
10.02 Tax Sharing Agreement among The Hartford and its subsidiaries,
including the Company, was filed as Exhibit 10.2 to the Company's
Form 10-Q filed for the quarterly period ended June 30, 1997 and is
incorporated herein by reference.
10.03 Management Agreement among Hartford Life Insurance Company and The
Hartford Investment Management Company, was filed as Exhibit 10.3
to the Company's Form 10-Q filed for the quarterly period ended
June 30, 1997 and is incorporated herein by reference.
10.04 Management Agreement among certain subsidiaries of the Company and
Hartford Investment Services, Inc., was filed as Exhibit 10.4 to
the Company's Form 10-Q filed for the quarterly period ended June
30, 1997 and is incorporated herein by reference.
10.05 Sublease Agreement between Hartford Fire Insurance Company and the
Company, was filed as Exhibit 10.5 to the Company's Form 10-Q filed
for the quarterly period ended June 30, 1997 and is incorporated
herein by reference.
10.06 Promissory Note dated February 20, 1997, executed by the Company
for the benefit of Hartford Accident and Indemnity Company, was
filed as Exhibit 10.9 to the Company's Registration Statement on
Form S-1 (Amendment No. 2) dated April 24, 1997 (Registration No.
333-21459) and is incorporated herein by reference.
10.07* 1997 Hartford Life, Inc. Incentive Stock Plan, as amended, was
filed as Exhibit 10.01 to the Company's Form 10-Q filed for the
quarterly period ended September 30, 1998 and is incorporated
herein by reference.
10.08* 1997 Hartford Life, Inc. Deferred Restricted Stock Unit Plan, as
amended, is filed herewith.
10.09* 1997 Hartford Life, Inc. Restricted Stock Plan for Non-Employee
Directors, as amended, is filed herewith.
10.10* The Hartford 1996 Deferred Compensation Plan was filed as Exhibit
10.18 to The Hartford's Form 10-K (File No. 0-19277) for the fiscal
year ended December 31, 1998 and is incorporated herein by
reference.
10.11* The Hartford 1997 Senior Executive Severance Pay Plan I was filed
as Exhibit 10.19 to The Hartford's Form 10-K (File No. 0-19277) for
the fiscal year ended December 31, 1998 and is incorporated herein
by reference.
10.12* The Hartford Executive Severance Pay Plan I was filed as Exhibit
10.20 to The Hartford's Form 10-K (File No. 0-19277) for the fiscal
year ended December 31, 1998 and is incorporated herein by
reference.
</TABLE>
II-3
<PAGE> 72
<TABLE>
<S> <C>
10.13 Promissory Note dated April 4, 1997, executed by the Company for the
benefit of Hartford Accident and Indemnity Company, was filed as Exhibit
10.16 to the Company's Registration Statement on Form S-1 (Amendment No. 2)
dated April 24, 1997 (Registration No. 333-21459) and is incorporated
herein by reference.
10.14* Employment Agreement dated July 1, 1997 between the Company and The
Hartford and Lowndes A. Smith was filed as exhibit 10.02 to The
Hartford's Form 10-Q filed for the quarterly period ended September
30, 1997 and is incorporated herein by reference.
10.15* Form of Employment Protection Agreement between the Company and
certain executive officers of the Company was filed as Exhibit
10.12 to the Company's Form 10-K for the fiscal year ended December
31, 1997 and is incorporated herein by reference.
10.16 Amended and restated Credit Agreement dated as of February 9, 1998
among Hartford Life, Inc., the lenders named therein and Citibank,
N.A. as administrative agent was filed as Exhibit 10.1 to the
Company's Form 10-Q filed for the quarterly period ended March 31,
1998 and is incorporated herein by reference.
12 Computation of Ratio of Earnings to Fixed Charges is filed herewith.
23 Consent of Arthur Andersen LLP to the incorporation by reference
into the Company's Registration Statements on Form S-8 and Form S-3
of the Report of Arthur Andersen LLP contained in this Form 10-K
regarding the audited financial statements is filed herewith.
27 Financial Data Schedule is filed herewith.
</TABLE>
* Management contract, compensatory plan or arrangement.
II-4
<PAGE> 1
EXHIBIT 4.03
SUBORDINATED INDENTURE
between
HARTFORD LIFE, INC.
and
WILMINGTON TRUST COMPANY,
as Trustee
Dated as of June 1, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I
Definitions and Other Provisions of General Application
SECTION 1.01. Definitions .............................................. 1
SECTION 1.02. Compliance Certificate and Opinions ...................... 8
SECTION 1.03. Forms of Documents Delivered to Trustee .................. 9
SECTION 1.04. Acts of Holders .......................................... 9
SECTION 1.05. Notices, etc., to Trustee and Company .................... 11
SECTION 1.06. Notice to Holders; Waiver ................................ 11
SECTION 1.07. Conflict with Trust Indenture Act ........................ 11
SECTION 1.08. Effect of Headings and Table of Contents ................. 11
SECTION 1.09. Successors and Assigns ................................... 12
SECTION 1.10. Separability Clause ...................................... 12
SECTION 1.11. Benefits of Indenture .................................... 12
SECTION 1.12. Governing Law ............................................ 12
SECTION 1.13. Nonbusiness Days ......................................... 12
ARTICLE II
Security Forms
SECTION 2.01. Forms Generally .......................................... 12
SECTION 2.02. Form of Trustee's Certificate of Authentication .......... 13
ARTICLE III
The Securities
SECTION 3.01. Amount Unlimited; Issuable in Series ..................... 13
SECTION 3.02. Denominations ............................................ 15
SECTION 3.03. Execution, Authentication, Delivery and Dating ........... 15
SECTION 3.04. Temporary Securities ..................................... 17
SECTION 3.05. Registration, Transfer and Exchange ...................... 18
SECTION 3.06. Mutilated, Destroyed, Lost and Stolen Securities ......... 19
SECTION 3.07. Payment of Interest; Interest Rights Preserved ........... 20
SECTION 3.08. Persons Deemed Owners .................................... 21
SECTION 3.09. Cancellation ............................................. 21
SECTION 3.10. Computation of Interest .................................. 22
SECTION 3.11. CUSIP Numbers ............................................ 22
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE IV
Satisfaction and Discharge
SECTION 4.01. Satisfaction and Discharge of Indenture .................. 22
SECTION 4.02. Application of Trust Money ............................... 23
SECTION 4.03. Satisfaction, Discharge and Defeasance of Securities
of Any Series ......................................... 23
ARTICLE V
Remedies
SECTION 5.01. Events of Default ........................................ 25
SECTION 5.02. Acceleration of Maturity; Rescission and Annulment ....... 27
SECTION 5.03. Collection of Indebtedness and Suits for Enforcement
by Trustee ............................................ 28
SECTION 5.04. Trustee May File Proofs of Claim ......................... 29
SECTION 5.05. Trustee May Enforce Claim Without Possession of
Securities ............................................ 30
SECTION 5.06. Application of Money Collected ........................... 30
SECTION 5.07. Limitation on Suits ...................................... 31
SECTION 5.08. Unconditional Right of Holders To Receive Principal,
Premium and Interest .................................. 31
SECTION 5.09. Restoration of Rights and Remedies ....................... 32
SECTION 5.10. Rights and Remedies Cumulative ........................... 32
SECTION 5.11. Delay or Omission Not Waiver ............................. 32
SECTION 5.12. Control by Holders ....................................... 32
SECTION 5.13. Waiver of Past Defaults .................................. 33
SECTION 5.14. Undertaking for Costs .................................... 34
SECTION 5.15. Waiver of Stay or Extension Laws ......................... 34
ARTICLE VI
The Trustee
SECTION 6.01. Certain Duties and Responsibilities ...................... 34
SECTION 6.02. Notice of Defaults ....................................... 35
SECTION 6.03. Certain Rights of Trustee ................................ 36
SECTION 6.04. Not Responsible for Recitals or Issuance of Securities ... 37
SECTION 6.05. May Hold Securities ...................................... 37
SECTION 6.06. Money Held In Trust ...................................... 37
SECTION 6.07. Compensation and Reimbursement ........................... 38
SECTION 6.08. Disqualification; Conflicting Interest ................... 38
SECTION 6.09. Corporate Trustee Required; Eligibility .................. 38
SECTION 6.10. Resignation and Removal; Appointment of Successor ........ 39
SECTION 6.11. Acceptance of Appointment by Successor ................... 41
SECTION 6.12. Merger, Conversion, Consolidation or Succession to
Business .............................................. 42
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<S> <C>
SECTION 6.13. Preferential Collection of Claims Against Company ........ 42
SECTION 6.14. Appointment of Authenticating Agent ...................... 42
SECTION 6.15. Trustee's Application for Instructions from the
Company ............................................... 44
ARTICLE VII
Holders' Lists and Reports by Trustee and Company
SECTION 7.01. Company To Furnish Trustee Names and Addresses of
Holders ............................................... 44
SECTION 7.02. Preservation of Information, Communications to Holders ... 45
SECTION 7.03. Reports by Trustee ....................................... 46
SECTION 7.04. Reports by Company ....................................... 46
ARTICLE VIII
Consolidation, Merger, Conveyance, Transfer or Lease
SECTION 8.01. Company May Consolidate, etc., Only on Certain Terms ..... 47
SECTION 8.02. Successor Corporation Substituted ........................ 47
ARTICLE IX
Supplemental Indentures
SECTION 9.01. Supplemental Indentures Without Consent of Holders ....... 48
SECTION 9.02. Supplemental Indentures with Consent of Holders .......... 49
SECTION 9.03. Execution of Supplemental Indentures ..................... 50
SECTION 9.04. Effect of Supplemental Indentures ........................ 51
SECTION 9.05. Conformity with Trust Indenture Act ...................... 51
SECTION 9.06. Reference in Securities to Supplemental Indentures ....... 51
ARTICLE X
Covenants
SECTION 10.01. Payment of Principal, Premium and Interest .............. 51
SECTION 10.02. Maintenance of Office or Agency ......................... 51
SECTION 10.03. Money for Security Payments To Be Held in Trust ......... 52
SECTION 10.04. Payment of Taxes and Other Claims ....................... 53
SECTION 10.05. Statement as to Compliance .............................. 53
SECTION 10.06. Waiver of Certain Covenants ............................. 54
SECTION 10.07. Calculation of Original Issue Discount .................. 54
ARTICLE XI
Redemption of Securities
SECTION 11.01. Applicability of This Article ........................... 54
</TABLE>
-iii-
<PAGE> 5
<TABLE>
<S> <C>
SECTION 11.02. Election To Redeem; Notice to Trustee ................... 54
SECTION 11.03. Selection of Securities To Be Redeemed .................. 55
SECTION 11.04. Notice of Redemption .................................... 55
SECTION 11.05. Deposit of Redemption Price ............................. 56
SECTION 11.06. Payment of Securities Called for Redemption ............. 56
ARTICLE XII
Sinking Funds
SECTION 12.01. Applicability of Article ................................ 56
SECTION 12.02. Satisfaction of Sinking Fund Payments with Securities ... 57
SECTION 12.03. Redemption of Securities for Sinking Fund ............... 57
ARTICLE XIII
Subordination
SECTION 13.01. Agreement of Securityholders that Securities
Subordinated to Extent Provided ....................... 59
SECTION 13.02. Company not to Make Payments with Respect to
Securities in Certain Circumstances ................... 59
SECTION 13.03. Securities Subordinated to Prior Payment of all
Senior Indebtedness on Dissolution, Liquidation or
Reorganization of Company ............................. 60
SECTION 13.04. Securityholders to be Subrogated to Right of Holders
of Senior Indebtedness ................................ 61
SECTION 13.05. Obligation of the Company Unconditional ................. 61
SECTION 13.06. Trustee Entitled to Assume Payments Not Prohibited
in Absence of Notice .................................. 62
SECTION 13.07. Application by Trustee of Monies Deposited With It ...... 62
SECTION 13.08. Subordination Rights not Impaired by Acts or
Omissions of Company or Holders of Senior
Indebtedness .......................................... 62
SECTION 13.09. Securityholders Authorize Trustee to Effectuate
Subordination of Securities ........................... 62
SECTION 13.10. Right of Trustee to Hold Senior Indebtedness ............ 63
SECTION 13.11. Article XIII Not to Prevent Events of Default ........... 63
ARTICLE XIV
Miscellaneous
SECTION 14.01. Miscellaneous ........................................... 63
</TABLE>
-iv-
<PAGE> 6
CROSS-REFERENCE TABLE*
<TABLE>
<CAPTION>
Section of Trust Indenture Act of 1939, as amended Section of Indenture
<S> <C>
Section 310 (a)(1)........................................... 6.09
(a)(2)........................................... 6.09
(a)(3)........................................... Not Applicable
(a)(4)........................................... Not Applicable
(a)(5)........................................... 6.09
(b).............................................. 6.08, 6.10
Section 311 (a).............................................. 6.13
(b).............................................. 6.13
Section 312 (a).............................................. 7.01, 7.02(a)
(b).............................................. 7.02(b)
(c).............................................. 7.02(c)
Section 313 (a).............................................. 7.03(a)
(b).............................................. Not Applicable
(c).............................................. 7.03(a)
(d).............................................. 7.03(b)
Section 314 (a).............................................. 7.04
(b).............................................. Not Applicable
(c)(1)........................................... 1.02
(c)(2)........................................... 1.02
(c)(3)........................................... Not Applicable
(d).............................................. Not Applicable
(e).............................................. 1.02
Section 315 (a).............................................. 6.01(a)
(b).............................................. 6.02
(c).............................................. 6.01(b)
(d).............................................. 6.01(c)
(d)(1)........................................... 6.01(a), 6.01(c)
(d)(2)........................................... 6.01(c)
(d)(3)........................................... 6.01(c)
(e).............................................. 5.14
Section 316 (a)(last sentence)............................... 1.01
(a)(1)(A)........................................ 5.12
(a)(1)(B)........................................ 5.02, 5.13
(a)(2)........................................... Not Applicable
(b).............................................. 5.08
Section 317 (a)(1)........................................... 5.03
(a)(2)........................................... 5.04
(b).............................................. 10.03
Section 318 (a).............................................. 1.07
</TABLE>
- --------
* This cross-reference table does not constitute part of the Indenture and
shall not affect the interpretation of any of its terms or provisions.
<PAGE> 7
SUBORDINATED INDENTURE (this "Indenture"), dated as of June 1, 1998,
between HARTFORD LIFE, INC., a Delaware corporation (hereinafter called the
"Company"), having its principal office at 200 Hopmeadow Street, Simsbury,
Connecticut 06115, and WILMINGTON TRUST COMPANY, a banking corporation duly
incorporated and existing under the laws of the State of Delaware, as Trustee
(hereinafter called the "Trustee").
RECITALS OF THE COMPANY
WHEREAS the Company has duly authorized the execution and delivery
of this Indenture to provide for the issuance from time to time of its unsecured
subordinated debentures, notes or other evidences of indebtedness (hereinafter
called the "Securities") to be issued in one or more series, authenticated and
delivered as in this Indenture provided.
WHEREAS 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 I
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 1.01. Definitions. For all purposes of this Indenture,
except as otherwise expressly provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings assigned to
them in this Article, and include the plural as well as the singular;
(b) 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;
(c) 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
<PAGE> 8
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
(d) the words "therein", "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 VI, are defined in that
Article.
"Act" when used with respect to any Holder has the meaning specified
in Section 1.04.
"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. 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 6.14 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 every day except a Saturday, Sunday or a day on
which banking institutions in the City of New York, New York or the City of
Wilmington, Delaware, are permitted or required by any applicable law or
executive order to close.
"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.
-2-
<PAGE> 9
"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 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
in the City of Wilmington, Delaware, at which at any particular time its
corporate trust business shall be administered, which office at the date of
initial execution of this Indenture is Rodney Square North, 1100 North Market
Street, Wilmington, Delaware, 19890, Attention: Corporate Trust Administration.
"Corporation" includes corporations, associations, companies and
business trusts.
"Defaulted Interest" has the meaning specified in Section 3.07.
"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 3.01 with respect to such series (or any successor thereto).
"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
V.
"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 herein
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
-3-
<PAGE> 10
States 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 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 Life Trust" means a Delaware statutory business trust
created by the Company for the purpose of issuing trust securities and to use
the proceeds of the sale thereof to purchase one or more series of securities.
"Holder" means a Person in whose name a security is registered in
the Securities Register.
"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 3.01.
"Interest Payment Date" means as to each series of Securities the
Stated Maturity of an installment of interest on such Securities.
"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.
"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.
"Notice of Default" has the meaning specified in Section 5.01(c).
"Officers' Certificate" means a certificate signed by the 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.
-4-
<PAGE> 11
"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 5.02.
"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 3.06, 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 a Responsible Officer of the Trustee
actually 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 6.01, the Trustee
shall be entitled to accept such Officers' Certificate as conclusive evidence of
the
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facts therein set forth and of the fact that all Securities not listed therein
are Outstanding for the purpose of any such determination.
"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 3.01
or 3.11.
"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 3.06 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" means undivided Preferred beneficial
interests in the assets of a Hartford Life Trust.
"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 3.01 with respect to Securities of a series, the
date which is 15 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 within the Corporate Trust Office of the Trustee, including any
vice-president, any assistant vice-president, any assistant secretary, the
treasurer, any assistant treasurer or other officer of the Corporate Trust
Office of the 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.
"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
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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 3.05.
"Senior Indebtedness" means, with respect to the Company, (i) the
principal, premium, if any, and interest in respect of (A) indebtedness of such
obligor for money borrowed and (B) indebtedness evidenced by securities, notes,
debentures, bonds or other similar instruments issued by such obligor; (ii) all
capital lease obligations of such obligor; (iii) all obligations of such obligor
issued or assumed as the deferred purchase price of property, all conditional
sale obligations of such obligor and all obligations of such obligor under any
conditional sale or title retention agreement (but excluding trade accounts
payable or accrued liabilities arising in the ordinary course of business); (iv)
all obligations, contingent or otherwise, of such obligor in respect of any
letters of credit, banker's acceptance, security purchase facilities or similar
credit transactions; (v) all obligations in respect of interest rate swap, cap,
floor, collar or other agreements, interest rate future or option contracts,
currency swap agreements, currency future or option contracts and other similar
agreements; (vi) all obligations of the type referred to in clauses (i) through
(v) of other Persons for the payment of which such obligor is responsible or
liable as obligor, guarantor or otherwise; and (vii) all obligations of the type
referred to in clauses (i) through (vi) of other Persons secured by any lien on
any property or asset of such obligor (whether or not such obligation is assumed
by such obligor), except for (1) any such indebtedness that is by its terms
subordinated to or pari passu with the Securities, and (2) any indebtedness
between or among such obligor and its Affiliates, including all other debt
securities and guarantees in respect of those debt securities, issued to (x) any
Hartford Life Trust or (y) any other trust, or a trustee of such trust,
partnership or other entity affiliated with the Company which is a financing
vehicle of the Company (a "Financing Entity") in connection with the issuance by
such Financing Entity of preferred securities or other securities which rank
pari passu with, or junior to, the Preferred Securities.
"Special Record Date" for the payment of any Defaulted Interest
means a date fixed by the Trustee pursuant to Section 3.07.
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"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.
"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. Sections 77aaa-77bbb), as amended and as in effect on the date as of this
Indenture, except as provided in Section 9.05.
"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 1.02. 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 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 10.05) shall include:
(a) a statement that each individual signing such certificate or
opinion has read such covenant or condition and the definitions herein
relating thereto;
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(b) 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;
(c) a statement that, in the opinion of each such individual, he or
she has made such examination or investigation as is necessary to enable
him or her 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
individual, such condition or covenant has been complied with.
SECTION 1.03. 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 or her certificate or opinion is based
are erroneous. Any such certificate or Opinion of Counsel may be 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 1.04. 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
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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 6.01) 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 or her the execution thereof.
Where such execution is by a Person acting in other than his or her individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of his or her authority.
(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 Security holders
furnished to the Trustee pursuant to Section 7.01 prior to such solicitation. If
a record date is fixed, those persons who were Security holders 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.
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SECTION 1.05. 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,
(a) 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
(b) the Company by the Trustee or by any Holder shall be sufficient
for every purpose (except as otherwise provided in Section 5.01 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 1.06. 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 upon its receipt thereof, but such filing shall not be a condition
precedent to the validity of any action taken in reliance upon such waiver.
In case by reason of the suspension of regular mail service or by reason
of any other cause it shall be impracticable to give such notice by mail, then
such notification as shall be made with the approval of the Trustee shall
constitute a sufficient notification for every purpose hereunder.
SECTION 1.07 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.
SECTION 1.08 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.
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SECTION 1.09 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 1.10 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 1.11 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 1.12 Governing Law. This Indenture and the Securities shall
be governed by and construed in accordance with the laws of the State of New
York (without regard to its principles of conflicts of laws).
SECTION 1.13 Nonbusiness 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 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 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 such date, 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.
ARTICLE II
SECURITY FORMS
SECTION 2.01. Forms Generally. The definitive Securities of each
series shall be in substantially such form or forms established as shall be
established pursuant to Section 3.01, 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 the Company
may deem appropriate and as are not contrary to the provisions of this
Indenture, or as may be required to comply with the rules of any securities
exchange or of any automated quotation or book-entry system, or to conform to
usage, all as may be determined by the officers executing such Securities, as
evidenced by their execution of the Securities.
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The Securities of each series shall be issuable in registered form
without coupons. The definitive Securities shall be produced in such manner as
shall be determined by the officers executing such Securities, as evidenced by
their execution thereof.
SECTION 2.02. Form of Trustee's Certificate of Authentication. The
Trustee's certificate of authentication shall be in substantially the form set
forth below:
This is one of the Securities referred to in the within-mentioned
Indenture.
Dated:_____________________ Wilmington Trust Company, as Trustee,
By:_______________________________________
Authorized Signatory
ARTICLE III
THE SECURITIES
SECTION 3.01 Amount Unlimited; Issuable in Series. 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 3.04, 3.05, 3.06, 9.06 or 11.06); 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;
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(d) the rate or rates, if any, at which the Securities of such
series shall bear interest, the Interest Payment Dates on which such interest
shall be payable, the right, if any, of the Company to defer or extend an
Interest Payment Date and the minimum length of any such deferral period, 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 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, pursuant to any sinking fund or otherwise;
(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 $1,000 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 form, registrable or not
registrable as to principal, and with or without interest coupons;
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(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;
(p) the appointment of any Paying Agent or Agents for the Securities
of such series; and
(q) 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 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 3.02. Denominations. The Securities of each series shall be
in registered form without coupons and shall be issuable in denominations of
$1,000 and any integral multiple thereof, unless otherwise specified as
contemplated by Section 3.01.
SECTION 3.03. 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
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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 written
or electronic instructions of the Company or a duly authorized agent.
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:
(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
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or prohibit 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.
The Trustee shall have the right to decline to authenticate and deliver any
Securities under this Section if the Trustee, being advised in writing by
counsel, determines within a reasonable amount of time that such action may not
lawfully be taken or if the Trustee in good faith determines within a reasonable
amount of time that such action would expose the Trustee to personal liability
to existing Holders.
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
signatories, 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 3.04. 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 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.
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SECTION 3.05. 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 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 or her 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 3.05. 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
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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 15 business days
before the day of selection for redemption of Securities pursuant to Article XI
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.
SECTION 3.06. 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 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 Protected Purchaser, as such terms is used in
Section 8-405(a)(1) of the UCC as in effect in the State of Delaware (1994 Rev),
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.
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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.
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 3.07 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 3.01
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 (a) or (b) below.
(a) 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
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payment, such money when deposited to be held 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 city of
Wilmington, Delaware, 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 (b).
(b) 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.
SECTION 3.08 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 3.07) 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 3.09 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
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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 or otherwise
disposed of by the Trustee in accordance with its usual practices and the
Trustee shall, upon request, deliver to the Company a certificate of such
destruction.
SECTION 3.10 Computation of Interest. Except as otherwise specified
as contemplated by Section 3.01 for Securities of any series, interest on the
Securities of each series shall be computed on the basis of a year of twelve
30-day months and, with respect to any period less than a full calendar month,
on the basis of the actual number of days elapsed during such period in relation
to the deemed 30 days of such month.
SECTION 3.11 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. The Company will
promptly notify the Trustee of any change in the CUSIP numbers.
ARTICLE IV
SATISFACTION AND DISCHARGE
SECTION 4.01 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, upon a Company Request specifying such action to be taken and at the
expense of the Company, shall execute proper instruments acknowledging
satisfaction and discharge of this Indenture, when (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 3.06 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
10.03) 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
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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 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 (including any
amounts due to the Trustee in respect of its compensation and expense
reimbursement); and (3) the Company has delivered to the Trustee a Company
Request specifying such action to be taken and 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 6.07 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 4.02 and the
last paragraph of Section 10.03 shall survive.
SECTION 4.02. Application of Trust Money. Subject to the provisions
of the last paragraph of Section 10.03, all money deposited with the Trustee
pursuant to Section 4.01 or money or Government Obligations deposited with the
Trustee pursuant to Section 4.03, or received by the Trustee in respect of
Government Obligations deposited with the Trustee pursuant to Section 4.03,
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 4.03. Satisfaction, Discharge and Defeasance of Securities
of Any Series. Unless otherwise provided in the Board Resolution adopted
pursuant to Section 3.01 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 upon receipt of a Company Request therefor,
execute proper instruments acknowledging satisfaction and discharge of such
indebtedness, when:
(a) with respect to all Outstanding Securities of such series:
(i) the Company has irrevocably deposited or caused to be
irrevocably deposited with the Trustee as trust funds in trust for
such purpose an amount
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sufficient to pay and discharge the entire indebtedness on all
Outstanding Securities of such series for principal (and premium, if
any) and interest to the Stated Maturity or any Redemption Date as
contemplated by the penultimate paragraph of this Section 4.03, as
the case may be; or
(ii) 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 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 to the Stated Maturity or any
Redemption Date as contemplated by the penultimate paragraph of this
Section 4.03, as the case may be;
(b) the Company has paid or caused to be paid all other sums payable
with respect to the Outstanding Securities of such series (including any
amounts due to the Trustee in respect of its compensation and expense
reimbursement);
(c) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel to the effect that (i) the Company
has received from, or there has been published by, the Internal Revenue
Service a ruling, or (ii) since the date of execution of this Indenture,
there has been a change in the applicable Federal income tax law, in
either case to the effect that, and based thereon such opinion shall
confirm that, Holders of the Securities will not recognize income, gain or
loss for Federal income tax purposes as a result of the Company's exercise
of its option under this Section 4.03 and will be subject to Federal
income tax on the same amount and in the same manner and at the same times
as would have been the case if such option had not been exercised;
(d) the Company has delivered to the Trustee an Opinion of Counsel
to the effect that, immediately following the deposit described in clause
(a) above, neither the Company nor the trust held by the Trustee hereunder
shall be an "investment company" or "controlled" by an "investment
company" within the company meaning of the Investment Company Act of 1940;
and
(e) 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.
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Any deposits with the Trustee referred to in Section 4.03(a) 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. The Company shall pay
and indemnify the Trustee against any tax, fee or other charge imposed on or
assessed against the Government Obligations deposited pursuant to this Article
or the principal and interest received in respect thereof other than any such
tax, fee or other charge which by law is for the account of the Holders of
Outstanding Securities.
Upon the satisfaction of the conditions set forth in this Section
4.03 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 definition thereof if
such obligations continue to be valid obligations of the Company under
applicable law; and provided further that, in the event a petition for relief
under the Bankruptcy Reform Act of 1978 or a successor statute is filed with
respect to the Company within 91 days after the deposit, the entire indebtedness
on all Securities of such series shall not be discharged and in such event the
Trustee shall return such deposited funds or obligations as it is then holding
to the Company on Company Request.
ARTICLE V
REMEDIES
SECTION 5.01 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):
(a) default in the payment of any interest upon any Security of that
series when it becomes due and payable, and continuance of such default for a
period of 30 days; provided, however that if the Company is permitted by the
terms of the Securities of the
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applicable series to defer the payment in question, the date on which such
payment is due and payable shall be the date on which the Company is required to
make payment following such deferral, if such deferral has been elected pursuant
to the terms of the Securities of that series;
(b) default in the payment of the principal of (or premium, if any,
on) any Security of that series at its Maturity;
(c) 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
and stating that such notice is a "Notice of Default" hereunder;
(d) 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, 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;
(e) 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;
(f) in the event Securities of a series are issued and sold to a
Hartford Life Trust or a trustee of such trust in connection with the issuance
of Trust Securities by such Hartford Life Trust, such Hartford Life Trust shall
have voluntarily or involuntarily dissolved, wound-up its business or otherwise
terminated its existence except in connection with (i) the distribution of
Securities to holders of Trust Securities in liquidation or redemption of their
interests in such Hartford Life Trust, (ii) the redemption of all of the
outstanding Trust
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Securities of such Hartford Life Trust or (iii) certain mergers, consolidations
or amalgamations, each as permitted by the Declaration of such Hartford Life
Trust; or
(g) any other Event of Default with respect to Securities of that
series.
Upon receipt by the Trustee of any Notice of Default pursuant to
this Section 5.01 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 of Default, which record date shall be at the close of business on
the day the Trustee receives such Notice of Default. The Holders as of such
record date, or their duly designated proxies, and only such Persons, shall be
entitled to join in such Notice of Default, whether or not such Holders remain
Holders after such record date; provided that, unless Holders of at least 25% in
principal amount of the Outstanding Securities of such series, or their proxies,
shall have joined in such Notice of Default prior to the day which is 90 days
after such record date, such Notice of Default 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 of Default identical to a
Notice of Default 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 5.01.
SECTION 5.02. 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), and upon any
such declaration such principal amount (or specified amount) shall become
immediately due and payable.
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 (subject to, in the case of any series of
Securities held as trust assets of a Hartford Life Trust, obtaining the consent
of the holders of the Trust Securities of such Hartford Life Trust as may be
required by the applicable declaration of such Hartford Life Trust), by written
notice to the Company and the Trustee, may rescind and annul such declaration
and its consequences if:
(a) the Company has paid or deposited with the Trustee a sum
sufficient to pay:
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(i) all overdue installments of interest on all Securities
of that series;
(ii) 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;
(iii) to the extent that payment of such interest is lawful,
interest upon overdue installments of interest at the rate borne by
the Securities; and
(iv) sums paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel; and
(b) all Events of Default with respect to Securities of that series,
other than the nonpayment 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 5.13.
No such rescission shall affect any subsequent default or impair any
right consequent thereon. 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 5.02.
SECTION 5.03. Collection of Indebtedness and Suits for Enforcement
by Trustee. The Company covenants that if:
(a) default is made in the payment of any installment of interest on
any Security when such interest becomes due and payable and such default
continues for a period of 30 days; or
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(b) 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, to the extent that payment
of such interest shall be lawful, interest on any overdue principal (and
premium if any) and on any overdue installments of interest at the rate
borne by the Securities; and, in addition thereto, all amounts owing the
Trustee under Section 6.07.
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 5.04. 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) 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 owing 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 in order to
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have the claims of the Holders and any predecessor to the Trustee
under Section 6.07 and of the Holders allowed in any such judicial
proceedings;
(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 5.06; 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 5.06, 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 6.07.
Nothing herein contained shall be deemed to authorize or require 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 or require the
Trustee to vote in respect of the claim of any Holder in any such proceeding.
SECTION 5.05. 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 6.07, its agents and counsel, be for the
ratable benefit of the Holders of the Securities in respect of which such
judgment has been recovered.
SECTION 5.06. 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, 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 6.07;
second, to the payment of the amounts then due and unpaid upon such
series of Securities for principal (and premium, if any) and interest, in
respect of which or for the benefit of which such money has been collected,
ratably, without preference or priority of any
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kind, according to the amounts due and payable on such series of Securities for
principal (and premium, if any) and interest, respectively; and
third, the balance, if any, to the Person or Persons entitled
thereto.
SECTION 5.07 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:
(a) such Holder has previously given written notice to the Trustee
of a continuing Event of Default with respect to the Securities of that series;
(b) 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;
(c) 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;
(d) the Trustee for 60 days after its receipt of such notice,
request and offer of indemnity has failed to institute any such proceeding; and
(e) 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 5.08 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 3.07) 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. Notwithstanding any other provision of this Indenture, if the Securities
of a series are then held by a Hartford Life Trust, while an Event of Default
described in
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Section 5.01(a) or (b) hereof has occurred and is continuing, each holder of
Preferred Securities of such Hartford Life Trust shall have the right to bring
suit directly against the Company for the enforcement of payment to such holder
in respect of Securities of such series in a principal amount equal to the
aggregate liquidation amount of the Preferred Securities of such holder.
SECTION 5.09 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 5.10 Rights and Remedies Cumulative. Except as otherwise
provided in the last paragraph of Section 3.06, 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 5.11 Delay or Omission Not Waiver. Except as otherwise
provided in the last paragraph of Section 3.06, 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 5.12 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 exercising any trust or power conferred on
the Trustee, with respect to the Securities of such series; provided that:
(a) such direction shall not be in conflict with any rule of law
or with this Indenture;
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(b) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction; and
(c) subject to the provisions of Section 6.01, 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 5.12.
SECTION 5.13 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 series waive any past
default hereunder with respect to such series and its consequences, except a
default:
(a) in the payment of the principal of (or premium, if any) or
interest on any Security of such series, or
(b) in respect of a covenant or provision hereof which under Article
IX 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.
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SECTION 5.14 Undertaking for Costs. All parties to this Indenture
agree, and each Holder of any Security by his or her 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 and expenses, 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 on any Security on or after the respective Stated Maturities
expressed in such Security (or in the case of redemption, on or after the date
of such redemption).
SECTION 5.15 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 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 VI
THE TRUSTEE
SECTION 6.01 Certain Duties and Responsibilities. (a) Except
during the continuance of an Event of Default:
(i) 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
(ii) 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
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Indenture (but need not confirm or investigate the accuracy of
mathematical calculations or other facts stated therein).
(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 man would exercise or use under the circumstances in the conduct
of his or her 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 wilful misconduct except that:
(i) this Subsection shall not be construed to limit the
effect of Subsection (a) of this Section;
(ii) 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
(iii) 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 5.12
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.
(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 6.02. Notice of Defaults. Within 90 days after actual
knowledge 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 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
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Responsible Officers of the Trustee in good faith determines that the
withholding of such notice is in the interests of the Holders of Securities of
such series; and provided further that, in the case of any default of the
character specified in Section 5.01(c), 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 6.03. Certain Rights of Trustee. Subject to the provisions
of Section 6.01:
(a) the Trustee may conclusively 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 or other evidence of indebtedness,
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 of its selection 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;
(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
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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, at the sole cost of the Company, and shall incur no
liability or additional liability of any kind by reason of such inquiry or
investigation;
(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;
(h) the Trustee shall not be liable for any action taken, suffered,
or omitted to be taken by it in good faith and reasonably believed by it
to be authorized or within the discretion or rights or powers conferred
upon it by this Indenture; and
(i) the Trustee shall not be deemed to have notice of any default or
Event of Default unless a Responsible Officer of the Trustee has actual
knowledge thereof or unless written notice of any event which is in fact
such a default is received by the Trustee at the Corporate Trust Office of
the Trustee, and such notice references the Securities and this Indenture.
SECTION 6.04. 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. Neither the Trustee nor any Authenticating Agent
shall be accountable for the use or application by the Company of the Securities
or the proceeds thereof.
SECTION 6.05. May Hold Securities. The Trustee, any Authenticating
Agent, 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 6.08 and 6.13, 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 6.06. 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 in writing with the
Company.
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SECTION 6.07 Compensation and Reimbursement. The Company agrees:
(a) to pay to the Trustee from time to time such compensation as
shall be agreed to in writing between the Company and the Trustee for all
services rendered by it hereunder (which compensation shall not be limited
by any provision of law in regard to the compensation of a trustee of an
express trust);
(b) 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
(c) to indemnify each of the Trustee and any Predecessor Trustee and
their respective officers, directors, stockholders, employees and agents
for, and to hold each of them harmless against, any loss, liability or
expense (including the reasonable compensation and the expenses and
disbursements of its agents and counsel) to the extent 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.
When the Trustee incurs expenses or renders services after an Event
of Default specified in Section 5.01(d) or (e) 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.
The provisions of this Section 6.07 shall survive the termination of
this Indenture.
SECTION 6.08 Disqualification; Conflicting Interest. The Trustee for
the Securities of any series issued hereunder shall be subject to the provisions
of Section 3.10(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 3.10(b) of the Trust Indenture Act.
SECTION 6.09 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
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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 under common control with the Company shall
serve as Trustee for the Securities of any series issued hereunder.
SECTION 6.10 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 6.11.
(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. 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.
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(d) If at any time:
(i) the Trustee shall fail to comply with Section 6.08 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
(ii) the Trustee shall cease to be eligible under Section 6.09
and shall fail to resign after written request therefor by the
Company or by any such Holder; or
(iii) 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, (A) the Company by Board Resolution may remove the
Trustee, or (B) subject to Section 5.14, any Holder who has been a bona fide
Holder of a Security for at least six months may, on behalf of himself or
herself 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 not have been appointed by
the Company, a successor Trustee 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, and 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 5.14, on behalf of himself or herself 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
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Trustee with respect to the Securities of any series by mailing written notice
of such event by first-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 6.11 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 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 and the resigning or removed Trustee shall be
therefrom deemed released and discharged of the trusts and duties hereunder;
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 (i) 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, (ii)
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
(iii) 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 successor Trustee, such
retiring Trustee shall duly assign, transfer and deliver to such
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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 6.12 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 6.13 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 of
the Trust Indenture Act regarding the collection of claims against the Company
(or any such other obligor).
SECTION 6.14 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
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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 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 1.06 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 Company agrees to pay to each Authenticating Agent from time to
time reasonable compensation for its services under this Section.
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:
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This is one of the Securities referred to in the within mentioned
Indenture.
Dated:
, as Trustee,
By:________________________________________
As Authenticating Agent
By:________________________________________
Authorized Signatory
SECTION 6.15 Trustee's Application for Instructions from the
Company. Any application by the Trustee for written instructions from the
Company may, at the option of the Trustee, set forth in writing any action
proposed to be taken or omitted by the Trustee under this Indenture and the date
on and/or after which such action shall be taken or such omission shall be
effective. The Trustee shall not be liable for any action taken by, or omission
of, the Trustee in accordance with a proposal included in such application on or
after the date specified in such application (which date shall not be less than
five Business Days after the date any officer of the Company actually receives
such application, unless any such officer shall have consented in writing to any
earlier date) unless prior to taking any such action (or the effective date in
the case of an omission), the Trustee shall have received written instructions
in response to such application specifying the action to be taken or omitted.
ARTICLE VII
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
SECTION 7.01 Company To Furnish Trustee Names and Addresses of
Holders. The Company will furnish or cause to be furnished to the Trustee:
(a) semiannually, not more than 15 days after June 1 and December 1,
a list, in such form as the Trustee may reasonably require, of the names
and addresses of the Holders as of such June 1 and December 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;
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excluding from any such list names and addresses received by the Trustee in its
capacity as Securities Registrar.
SECTION 7.02. 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 7.01 and the names and
addresses of Holders received by the Trustee in its capacity as Securities
Registrar. The Trustee may destroy any list furnished to it as provided in
Section 7.01 upon receipt of a new list so furnished.
(b) If three or more Holders of Securities of the same series
(herein referred to as "applicants") apply in writing to the Trustee, and
furnish to the Trustee reasonable proof that each such applicant has owned a
Security of such series for a period of at least six months preceding the date
of such application, and such application states that the applicants' desire to
communicate with other Holders of such series with respect to their rights under
this Indenture or under the Securities of such series and is accompanied by a
copy of the form of proxy or other communication which such applicants propose
to transmit, then the Trustee shall, within five business days after the receipt
of such application, at its election, either
(i) afford such applicants access to the information with
respect to the Holders of such series preserved at the time by the Trustee
in accordance with paragraph (a) of this Section, or
(ii) inform such applicants as to the approximate number of
Holders of such series whose names and addresses appear in the information
preserved at the time by the Trustee in accordance with paragraph (a) of
this Section, and as to the approximate cost of mailing to such Holders
the form of proxy or other communication, if any, specified in such
application.
If the Trustee shall elect not to afford such applicants
access to such information, the Trustee shall, upon the written request of
such applicants, mail to each Holder of such series whose name and address
appear in the information preserved at the time by the Trustee in
accordance with paragraph (a) of this Section a copy of the form of proxy
or other communication which is specified in such request, with reasonable
promptness after a tender to the Trustee of the material to be mailed and
of payment, or provision for the payment, of the reasonable expenses of
mailing, unless within five days after such tender the Trustee shall mail
to such applicants and file with the Commission, together with a copy of
the material to be mailed, a written statement to the effect that, in the
opinion of the Trustee, such mailing would be contrary to the best
interest of the Holders of such series or would be in violation of
applicable law. Such written statement shall specify the basis of such
opinion. If the Commission, after opportunity for a hearing upon the
objections specified in the written statement so filed,
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shall enter an order refusing to sustain any of such objections or if,
after the entry of an order sustaining one or more of such objections, the
Commission shall find, after notice and opportunity for hearing, that all
the objections so sustained have been met and shall enter an order so
declaring, the Trustee shall mail copies of such material to all such
Holders with reasonable promptness after the entry of such order and the
renewal of such tender; otherwise the Trustee shall be relieved of any
obligation or duty to such applicants respecting their application.
(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 7.03. 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) Within 60 days after May 15 of each year commencing with the
year 1999, the Trustee shall transmit by mail to all Holders of Securities as
provided in Section 313(c) of the Trust Indenture Act, a brief report dated as
of May 15, if required by and in compliance with Section 313(a) of the Trust
Indenture Act.
(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
promptly notify the Trustee whenever the Securities are listed on any stock
exchange.
SECTION 7.04. 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. Notwithstanding 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 3.14(a).
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Delivery of such reports, information and documents to the Trustee
is for informational purposes only and the Trustee's receipt of such shall not
constitute constructive notice of any information contained therein or
determinable from information contained therein, including the Company's
compliance with any of its covenants hereunder (as to which the Trustee is
entitled to rely exclusively on Officers' Certificates).
ARTICLE VIII
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 8.01 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:
(a) 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 on all the Securities and
the performance of every covenant of this Indenture on the part of the
Company to be performed or observed;
(b) 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; and
(c) 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 6.01, may rely upon
such Officers' Certificate and Opinion of Counsel as conclusive evidence
that such transaction complies with this Section 8.01.
SECTION 8.02. Successor Corporation Substituted. Upon any
consolidation or merger by the Company with or into any other corporation, or
any conveyance, transfer or
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lease by the Company of its properties and assets substantially as an entirety
to any Person in accordance with Section 8.01, 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 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 IX
SUPPLEMENTAL INDENTURES
SECTION 9.01. 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:
(a) to evidence the succession of another corporation to the
Company, and the assumption by any such successor of the covenants of the
Company herein and in the Securities contained;
(b) to provide for the issuance under this Indenture of Securities
in bearer form (including securities registrable as to principal only) and
to provide for exchangeability of such Securities for Securities issued
hereunder in fully registered form, and to make all appropriate changes
for such purpose;
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(c) to add to the covenants of the Company for the benefit of the
Holders of all or one or more specified series of Securities (and if such
covenants are to be for the benefit of fewer than all series of Securities
or fewer than all Securities of a Series, 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;
(d) to add any additional Events of Default with respect to all or
one or more series of Securities;
(e) 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;
(f) to secure the Securities;
(g) to establish the form or terms of Securities of any series as
permitted by Sections 2.01 and 3.01;
(h) 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 such action shall not materially adversely
affect the interest of the Holders of Securities of any series; or
(i) 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 6.11(b).
SECTION 9.02. 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 indenture shall, without the consent of the Holder of each
Outstanding Security affected thereby:
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(a) change the Stated Maturity of the principal of, or any
installment of interest on, any Outstanding Security, or reduce the principal
amount thereof or the rate of interest thereon or 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 5.02, or change the
place of payment, or the coin or currency in which any Outstanding Security or
the 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;
(b) 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
(c) modify any of the provisions of this Section, Section 5.13 or
Section 10.06, 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, provided that, in the
case of any Outstanding Securities of a series then held by a Hartford Life
Trust, no such supplemental indenture shall adversely affect the holders of the
Preferred Securities of such Hartford Life Trust without the prior consent of
each holder of such Preferred Securities.
A supplemental indenture which changes or eliminates any covenant or
other provision of this Indenture which 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 9.03. 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
6.01) 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.
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SECTION 9.04. 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 9.05. 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 9.06. 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 X
COVENANTS
SECTION 10.01. 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 10.02. 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
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.
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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 10.03. 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 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:
(a) 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;
(b) 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; and
(c) 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.
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
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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 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 city of
Wilmington, Delaware, 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 10.04. 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, (a) 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 (b) 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 10.05. Statement as to Compliance. The Company shall deliver
to the Trustee, within 120 days after the end of each fiscal year of the Company
ending after the date hereof, an Officers' Certificate, signed by at least one
of the principal executive officer, principal financial officer and principal
accounting officer of the Company, 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
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have knowledge. For the purpose of this Section 10.05, compliance shall be
determined without regard to any grace period or requirement of notice provided
pursuant to the terms of this Indenture.
SECTION 10.06. Waiver of Certain Covenants. The Company may omit in
any particular instance to comply with any covenant or condition set forth in
Section 10.04, 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 10.07. Calculation of Original Issue Discount. The Company
shall file with the Trustee promptly at the end of each calendar year (i) a
written notice specifying the amount of original issue discount (including daily
rates and accrual periods) accrued on Outstanding Securities as of the end of
such year and (ii) such other specific information relating to such original
issue discount as may then be relevant under the Internal Revenue Code of 1986,
as amended from time to time.
ARTICLE XI
REDEMPTION OF SECURITIES
SECTION 11.01. 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 $1,000 or
integral multiples of $1,000.
SECTION 11.02. 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, the
Company shall, at least 60 days prior to the date fixed for redemption (unless a
shorter notice shall be satisfactory to the Trustee), notify the Trustee (by
Company Request) 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,
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the Company shall furnish the Trustee with an Officers' Certificate and an
Opinion of Counsel evidencing compliance with such restriction.
SECTION 11.03. 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 11.04. Notice of Redemption. Notice of redemption shall be
given by first-class mail, postage prepaid, mailed not later than the 30th day,
and not earlier than the 60th 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 identify the Securities to be redeemed (including
CUSIP number(s), if any) and 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 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
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(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 written 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 11.05. Deposit of Redemption Price. Prior to the redemption
date specified in the notice of redemption given as provided in Section 11.04,
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 11.06. Payment of Securities Called for Redemption. If any
notice of redemption has been given as provided in Section 11.04, 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 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.
ARTICLE XII
SINKING FUNDS
SECTION 12.01. 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 3.01 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
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by the terms of such Securities of any series is herein referred to as an
"optional sinking fund payment". If provided for by the term of any Securities
of any series, the cash amount of any sinking fund payment may be subject to
reduction as provided in Section 12.02. 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 12.02. 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 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 amount of such sinking fund
payment shall be reduced accordingly.
SECTION 12.03. 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
3.01) and the portion thereof, if any, which is to be satisfied by delivering
and crediting Securities pursuant to Section 12.02 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 and the Securities 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 12.02 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
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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 10.03) for such series and together with such payment (or
such amount so segregated) shall be applied in accordance with the provisions of
this Section 12.03. 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 10.03) 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 11.03 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 11.04. Such notice having been duly given, the
redemption of such Securities shall be made upon the terms and in the manner
stated in Section 11.06. 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
10.03) in cash a sum in the currency in which Securities of such series are
payable (except as provided pursuant to Section 3.01) 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 12.03.
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 XII. 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 shall, during the continuance of such
default or Event of Default, be held as security for the payment of the
Securities of such series; provided, however, that in case such default or Event
of Default shall have been cured or waived herein, such moneys shall
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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 12.03.
ARTICLE XIII
SUBORDINATION
SECTION 13.01. Agreement of Securityholders that Securities
Subordinated to Extent Provided. The Company, for itself, its successors and
assigns, covenants and agrees and each Holder of the Securities by his
acceptance thereof likewise covenants and agrees that the payment of the
principal of, premium, if any, and interest, if any, on each and all of the
Securities (other than Securities discharged or defeased pursuant to Article IV)
is hereby expressly subordinated, to the extent and in the manner hereinafter
set forth, to the prior payment in full, in cash or cash equivalents, of all
Senior Indebtedness. The provisions of this Article shall constitute a
continuing offer to all persons who, in reliance upon such provisions, become
holders of, or continue to hold, Senior Indebtedness, and such provisions are
made for the benefit of the holders of Senior Indebtedness, and such holders are
hereby made obligees hereunder the same as if their names were written herein as
such, and they and/or each of them may proceed to enforce such provisions.
SECTION 13.02. Company not to Make Payments with Respect to
Securities in Certain Circumstances. (a) No direct or indirect payment by or on
behalf of the Company of principal of or premium, if any, or interest on the
Securities (other than Securities which have been discharged or defeased
pursuant to Article IV), whether pursuant to the terms of the Securities or upon
acceleration or otherwise, shall be made if, at the time of such payment, there
exists (i) a default in the payment of all or any portion of any Senior
Indebtedness and the Trustee has received written notice thereof from the
Company, from holders of Senior Indebtedness or from any trustee, representative
or agent therefor, or (ii) any other default affecting Senior Indebtedness as a
result of which the maturity of such Senior Indebtedness has been accelerated
and the Trustee has received written notice from the Company, from holders of
Senior Indebtedness or from any trustee, representative or agent therefor, and
such default shall not have been cured or waived by or on behalf of the holders
of such Senior Indebtedness.
(b) In the event that notwithstanding the provisions of this Section
13.02, the Company shall make any payment to the Trustee on account of the
principal of or premium, if any, or interest, if any, on the Securities, or on
account of any sinking fund, or the Holders of the Securities shall receive any
such payment when such payment is prohibited by this Section 13.02 and before
all amounts payable on, under or in connection with Senior Indebtedness are paid
in full in cash or cash equivalents, then and in such event, such payment
(subject to the provisions of Sections 13.06 and 13.07) shall be held by the
Trustee or the Holders of the Securities, as the case may be, in trust for the
benefit of, and shall be paid forthwith over and
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delivered to, the holders of Senior Indebtedness (pro rata as to each of such
holders on the basis of the respective amounts of Senior Indebtedness held by
them) or their representative or the trustee under the indenture or other
agreement (if any) pursuant to which any instruments evidencing any Senior
Indebtedness may have been issued, as their respective interests may appear, for
application to the payment of all Senior Indebtedness remaining unpaid to the
extent necessary to pay all Senior Indebtedness in full in accordance with the
terms of such Senior Indebtedness, after giving effect to any concurrent payment
or distribution or provision therefor to or for the holders of Senior
Indebtedness. The Company shall give prompt written notice to the Trustee of any
default under any Senior Indebtedness or under any agreement pursuant to which
Senior Indebtedness may have been issued.
SECTION 13.03. Securities Subordinated to Prior Payment of all
Senior Indebtedness on Dissolution, Liquidation or Reorganization of Company.
Upon any payment or distribution of assets or Securities of the Company, as the
case may be, of any kind or character, whether in cash, property or securities,
upon any dissolution or winding up or total or partial liquidation or
reorganization of the Company, whether voluntary or involuntary, or in
bankruptcy, insolvency, receivership or similar proceedings of the Company:
(a) the holders of all Senior Indebtedness shall first be entitled
to receive payment in full in cash or cash equivalents of the principal
thereof, premium, if any, and interest (including any interest accrued on
such Senior Indebtedness subsequent to the commencement of a bankruptcy,
insolvency, receivership or similar proceeding), if any, due thereon
before the Holders of the Securities are entitled to receive any payment
on account of the principal of, premium, if any, or interest, if any, on
the Securities or any distribution of any assets or securities;
(b) any payment or distribution of assets of the Company of any kind
or character, whether in cash, property or securities, to which the
Holders of the Securities or the Trustees would be entitled except for the
provisions of this Article Fourteen, shall be paid by the trustee in
bankruptcy, receiver, liquidating trustee, custodian, assignee, agent or
other person making such payment or distribution directly to the holders
of Senior Indebtedness or their representative or representatives, or to
the trustee or trustees under any indenture under which any instruments
evidencing any of such Senior Indebtedness may have been issued, to the
extent necessary to make payment in full of all Senior Indebtedness
remaining unpaid, after giving effect to any concurrent payment or
distribution or provision therefor to the holders of such Senior
Indebtedness;
(c) in the event that notwithstanding the foregoing provisions of
this Section 13.03, the Company shall make any payment to the Trustee on
account of the principal of or premium, if any, or interest, if any, on
the Securities, or on account of any sinking fund, or the Holders of the
Securities shall receive any such payment when such
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payment is prohibited by this Section 13.03 and before all amounts payable
on, under or in connection with Senior Indebtedness are paid in full in
cash or cash equivalents, then and in such event, such payment (subject to
the provisions of Sections 13.06 and 13.07) shall be held by the Trustee
or the Holders of the Securities, as the case may be, in trust for the
benefit of, and shall be paid over and 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 Indebtedness remaining unpaid
to the extent necessary to pay all Senior Indebtedness in full in
accordance with the terms of such Senior Indebtedness, after giving effect
to any concurrent payment or distribution or provision therefor to the
holders of such Senior Indebtedness.
SECTION 13.04. Securityholders to be Subrogated to Right of Holders
of Senior Indebtedness. Subject to the payment in full in cash or cash
equivalents of all Senior Indebtedness, the Holders of the Securities shall be
subrogated to the rights of the holders of Senior Indebtedness to receive
payments or distributions of assets of the Company applicable to the Senior
Indebtedness until all amounts owing on the Securities shall be paid in full,
and for the purpose of such subrogation no payments or distributions to the
holders of the Senior Indebtedness by or on behalf of the Company or by or on
behalf of the Holders of the Securities by virtue of this Article which
otherwise would have been made to the Holders of the Securities shall, as
between the Company, its creditors other than holders of the Senior Indebtedness
and the Holders of the Securities, be deemed to be payment by the Company to or
on account of the Senior Indebtedness, it being understood that the provisions
of this Article XIII 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 the Senior Indebtedness, on the other hand.
SECTION 13.05. Obligation of the Company Unconditional. Nothing
contained in this Article XIII or elsewhere in this Indenture or in the
Securities is intended to or shall impair as between the Company and the Holders
of the Securities, the obligation of the Company, which is absolute and
unconditional, to pay to the Holders of the Securities the principal of,
premium, if any, and interest, if any, on the Securities as and when the same
shall become due and payable in accordance with their terms, or is intended to
or shall affect the relative rights of the Holders of the Securities and
creditors of the Company other than the holders of the Senior Indebtedness, nor
shall anything herein or therein prevent the Trustee or the Holder of any
Security from exercising all remedies otherwise permitted by applicable law upon
default under this Indenture, subject to the rights, if any, under this Article
XIII of the holders of Senior Indebtedness in respect of cash, property, or
securities of the Company received upon the exercise of any such remedy. Upon
any distribution of assets of the Company referred to in this Article XIII, the
Trustee, subject to the provisions of Section 6.01, and the Holders of the
Securities shall be entitled to rely upon any order or decree made by any court
of competent jurisdiction in which such liquidation, dissolution, winding up, or
reorganization proceedings are pending, or a certificate of the liquidating
trustee or agent or
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other person making any distribution to the Trustee or to the Holders of the
Securities, for the purpose of ascertaining the persons entitled to participate
in such distribution, the holders of the Senior Indebtedness 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 XIII.
SECTION 13.06. Trustee Entitled to Assume Payments Not Prohibited in
Absence of Notice. The Trustee shall not at any time be charged with knowledge
of the existence of any facts which would prohibit the making of any payment of
monies to or by the Trustee, unless and until a Responsible Officer of the
Trustee shall have received written notice thereof from the Company or from one
or more holders of Senior Indebtedness or from any trustee therefor; and, prior
to the receipt of any such written notice, the Trustee, subject to the
provisions of Section 6.01, shall be entitled to assume conclusively that no
such facts exist.
SECTION 13.07. Application by Trustee of Monies Deposited With It.
Anything in this Indenture to the contrary notwithstanding, any deposit of
monies by the Company with the Trustee or any paying agent (whether or not in
trust) for the payment of the principal of or premium, if any, or interest, if
any, on any Securities shall be subject to the provisions of Sections 13.01,
13.02, 13.03 and 13.04 except that, if prior to the date on which by the terms
of this Indenture any such monies may become payable for any purpose (including,
without limitation, the payment of either the principal of or the interest or
premium, if any, on any Security) a Responsible Officer of the Trustee shall not
have received with respect to such monies the notice provided for in Section
13.06, 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 on or after such date.
SECTION 13.08. Subordination Rights not Impaired by Acts or
Omissions of Company or Holders of Senior Indebtedness. No right of any present
or future holders of any Senior Indebtedness 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 which any such holder may have or be otherwise charged with.
SECTION 13.09. Securityholders Authorize Trustee to Effectuate
Subordination of Securities. Each Holder of the Securities by his acceptance
thereof authorizes and expressly directs the Trustee on his behalf to take such
action as may be necessary or appropriate to effectuate the subordination
provided in this Article XIII and appoints the Trustee his attorney-in-fact for
such purpose, including, in the event of any dissolution, winding up,
liquidation or reorganization of the Company (whether in bankruptcy, insolvency
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or receivership proceedings or upon an assignment for the benefit of creditors
or otherwise) tending towards liquidation of the business and assets of the
Company, the immediate filing of a claim for the unpaid balance of its or his
Securities in the form required in said proceedings and cause said claim to be
approved.
SECTION 13.10. Right of Trustee to Hold Senior Indebtedness. The
Trustee shall be entitled to all of the rights set forth in this Article XIII in
respect of any Senior Indebtedness at any time held by it to the same extent as
any other holder of Senior Indebtedness, and nothing in Section 6.13 or
elsewhere in this Indenture shall be construed to deprive the Trustee of any of
its rights as such Holder.
SECTION 13.11. Article XIII Not to Prevent Events of Default. The
failure to make a payment on account of principal, interest or sinking fund by
reason of any provision in this Article Fourteen shall not be construed as
preventing the occurrence of an Event of Default under Section 5.01.
ARTICLE XIV
MISCELLANEOUS
SECTION 14.01. Miscellaneous. 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.
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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.
HARTFORD LIFE, INC.
By /s/ Gregory A. Boyko
--------------------------------------
Name:
Title:
Attest:
By /s/ M. O'Halloran
------------------------
Secretary
WILMINGTON TRUST COMPANY
as Trustee
By /s/ Mary C. St. Amand
--------------------------------------
Name: Mary C. St. Amand
Title: Assistant Vice President
Attest:
By /s/
------------------------
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EXHIBIT 4.04
FIRST SUPPLEMENTAL INDENTURE
Dated as of June 29, 1998
between
HARTFORD LIFE, INC.
AS ISSUER
and
WILMINGTON TRUST COMPANY,
AS TRUSTEE
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I
DEFINITIONS
SECTION 1.1 Definition of Terms...................................... 2
ARTICLE II
GENERAL TERMS AND CONDITIONS OF THE DEBENTURES
SECTION 2.1 Designation and Principal Amount......................... 3
SECTION 2.2 Maturity................................................. 3
SECTION 2.3 Form and Payment......................................... 3
SECTION 2.4 Global Debenture......................................... 4
SECTION 2.5 Interest................................................. 5
SECTION 2.6 Authorized Denominations................................. 6
SECTION 2.7 Redemption............................................... 6
SECTION 2.8 Appointment of Agents.................................... 6
SECTION 2.9 Depositary............................................... 6
ARTICLE III
REDEMPTION OF THE DEBENTURES
SECTION 3.1 Special Event Redemption................................. 7
SECTION 3.2 Optional Redemption by Company........................... 7
SECTION 3.3 No Sinking Fund.......................................... 8
ARTICLE IV
EXTENSION OF INTEREST PAYMENT PERIOD
SECTION 4.1 Extension of Interest Payment Period..................... 8
SECTION 4.2 Notice of Extension...................................... 9
SECTION 4.3 Limitation of Transactions............................... 10
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE V
EXPENSES
SECTION 5.1 Payment of Expenses...................................... 10
SECTION 5.2 Payment Upon Resignation or Removal...................... 11
ARTICLE VI
NOTICE
SECTION 6.1 Notice by the Company.................................... 11
ARTICLE VII
COVENANT TO LIST ON EXCHANGE
SECTION 7.1 Listing on an Exchange................................... 12
ARTICLE VIII
FORM OF DEBENTURE
SECTION 8.1 Form of Debenture........................................ 12
ARTICLE IX
ORIGINAL ISSUE OF DEBENTURES
SECTION 9.1 Original Issue of Debentures............................. 13
ARTICLE X
COVENANTS
SECTION 10.1 Covenants as to Trust.................................... 13
ARTICLE XI
MISCELLANEOUS
SECTION 11.1 Ratification of Indenture............................... 14
SECTION 11.2 Trustee Not Responsible for Recitals.................... 14
SECTION 11.3 Governing Law........................................... 14
SECTION 11.4 Separability............................................ 14
SECTION 11.5 Counterparts............................................ 14
</TABLE>
ii
<PAGE> 4
FIRST SUPPLEMENTAL INDENTURE, dated as of June 29, 1998 (the "First
Supplemental Indenture"), between Hartford Life, Inc., a corporation duly
organized and existing under the laws of the State of Delaware, having its
principal office at 200 Hopmeadow Street, Simsbury, Connecticut 06089, (the
"Company"), and Wilmington Trust Company, as trustee (the "Trustee").
WHEREAS, the Company executed and delivered the indenture dated as of June
1, 1998 (the "Subordinated Indenture") to the Trustee to provide for the future
issuance of the Company's unsecured debentures, notes or other evidence of
indebtedness (the "Securities"), to be issued from time to time in one or more
series as might be determined by the Company under the Indenture;
WHEREAS, pursuant to the terms of the Indenture, the Company desires to
provide for the establishment of a new series of its Securities to be known as
its 7.20% Junior Subordinated Deferrable Interest Debentures, due 2038 (the
"Debentures"), the form and substance of such Debentures and the terms,
provisions and conditions thereof to be set forth as provided in the Indenture
and this First Supplemental Indenture;
WHEREAS, Hartford Life Capital I, a Delaware statutory business trust (the
"Trust"), has offered to the public $250,000,000 aggregate liquidation amount of
its 7.20% Trust Preferred Securities (the "Preferred Securities"), representing
undivided beneficial interests in the assets of the Trust and proposes to invest
the proceeds from such offering, together with the proceeds of the issuance and
sale by the Trust to the Company of $7,732,000 aggregate liquidation amount of
its 7.20% Trust Originated Common Securities (the "Common Securities" and
together with the Preferred Securities, the "Trust Securities"), in $257,732,000
aggregate principal amount of the Debentures;
WHEREAS, the Company has requested that the Trustee execute and deliver
this First Supplemental Indenture;
WHEREAS, all requirements necessary to make this First Supplemental
Indenture a valid instrument in accordance with its terms, and to make the
Debentures, when executed by the Company and authenticated and delivered by the
Trustee, the valid obligations of the Company, have been performed; and
WHEREAS, the execution and delivery of this First Supplemental Indenture
has been duly authorized in all respects:
NOW THEREFORE, in consideration of the purchase and acceptance of the
Debentures by the Holders thereof, and for the purpose of setting forth, as
provided in the Indenture, the form and substance of the Debentures and the
terms, provisions and conditions thereof, the Company covenants and agrees with
the Trustee as follows:
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ARTICLE I
DEFINITIONS
SECTION 1.1 Definition of Terms.
Unless the context otherwise requires:
(a) each term defined in the Indenture has the same meaning when used in
this First Supplemental Indenture;
(b) each term defined anywhere in this First Supplemental Indenture has
the same meaning throughout;
(c) the singular includes the plural and vice versa;
(d) headings are for convenience of reference only and do not affect
interpretation;
(e) the following terms have the meanings given to them in the
Declaration: (i) Business Day; (ii) Clearing Agency; (iii) Delaware Trustee;
(iv) Preferred Security Certificate; (v) Institutional Trustee; (vi) Regular
Trustees; (vii) Special Event; and (viii) Underwriting Agreement;
(f) the following terms have the meanings given to them in this Section
1.1(f):
"Additional Interest" shall have the meaning set forth in Section 2.5.
"Compounded Interest" shall have the meaning set forth in Section 4.1.
"Declaration" means the Amended and Restated Declaration of Trust of
Hartford Life Capital I, a Delaware statutory business trust, dated as of June
29, 1998.
"Deferred Interest" shall have the meaning set forth in Section 4.1.
"Dissolution Event" means that the Trust is to be dissolved in accordance
with the Declaration, and the Debentures held by the Institutional Trustee are
to be distributed to the holders of the Trust Securities issued by the Trust pro
rata in accordance with the Declaration.
"Extended Interest Payment Period" shall have the meaning set forth in
Section 4.1.
"Global Debenture" shall have the meaning set forth in Section 2.4.
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"Maturity Date" means the date on which the Debentures mature and on which the
principal shall be due and payable together with all accrued and unpaid interest
thereon including Compounded Interest and Additional Interest, if any.
"Non Book-Entry Preferred Securities" shall have the meaning set forth in
Section 2.4.
"Optional Redemption Price" shall have the meaning set forth in Section
3.2.
ARTICLE II
GENERAL TERMS AND CONDITIONS OF THE DEBENTURES
SECTION 2.1 Designation and Principal Amount.
There is hereby authorized a series of Securities designated the "7.20%
Junior Subordinated Deferrable Interest Debentures, Series A, due 2038," limited
in aggregate principal amount to $257,732,000, which amount shall be as set
forth in any written order of the Company for the authentication and delivery of
Debentures pursuant to Section 3.3 of the Indenture.
SECTION 2.2. Maturity.
The Maturity Date will be June 30, 2038.
SECTION 2.3. Form and Payment.
Except as provided in Section 2.4, the Debentures shall be issued in fully
registered certificated form without interest coupons. Principal and interest on
the Debentures issued in certificated form will be payable, the transfer of such
Debentures will be registrable and such Debentures will be exchangeable for
Debentures bearing identical terms and provisions at the office or agency of the
Institutional Trustee; provided, however, that payment of interest may be made
at the option of the Company by check mailed to the Holder at such address as
shall appear in the Security Register. Notwithstanding the foregoing, so long as
the Holder of any Debentures is the Institutional Trustee, the payment of the
principal of and interest (including Compounded Interest and Additional
Interest, if any) on such Debentures held by the Institutional Trustee will be
made at such place and to such account as may be designated by the Institutional
Trustee.
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SECTION 2.4 Global Debenture.
(a) In connection with a Dissolution Event,
(i) the Debentures in certificated form may be presented to the
Trustee by the Institutional Trustee in exchange for a global Debenture in an
aggregate principal amount equal to the aggregate principal amount of all
outstanding Debentures (a "Global Debenture"), to be registered in the name of
the Depositary, or its nominee, and delivered by the Institutional Trustee to
the Depositary for crediting to the accounts of its participants pursuant to the
instructions of the Regular Trustees. The Company upon any such presentation
shall execute a Global Debenture in such aggregate principal amount and deliver
the same to the Trustee for authentication and delivery in accordance with the
Indenture and this First Supplemental Indenture. Payments on the Debentures
issued as a Global Debenture will be made to the Depositary; and
(ii) if any Preferred Securities are held in non book-entry
certificated form, the Debentures in certificated form may be presented to the
Trustee by the Institutional Trustee and any Preferred Security Certificate
which represents Preferred Securities other than Preferred Securities held by
the Clearing Agency or its nominee ("Non Book-Entry Preferred Securities") will
be deemed to represent beneficial interests in Debentures presented to the
Trustee by the Institutional Trustee having an aggregate principal amount equal
to the aggregate liquidation amount of the Non Book-Entry Preferred Securities
until such Preferred Security Certificates are presented to the Security
Registrar for transfer or reissuance at which time such Preferred Security
Certificates will be cancelled and a Debenture, registered in the name of the
holder of the Preferred Security Certificate or the transferee of the holder of
such Preferred Security Certificate, as the case may be, with an aggregate
principal amount equal to the aggregate liquidation amount of the Preferred
Security Certificate cancelled, will be executed by the Company and delivered to
the Trustee for authentication and delivery in accordance with the Indenture and
this First Supplemental Indenture. On issue of such Debentures, Debentures with
an equivalent aggregate principal amount that were presented by the
Institutional Trustee to the Trustee will be deemed to have been cancelled.
(b) Unless and until it is exchanged for the Debentures in registered
form, a Global Debenture may be transferred, in whole but not in part, only to
another nominee of the Depository, or to a successor Depositary selected or
approved by the Company or to a nominee or such successor Depositary.
(c) If at any time the Depositary notifies the Company that it is
unwilling or unable to continue as Depositary or if at any time the Depositary
for such series shall no longer be registered or in good standing under the
Securities Exchange Act of 1934, as amended, or other applicable statute or
regulation, and a successor Depositary for such series is not appointed by the
Company within 90 days after the Company receives such notice or becomes
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aware of such condition, as the case may be, the Company will execute, and,
subject to Article III of the Indenture the Trustee, upon written notice from
the Company, will authenticate and deliver the Debentures in definitive
registered form without coupons, in authorized denominations, and in an
aggregate principal amount equal to the principal amount of the Global Debenture
in exchange for such Global Debenture. In addition, the Company may at any time
determine that the Debentures shall no longer be represented by Global
Debenture. In such event the Company will execute, and subject to Section 3.1 of
the Indenture, the Trustee, upon receipt of an Officers Certificate evidencing
such determination by the Company, will authenticate and deliver the Debentures
in definitive registered form without coupons, in authorized denominations, and
in an aggregate principal amount equal to the principal amount of the Global
Debenture in exchange for such Global Debenture. Upon the exchange of the Global
Debenture for such Debentures in definitive registered form without coupons, in
authorized denominations, the Global Debenture shall be cancelled by the
Trustee. Such Debentures in definitive registered form issued in exchange for
the Global Debenture shall be registered in such name and in such authorized
denominations as the Depositary pursuant to instructions from its direct or
indirect participants or otherwise, shall instruct the Trustee. The Trustee
shall deliver such Securities to the Depositary for delivery to the Persons in
whose names such Securities are so registered.
SECTION 2.5 Interest.
(a) Each Debenture will bear interest at the rate of 7.20% per annum (the
"Coupon Rate") from and including the original date of issuance until the
principal thereof becomes due and payable, and on any overdue principal and (to
the extent that payment of such interest is enforceable under applicable law) on
any overdue installment of interest at the Coupon Rate, compounded quarterly,
payable (subject to the provisions of Article IV) quarterly in arrears on
January 15, April 15, July 15 and October 15 of each year (each, an "Interest
Payment Date," commencing on July 15, 1998), to the Person in whose name such
Debenture or any predecessor Debenture is registered, at the close of business
on the regular record date for such interest installment, which, in respect of
(i) Debentures of which the Institutional Trustee is the Holder and the
Preferred Securities are in book-entry only form or (ii) a Global Debenture,
shall be the close of business on the Business Day next preceding that Interest
Payment Date. Notwithstanding the foregoing sentence, if (i) the Debentures are
held by the Institutional Trustee and the Preferred Securities are no longer in
book-entry only form or (ii) the Debentures are not represented by a Global
Debenture, the Company may select a regular record date for such interest
installment which shall be more than 14 days but less than 60 days prior to an
Interest Payment Date.
(b) The amount of interest payable for any period will be computed on the
basis of a 360-day year of twelve 30-day months. Except as provided in the
following sentence, the amount of interest payable for any period shorter than a
full quarterly period for which interest is computed, will be computed on the
basis of the actual number of days elapsed during such
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period in relation to the deemed 90 days in such quarterly period. In the event
that any date on which interest is payable on the Debentures is not a Business
Day, then payment of 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 relevant Interest Payment Date.
(c) If, at any time while the Institutional Trustee is the Holder of any
Debentures, the Trust or the Institutional Trustee is required to pay any taxes,
duties, assessments or governmental charges of whatever nature (other than
withholding taxes) imposed by the United States, or any other taxing authority,
then, in any case, the Company will pay as additional interest ("Additional
Interest") on the Debentures held by the Institutional Trustee, such additional
amounts as shall be required so that the net amounts received and retained by
the Trust and the Institutional Trustee after paying such taxes, duties,
assessments or other governmental charges will be not less than the amounts the
Trust and the Institutional Trustee would have received had no such taxes,
duties, assessments or other government charges been imposed.
SECTION 2.6 Authorized Denominations.
The Debentures shall be issuable in denominations of $25 and integral
multiples of $25 in excess thereof.
SECTION 2.7 Redemption.
The Debentures are not subject to redemption at the option of the Holder
and are subject to redemption at the option of the Issuer or otherwise as
provided in Article III hereof.
SECTION 2.8 Appointment of Agents.
The Company hereby appoints, or confirms the appointment of, Wilmington
Trust Company as the initial Trustee, Securities Registrar and Paying Agent with
respect to the Debentures, subject to the provisions of the Indenture with
respect to the resignation, removal and succession, and subject, further, to the
right of the Company to appoint additional agents.
SECTION 2.9 Depositary.
The Depository Trust Company (or its nominee) shall act as the initial
Depositary for any Global Debenture which may be issued pursuant to this First
Supplemental Indenture.
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ARTICLE III
REDEMPTION OF THE DEBENTURES
SECTION 3.1 Special Event Redemption.
If a Special Event has occurred and is continuing, then, notwithstanding
Section 3.2(a) but subject to Section 3.2(c), the Company shall have the right
upon not less than 30 days nor more than 60 days notice to the Holders of the
Debentures to redeem the Debentures, in whole but not in part, for cash within
90 days following the occurrence of such Special Event (the "90 Day Period") at
a redemption price equal to 100% of the principal amount to be redeemed plus any
accrued and unpaid interest thereon to the date of such redemption (the
"Redemption Price"). The Redemption Price shall be paid prior to 12:00 noon, New
York time, on the date of such redemption or such earlier time as the Company
determines, provided that the Company shall deposit with the Trustee an amount
sufficient to pay the Redemption Price by 10:00 a.m., New York time, on the date
such Redemption Price is to be paid.
SECTION 3.2 Optional Redemption by Company.
(a) Subject to the provisions of Section 3.2(c) and to the provisions of
Article XI of the Indenture, except as otherwise may be specified in this First
Supplemental Indenture, the Company shall have the right to redeem the
Debentures, in whole or in part, from time to time, on or after June 30, 2003,
at a redemption price equal to 100% of the principal amount to be redeemed plus
any accrued and unpaid interest thereon to the date of such redemption (the
"Optional Redemption Price"); provided that, prior to June 30, 2003, the Company
shall also have the right to redeem the Debentures at any time, in whole or in
part, at a redemption price equal to the accrued and unpaid interest on the
Debentures so redeemed to the date fixed for redemption, plus the greater of (a)
the principal amount thereof or (b) an amount equal to the Discounted Remaining
Payments to Initial Optional Prepayment Date (as defined herein).
"Discounted Remaining Payments to Initial Optional Prepayment Date"
means 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 the Debentures on each Interest Payment Date after the redemption
date through and including June 30, 2003, assuming optional redemption of the
Debentures on June 30, 2003.
"Current Value" means, (i) in respect of any payment of interest,
the present value of that amount on the redemption date after discounting that
amount on a quarterly basis from the originally scheduled date for payment, and
(ii) in respect of any payment of principal, the present value of that amount on
the redemption date after discounting that amount on a quarterly basis from June
30, 2003. In each case, the discount rate shall be the Treasury Rate.
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"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 redemption date to be the per annum rate equal to the
semiannual bond equivalent yield to maturity (adjusted to reflect quarterly
compounding in the case of the Debentures) for United States Treasury securities
maturing at June 30, 2003, as determined by reference to the weekly average
yield to maturity for United States Treasury securities maturing on June 30,
2003, if reported in the most recent Statistical Release H.15(519) of the Board
of Governors of the Federal Reserve, or, if no such securities mature at June
30, 2003, by interpolation between the most recent weekly average yields to
maturity for two series of United States Treasury securities, (i) one maturing
as close as possible to, but earlier than, June 30, 2003 and (ii) the other
maturing as close as possible to, but later than, June 30, 2003, in each case as
published in the most recent Statistical Release H.15(519) of the Board of
Governors of the Federal Reserve.
(b) Any redemption pursuant to this paragraph will be made upon not less
than 30 days nor more than 60 days notice to the Holder of the Debentures, at
the Optional Redemption Price. If the Debentures are only partially redeemed
pursuant to this Section 3.2, the Debentures will be redeemed pro rata or by lot
or by any other method utilized by the Trustee; provided, that if at the time of
redemption the Debentures are registered as a Global Debenture, the Depositary
shall determine, in accordance with its procedures, the principal amount of such
Debentures held by each Holder of Debenture to be redeemed. The Optional
Redemption Price shall be paid prior to 12:00 noon, New York time, on the date
of such redemption or at such earlier time as the Company determines provided
that the Company shall deposit with the Trustee an amount sufficient to pay the
Optional Redemption Price by 10:00 a.m., New York time, on the date such
Optional Redemption Price is to be paid.
(c) If a partial redemption of the Debentures would result in the
delisting of the Preferred Securities issued by the Trust from any national
securities exchange or other organization on which the Preferred Securities are
then listed, the Company shall not be permitted to effect such partial
redemption and may only redeem the Debentures in whole.
SECTION 3.3 No Sinking Fund.
The Debentures are not entitled to the benefit of any sinking fund.
ARTICLE IV
EXTENSION OF INTEREST PAYMENT PERIOD
SECTION 4.1 Extension of Interest Payment Period.
The Company shall have the right, at any time and from time to time during
the term of the Debentures, to defer payments of interest by extending the
interest payment period of
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such Debentures for a period not exceeding 20 consecutive quarters (the
"Extended Interest Payment Period"), during which Extended Interest Payment
Period no interest shall be due and payable; provided that no Extended Interest
Payment Period may extend beyond the Maturity Date. To the extent permitted by
applicable law, interest, the payment of which has been deferred because of the
extension of the interest payment period pursuant to this Section 4.1, will bear
interest thereon at the Coupon Rate compounded quarterly for each quarter of the
Extended Interest Payment Period ("Compounded Interest"). At the end of the
Extended Interest Payment Period, the Company shall pay all interest accrued and
unpaid on the Debentures, including any Additional Interest and Compounded
Interest (together, "Deferred Interest") that shall be payable to the Holders of
the Debentures in whose names the Debentures are registered in the Security
Register on the first record date after the end of the Extended Interest Payment
Period. Before the termination of any Extended Interest Payment Period, the
Company may further extend such period, provided that such period together with
all such further extensions thereof shall not exceed 20 consecutive quarters, or
extend beyond the maturity date of the Debentures. Upon the termination of any
Extended Interest Payment Period and upon the payment of all Deferred Interest
then due, the Company may commence a new Extended Interest Payment Period,
subject to the foregoing requirements. No interest shall be due and payable
during an Extended Interest Payment Period, except at the end thereof, but the
Company may prepay at any time all or any portion of the interest accrued during
an Extended Interest Payment Period.
SECTION 4.2 Notice of Extension.
(a) If the Institutional Trustee is the only registered Holder of the
Debentures at the time the Company selects an Extended Interest Payment Period,
the Company shall give written notice to the Regular Trustees, the Institutional
Trustee and the Trustee of its selection of such Extended Interest Payment
Period one Business Day before the earlier of (i) the next succeeding date on
which Distributions on the Trust Securities issued by the Trust are payable, or
(ii) the date the Regular Trustee is required to give notice of the record date,
or the date such Distributions are payable, to the New York Stock Exchange or
other applicable self-regulatory organization or to holders of the Preferred
Securities issued by the Trust, but in any event at least one Business Day
before such record date.
(b) If the Institutional Trustee is not the only Holder of the Debentures
at the time the Company selects an Extended Interest Payment Period, the Company
shall give the Holders of the Debentures and the Trustee written notice of its
selection of such Extended Interest Payment Period at least 10 Business Days
before the earlier of (i) the next succeeding Interest Payment Date, or (ii) the
date the Company is required to give notice of the record or payment date of
such interest payment to the New York Stock Exchange or other applicable
self-regulatory organization or to Holders of the Debentures.
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(c) The quarter in which any notice is given pursuant to paragraphs (a) or
(b) of this Section 4.2 shall be counted as one of the 20 quarters permitted in
the maximum Extended Interest Payment Period permitted under Section 4.1.
SECTION 4.3 Limitation of Transactions.
If (i) the Company shall exercise its right to defer payment of interest
as provided in Section 4.1, or (ii) there shall have occurred any Event of
Default, as defined in the Indenture, then (a) the Company shall not declare or
pay any dividend on, make any distributions with respect to, or redeem,
purchase, acquire or make a liquidation payment with respect to, any of its
capital stock or make any guarantee payment with respect thereto (other than (i)
repurchases, redemptions or other acquisitions of shares of capital stock of the
Company in connection with any employment contract, benefit plan or other
similar arrangement with or for the benefit of employees, officers, directors or
consultants, (ii) as a result of an exchange or conversion of any class or
series of Hartford Life's capital stock for any other class or series of the
Company's capital stock, (iii) the purchase of fractional interests in shares of
the Company's capital stock pursuant to the conversion or exchange provisions of
such capital stock or the security being converted or exchanged or (iv)
distributions of rights under any shareholder rights plan adopted by the
Company), (b) the Company shall not make any payment of interest on or principal
of (or premium, if any, on) or repay, repurchase or redeem any debt securities
issued by the Company or its subsidiaries which rank pari passu with or junior
to the Debentures. The foregoing, however, will not apply to any stock dividends
paid by the Company where the dividend stock is the same stock as that on which
the dividend is being paid.
ARTICLE V
EXPENSES
SECTION 5.1 Payment of Expenses.
In connection with the offering, sale and issuance of the Debentures to
the Institutional Trustee and in connection with the sale of the Trust
Securities by the Trust, the Company, in its capacity as borrower with respect
to the Debentures, shall:
(a) pay all costs and expenses relating to the offering, sale and issuance
of the Debentures, including commissions to the underwriters payable pursuant to
the Underwriting Agreement and compensation and expenses of the Trustee under
the Indenture in accordance with the provisions of Section 6.07 of the
Indenture;
(b) pay all costs and expenses of the Trust (including, but not limited
to, costs and expenses relating to the organization of the Trust, the offering,
sale and issuance of the Trust Securities (including commissions to the
underwriters in connection therewith), the fees and
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expenses of the Institutional Trustee and the Delaware Trustee, the costs and
expenses relating to the operation of the Trust, including without limitation,
costs and expenses of accountants, attorneys, statistical or bookkeeping
services, expenses for printing and engraving and computing or accounting
equipment, paying agent(s), registrar(s), transfer agent(s), duplicating, travel
and telephone and other telecommunications expenses and costs and expenses
incurred in connection with the acquisition, financing, and disposition of Trust
assets);
(c) be primarily liable for any indemnification obligations arising with
respect to the Declaration; and
(d) pay any and all taxes (other than United States withholding taxes
attributable to the Trust or its assets) and all liabilities, costs and expenses
with respect to such taxes of the Trust.
SECTION 5.2 Payment Upon Resignation or Removal
Upon termination of this First Supplemental Indenture or the Indenture or
the removal or resignation of the Trustee pursuant to this Section 5.2, the
Company shall pay to the Trustee all amounts accrued to the date of such
termination, removal or resignation. Upon termination of the Declaration or the
removal or resignation of the Delaware Trustee or the Institutional Trustee, as
the case may be, pursuant to Section 5.6 of the Declaration, the Company shall
pay to the Delaware Trustee or the Institutional Trustee, as the case may be,
all amounts accrued to the date of such termination, removal or resignation.
ARTICLE VI
NOTICE
SECTION 6.1 Notice by the Company.
The Company shall give prompt written notice to a Responsible Officer of
the Trustee of any fact known to the Company that would prohibit the making of
any payment of monies to or by the Trustee in respect of the Debentures pursuant
to the provisions of this Article VI. Notwithstanding the provisions of Article
XIV of the Indenture or any other provision of the Indenture and this First
Supplemental Indenture, the Trustee shall not be charged with knowledge of the
existence of any facts that would prohibit the making of any payment of monies
to or by the Trustee in respect of the Debentures pursuant to the provisions of
Article Fourteen of the Indenture, unless and until a Responsible Officer of the
Trustee shall have received written notice thereof from the Company or a holder
or holders of Senior Indebtedness or from any trustee therefor; and before the
receipt of any such written notice, the Trustee, subject to the provisions of
Section 6.1 of the Indenture, shall be entitled in all respects to assume that
no such facts exist; provided, however, that if the Trustee shall not
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have received the notice provided for in this Article 6 at least two Business
Days prior to the date upon which by the terms hereof any money may become
payable for any purpose (including, without limitation, the payment of the
principal of (or premium, if any) or interest on any Debenture), then, anything
herein contained to the contrary notwithstanding, the Trustee shall have full
power and authority to receive such money and to apply the same to the purposes
for which they were received, and shall not be affected by any notice to the
contrary that may be received by it within two Business Days prior to such date.
The Trustee, subject to the provisions of Section 6.01 of the Indenture,
shall be entitled to conclusively rely on the delivery to it of a written notice
by a Person representing himself to be a holder of Senior Indebtedness of the
Company, as the case may be (or a trustee on behalf of such holder), to
establish that such notice has been given by a holder of such Senior
Indebtedness or a trustee on behalf of any such holder or holders. In the event
that the Trustee determines in good faith that further evidence is required with
respect to the right of any Person as a holder of such Senior Indebtedness to
participate in any payment or distribution pursuant to this Article VI, the
Trustee may request such Person to furnish evidence to the reasonable
satisfaction of the Trustee as to the amount of such Senior Indebtedness held by
such Person, the extent to which such Person is entitled to participate in such
payment or distribution and any other facts pertinent to the rights of such
Person under this Article VI, and, if such evidence is not furnished, the
Trustee may defer any payment to such Person pending judicial determination as
to the right of such Person to receive such payment.
ARTICLE VII
COVENANT TO LIST ON EXCHANGE
SECTION 7.1 Listing on an Exchange.
If the Debentures are to be issued as a Global Debenture in connection
with the distribution of the Debentures to the holders of the Preferred
Securities issued by the Trust upon a Dissolution Event, the Company will use
its best efforts to list such Debentures on the New York Stock Exchange, Inc. or
on such other exchange as the Preferred Securities are then listed.
ARTICLE VIII
FORM OF DEBENTURE
SECTION 8.1 Form of Debenture.
The Debentures and the Trustee's Certificate of Authentication to be
endorsed thereon are to be substantially in the forms set forth in Exhibit A.
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ARTICLE IX
ORIGINAL ISSUE OF DEBENTURES
SECTION 9.1 Original Issue of Debentures.
Debentures in the aggregate principal amount of $257,732,000 may, upon
execution of this First Supplemental Indenture, be executed by the Company and
delivered to the Trustee for authentication, and the Trustee shall thereupon
authenticate and deliver said Debentures to or upon the written order of the
Company, signed by its Chairman, its Vice Chairman, its President, or any Vice
President and its Treasurer or an Assistant Treasurer, without any further
action by the Company.
ARTICLE X
COVENANTS
SECTION 10.1 Covenants as to Trust.
In the event Debentures are issued and sold to the Institutional Trustee
in connection with the issuance of Trust Securities by the Trust, for so long as
the Trust Securities remain outstanding, the Company will (i) maintain 100%
direct or indirect ownership of the Common Securities of the Trust; provided,
however, that any permitted successor of the Company under the Indenture may
succeed to the Company's ownership of the Common Securities, (ii) not
voluntarily dissolve, windup or terminate the Trust, except in connection with
the distribution of Debentures upon a Dissolution Event or otherwise, and in
connection with certain mergers, consolidations or amalgamations permitted by
the Declaration, (iii) timely perform its duties as sponsor of the Trust, (iv)
use its reasonable efforts to cause the Trust (a) to remain a business trust,
except in connection with the distribution of Debentures as provided in the
Declaration, the redemption of the Trust Securities or in connection with
certain mergers, consolidations or amalgamations as permitted by the
Declaration, and (b) to remain a grantor trust and otherwise continue not to be
treated as an association taxable as a corporation or partnership for United
States federal income tax purposes, and (v) use its reasonable efforts to cause
each holder of Trust Securities to be treated as owning an individual beneficial
interest in the Debentures. This covenant is intended solely for the benefit of
the Holders of the Debentures issued pursuant to this First Supplemental
Indenture and shall not be applicable to the Securities of any other series
issued pursuant to the Indenture.
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ARTICLE XI
MISCELLANEOUS
SECTION 11.1 Ratification of Indenture.
The Indenture, as supplemented by this First Supplemental Indenture, is in
all respects ratified and confirmed, and this First Supplemental Indenture shall
be deemed part of the Indenture in the manner and to the extent herein and
therein provided.
SECTION 11.2 Trustee Not Responsible for Recitals.
The recitals herein contained are made by the Company and not by the
Trustee, and the Trustee assumes no responsibility for the correctness thereof.
The Trustee makes no representation as to the validity or sufficiency of this
First Supplemental Indenture.
SECTION 11.3 Governing Law.
This First Supplemental Indenture and each Debenture shall be deemed to be
a contract made under the internal laws of the State of New York, and for all
purposes shall be construed in accordance with the internal laws of said State.
SECTION 11.4 Separability.
In case any one or more of the provisions contained in this First
Supplemental Indenture or in the Debentures shall for any reason be held to be
invalid, illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provisions of this First
Supplemental Indenture or of the Debentures, but this First Supplemental
Indenture and the Debentures shall be construed as if such invalid or illegal or
unenforceable provision had never been contained herein or therein.
SECTION 11.5 Counterparts.
This First Supplemental Indenture may be executed in any number of
counterparts each of which shall be an original; but such counterparts shall
together constitute but one and the same instrument.
14
<PAGE> 18
IN WITNESS WHEREOF, the parties hereto have caused this First Supplemental
Indenture to be duly executed, and their respective corporate seals to be
hereunto affixed and attested, on the date or dates indicated in the
acknowledgments and as of the day and year first above written.
HARTFORD LIFE, INC.
By /s/ Gregory A. Boyko
---------------------------------------
Name:
Title:
Attest:
By /s/ M. O'Halloran
--------------------
Secretary
WILMINGTON TRUST COMPANY
as Trustee
By /s/ Mary C. St. Amand
---------------------------------------
Name: Mary C. St. Amand
Title: Trust Officer
Attest:
By /s/
--------------------
15
<PAGE> 19
EXHIBIT A
(FORM OF FACE OF DEBENTURE)
[IF THE DEBENTURE IS TO BE A GLOBAL DEBENTURE, INSERT - This Debenture is
a Global Debenture 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
Debenture is exchangeable for Debentures registered in the name of a person
other than the Depositary or its nominee only in the limited circumstances
described in the Indenture, and no transfer of this Debenture (other than a
transfer of this Debenture 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) may be registered except in limited circumstances.
Unless this Debenture is presented by an authorized representative of The
Depository Trust Company (55 Water Street, New York, New York) to the issuer or
its agent for registration of transfer, exchange or payment, and any Debenture
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 since the registered owner hereof, Cede &
Co., has an interest herein.]
No. __________________
$_____________________
CUSIP No. ____________
HARTFORD LIFE, INC.
___% JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURE, SERIES A,
DUE 2038
HARTFORD LIFE, INC., a Delaware corporation (the "Company", which term
includes any successor corporation under the Indenture hereinafter referred to),
for value received, hereby promises to pay to, ______________ or registered
assigns, the principal sum of _____________ Dollars ($___________) on _______,
2038, and to pay interest on said principal sum from June 29, 1998, or from the
most recent interest payment date (each such date, an "Interest Payment Date")
to which interest has been paid or duly provided for, quarterly (subject to
deferral as set forth herein) in arrears on January 15, April 15, July 15 and
October 15 of each year commencing July 15, 1998, at the rate of ___% per annum
until the principal hereof shall have become due and payable, and on any overdue
principal and
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<PAGE> 20
premium, if any, 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 same rate per annum compounded quarterly. The amount of interest
payable on any Interest Payment Date shall be computed on the basis of a 360-day
year of twelve 30-day months. In the event that any date on which interest is
payable on this Debenture is not a Business Day, then payment of interest
payable on such date will be made on the next succeeding day that 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 relevant Interest Payment Date.
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 Debenture (or one or more Predecessor Securities, as
defined in said Indenture) is registered at the close of business on the regular
record date for such interest installment, which shall be the close of business
on the Business Day next preceding such Interest Payment Date. [IF PURSUANT TO
THE PROVISIONS OF THE INDENTURE THE DEBENTURES ARE NO LONGER REPRESENTED BY A
GLOBAL DEBENTURE -- which shall be the close of business on the ____ Business
Day next preceding such Interest Payment Date.] Any such interest installment
not punctually paid or duly provided for shall forthwith cease to be payable to
the registered Holders on such regular record date and may be paid to the Person
in whose name this Debenture (or one or more Predecessor Securities) is
registered at the close of business on a special record date to be fixed by the
Trustee for the payment of such defaulted interest, notice whereof shall be
given to the registered Holders of this series of Debentures not less than 10
days prior to such special record date, or may be paid at any time in any other
lawful manner not inconsistent with the requirements of any securities exchange
on which the Debentures may be listed, and upon such notice as may be required
by such exchange, all as more fully provided in the Indenture. The principal of
(and premium, if any) and the interest on this Debenture shall be payable at the
office or agency of the Trustee maintained for that purpose in any coin or
currency of the United States of America that at the time of payment is legal
tender for payment of public and private debts; provided, however, that payment
of interest may be made at the option of the Company by check mailed to the
registered Holder at such address as shall appear in the Security Register.
Notwithstanding the foregoing, so long as the Holder of this Debenture is the
Institutional Trustee, the payment of the principal of (and premium, if any) and
interest on this Debenture will be made at such place and to such account as may
be designated by the Institutional Trustee.
The indebtedness evidenced by this Debenture is, to the extent provided in
the Indenture, subordinate and junior in right of payment to the prior payment
in full of all Senior Indebtedness, and this Debenture is issued subject to the
provisions of the Indenture with respect thereto. Each Holder of this Debenture,
by accepting the same, (a) agrees to and shall be bound by such provisions, (b)
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
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<PAGE> 21
so provided and (c) appoints the Trustee his or her attorney-in-fact for any and
all such purposes. Each Holder hereof, by his or her acceptance hereof, hereby
waives all notice of the acceptance of the subordination provisions contained
herein and in the Indenture by each holder of Senior Indebtedness, whether now
outstanding or hereafter incurred, and waives reliance by each such holder upon
said provisions.
This Debenture shall not be entitled to any benefit under the Indenture
hereinafter referred to, be valid or become obligatory for any purpose until the
Certificate of Authentication hereon shall have been signed by or on behalf of
the Trustee.
The provisions of this Debenture are continued on the reverse side hereof
and such continued provisions shall for all purposes have the same effect as
though fully set forth at this place.
IN WITNESS WHEREOF, the Company has caused this instrument to be executed.
Dated _____________________
HARTFORD LIFE, INC.
By:_____________________
Name:
Title
Attest:
By: ________________________
Secretary
A-3
<PAGE> 22
(FORM OF CERTIFICATE OF AUTHENTICATION)
CERTIFICATE OF AUTHENTICATION
This is one of the Debentures of the series of Debentures described in the
within-mentioned Indenture.
Dated ____________________
WILMINGTON TRUST COMPANY
as Trustee
By________________________
Authorized Signatory
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<PAGE> 23
(FORM OF REVERSE OF DEBENTURE)
This Debenture is one of a duly authorized series of Securities of the
Company (herein sometimes referred to as the "Securities"), specified in the
Indenture, all issued or to be issued in one or more series under and pursuant
to an Indenture dated as of June , 1998 ("the Base Indenture"), duly executed
and delivered between the Company and Wilmington Trust Company, as Trustee (the
"Trustee"), as supplemented by a First Supplemental Indenture dated as of June
, 1998, between the Company and the Trustee (the Base Indenture as so
supplemented, the "Indenture"), to which Indenture and all indentures
supplemental thereto reference is hereby made for a description of the rights,
limitations of rights, obligations, duties and immunities thereunder of the
Trustee, the Company and the Holders of the Securities. By the terms of the
Indenture, the Securities are issuable in series that may vary as to amount,
date of maturity, rate of interest and in other respects as provided in the
Indenture. This series of Securities is limited in aggregate principal amount as
specified in said First Supplemental Indenture.
The Company shall have the right to redeem this Debenture at its option,
without premium or penalty, in whole or in part at any time and from time to
time on or after June , 2003 (an "Optional Redemption"), at a redemption price
equal to 100% of the principal amount plus any accrued but unpaid interest,
including any Compounded Interest, if any, to the date of such redemption (the
"Optional Redemption Price"); provided that, prior to , 2003, the Company
shall also have the right to redeem the Debentures at any time, in whole or in
part, at a redemption price equal to the accrued and unpaid interest on the
Debentures so redeemed to the date fixed for redemption, plus the greater of (a)
the principal amount thereof or (b) an amount equal to the Discounted Remaining
Payments to Initial Optional Prepayment Date (as defined herein). Any redemption
pursuant to this paragraph will be made upon not less than 30 nor more than 60
days' notice, at the Optional Redemption Price.
"Discounted Remaining Payments to Initial Optional Prepayment Date" means
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
the Debentures on each Interest Payment Date after the redemption date through
and including , 2003, assuming optional redemption of the Debentures on
, 2003.
"Current Value" means, (i) in respect of any payment of interest, the
present value of that amount on the redemption date after discounting that
amount on a quarterly basis from the originally scheduled date for payment, and
(ii) in respect of any payment of principal, the present value of that amount on
the redemption date after discounting that amount on a quarterly basis from
, 2003. In each case, the discount rate shall be the Treasury Rate.
A-5
<PAGE> 24
"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 redemption date to be the per annum rate equal to the semiannual bond
equivalent yield to maturity (adjusted to reflect quarterly compounding in the
case of the Debentures) for United States Treasury securities maturing at ,
2003, as determined by reference to the weekly average yield to maturity for
United States Treasury securities maturing on , 2003, if reported in the
most recent Statistical Release H.15(519) of the Board of Governors of the
Federal Reserve, or, if no such securities mature at , 2003, by
interpolation between the most recent weekly average yields to maturity for two
series of United States Treasury securities, (i) one maturing as close as
possible to, but earlier than, , 2003 and (ii) the other maturing as close
as possible to, but later than, , 2003, in each case as published in the
most recent Statistical Release H.15(519) of the Board of Governors of the
Federal Reserve.
If, at any time, a Special Event (as defined below) shall occur or be
continuing, the Company shall have the right at any time, upon not less than 30
nor more than 60 days' notice, to redeem the Debentures in whole or in part for
cash at the Optional Redemption Price within 90 days following the occurrence of
such Special Event.
"Special Event" means a Tax Event or an Investment Company Event.
"Tax Event" means that the Regular Trustees shall have received an opinion
of a nationally recognized independent tax counsel experienced in such matters
to the effect that, as a result of (a) 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 or (b) any interpretation or application of, or pronouncement with
respect to, such laws or regulations by any legislative body, court,
governmental agency or regulatory authority (including the enactment of any
legislation and the publication of any judicial decision or regulatory
determination), which amendment or change is effective or which interpretation,
application or pronouncement is announced on or after June , 1998, there
is more than an insubstantial risk that (i) the Trust would be subject to United
States federal income tax with respect to income accrued or received on the
Debentures, (ii) interest payable to the Trust on the Debentures would not be
deductible in whole or in part by the Company for United States federal income
tax purposes or (iii) the Trust would be subject to more than a de minimis
amount of other taxes, duties or other governmental charges.
"Investment Company Event" means that the Regular Trustees shall have
received an opinion of nationally recognized independent counsel experienced in
practice under the Investment Company Act of 1940, as amended (the "1940 Act"),
to the effect that, as a result of the occurrence of a change in law or
regulation or a written change in interpretation or application of law or
regulation by any legislative body, court, governmental agency or
A-6
<PAGE> 25
regulatory authority, there is more than an insubstantial risk that the Trust is
or will be considered an investment company which is required to be registered
under the 1940 Act, which change becomes effective on or after the date of
original issuance of this Debenture.
Any redemption pursuant to the occurrence of a Special Event will be made
upon not less than 30 days nor more than 60 days notice, at the Optional
Redemption Price. If the Debentures are only partially redeemed by the Company
pursuant to an Optional Redemption, the Debentures will be redeemed pro rata or
by lot or by any other method utilized by the Trustee; provided that if, at the
time of redemption, the Debentures are registered as a Global Debenture, the
Depositary shall determine the principal amount of such Debentures held by each
Debenture holder to be redeemed in accordance with its procedures.
In the event of redemption of this Debenture in part only, a new Debenture
or Debentures of this series for the unredeemed portion hereof will be issued in
the name of the Holder hereof upon the cancellation hereof.
In case an Event of Default, as defined in the Indenture, shall have
occurred and be continuing, the principal of all of the Debentures may be
declared, and upon such declaration shall become, due and payable, in the
manner, with the effect and subject to the conditions provided in the Indenture.
The Indenture contains provisions permitting the Company and the Trustee,
with the consent of the Holders of not less than a majority in aggregate
principal amount of the Debentures of each series affected at the time
outstanding, as defined in the Indenture, to execute supplemental indentures for
the purpose of adding any provisions to or changing in any manner or eliminating
any of the provisions of the Indenture or of any supplemental indenture or of
modifying in any manner the rights of the Holders of the Debentures; provided,
however, that no such supplemental indenture shall (i) reduce the principal
amount thereof, or reduce the rate or extend the time of payment of interest
thereon, or reduce any premium payable upon the redemption thereof, without the
consent of the Holder of each Debenture so affected, or (ii) reduce the
aforesaid percentage of Debentures, the Holders of which are required to consent
to any such supplemental indenture, without the consent of the Holders of each
Debenture then outstanding and affected thereby. The Indenture also contains
provisions permitting the Holders of a majority in aggregate principal amount of
the Securities of any series at the time outstanding affected thereby, on behalf
of all of the Holders of the Debentures of such series, to waive Default or
Event of Default with respect to such series, and its consequences, except a
Default or Event of Default in the payment of the principal of or premium, if
any, or interest on any of the Securities of such series. Any such consent or
waiver by the registered Holder of this Debenture (unless revoked as provided in
the Indenture) shall be conclusive and binding upon such Holder and upon all
future Holders and owners of this Debenture and of any Debenture issued in
exchange hereof or in place hereof
A-7
<PAGE> 26
(whether by registration of transfer or otherwise), irrespective of whether or
not any notation of such consent or waiver is made upon this Debenture.
No reference herein to the Indenture and no provision of this Debenture 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 Debenture at the time and place and at the rate and in the
money herein prescribed.
So long as the Company is not default in the payment of interest on the
Debentures, the Company shall have the right at any time during the term of the
Debentures from time to time to extend the interest payment period of such
Debentures for up to 20 consecutive quarters (an "Extended Interest Payment
Period"), at the end of which period the Company shall pay all interest then
accrued and unpaid (together with the interest thereon at the rate specified for
the Debentures to the extent that payment of such interest is enforceable under
applicable law). In the event that the Company exercises this right, then (a)
the Company shall not declare or pay dividends on, make distributions with
respect to, or redeem, purchase or acquire, or make a liquidation payment with
respect to, any of its capital stock or make any guarantee payments with respect
to the foregoing (other than (i) repurchases, redemptions or other acquisitions
of shares of capital stock of the Company in connection with any employment
contract, benefit plan or other similar arrangement with or for the benefit of
employees, officers, directors or consultants, (ii) as a result of an exchange
or conversion of any class or series of the Company's capital stock for any
other class or series of the Company's capital stock, (iii) the purchase of
fractional interests in shares of the Company's capital stock pursuant to the
conversion or exchange provisions of such capital stock or the security being
converted or exchanged or (iv) distributions of rights under any shareholders'
rights plan adopted by the Company), and (b) the Company shall not make any
payment of interest on principal of (or premium, if any, on) or repay,
repurchase or redeem any debt securities (including guarantees) issued by the
Company that rank pari passu with or junior to such Debentures. The foregoing,
however, will not apply to any stock dividends paid by the Company where the
dividend stock is the same stock as that on which the dividend is being paid.
Prior to the termination of any such Extended Interest Payment Period, the
Company may further extend the interest payment period; provided, that such
Extended Interest Payment Period, together with all such previous and further
extensions thereof, may not exceed 20 consecutive quarters or extend beyond the
maturity date of the Debenture. At the termination of any such Extended Interest
Payment Period and upon the payment of all accrued and unpaid interest and any
additional amount then due, the Company may commence a new Extended Interest
Payment Period, subject to the above requirements.
As provided in the Indenture and subject to certain limitations therein
set forth, this Debenture is transferable by the registered Holder hereof on the
Security Register of the Company, upon surrender of this Debenture for
registration of transfer at the Corporate Trust Office of the Trustee in the
City of Wilmington and State of Delaware accompanied by a
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<PAGE> 27
written instrument or instruments of transfer in form satisfactory to the
Company or the Trustee duly executed by the registered Holder hereof or his
attorney duly authorized in writing, and thereupon one or more new Debentures of
authorized denominations and for the same aggregate principal amount and series
will be issued to the designated transferee or transferees. No service charge
will be made for any such transfer, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge payable in relation
thereto.
Prior to due presentment for registration of transfer of this Debenture,
the Company, the Trustee, any paying agent and the Security Registrar may deem
and treat the registered holder hereof as the absolute owner hereof (whether or
not this Debenture shall be overdue and notwithstanding any notice of ownership
or writing hereon made by anyone other than the Security Registrar) for the
purpose of receiving payment of or on account of the principal hereof and
premium, if any, and interest due hereon and for all other purposes, and neither
the Company nor the Trustee nor any paying agent nor any Security Registrar
shall be affected by any notice to the contrary.
No recourse shall be had for the payment of the principal of or the
interest on this Debenture, or for any claim based hereon, or otherwise in
respect hereof, or based on or in respect of the Indenture, against any
incorporator, stockholder, officer or director, past, present or future, as
such, of the Company or of any predecessor or successor corporation, whether by
virtue of any constitution, statute or rule of law, or by the enforcement of any
assessment or penalty or otherwise, all such liability being, by the acceptance
hereof and as part of the consideration for the issuance hereof, expressly
waived and released.
The Debentures of this series are issuable only in registered form without
coupons in denominations of $25 and any integral multiple thereof. This Global
Debenture is exchangeable for Debentures in definitive form only under certain
limited circumstances set forth in the Indenture. Debentures of this series so
issued are issuable only in registered form without coupons in denominations of
$25 and any integral multiple thereof. As provided in the Indenture and subject
to certain limitations therein set forth, Debentures of this series so issued
are exchangeable for a like aggregate principal amount of Debentures of this
series of a different authorized denomination, as requested by the Holder
surrendering the same.
All terms used in this Debenture that are defined in the Indenture shall
have the meanings assigned to them in the Indenture.
A-9
<PAGE> 1
EXHIBIT 4.06
DECLARATION OF TRUST
This DECLARATION OF TRUST, dated as of June 3, 1998 (this
"Declaration of Trust") between HARTFORD LIFE, INC., a Delaware corporation (the
"Sponsor"), and Wilmington Trust Company, a Delaware banking corporation, as
Delaware Trustee (the "Delaware Trustee"), and Lynda Godkin, as trustee (the
"Administrative Trustee", and, together with the Delaware Trustee, the
"Trustees"). The Sponsor and the Trustees hereby agree as follows:
1. The trust created hereby (the "Trust") shall be known as
"Hartford Life Capital I" in which name the Trustees, or the Sponsor to the
extent provided herein, may engage in the transactions contemplated hereby, make
and execute contracts, and sue and be sued.
2. The Sponsor hereby assigns, transfers, conveys and sets over to
the Trustees the sum of $10. The Trustees hereby acknowledges receipt of such
amount in trust from the Sponsor, which amount shall constitute the initial
trust estate. The Trustees hereby declare that they will hold the trust estate
in trust for the Sponsor. It is the intention of the parties hereto that the
Trust created hereby constitutes a business trust under Chapter 38 of Title 12
of the Delaware Code, 12 Del. C. Section 3801 et seq. (the "Business Trust
Act"), and that this document constitutes the governing instrument of the Trust.
The Trustees are hereby authorized and directed to execute and file a
certificate of trust with the Secretary of State of the State of Delaware in
accordance with the provisions of the Business Trust Act.
3. The Sponsor and the Trustees will enter into an Amended and
Restated Declaration of Trust, satisfactory to each such party and substantially
in the form included as an exhibit to the 1933 Act Registration Statement (as
defined below), to provide for the contemplated operation of the Trust created
hereby and the issuance of the Preferred Securities and Common Securities
referred to therein. Prior to the execution and delivery of such Amended and
Restated Declaration of Trust, (i) the Delaware Trustee shall not have any duty
or obligation hereunder or with respect to the trust estate, except as otherwise
required by applicable law, and (ii) the Administrative Trustee and the Sponsor
shall take any action as may be necessary to obtain prior to such execution and
delivery any licenses, consents or approvals required by applicable law or
otherwise. Notwithstanding the foregoing, the Trustees may take all actions
deemed proper as are necessary to effect the transactions contemplated herein.
4. The Sponsor hereby agrees to (i) reimburse the Delaware Trustee
for all reasonable expenses (including reasonable fees and expenses of counsel
and other experts), (ii)
<PAGE> 2
indemnify, defend and hold harmless the Delaware Trustee and any of the
officers, directors, employees and agent of the Delaware Trustee (collectively,
including the Delaware Trustee in its individual capacity, the "Indemnified
Persons") from and against any and all losses, damages, liabilities, claims,
actions, suits, costs, expenses, disbursements (including the reasonable fees
and expenses of counsel), taxes and penalties of any kind and nature whatsoever
(collectively, "Expenses"), to the extent that such Expenses arise out of or are
imposed upon or asserted at any time against such Indemnified Persons with
respect to the performance of this Declaration, the creation, operation,
administration or termination of the Trust, or the transactions contemplated
hereby; provided, however, that the Sponsor shall not be required to indemnify
any Indemnified Person for Expenses to the extent such Expenses result from the
willful misconduct, bad faith or negligence of such Indemnified person, and
(iii) advance to such Indemnified Person Expenses (including reasonable legal
fees) incurred by such Indemnified Person in defending any claim, demand,
action, suit or proceeding prior to the final disposition of such claim, demand,
action, suit or proceeding upon receipt by the Sponsor of an undertaking by or
on behalf of the Indemnified Person to repay such amount if it shall be
determined that the Indemnified Person is not entitled to be indemnified
therefor under this Section 4.
5. The Sponsor, as the sponsor of the Trust, is hereby authorized,
in its discretion (i) to file with the Securities and Exchange Commission (the
"Commission") and execute, in each case on behalf of the Trust, (a) a
registration statement on Form S-3 (the "1933 Act Registration Statement"),
including any pre-effective or post-effective amendments thereto (including the
prospectus, prospectus supplements and the exhibits contained therein), and any
registration statement filed pursuant to Rule 462 under the Securities Act of
1933, as amended (the "1933 Act"), relating to the registration under the 1933
Act of the Preferred Securities of the Trust and certain other securities and
(b) a Registration Statement on Form 8-A (the "1934 Act Registration
Statement"), including any pre-effective and post-effective amendments thereto,
relating to the registration of the Preferred Securities of the Trust under
Section 12(b) or 12(g) of the Securities Exchange Act of 1934, as amended; (ii)
to file with the New York Stock Exchange or any other national stock exchange or
The Nasdaq National Market (each, an "Exchange") and execute on behalf of the
Trust one or more listing applications and all other applications, statements,
certificates, agreements and other instruments as shall be necessary or
desirable to cause the Preferred Securities to be listed on any of the
Exchanges; (iii) to file and execute on behalf of the Trust such applications,
reports, surety bonds, irrevocable consents, appointments of attorney for
service of process and other papers and documents as shall be necessary or
desirable to register the Preferred Securities under the securities or blue sky
laws of such jurisdictions as the Sponsor on behalf of the Trust, may deem
necessary or desirable; and (iv) to execute, deliver and perform on behalf of
the Trust that certain Underwriting Agreement relating to the Preferred
Securities, among the Trust, the Sponsor and the several Underwriters named
therein, substantially in the form
2
<PAGE> 3
included as an exhibit to the 1933 Act Registration Statement. In the event that
any filing referred to in clauses (i), (ii) and (iii) above is required by the
rules and regulations of the Commission, an Exchange or state securities or blue
sky laws, to be executed on behalf of the Trust by any of the Trustees, each of
the Trustees, in its capacity as a Trustee of the Trust, is hereby authorized
and directed to join in any such filing and to execute on behalf of the Trust
any and all of the foregoing. In connection with the filings referred to above,
the Sponsor hereby constitutes and appoints Gregory A. Boyko and Lynda Godkin
and each of them, as its true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for the Sponsor or in the Sponsor's
name, place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to the 1933 Act Registration Statement
(and any registration statement filed pursuant to Rule 462 promulgated pursuant
to the 1933 Act) and the 1934 Act Registration Statement and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Commission, any Exchange and administrators of state securities or blue sky
laws, granting unto said attorney-in-fact and agents full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intents and purposes as the Sponsor
might or could do in person, thereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their respective substitute or
substitutes, shall do or cause to be done by virtue hereof.
6. The Delaware Trustee shall take such action or refrain from
taking such action under this Declaration as it may be directed in writing by
the Sponsor from time to time; provided, however, that the Delaware Trustee
shall not be required to take or refrain from taking any such action if it shall
have determined, or shall have been advised by counsel, that such performance is
likely to involve the Delaware Trustee in personal liability or is contrary to
the terms of this Declaration or of any document contemplated hereby to which
the Trust or the Delaware Trustee is a party or is otherwise contrary to law. If
at any time the Delaware Trustee determines that it requires or desires guidance
regarding the application of any provision of this Declaration or any other
document, then the Delaware Trustee may deliver a notice to the Sponsor
requesting written instructions as to the course of action desired by the
Sponsor, and such instructions shall constitute full and complete authorization
and protection for actions taken by the Delaware Trustee in reliance thereon. If
the Delaware Trustee does not receive such instructions it may refrain from
taking any action with respect to the matters described in such notice to the
Sponsor.
7. This Declaration of Trust may be executed in one or more
counterparts.
8. The number of Trustees initially shall be two (2) and thereafter
the number of Trustees shall be such number as shall be fixed from time to time
by a written instrument signed by the Sponsor which may increase or decrease the
number of Trustees;
3
<PAGE> 4
provided, however, that to the extent required by the Business Trust Act, one
Trustee shall either be a natural person who is a resident of the State of
Delaware or, if not a natural person, an entity which has its principal place of
business in the State of Delaware and otherwise meets the requirements of
applicable Delaware law. Subject to the foregoing, the Sponsor is entitled to
appoint or remove without cause any Trustee at any time. A Trustee may resign
upon thirty (30) days' prior notice to the Sponsor.
9. This Declaration of Trust shall be governed by, and construed in
accordance with, the internal laws of the State of Delaware.
IN WITNESS WHEREOF, the parties hereto have caused this Declaration
of Trust to be duly executed as of the day and year first above written.
HARTFORD LIFE, INC.,
as Sponsor
By: /s/ Lynda Godkin
-------------------------------------
Name: Lynda Godkin
Title: Vice President, General Counsel
WILMINGTON TRUST COMPANY,
as Trustee
By: /s/ Donald G. Mackelcan
-------------------------------------
Name: Donald G. Mackelcan
Title: Assistant Vice President
/s/ Lynda Godkin
------------------------------------------
Name: Lynda Godkin, as Trustee
4
<PAGE> 1
EXHIBIT 4.07
AMENDED AND RESTATED DECLARATION OF TRUST
HARTFORD LIFE CAPITAL I
DATED AS OF JUNE 29, 1998
<PAGE> 2
TABLE OF CONTENTS
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ARTICLE I INTERPRETATION AND DEFINITIONS
SECTION 1.1 Definitions............................................... 1
ARTICLE II TRUST INDENTURE ACT
SECTION 2.1 Trust Indenture Act: Application......................... 7
SECTION 2.2 Lists of Holders of Securities............................ 7
SECTION 2.3 Reports by the Institutional Trustee...................... 8
SECTION 2.4 Periodic Reports to Institutional Trustee................. 8
SECTION 2.5 Evidence of Compliance with Conditions Precedent.......... 8
SECTION 2.6 Events of Default: Waiver................................. 8
SECTION 2.7 Event of Default: Notice................................. 10
ARTICLE III ORGANIZATION
SECTION 3.1 Name. .................................................... 11
SECTION 3.2 Office.................................................... 11
SECTION 3.3 Declaration............................................... 11
SECTION 3.4 Authority................................................. 11
SECTION 3.5 Title to Property of the Trust............................ 12
SECTION 3.6 Powers and Duties of the Regular Trustees................. 12
SECTION 3.7 Prohibition of Actions by the Trust and the Trustees...... 15
SECTION 3.8 Powers and Duties of the Institutional Trustee............ 15
SECTION 3.9 Certain Duties and Responsibilities of the
Institutional Trustee..................................... 17
SECTION 3.10 Certain Rights of Institutional Trustee.................. 19
SECTION 3.11 Delaware Trustee......................................... 21
SECTION 3.12 Execution of Documents................................... 21
SECTION 3.13 Not Responsible for Recitals or Issuance of Securities... 21
SECTION 3.14 Duration of Trust........................................ 21
SECTION 3.15 Mergers.................................................. 21
ARTICLE IV SPONSOR
SECTION 4.1 Sponsor's Purchase of Common Securities................... 23
SECTION 4.2 Responsibilities of the Sponsor........................... 23
SECTION 4.3 Guarantee of Payment of Trust Obligations................. 24
ARTICLE V TRUSTEES
SECTION 5.1 Number of Trustees........................................ 25
SECTION 5.2 Delaware Trustee.......................................... 25
SECTION 5.3 Institutional Trustee: Eligibility........................ 25
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SECTION 5.4 Qualifications of Regular Trustees and Delaware
Trustee Generally......................................... 26
SECTION 5.5 Initial Trustees: Additional Powers of Regular
Trustees.................................................. 26
SECTION 5.6 Appointment, Removal and Resignation of Trustees.......... 27
SECTION 5.7 Vacancies among Trustees.................................. 29
SECTION 5.8 Effect of Vacancies....................................... 29
SECTION 5.9 Meetings.................................................. 29
SECTION 5.10 Delegation of Power...................................... 30
SECTION 5.11 Merger, Conversion, Consolidation or Succession to
Business................................................. 30
ARTICLE VI DISTRIBUTIONS
SECTION 6.1 Distributions............................................. 30
ARTICLE VII ISSUANCE OF SECURITIES
SECTION 7.1 General Provisions Regarding Securities................... 31
SECTION 7.2 Registrar and Paying Agent................................ 32
SECTION 7.3 Paying Agent to Hold Money in Trust....................... 32
ARTICLE VIII DISSOLUTION OF TRUST
SECTION 8.1 Dissolution of Trust...................................... 33
ARTICLE IX TRANSFER OF INTERESTS
SECTION 9.1 Transfer of Securities.................................... 34
SECTION 9.2 Transfer of Certificates.................................. 34
SECTION 9.3 Deemed Security Holders................................... 34
SECTION 9.4 Book Entry Interests...................................... 35
SECTION 9.5 Notices to Clearing Agency................................ 35
SECTION 9.6 Appointment of Successor Clearing Agency.................. 36
SECTION 9.7 Definitive Preferred Security Certificates................ 36
SECTION 9.8 Mutilated, Destroyed, Lost or Stolen Certificates......... 36
ARTICLE X LIMITATION OF LIABILITY OF HOLDERS OF SECURITIES,
TRUSTEES OR OTHERS
SECTION 10.1 Liability................................................ 37
SECTION 10.2 Exculpation.............................................. 37
SECTION 10.3 Fiduciary Duty........................................... 38
SECTION 10.4 Indemnification.......................................... 39
SECTION 10.5 Outside Businesses....................................... 42
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ARTICLE XI ACCOUNTING
SECTION 11.1 Fiscal Year.............................................. 42
SECTION 11.2 Certain Accounting Matters............................... 42
SECTION 11.3 Banking.................................................. 43
SECTION 11.4 Withholding.............................................. 43
ARTICLE XII AMENDMENTS AND MEETINGS
SECTION 12.1 Amendments............................................... 44
SECTION 12.2 Meetings of the Holders of Securities: Action by
Written Consent.......................................... 46
ARTICLE XIII REPRESENTATIONS OF INSTITUTIONAL TRUSTEE AND
DELAWARE TRUSTEE
SECTION 13.1 Representations and Warranties of Institutional
Trustee................................................... 47
SECTION 13.2 Representations and Warranties of Delaware Trustee....... 48
ARTICLE XIV MISCELLANEOUS
SECTION 14.1 Notices.................................................. 49
SECTION 14.2 Governing Law............................................ 50
SECTION 14.3 Intention of the Parties................................. 50
SECTION 14.4 Headings................................................. 50
SECTION 14.5 Successors and Assigns................................... 50
SECTION 14.6 Partial Enforceability................................... 50
SECTION 14.7 Counterparts............................................. 51
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AMENDED AND RESTATED DECLARATION OF TRUST ("Declaration") dated and
effective as of June 29, 1998, by the Trustees (as defined herein), the Sponsor
(as defined herein) and by the holders, from time to time, of undivided
beneficial interests in the assets of the Trust to be issued pursuant to this
Declaration;
WHEREAS, the Trustees and the Sponsor established Hartford Life Capital I
(the "Trust"), a trust under the Business Trust Act (as defined herein),
pursuant to a Declaration of Trust dated as of June 3, 1998, (the"Original
Declaration") and a Certificate of Trust filed with the Secretary of State of
the State of Delaware on June 4, 1998, for the sole purpose of issuing and
selling certain securities representing undivided beneficial interests in the
assets of the Trust and investing the proceeds thereof in certain Debentures of
the Debenture Issuer;
WHEREAS, all of the Trustees and the Sponsor, by this Declaration, amend
and restate each and every term and provision of the Original Declaration.
NOW, THEREFORE, it being the intention of the parties hereto to continue
the Trust as a business trust under the Business Trust Act and that this
Declaration constitute the governing instrument of such business trust, the
Trustees declare that all assets contributed to the Trust will be held in trust
for the benefit of the holders, from time to time, of the securities
representing undivided beneficial interests in the assets of the Trust issued
hereunder, subject to the provisions of this Declaration.
ARTICLE I
INTERPRETATION AND DEFINITIONS
SECTION 1.1 DEFINITIONS.
Unless the context otherwise requires:
(a) Capitalized terms used in this Declaration but not defined in the
preamble above have the respective meanings assigned to them in this Section
1.1;
(b) a term defined anywhere in this Declaration has the same meaning
throughout;
(c) all references to "the Declaration" or "this Declaration" are to this
Declaration as modified, supplemented or amended from time to time;
(d) all references in this Declaration to Articles, Sections, Annexes and
Exhibits are to Articles and Sections of, and Annexes and Exhibits to, this
Declaration unless otherwise specified;
(e) a term defined in the Trust Indenture Act has the same meaning when
used in this Declaration unless otherwise defined in this Declaration or unless
the context otherwise requires; and
<PAGE> 6
(f) a reference to the singular includes the plural and vice versa.
"Authorized Officer" of a Person means any Person that is authorized to
bind such Person.
"Affiliate" has the same meaning as given to that term in Rule 405 under
the Securities Act, or any successor provision thereto and as may be amended
from time to time.
"Book Entry Interest" means a beneficial interest in a Global Certificate,
ownership and transfers of which shall be maintained and made through book
entries by a Clearing Agency as described in Section 9.4.
"Business Day" means any day other than a Saturday, Sunday or a day on
which banking institutions in the City of New York, New York or Wilmington,
Delaware are permitted or required by any applicable law to close.
"Business Trust Act" means Chapter 38 of Title 12 of the Delaware Code, 12
Del. Code Sections 3801 et seq., as it may be amended from time to time, or any
successor legislation.
"Certificate" means a Common Security Certificate or a Preferred
Security Certificate.
"Clearing Agency" means an organization registered as a "Clearing Agency"
pursuant to Section 17A of the Exchange Act that is acting as depositary for the
Preferred Securities and in whose name or in the name of a nominee of that
organization shall be registered a Global Certificate and which shall undertake
to effect book entry transfers and pledges of the Preferred Securities.
"Clearing Agency Participant" means a broker, dealer, bank, other
financial institution or other Person for whom from time to time the Clearing
Agency effects book entry transfers and pledges of securities deposited with the
Clearing Agency.
"Closing Date" means the Time of Delivery as defined in the Underwriting
Agreement, which date is also the date of execution and delivery of this
Declaration.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, or any successor legislation.
"Commission" means the Securities and Exchange Commission.
"Common Security" has the meaning specified in Section 7.1.
"Common Security Certificate" means a definitive certificate in fully
registered form representing a Common Security substantially in the form of
Exhibit A-2.
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"Company Indemnified Person" means (a) any Regular Trustee; (b) any
Affiliate of any Regular Trustee; (c) any officers, directors, shareholders,
members, partners, employees, representatives or agents of any Regular Trustee;
or (d) any officer, employee or agent of the Trust or its Affiliates.
"Corporate Trust Office" means the office of the Institutional Trustee at
which the corporate trust business of the Institutional Trustee shall, at any
particular time, be principally administered, which office at the date of
execution of this Declaration is located at 1100 North Market Street Wilmington,
Delaware 19890-001, Attn: Corporate Trust Administration.
"Covered Person" means: (a) any officer, director, shareholder,
partner, member, representative, employee or agent of (i) the Trust or (ii)
the Trust's Affiliates; and (b) any Holder of Securities.
"Debenture Issuer" means the Sponsor, in its capacity as issuer of the
Debentures under the Indenture.
"Debenture Trustee" means Wilmington Trust Company as trustee under the
Indenture until a successor is appointed thereunder, and thereafter means such
successor trustee.
"Debentures" means the 7.20% Junior Subordinated Deferrable Interest
Debentures, Series A, due 2038, to be issued by the Debenture Issuer pursuant to
the Indenture to be held by the Institutional Trustee.
"Definitive Preferred Security Certificates" has the meaning set forth
in Section 9.4.
"Delaware Trustee" has the meaning set forth in Section 5.2.
"Distribution" has the meaning set forth in Section 6.1.
"DTC" means The Depository Trust Company, the initial Clearing Agency.
"Event of Default" in respect of the Securities means an Event of Default
(as defined in the Indenture) has occurred and is continuing in respect of the
Debentures.
"Exchange Act" means the Securities Exchange Act of 1934, as amended from
time to time, or any successor legislation.
"Fiduciary Indemnified Person" has the meaning set forth in Section
10.4(b).
"Global Certificate" has the meaning set forth in Section 9.4.
"Hartford Life" means Hartford Life, Inc., a Delaware corporation.
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<PAGE> 8
"Holder" means a Person in whose name a Certificate representing a
Security is registered, such Person being a beneficial owner within the meaning
of the Business Trust Act.
"Indemnified Person" means a Company Indemnified Person or a Fiduciary
Indemnified Person.
"Indenture" means the Indenture dated as of June , 1998, between the
Debenture Issuer and the Debenture Trustee, as amended or supplemented from time
to time, pursuant to which the Debentures are to be issued.
"Institutional Trustee" means the Trustee meeting the eligibility
requirements set forth in Section 5.3.
"Institutional Trustee Account" has the meaning set forth in Section
3.8(c).
"Investment Company" means an investment company as defined in the
Investment Company Act.
"Investment Company Act" means the Investment Company Act of 1940, as
amended from time to time, or any successor legislation.
"Investment Company Event" has the meaning set forth in Annex I hereto.
"Legal Action" has the meaning set forth in Section 3.6(g).
"Majority in liquidation amount of the Securities" means, except to the
extent otherwise provided in the terms of the Preferred Securities or by the
Trust Indenture Act, Holder(s) of outstanding Securities voting together as a
single class or, as the context may require, Holders of outstanding Preferred
Securities or Holders of outstanding Common Securities voting separately as a
class, who are the record owners of an aggregate liquidation amount representing
more than 50% of the aggregate liquidation amount (including the stated amount
that would be paid on redemption, liquidation or otherwise, plus accrued and
unpaid Distributions to the date upon which the voting percentages are
determined) of all outstanding Securities of the relevant class.
"Officers' Certificate" means, with respect to any Person, a certificate
signed by two Authorized Officers of such Person. Any Officers' Certificate
delivered with respect to compliance with a condition or covenant provided for
in this Declaration shall include:
(A) a statement that each officer signing the Officers' Certificate has
read the covenant or condition 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;
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(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.
"Paying Agent" has the meaning specified in Section 3.8(h).
"Payment Amount" has the meaning specified in Section 6.1.
"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.
"Preferred Securities Guarantee" means the guarantee agreement dated as of
June 29, 1998, between the Sponsor and the trustee named therein relating to the
Preferred Securities.
"Preferred Security" has the meaning specified in Section 7.1.
"Preferred Security Beneficial Owner" means, with respect to a Book Entry
Interest, a Person who is the beneficial owner of such Book Entry Interest, as
reflected on the books of the Clearing Agency, or on the books of a Person
maintaining an account with such Clearing Agency (directly as a Clearing Agency
Participant or as an indirect participant, in each case in accordance with the
rules of such Clearing Agency).
"Preferred Security Certificate" means a certificate representing a
Preferred Security substantially in the form of Exhibit A-1.
"Quorum" means a majority of the Regular Trustees or, if there are only
two Regular Trustees, both of them.
"Regular Trustee" has the meaning specified in Section 5.1.
"Related Party" means, with respect to the Sponsor, any direct or indirect
wholly owned subsidiary of the Sponsor or any other Person that owns, directly
or indirectly, 100% of the outstanding voting securities of the Sponsor.
"Responsible Officer" means, with respect to the Institutional Trustee,
any officer within the Corporate Trust Office of the Institutional Trustee,
including any vice-president, any assistant vice-president, any assistant
secretary, the treasurer, any assistant treasurer or other officer of the
Corporate Trust Office of the Institutional Trustee customarily performing
functions similar to those performed by any of the above designated officers and
also means, with respect to a
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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.
"Rule 3a-5" means Rule 3a-5 under the Investment Company Act.
"Securities" means the Common Securities and the Preferred Securities.
"Securities Act" means the Securities Act of 1933, as amended from time to
time, or any successor legislation.
"Special Event" has the meaning set forth in Annex I hereto.
"Sponsor" means Hartford Life, Inc., or any successor entity in a merger,
consolidation or amalgamation, in its capacity as sponsor of the Trust.
"Successor Delaware Trustee" has the meaning set forth in Section 5.6
"Successor Entity" has the meaning set forth in Section 3.15(b).
"Successor Institutional Trustee" has the meaning set forth in Section
5.6.
"Successor Securities" has the meaning set forth in Section 3.15(b).
"Super Majority" has the meaning set forth in Section 2.6(a)(ii).
"Tax Event" has the meaning set forth in Annex I hereto.
"10% in liquidation amount of the Securities" means, except as provided in
the terms of the Preferred Securities or by the Trust Indenture Act, Holder(s)
of outstanding Securities voting together as a single class or, as the context
may require, Holders of outstanding Preferred Securities or Holders of
outstanding Common Securities voting separately as a class, who are the record
owners of an aggregate liquidation amount representing 10% or more of the
aggregate liquidation amount (including the stated amount that would be paid on
redemption, liquidation or otherwise, plus accrued and unpaid Distributions to
the date upon which the voting percentages are determined) of all outstanding
Securities of the relevant class.
"Treasury Regulations" means the income tax regulations, including
temporary and proposed regulations, promulgated under the Code by the United
States Treasury, as such regulations may be amended from time to time (including
corresponding provisions of succeeding regulations).
"Trustee" or "Trustees" means each Person who has signed this Declaration
as a trustee, so long as such Person shall continue in office in accordance with
the terms hereof, and all other Persons who may from time to time be duly
appointed, qualified and serving as Trustees in
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<PAGE> 11
accordance with the provisions hereof, and references herein to a Trustee or the
Trustees shall refer to such Person or Persons solely in their capacity as
trustees hereunder.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as amended
from time to time, or any successor legislation.
"Underwriting Agreement" means the Underwriting Agreement for the offering
and sale of Preferred Securities substantially in the form of Exhibit B.
ARTICLE II
TRUST INDENTURE ACT
SECTION 2.1 TRUST INDENTURE ACT: APPLICATION.
(a) This Declaration is subject to the provisions of the Trust Indenture
Act that are required to be part of this Declaration and shall, to the extent
applicable, be governed by such provisions.
(b) The Institutional Trustee shall be the only Trustee that is a Trustee
for the purposes of the Trust Indenture Act.
(c) If and to the extent that any provision of this Declaration limits,
qualifies or conflicts with the duties imposed by Sections 310 to 317,
inclusive, of the Trust Indenture Act, such imposed duties shall control.
(d) The application of the Trust Indenture Act to this Declaration shall
not affect the nature of the Securities as equity securities representing
undivided beneficial interests in the assets of the Trust.
SECTION 2.2 LISTS OF HOLDERS OF SECURITIES.
(a) Each of the Sponsor and the Regular Trustees on behalf of the Trust
shall provide the Institutional Trustee (i) within 14 days after each record
date for payment of Distributions, a list, in such form as the Institutional
Trustee may reasonably require, of the names and addresses of the Holders of the
Securities ("List of Holders") as of such record date, and (ii) at any other
time, within 30 days of receipt by the Trust of a written request therefor, a
List of Holders as of a date no more than 14 days before such List of Holders is
given to the Institutional Trustee; provided, that neither the Sponsor nor the
Regular Trustees on behalf of the Trust shall be obligated to provide such List
of Holders at any time the List of Holders does not differ from the most recent
List of Holders given to the Institutional Trustee by the Sponsor and the
Regular Trustees on behalf of the Trust. The Institutional Trustee shall
preserve, in as current a form as is reasonably practicable, all information
contained in Lists of Holders given to it or which it receives in the capacity
as Paying Agent (if acting in such capacity) provided that the Institutional
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trustee may destroy any List of Holders previously given to it on receipt of a
new List of Holders. Unless supplemented, amended or restated pursuant to this
Section 2.2(a), the Institutional Trustee shall be entitled to rely exclusively
on the last List of Holders provided to it by the Sponsor or any Regular
Trustee. Unless supplemented, amended or restated pursuant to this Section
2.2(a), the Institutional Trustee shall be entitled to rely exclusively on the
last list of Holders provided to it by the Sponsor or any Regular Trustee.
(b) The Institutional Trustee shall comply with its obligations under
Sections 311(a), 311(b) and 312(b) of the Trust Indenture Act.
SECTION 2.3 REPORTS BY THE INSTITUTIONAL TRUSTEE.
Within 60 days after April 15 of each year, the Institutional Trustee
shall provide to the Holders of the Preferred Securities such reports as are
required by Section 313 of the Trust Indenture Act, if any, in the form and in
the manner provided by that. The Institutional Trustee shall also comply with
the requirements of Sections 313(d) of the Trust Indenture Act.
SECTION 2.4 PERIODIC REPORTS TO INSTITUTIONAL TRUSTEE.
Each of the Sponsor and the Regular Trustees on behalf of the Trust shall
provide to the Institutional Trustee such documents, reports and information as
required by Sections 314 (if any) and the compliance certificate required by
Sections 314 of the Trust Indenture Act in the form, in the manner and at the
times required by Sections 314 of the Trust Indenture Act.
SECTION 2.5 EVIDENCE OF COMPLIANCE WITH CONDITIONS PRECEDENT.
Each of the Sponsor and the Regular Trustees on behalf of the Trust shall
provide to the Institutional Trustee such evidence of compliance with any
conditions precedent, if any, provided for in this Declaration that relate to
any of the matters set forth in Sections 314(c) of the Trust Indenture Act. Any
certificate or opinion required to be given by an officer pursuant to Sections
314(c)(1) may be given in the form of an Officers' Certificate.
SECTION 2.6 EVENTS OF DEFAULT: WAIVER.
(a) The Holders of a Majority in liquidation amount of Preferred
Securities may, by vote, on behalf of the Holders of all of the Preferred
Securities, waive any past Event of Default in respect of the Preferred
Securities and its consequences, provided that, if the underlying Event of
Default under the Indenture:
(i) is not waivable under the Indenture, the Event of Default under
the Declaration shall also not be waivable; or
(ii) is waivable only with the consent of holders of more than a
majority in principal amount of the Debentures (a "Super Majority") affected
thereby, only the Holders of at
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<PAGE> 13
least the proportion in aggregate liquidation amount of the Preferred Securities
that the relevant Super Majority represents of the aggregate principal amount of
the Debentures outstanding may waive such Event of Default in respect of the
Preferred Securities under the Declaration.
The foregoing provisions of this Section 2.6(a) shall be in lieu of
Sections 316(a)(1)(B) of the Trust Indenture Act and such Sections 316(a)(l)(B)
of the Trust Indenture Act is hereby expressly excluded from this Declaration
and the Securities, as permitted by the Trust Indenture Act. Upon such waiver,
any such default shall cease to exist, and any Event of Default with respect to
the Preferred Securities arising therefrom shall be deemed to have been cured,
for every purpose of this Declaration, but no such waiver shall extend to any
subsequent or other default or an Event of Default with respect to the Preferred
Securities or impair any right consequent thereon. Any waiver by the Holders of
the Preferred Securities of an Event of Default with respect to the Preferred
Securities shall also be deemed to constitute a waiver by the Holders of the
Common Securities of any such Event of Default with respect to the Common
Securities for all purposes of this Declaration without any further act, vote,
or consent of the Holders of the Common Securities.
(b) The Holders of a Majority in liquidation amount of the Common
Securities may, by vote, on behalf of the Holders of all of the Common
Securities, waive any past Event of Default with respect to the Common
Securities and its consequences, provided that, if the underlying Event of
Default under the Indenture:
(i) is not waivable under the Indenture, except where the Holders of
the Common Securities are deemed to have waived such Event of Default under the
Declaration as provided in this Section 2.6(b), the Event of Default under the
Declaration shall also not be waivable; or
(ii) is waivable only with the consent of a Super Majority, except
where the Holders of the Common Securities are deemed to have waived such Event
of Default under the Declaration as provided in this Section 2.6(b), only the
Holders of at least the proportion in aggregate liquidation amount of the Common
Securities that the relevant Super Majority represents of the aggregate
principal amount of the Debentures outstanding may waive such Event of Default
in respect of the Common Securities under the Declaration; provided further,
each Holder of Common Securities will be deemed to have waived any such Event of
Default and all Events of Default with respect to the Common Securities and its
consequences until all Events of Default with respect to the Preferred
Securities have been cured, waived or otherwise eliminated, and until such
Events of Default with respect to the Preferred Securities have been cured,
waived or otherwise eliminated, the Institutional Trustee will be deemed to be
acting solely on behalf of the Holders of the Preferred Securities and only the
Holders of the Preferred Securities will have the right to direct the
Institutional Trustee in accordance with the terms of the Securities. The
foregoing provisions of this Section 2.6(b) shall be in lieu of Sections
316(a)(1)(A) and 316(a)(l)(B) of the Trust Indenture Act and such sections are
hereby expressly excluded from this Declaration and the Securities, as permitted
by the Trust Indenture Act. Subject to the foregoing provisions of this Section
2.6(b), upon the waiver of an Event of
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Default by the Holders of a Majority in liquidation amount of the Common
Securities, any such default shall cease to exist and any Event of Default with
respect to the Common Securities arising therefrom shall be deemed to have been
cured for every purpose of this Declaration, but no such waiver shall extend to
any subsequent or other default or Event of Default with respect to the Common
Securities or impair any right consequent thereon.
(c) A waiver of an Event of Default under the Indenture by the
Institutional Trustee at the direction of the Holders of the Preferred
Securities, constitutes a waiver of the corresponding Event of Default under
this Declaration. The foregoing provisions of this Section 2.6(c) shall be in
lieu of Sections 316(a)(1)(B) of the Trust Indenture Act and such Sections
316(a)(1)(B) of the Trust Indenture Act is hereby expressly excluded from this
Declaration and the Securities, as permitted by the Trust Indenture Act.
SECTION 2.7 EVENT OF DEFAULT: NOTICE.
(a) The Institutional Trustee shall, within 90 days after the occurrence
of an Event of Default, transmit by mail, first class postage prepaid, to the
Holders of the Securities, (i) notices of all defaults with respect to the
Securities actually known to a Responsible Officer of the Institutional Trustee,
unless such defaults have been cured before the giving of such notice (the term
"defaults" for the purposes of this Section 2.7(a) being hereby defined to be an
Event of Default as defined in the Indenture, not including any periods of grace
provided for therein and irrespective of the giving of any notice provided
therein) and (ii) any notice of default received from the Indenture Trustee with
respect to the Debentures, which notice from the Institutional Trustee to the
Holders shall state that an Event of Default under the Indenture also
constitutes an Event of Default with respect to the Securities; provided that,
except for a default in the payment of principal of (or premium, if any) or
interest on any of the Debentures or in the payment of any sinking fund
installment established for the Debentures, the Institutional Trustee shall be
protected in withholding such notice if and so long as a Responsible Officer of
the Institutional Trustee in good faith determines that the withholding of such
notice is in the interests of the Holders of the Securities.
(b) The Institutional Trustee shall not be deemed to have knowledge of any
default except:
(i) a default under Sections 5.01(a) and 5.01(b) of the Indenture;
or
(ii) any default as to which the Institutional Trustee shall have
received written notice or of which a Responsible Officer of the Institutional
Trustee charged with the administration of the Declaration shall have actual
knowledge.
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ARTICLE III
ORGANIZATION
SECTION 3.1 NAME.
The Trust is named "Hartford Life Capital 1," as such name may be
modified from time to time by the Regular Trustees following written notice to
the Holders of Securities. The Trust's activities may be conducted under the
name of the Trust or any other name deemed advisable by the Regular Trustees.
SECTION 3.2 OFFICE.
The address of the principal office of the Trust is c/o Hartford Life,
Inc., 200 Hopmeadow Street, Simsbury, Connecticut 06089. On ten Business Days
written notice to the Holders of Securities, the Regular Trustees may designate
another principal office.
SECTION 3.3 DECLARATION.
(a) The exclusive purposes and functions of the Trust are (i) to issue and
sell Securities and use the proceeds from such sale to acquire the Debentures,
(ii) to maintain the status of the Trust as a grantor trust for United States
federal income tax purposes, and (iii) except as otherwise limited herein, to
engage in only those other activities necessary, or incidental thereto. The
Trust shall not borrow money, issue debt or reinvest proceeds derived from
investments, pledge any of its assets, or otherwise undertake (or permit to be
undertaken) any activity that would cause the Trust not to be classified for
United States federal income tax purposes as a grantor trust.
(b) The Trust will be classified as a grantor trust for United States
federal income tax purposes under Subpart E of Subchapter J of the Code,
pursuant to which the Holders of the Preferred Securities and the Common
Securities will be the owners of the Trust for United States federal income tax
purposes, and such Holders will include directly in their gross income the
income, gain, deduction or loss of the Trust as if the Trust did not exist. By
the acceptance of this Trust, neither the Trustees, the Sponsor nor the owners
of the Preferred Securities or Common Securities will take any position for
United States federal income tax purposes which is contrary to the
classification of the Trust as a grantor trust.
SECTION 3.4 AUTHORITY.
Subject to the limitations provided in this Declaration and to the
specific duties of the Institutional Trustee, the Regular Trustees shall have
exclusive and complete authority to carry out the purposes of the Trust. An
action taken by the Regular Trustees in accordance with their powers shall
constitute the act of and serve to bind the Trust and an action taken by the
Institutional Trustee on behalf of the Trust in accordance with its powers shall
constitute the act of and serve to bind the Trust. In dealing with the Trustees
acting on behalf of the Trust, no
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person shall be required to inquire into the authority of the Trustees to bind
the Trust. Persons dealing with the Trust are entitled to rely conclusively on
the power and authority of the Trustees as set forth in this Declaration.
SECTION 3.5 TITLE TO PROPERTY OF THE TRUST.
Except as provided in Section 3.8 with respect to the Debentures and the
Institutional Trustee Account or as otherwise expressly provided in this
Declaration, legal title to all assets of the Trust shall be vested in the
Trust. The Holders shall not have legal title to any part of the assets of the
Trust, but shall have an undivided beneficial interest in the assets of the
Trust.
SECTION 3.6 POWERS AND DUTIES OF THE REGULAR TRUSTEES.
The Regular Trustees shall have the exclusive power, duty and authority to
cause the Trust to engage in the following activities:
(a) to issue and sell the Preferred Securities and the Common Securities
in accordance with this Declaration; provided, however, that the Trust may issue
no more than one series of Preferred Securities and no more than one series of
Common Securities, and, provided further, that there shall be no beneficial
interests in the Trust other than the Securities, and the issuance of Securities
shall be limited to a simultaneous issuance of both Preferred Securities and
Common Securities on the Closing Date;
(b) in connection with the issue and sale of the Preferred Securities, at
the direction of the Sponsor, to:
(i) assist in the preparation of a prospectus in preliminary and
final form prepared by the Sponsor in relation to the offering and sale of
Preferred Securities and to assist in the preparation of and filing with the
Commission on behalf of the Trust a registration statement on Form S-3 or on
another appropriate form (including, if appropriate, a registration statement
under Rule 462(b) of the Securities Act), including any pre-effective or
post-effective amendments thereto, relating to the registration under the
Securities Act of the Preferred Securities;
(ii) execute and file any documents prepared by the Sponsor, or take
any acts determined by the Sponsor to be necessary, in order to qualify or
register all or part of the Preferred Securities in any State in which the
Sponsor has determined to qualify or register such Preferred Securities for
sale;
(iii) assist in the filing of an application, prepared by the
Sponsor, to the New York Stock Exchange, Inc., any other national stock exchange
or the Nasdaq National Market for listing upon notice of issuance of any
Preferred Securities;
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(iv) assist in the filing with the Commission on behalf of the Trust
a registration statement on Form 8-A, prepared by the Sponsor, including any
pre-effective or post-effective amendments thereto, relating to the registration
of the Preferred Securities under Section 12(b) of the Exchange Act;
(v) assist in the preparation of the Underwriting Agreement
providing for the sale of the Preferred Securities; and
(vi) execute and deliver letters, documents, or instruments with the
Clearing Agency relating to the Preferred Securities;
(c) to acquire the Debentures with the proceeds of the sale of the
Preferred Securities and the Common Securities; provided, however, that the
Regular Trustees shall cause legal title to the Debentures to be held of record
in the name of the Institutional Trustee for the benefit of the Holders of the
Preferred Securities and the Holders of Common Securities;
(d) to give the Sponsor and the Institutional Trustee prompt written
notice of the occurrence of a Special Event;
(e) to establish a record date with respect to all actions to be taken
hereunder that require a record date be established, including and with respect
to, for the purposes of Sections 316(c) of the Trust Indenture Act,
Distributions, voting rights, redemptions and exchanges, and to issue relevant
notices to the Holders of Preferred Securities and Holders of Common Securities
as to such actions and applicable record dates;
(f) to take all actions and perform such duties as may be required of the
Regular Trustees pursuant to the terms of the Securities;
(g) to bring or defend, pay, collect, compromise, arbitrate, resort to
legal action, or otherwise adjust claims or demands of or against the Trust
("Legal Action"), unless pursuant to Section 3.8(e), the Institutional Trustee
has the exclusive power to bring such Legal Action;
(h) to employ or otherwise engage employees and agents (who may be
designated as officers with titles) and managers, contractors, advisors, and
consultants and pay reasonable compensation for such services;
(i) to give the certificate required by Sections 314(a)(4) of the Trust
Indenture Act to the Institutional Trustee, which certificate may be executed by
any Regular Trustee;
(j) to incur expenses that are necessary or incidental to carry out any of
the purposes of the Trust;
(k) to act as, or appoint another Person to act as, registrar and transfer
agent for the Securities;
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(l) to give prompt written notice to the Holders of the Securities of any
notice received from the Debenture Issuer of its election to defer payments of
interest on the Debentures by extending the interest payment period under the
Indenture;
(m) to take all action that may be necessary or appropriate for the
preservation and the continuation of the Trust's valid existence, rights,
franchises and privileges as a statutory business trust under the laws of the
State of Delaware and of each other jurisdiction in which such existence is
necessary to protect the limited liability of the Holders of the Preferred
Securities or to enable the Trust to effect the purposes for which the Trust was
created;
(n) to take any action, not inconsistent with this Declaration or with
applicable law, that the Regular Trustees determine in their discretion to be
necessary or desirable in carrying out the activities of the Trust as set out in
this Section 3.6, including, but not limited to:
(i) causing the Trust not to be deemed to be an Investment Company
required to be registered under the Investment Company Act;
(ii) causing the Trust to be classified for United States federal
income tax purposes as a grantor trust; and
(iii) cooperating with the Debenture Issuer to ensure that the
Debentures will be treated as indebtedness of the Debenture Issuer for United
States federal income tax purposes, provided that such action does not adversely
affect the interests of Holders;
(o) to the extent provided in this Declaration, terminating, dissolving
and liquidating the Trust and preparing, executing and filing the certificate of
cancellation with the Secretary of State of the State of Delaware;
(p) to take all action necessary to cause all applicable tax returns and
tax information reports that are required to be filed with respect to the Trust
to be duly prepared and filed by the Regular Trustees, on behalf of the Trust;
and
(q) to execute all documents or instruments, perform all duties and
powers, and do all things for and on behalf of the Trust in all matters
necessary or incidental to the foregoing.
The Regular Trustees must exercise the powers set forth in this Section
3.6 in a manner that is consistent with the purposes and functions of the Trust
set out in Section 3.3, and the Regular Trustees shall not take any action that
is inconsistent with the purposes and functions of the Trust set forth in
Section 3.3.
Subject to this Section 3.6, the Regular Trustees shall have none of the
powers or the authority of the Institutional Trustee set forth in Section 3.8.
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Any expenses incurred by the Regular Trustees pursuant to this Section 3.6
shall be reimbursed by the Debenture Issuer.
SECTION 3.7 PROHIBITION OF ACTIONS BY THE TRUST AND THE TRUSTEES.
(a) The Trust shall not, and the Trustees (including the Institutional
Trustee) shall not, engage in any activity other than as required or authorized
by this Declaration. In particular, the Trust shall not and no Trustee
(including the Institutional Trustee) shall cause the Trust to:
(i) invest any proceeds received by the Trust from holding the
Debentures, but shall promptly distribute all such proceeds to Holders of
Securities pursuant to the terms of this Declaration and of the Securities;
(ii) acquire any assets other than as expressly provided herein;
(iii) possess Trust property for other than a Trust purpose;
(iv) make any loans or incur any indebtedness other than loans
represented by the Debentures;
(v) possess any power or otherwise act in such a way as to vary the
Trust assets or the terms of the Securities in any way whatsoever;
(vi) issue any securities or other evidences of beneficial ownership
of, or beneficial interest in, the Trust other than the Securities; or
(vii) other than as provided in this Declaration or Annex I, (A)
direct the time, method and place of exercising any trust or power conferred
upon the Debenture Trustee with respect to the Debentures, (B) waive any past
default that is waivable under the Indenture, or (C) exercise any right to
rescind or annul any declaration that the principal of all the Debentures shall
be due and payable.
SECTION 3.8 POWERS AND DUTIES OF THE INSTITUTIONAL TRUSTEE.
(a) The legal title to the Debentures shall be owned by and held of record
in the name of the Institutional Trustee in trust for the benefit of the Holders
of the Securities. The right, title and interest of the Institutional Trustee to
the Debentures shall vest automatically in each Person who may hereafter be
appointed as Institutional Trustee in accordance with Section 5.6. Such vesting
and cessation of title shall be effective whether or not conveyancing documents
with regard to the Debentures have been executed and delivered.
(b) The Institutional Trustee shall not transfer its right, title and
interest in the Debentures to the Regular Trustees or to the Delaware Trustee
(if the Institutional Trustee does not also act as Delaware Trustee).
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(c) The Institutional Trustee shall:
(i) establish and maintain a segregated non-interest bearing trust
account (the "Institutional Trustee Account") in the name of and under the
exclusive control of the Institutional Trustee on behalf of the Holders of the
Securities and, upon the receipt of payments of funds made in respect of the
Debentures held by the Institutional Trustee, deposit such funds into the
Institutional Trustee Account and make payments to the Holders of the Preferred
Securities and Holders of the Common Securities from the Institutional Trustee
Account in accordance with Section 6.1. Funds in the Institutional Trustee
Account shall be held uninvested until disbursed in accordance with this
Declaration. The Institutional Trustee Account shall be an account that is
maintained with a banking institution the rating on whose long-term unsecured
indebtedness assigned by a "nationally recognized statistical rating
organization," as that term is defined for purposes of Rule 436(g)(2) under the
Securities Act, is at least equal to the rating assigned to the Preferred
Securities by a nationally recognized statistical rating organization;
(ii) engage in such ministerial activities as shall be specified in
written instructions from the Regular Trustees or the Sponsor to effect the
redemption of the Preferred Securities and the Common Securities to the extent
the Debentures are redeemed or mature; and
(iii) upon written notice of distribution issued by the Regular
Trustees in accordance with the terms of the Securities, engage in such
ministerial activities as shall be specified in written instructions from the
Regular Trustees or the Sponsor to effect the distribution of the Debentures to
Holders of Securities upon the occurrence of certain Special Events or other
specified circumstances pursuant to the terms of the Securities.
(d) The Institutional Trustee shall take all actions and perform such
duties as may be specifically required of the Institutional Trustee pursuant to
the terms of the Securities.
(e) Subject to Section 2.6, the Institutional Trustee shall take any Legal
Action which arises out of or in connection with an Event of Default of which a
Responsible Officer of the Institutional Trustee has actual knowledge or the
Institutional Trustee's duties and obligations under this Declaration or the
Trust Indenture Act.
(f) The Institutional Trustee shall not resign as a Trustee unless either:
(i) the Trust has been completely liquidated and the proceeds of the
liquidation distributed to the Holders of Securities pursuant to the terms of
the Securities; or
(ii) a Successor Institutional Trustee has been appointed and has
accepted that appointment in accordance with Section 5.6.
(g) The Institutional Trustee shall have the legal power to exercise all
of the rights, powers and privileges of a holder of Debentures under the
Indenture and, if an Event of Default actually known to a Responsible Officer of
the Institutional Trustee occurs and is continuing, the
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Institutional Trustee shall, for the benefit of Holders of the Securities,
enforce its rights as holder of the Debentures subject to the rights of the
Holders pursuant to the terms of such Securities, this Declaration, the Business
Trust Act and the Trust Indenture Act.
(h) The Institutional Trustee may authorize one or more Persons (each, a
"Paying Agent") to pay Distributions, redemption payments or liquidation
payments on behalf of the Trust with respect to all Securities and any such
Paying Agent shall comply with Sections 317(b) of the Trust Indenture Act. Any
Paying Agent may be removed by the Institutional Trustee at any time and a
successor Paying Agent or additional Paying Agents may be appointed at any time
by the Institutional Trustee.
(i) Subject to this Section 3.8, the Institutional Trustee shall have none
of the duties, liabilities, powers or the authority of the Regular Trustees set
forth in Section 3.6.
The Institutional Trustee must exercise the powers set forth in this
Section 3.8 in a manner that is consistent with the purposes and functions of
the Trust set out in Section 3.3, and the Institutional Trustee shall not take
any action that is inconsistent with the purposes and functions of the Trust set
out in Section 3.3.
SECTION 3.9 CERTAIN DUTIES AND RESPONSIBILITIES OF THE INSTITUTIONAL
TRUSTEE.
(a) The Institutional 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 Declaration and no implied covenants shall be read into this Declaration
against the Institutional Trustee. In case an Event of Default has occurred
(that has not been cured or waived pursuant to Section 2.6) of which a
Responsible Officer of the Institutional Trustee has actual knowledge, the
Institutional Trustee shall exercise such of the rights and powers vested in it
by this Declaration, and use the same degree of care and skill in the exercise
of such rights and powers, as a prudent person would exercise or use under the
circumstances in the conduct of his or her own affairs.
(b) No provision of this Declaration shall be construed to relieve the
Institutional 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 an 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 Institutional Trustee
shall be determined solely by the express provisions of this Declaration and the
Institutional Trustee shall not be liable except for the performance of such
duties and obligations as are specifically set forth in this Declaration, and no
implied covenants or obligations shall be read into this Declaration against the
Institutional Trustee; and
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(B) in the absence of bad faith on the part of the
Institutional Trustee, the Institutional 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 Institutional
Trustee and substantially conforming to the requirements of this Declaration;
but in the case of any such certificates or opinions that by any provision
hereof are specifically required to be furnished to the Institutional Trustee,
the Institutional Trustee shall be under a duty to examine the same to determine
whether or not they substantially conform to the requirements of this
Declaration;
(ii) the Institutional Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer of the Institutional
Trustee, unless it shall be proved that the Institutional Trustee was negligent
in ascertaining the pertinent facts;
(iii) the Institutional 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 amount
of the Securities relating to the time, method and place of conducting any
proceeding for any remedy available to the Institutional Trustee, or exercising
any trust or power conferred upon the Institutional Trustee under this
Declaration;
(iv) no provision of this Declaration shall require the
Institutional 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 it 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 Declaration or indemnity reasonably
satisfactory to the Institutional Trustee against such risk or liability is not
reasonably assured to it;
(v) the Institutional Trustee's sole duty with respect to the
custody, safe keeping and physical preservation of the Debentures and the
Institutional Trustee Account shall be to deal with such property in a similar
manner as the Institutional Trustee deals with similar property for its own
account, subject to the protections and limitations on liability afforded to the
Institutional Trustee under this Declaration and the Trust Indenture Act;
(vi) the Institutional Trustee shall have no duty or liability for
or with respect to the value, genuineness, existence or sufficiency of the
Debentures or the payment of any taxes or assessments levied thereon or in
connection therewith;
(vii) the Institutional Trustee shall not be liable for any interest
on any money received by it except as it may otherwise agree in writing with the
Sponsor. Money held by the Institutional Trustee need not be segregated from
other funds held by it except in relation to the Institutional Trustee Account
maintained by the Institutional Trustee pursuant to Section 3.8(c)(i) and except
to the extent otherwise required by law; and
(viii) the Institutional Trustee shall not be responsible for
monitoring the compliance by the Regular Trustees or the Sponsor with their
respective duties under this
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Declaration, nor shall the Institutional Trustee be liable for any act,
omission, default or misconduct of the Regular Trustees or the Sponsor.
SECTION 3.10 CERTAIN RIGHTS OF INSTITUTIONAL TRUSTEE.
(a) Subject to the provisions of Section 3.9:
(i) the Institutional Trustee may conclusively 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 Sponsor or the Regular Trustees
contemplated by this Declaration shall be sufficiently evidenced by an Officers'
Certificate;
(iii) whenever in the administration of this Declaration, the
Institutional Trustee shall deem it desirable that a matter be proved or
established before taking, suffering or omitting any action hereunder, the
Institutional Trustee (unless other evidence is herein specifically prescribed)
may, in the absence of bad faith on its part, request and conclusively rely upon
an Officers' Certificate which, upon receipt of such request, shall be promptly
delivered by the Sponsor or the Regular Trustees;
(iv) the Institutional Trustee shall have no duty to see to any
recording, filing or registration of any instrument (including any financing or
continuation statement or any filing under tax or securities laws) or any
rerecording, refiling or registration thereof;
(v) the Institutional Trustee may consult with counsel or other
experts and the advice or opinion of such counsel and experts with respect to
legal matters or advice within the scope of such experts' area of expertise
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 accordance with
such advice or opinion, such counsel may be counsel to the Sponsor or any of its
Affiliates, and may include any of its employees. The Institutional Trustee
shall have the right at any time to seek instructions concerning the
administration of this Declaration from any court of competent jurisdiction;
(vi) the Institutional Trustee shall be under no obligation to
exercise any of the rights or powers vested in it by this Declaration at the
request or direction of any Holder, unless such Holder shall have provided to
the Institutional Trustee security and indemnity, reasonably satisfactory to the
Institutional Trustee, against the costs, expenses (including attorneys' fees
and expenses and the expenses of the Institutional Trustee's agents, nominees or
custodians) 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 Institutional Trustee provided, that, nothing contained in this Section
3.10(a)(vi) shall be taken to relieve the Institutional Trustee, upon the
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occurrence of an Event of Default, of its obligation to exercise the rights and
powers vested in it by this Declaration;
(vii) the Institutional 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 Institutional Trustee, in its discretion, may make such
further inquiry or investigation into such facts or matters as it may see fit;
(viii) the Institutional Trustee may execute any of the trusts or
powers hereunder or perform any duties hereunder either directly or by or
through agents, custodians, nominees or attorneys and the Institutional 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;
(ix) any action taken by the Institutional Trustee or its agents
hereunder shall bind the Trust and the Holders of the Securities, and the
signature of the Institutional Trustee or its agents alone shall be sufficient
and effective to perform any such action and no third party shall be required to
inquire as to the authority of the Institutional Trustee to so act or as to its
compliance with any of the terms and provisions of this Declaration, both of
which shall be conclusively evidenced by the Institutional Trustee's or its
agent's taking such action;
(x) whenever in the administration of this Declaration the
Institutional Trustee shall deem it desirable to receive instructions with
respect to enforcing any remedy or right or taking any other action hereunder,
the Institutional Trustee (i) may request instructions from the Holders of the
Securities which instructions may only be given by the Holders of the same
proportion in liquidation amount of the Securities as would be entitled to
direct the Institutional Trustee under the terms of the Securities in respect of
such remedy, right or action, (ii) may refrain from enforcing such remedy or
right or taking such other action until such instructions are received, and
(iii) shall be protected in conclusively relying on or acting in or accordance
with such instructions; and
(xi) except as otherwise expressly provided by this Declaration, the
Institutional Trustee shall not be under any obligation to take any action that
is discretionary under the provisions of this Declaration.
(b) No provision of this Declaration shall be deemed to impose any duty or
obligation on the Institutional 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 Institutional Trustee
shall be unqualified or incompetent in accordance with applicable law, to
perform any such act or acts, or to exercise any such right, power, duty or
obligation. No permissive power or authority available to the Institutional
Trustee shall be construed to be a duty.
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SECTION 3.11 DELAWARE TRUSTEE.
Notwithstanding any other provision of this Declaration other than Section
5.2, the Delaware Trustee shall not be entitled to exercise any powers, nor
shall the Delaware Trustee have any of the duties and responsibilities of the
Regular Trustees or the Institutional Trustee described in this Declaration.
Except as set forth in Section 5.2, the Delaware Trustee shall be a Trustee for
the sole and limited purpose of fulfilling the requirements of Sections 3807 of
the Business Trust Act. In performing such limited role, the Delaware Trustee
shall have all of the rights and protections afforded to the Institutional
Trustee under Section 3.9(b)(i) (except that (i) the Delaware Trustee's standard
of care shall be gross negligence, and (ii) such rights and protections shall
pertain to the Delaware Trustee without regard to the occurrence of any Event of
Default) and Section 3.10 of this Declaration.
SECTION 3.12 EXECUTION OF DOCUMENTS.
Unless otherwise determined by the Regular Trustees, and except as
otherwise required by the Business Trust Act, a majority of or, if there are
only two, any Regular Trustee or, if there is only one, such Regular Trustee is
authorized to execute on behalf of the Trust any documents that the Regular
Trustees have the power and authority to execute pursuant to Section 3.6.
SECTION 3.13 NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF SECURITIES.
The recitals contained in this Declaration and the Securities shall be
taken as the statements of the Sponsor, and the Trustees do not assume any
responsibility for their correctness. The Trustees make no representations as to
the value or condition of the property of the Trust or any part thereof. The
Trustees make no representations as to the validity or sufficiency of this
Declaration or the Securities.
SECTION 3.14 DURATION OF TRUST.
The Trust, unless dissolved pursuant to the provisions of Article VIII
hereof, shall have existence for fifty-five (55) years from the Closing Date.
SECTION 3.15 MERGERS.
(a) The Trust may not consolidate, amalgamate, merge with or into, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to any corporation or other body, except as
described in Section 3.15(b) and (c) or in Annex I.
(b) The Trust may, with the consent of the Regular Trustees or, if there
are more than two, a majority of the Regular Trustees and without the consent of
the Holders of the Securities, the Delaware Trustee or the Institutional
Trustee, consolidate, amalgamate, merge with or into, or be replaced by a trust
organized as such under the laws of any State; provided that:
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(i) such successor entity (the "Successor Entity") either:
(A) expressly assumes all of the obligations of the Trust
under the Securities; or
(B) substitutes for the Securities other securities having
substantially the same terms as the Preferred Securities (the "Successor
Securities") so long as the Successor Securities rank the same as the Preferred
Securities rank with respect to Distributions and payments upon liquidation,
redemption and otherwise;
(ii) the Debenture Issuer expressly acknowledges a trustee of the
Successor Entity that possesses the same powers and duties as the Institutional
Trustee as the Holder of the Debentures;
(iii) the Preferred Securities or any Successor Securities are
listed, or any Successor Securities will be listed upon notification of
issuance, on any national securities exchange or with any other organization on
which the Preferred Securities are then listed or quoted;
(iv) such merger, consolidation, amalgamation or replacement does
not cause the Preferred Securities (including any Successor Securities) to be
downgraded by any nationally recognized statistical rating organization;
(v) such merger, consolidation, amalgamation or replacement does not
adversely affect the rights, preferences and privileges of the Holders of the
Securities (including any Successor Securities) in any material respect (other
than with respect to any dilution of such Holders' interests in the Successor
Entity as a result of such merger, consolidation, amalgamation or replacement);
(vi) such Successor Entity has a purpose substantially identical to
that of the Trust;
(vii) prior to such merger, consolidation, amalgamation or
replacement, the Trust has received an opinion of a nationally recognized
independent counsel to the Trust experienced in such matters to the effect that:
(A) such merger, consolidation, amalgamation or replacement
does not adversely affect the rights, preferences and privileges of the Holders
of the Securities (including any Successor Securities) in any material respect
(other than with respect to any dilution of the Holders' interest in the
Successor Entity);
(B) following such merger, consolidation, amalgamation or
replacement, neither the Trust nor the Successor Entity will be required to
register as an Investment Company;
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(C) following such merger, consolidation, amalgamation or
replacement, the Trust (or the Successor Entity) will continue to be classified
as a grantor trust for United States federal income tax purposes; and
(viii) the Sponsor guarantees the obligations of such Successor
Entity under the Successor Securities at least to the extent provided by the
Preferred Securities Guarantee.
(c) Notwithstanding Section 3.15(b), the Trust shall not, without the
consent of Holders of 100% in liquidation amount of the Securities, consolidate,
amalgamate, merge with or into, or be replaced by any other entity or permit any
other entity to consolidate, amalgamate, merge with or into, or replace it, if
in the opinion of a nationally recognized independent tax counsel experienced in
such matters, such consolidation, amalgamation, merger or replacement would
cause the Trust or Successor Entity to be classified as other than a grantor
trust for United States federal income tax purposes.
ARTICLE IV
SPONSOR
SECTION 4.1 SPONSOR'S PURCHASE OF COMMON SECURITIES.
On the Closing Date, the Sponsor will purchase all of the Common
Securities issued by the Trust in an amount equal to 3% or more of the capital
of the Trust, at the same time as the Preferred Securities are sold.
SECTION 4.2 RESPONSIBILITIES OF THE SPONSOR.
In connection with the issue and sale of the Preferred Securities, the
Sponsor is hereby appointed an agent of the Trust pursuant to Section 3806(b)(7)
of the Business Trust Act and in such capacity shall have the exclusive right
and responsibility to engage in the following activities:
(a) to prepare a prospectus relating to the offering of Preferred
Securities by the Trust and to prepare for filing by the Trust with the
Commission, and execute on behalf of the Trust, a registration statement on Form
S-3 or on another appropriate form (including, if appropriate, a registration
statement under Rule 462(b) of the Securities Act) and any pre-effective or
post-effective amendments thereto, relating to the registration under the
Securities Act of the Preferred Securities;
(b) to determine the States in which to take appropriate action to qualify
or register for sale all or part of the Preferred Securities and to do any and
all such acts, other than actions which must be taken by the Trust, and advise
the Trust of actions it must take, and prepare for execution and filing any
documents to be executed and filed by the Trust, as the Sponsor deems necessary
or advisable in order to comply with the applicable laws of any such States;
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(c) to prepare for filing by the Trust, and execute on behalf of the
Trust, an application to the New York Stock Exchange, any other national stock
exchange or the Nasdaq National Market for listing upon notice of issuance of
any Preferred Securities;
(d) to prepare for filing by the Trust with the Commission, and execute on
behalf of the Trust, a registration statement on Form 8-A, including any
pre-effective or post-effective amendments thereto, relating to the registration
of the Preferred Securities under Section 12(b) of the Exchange Act, including
any amendments thereto; and
(e) to negotiate the terms of, and execute on behalf of the Trust, the
Underwriting Agreement providing for the sale of the Preferred Securities.
(f) to execute and deliver letters, documents or instruments on behalf of
the Trust with any Clearing Agency.
The Sponsor must exercise the powers set forth in this Section 4.2 in a
manner that is consistent with the purposes and functions of the Trust set out
in Section 3.3, and the Sponsor shall not take any action that is inconsistent
with the purposes and functions of the Trust set forth in Section 3.3.
Subject to this Section 4.2, the Sponsor shall have none of the powers or
the authority of the Institutional Trustee set forth in Section 3.8.
SECTION 4.3 GUARANTEE OF PAYMENT OF TRUST OBLIGATIONS.
(a) Subject to the terms and conditions of this Section 4.3, the Holder of
Common Securities hereby irrevocably and unconditionally guarantees to each
Person to whom the Trust is now or hereafter becomes indebted or liable (the
"Beneficiaries") the full payment, when and as due, of any and all costs,
expenses or liabilities of the Trust (other than obligations of the Trust to
make payments to holders of Trust Security pursuant to the terms thereof)
("Obligations") to such Beneficiaries.
(b) The agreement of the Sponsor in Section 4.3(a) is intended to be for
the benefit of, and to be enforceable by, all such Beneficiaries, whether or not
such Beneficiaries have received notice hereof.
(c) The agreement of the Sponsor set forth in Section 4.3(a) shall
terminate and be of no further force and effect upon the later of (a) the date
on which full payment has been made of all amounts payable to all Holders of all
the Preferred Securities (whether upon redemption, liquidation, exchange or
otherwise) and (b) the date on which there are no Beneficiaries remaining;
provided, however, that such agreement shall continue to be effective or shall
be reinstated, as the case may be, if at any time any Holder of Preferred
Securities or any Beneficiary must restore payment of any sums paid under the
Preferred Securities, under any Obligation,
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under the Preferred Securities Guarantee or under this Declaration for any
reason whatsoever. Such agreement in continuing, irrevocable, unconditional and
absolute.
ARTICLE V
TRUSTEES
SECTION 5.1 NUMBER OF TRUSTEES.
The number of Trustees initially shall be [four (4),] and:
(a) at any time before the issuance of any Securities, the Sponsor may, by
written instrument, increase or decrease the number of Trustees; and
(b) after the issuance of any Securities, the number of Trustees may be
increased or decreased by vote of the Holders of a majority in liquidation
amount of the Common Securities voting as a class at a meeting of the Holders of
the Common Securities, provided, however, that, the number of Trustees shall in
no event be less than two (2); provided further that (1) if required by the
Business Trust Act, there shall be at least one Delaware Trustee; (2) there
shall be at least one Trustee who is an employee or officer of, or is affiliated
with the Sponsor (a "Regular Trustee"); and (3) for so long as this Declaration
is required to qualify as an indenture under the Trust Indenture Act, there
shall be one Institutional Trustee, who may also serve as Delaware Trustee if it
meets the applicable requirements.
SECTION 5.2 DELAWARE TRUSTEE.
If required by the Business Trust Act, one Trustee (the "Delaware
Trustee") shall be:
(a) a natural person who is a resident of the State of Delaware; or
(b) if not a natural person, an entity which has its principal place of
business in the State of Delaware, and otherwise meets the requirements of
applicable law, provided that, if the Institutional Trustee has its principal
place of business in the State of Delaware and otherwise meets the requirements
of applicable law, then the Institutional Trustee shall also be the Delaware
Trustee and Section 3.11 shall have no application.
SECTION 5.3 INSTITUTIONAL TRUSTEE: ELIGIBILITY.
(a) There shall at all times be one Trustee that shall act as
Institutional Trustee which shall:
(i) not be an Affiliate of the Sponsor;
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(ii) be a corporation organized and doing business under the laws of
the United States of America or any State or territory thereof or of the
District of Columbia, or a corporation or Person permitted by the Commission to
act as an institutional trustee under the Trust Indenture Act, authorized under
such laws to exercise corporate trust powers, having a combined capital and
surplus of at least 50 million U.S. dollars ($50,000,000), and subject to
supervision or examination by Federal, State, territorial or District of
Columbia authority. If such corporation publishes reports of condition at least
annually, pursuant to law or to the requirements of the supervising or examining
authority referred to above, then for the purposes of this Section 5.3(a)(ii),
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; and
(iii) if the Trust is excluded from the definition of an Investment
Company solely by means of Rule 3a-7 and to the extent Rule 3a-7 requires a
trustee having certain qualifications to hold title to the "eligible assets" of
the Trust, the Institutional Trustee shall possess those qualifications.
(b) If at any time the Institutional Trustee shall cease to be eligible to
so act under Section 5.3(a), the Institutional Trustee shall immediately resign
in the manner and with the effect set forth in Section 5.6(c).
(c) If the Institutional Trustee has or shall acquire any "conflicting
interest" within the meaning of Section 310(b) of the Trust Indenture Act, the
Institutional Trustee and the Holders of the Common Securities (as if such
Holders were the obligor referred to in Section 310(b) of the Trust Indenture
Act) shall in all respects comply with the provisions of Section 310(b) of the
Trust Indenture Act.
(d) The Preferred Securities Guarantee shall be deemed to be specifically
described in this Declaration for purposes of clause (i) of the first provision
contained in Section 310(b) of the Trust Indenture Act.
(e) The initial Institutional Trustee shall be as set forth in Section 5.5
hereof.
SECTION 5.4 QUALIFICATIONS OF REGULAR TRUSTEES AND DELAWARE TRUSTEE
GENERALLY.
Each Regular Trustee and the Delaware Trustee (unless the Institutional
Trustee also acts as Delaware Trustee) shall be either a natural person who is
at least 21 years of age or a legal entity that shall have the power and
authority to act as a trustee hereunder and shall be represented in such
capacity by one or more Authorized Officers.
SECTION 5.5 INITIAL TRUSTEES: ADDITIONAL POWERS OF REGULAR TRUSTEES.
(a) The initial Regular Trustees shall be:
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Gregory A. Boyko, Senior Vice President and Chief Financial Officer
Lynda Godkin, Vice President and General Counsel
c/o Hartford Life, Inc.
200 Hopmeadow Street
Simsbury, Connecticut 06089
The initial Delaware Trustee shall be:
Wilmington Trust Company
1100 North Market Street
Wilmington, Delaware 19890-001
Attn: Corporate Trust Administration
The initial Institutional Trustee shall be:
Wilmington Trust Company
1100 North Market Street
Wilmington, Delaware 19890-001
Attn: Corporate Trust Administration
(b) Except as expressly set forth in this Declaration and except if a
meeting of the Regular Trustees is called with respect to any matter over which
the Regular Trustees have power to act, any power of the Regular Trustees may be
exercised by, or with the consent of, any one such Regular Trustee.
(c) Unless otherwise determined by the Regular Trustees, and except as
otherwise required by the Business Trust Act or applicable law, any one (1)
Regular Trustee is hereby authorized to execute on behalf of the Trust any
documents which the Regular Trustees have the power and authority to cause the
Trust to execute pursuant to Section 3.6.
SECTION 5.6 APPOINTMENT, REMOVAL AND RESIGNATION OF TRUSTEES.
(a) Subject to Section 5.6(b), Trustees may be appointed or removed
without cause at any time:
(i) until the issuance of any Securities, by written instrument
executed by the Sponsor; and
(ii) after the issuance of any Securities, by vote of the Holders of
a Majority in liquidation amount of the Common Securities voting as a class at a
meeting of the Holders of the Common Securities.
(b) (i) The Trustee that acts as Institutional Trustee shall not be
removed in accordance with Section 5.6(a) until a successor Trustee possessing
the qualifications to act as Institutional Trustee under Section 5.3 (a
"Successor Institutional Trustee") has been appointed
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and has accepted such appointment by written instrument executed by such
Successor Institutional Trustee and delivered to the Regular Trustees and the
Sponsor; and
(ii) the Trustee that acts as Delaware Trustee shall not be removed
in accordance with Section 5.6(a) until a successor Trustee possessing the
qualifications to act as Delaware Trustee under Sections 5.2 and 5.4 (a
"Successor Delaware Trustee") has been appointed and has accepted such
appointment by written instrument executed by such Successor Delaware Trustee
and delivered to the Regular Trustees and the Sponsor.
(c) A Trustee appointed to office shall hold office until his successor
shall have been appointed or until his death, removal or resignation. Any
Trustee may resign from office (without need for prior or subsequent accounting)
by an instrument in writing signed by the Trustee and delivered to the Sponsor
and the Trust, which resignation shall take effect upon such delivery or upon
such later date as is specified therein; provided, however, that:
(i) No such resignation of the Trustee that acts as the
Institutional Trustee shall be effective:
(A) until a Successor Institutional Trustee has been appointed
and has accepted such appointment by instrument executed by such Successor
Institutional Trustee and delivered to the Trust, the Sponsor and the resigning
Institutional Trustee; or
(B) until the assets of the Trust have been completely
liquidated and the proceeds thereof distributed to the holders of the
Securities; and
(ii) no such resignation of the Trustee that acts as the Delaware
Trustee shall be effective until a Successor Delaware Trustee has been appointed
and has accepted such appointment by instrument executed by such Successor
Delaware Trustee and delivered to the Trust, the Sponsor and the resigning
Delaware Trustee whereupon the resigning Trustee shall be released and
discharged of the trusts and other duties imposed on such Trustee in connection
herewith.
(d) The Holders of the Common Securities shall use their best efforts to
promptly appoint a Successor Delaware Trustee or Successor Institutional Trustee
as the case may be if the Institutional Trustee or the Delaware Trustee delivers
an instrument of resignation in accordance with this Section 5.6.
(e) If no Successor Institutional Trustee or Successor Delaware Trustee
shall have been appointed and accepted appointment as provided in this Section
5.6 within 60 days after delivery to the Sponsor and the Trust of an instrument
of resignation, the resigning Institutional Trustee or Delaware Trustee, as
applicable, may petition any court of competent jurisdiction for appointment of
a Successor Institutional Trustee or Successor Delaware Trustee. Such court may
thereupon, after prescribing such notice, if any, as it may deem proper and
prescribe, appoint a Successor Institutional Trustee or Successor Delaware
Trustee, as the case may be.
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(f) No Institutional Trustee or Delaware Trustee shall be liable for the
acts or omissions to act of any Successor Institutional Trustee or Successor
Delaware Trustee, as the case may be.
SECTION 5.7 VACANCIES AMONG TRUSTEES.
If a Trustee ceases to hold office for any reason and the number of
Trustees is not reduced pursuant to Section 5.1, or if the number of Trustees is
increased pursuant to Section 5.1, a vacancy shall occur. A resolution
certifying the existence of such vacancy by the Regular Trustees or, if there
are more than two, a majority of the Regular Trustees shall be conclusive
evidence of the existence of such vacancy. The vacancy shall be filled with a
Trustee appointed in accordance with Section 5.6.
SECTION 5.8 EFFECT OF VACANCIES.
The death, resignation, retirement, removal, bankruptcy, dissolution,
liquidation, incompetence or incapacity to perform the duties of a Trustee shall
not operate to annul, dissolve or terminate the Trust. or terminate this
Declaration. Whenever a vacancy in the number of Regular Trustees shall occur,
until such vacancy is filled by the appointment of a Regular Trustee in
accordance with Section 5.6, the Regular Trustees in office, regardless of their
number, shall have all the powers granted to the Regular Trustees and shall
discharge all the duties imposed upon the Regular Trustees by this Declaration.
SECTION 5.9 MEETINGS.
If there is more than one Regular Trustee, meetings of the Regular
Trustees shall be held from time to time upon the call of any Regular Trustee.
Regular meetings of the Regular Trustees may be held at a time and place fixed
by resolution of the Regular Trustees. Notice of any in-person meetings of the
Regular Trustees shall be hand delivered or otherwise delivered in writing
(including by facsimile, with a hard copy by overnight courier) not less than 48
hours before such meeting. Notice of any telephonic meetings of the Regular
Trustees or any committee thereof shall be hand delivered or otherwise delivered
in writing (including by facsimile, with a hard copy by overnight courier) not
less than 24 hours before a meeting. Notices shall contain a brief statement of
the time, place and anticipated purposes of the meeting. The presence (whether
in person or by telephone) of a Regular Trustee at a meeting shall constitute a
waiver of notice of such meeting except where a Regular Trustee attends a
meeting for the express purpose of objecting to the transaction of any activity
on the ground that the meeting has not been lawfully called or convened. Unless
provided otherwise in this Declaration, any action of the Regular Trustees may
be taken at a meeting by vote of a majority of the Regular Trustees present
(whether in person or by telephone) and eligible to vote with respect to such
matter, provided that a Quorum is present, or without a meeting by the unanimous
written consent of the Regular Trustees. In the event there is only one Regular
Trustee, any and all action of such Regular Trustee shall be evidenced by a
written consent of such Regular Trustee.
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SECTION 5.10 DELEGATION OF POWER.
(a) Any Regular Trustee may, by power of attorney consistent with
applicable law, delegate to any other natural person over the age of 21 his or
her power for the purpose of executing any documents contemplated in Section
3.6, including making any governmental filing; and
(b) the Regular Trustees shall have power to delegate from time to time to
such of their number or to officers of the Trust the doing of such things and
the execution of such instruments either in the name of the Trust or the names
of the Regular Trustees or otherwise as the Regular Trustees may deem expedient,
to the extent such delegation is not prohibited by applicable law or contrary to
the provisions of the Trust, as set forth herein.
SECTION 5.11 MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS.
Any corporation into which the Institutional Trustee or the Delaware
Trustee, as the case may be, may be merged or converted or with which either may
be consolidated, or any corporation resulting from any merger, conversion or
consolidation to which the Institutional Trustee or the Delaware Trustee, as the
case may be, shall be a party, or any corporation succeeding to all or
substantially all the corporate trust business of the Institutional Trustee or
the Delaware Trustee, as the case may be, shall be the successor of the
Institutional Trustee or the Delaware Trustee, as the case may be, 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.
ARTICLE VI
DISTRIBUTIONS
SECTION 6.1 DISTRIBUTIONS.
Holders shall receive Distributions (as defined herein) in accordance with
the applicable terms of the relevant Holder's Securities. Distributions shall be
made on the Preferred Securities and the Common Securities in accordance with
the preferences set forth in their respective terms. If and to the extent that
the Debenture Issuer makes a payment of interest (including Compounded Interest
(as defined in the Indenture) and Additional Interest (as defined in the
Indenture)), premium and/or principal on the Debentures held by the
Institutional Trustee (the amount of any such payment being a "Payment Amount"),
the Institutional Trustee shall and is directed to make a distribution (a
"Distribution") of the Payment Amount to Holders.
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ARTICLE VII
ISSUANCE OF SECURITIES
SECTION 7.1 GENERAL PROVISIONS REGARDING SECURITIES.
(a) The Trust shall issue one class of preferred securities representing
undivided beneficial interests in the assets of the Trust having such terms as
are set forth in Annex I (the "Preferred Securities") and one class of common
securities representing undivided beneficial interests in the assets of the
Trust having such terms as are set forth in Annex I (the "Common Securities").
The Trust shall issue no securities or other interests in the assets of the
Trust other than the Preferred Securities and the Common Securities.
(b) The Certificates shall be signed on behalf of the Trust by a Regular
Trustee. Such signature shall be the manual or facsimile signature of any
present or any future Regular Trustee. In case any Regular Trustee of the Trust
who shall have signed any of the Securities shall cease to be such Regular
Trustee before the Certificates so signed shall be delivered by the Trust, such
Certificates nevertheless may be delivered as though the person who signed such
Certificates had not ceased to be such Regular Trustee; and any Certificate may
be signed on behalf of the Trust by such persons who, at the actual date of
execution of such Security, shall be the Regular Trustees of the Trust, although
at the date of the execution and delivery of the Declaration any such person was
not such a Regular Trustee. Certificates shall be printed, lithographed or
engraved or may be produced in any other manner as is reasonably acceptable to
the Regular Trustees, as evidenced by their execution thereof, and may have such
letters, numbers or other marks of identification or designation and such
legends or endorsements as the Regular Trustees may deem appropriate, or as may
be required to comply with any law or with any rule or regulation of any stock
exchange on which Securities may be listed, or to conform to usage.
(c) The Preferred Security Certificates shall not be valid until
authenticated by the manual signature of an authorized officer of the
Institutional Trustee, the signature of whom shall be conclusive evidence that
the Preferred Security Certificates have been authenticated under this
Declaration. Upon a written order of the Trust signed by one Regular Trustee,
the Institutional Trustee shall authenticate the Preferred Security Certificates
for original issue. The Institutional Trustee may appoint an authenticating
agent acceptable to the Trust to authenticate the Preferred Security
Certificates. An authenticating agent may authenticate the Preferred Security
Certificates whenever the Institutional Trustee may do so. Each reference to
authentication by the Institutional Trustee includes authentication by such
agent. An authenticating agent has the same rights as the Institutional Trustee
to deal with the Sponsor or an Affiliate thereof.
(d) The consideration received by the Trust for the issuance of the
Securities shall constitute a contribution to the capital of the Trust and shall
not constitute a loan to the Trust.
(e) Upon issuance of the Securities as provided in this Declaration, the
Securities so issued shall be deemed to be validly issued, fully paid and
non-assessable; subject to Section 10.1 with respect to the Common Securities.
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(f) Every Person, by virtue of having become a Holder or a Preferred
Security Beneficial Owner in accordance with the terms of this Declaration,
shall be deemed to have expressly assented and agreed to the terms of, and shall
be bound by, this Declaration.
SECTION 7.2 REGISTRAR AND PAYING AGENT.
The Trust shall maintain in Wilmington, Delaware (i) an office or agency
where Preferred Securities may be presented for registration of transfer or for
exchange ("Registrar"), and (ii) an office or agency where Preferred Securities
may be presented for payment. The Registrar shall keep a register of the
Preferred Securities and of their transfer and exchange. The Trust may appoint
the Registrar and the Paying Agent and may appoint one or more co-registrars and
one or more additional paying agents in such other locations as it shall
determine. The term "Paying Agent" includes any additional paying agent. The
Trust may change any Paying Agent, Registrar or co-registrar without prior
notice to any Holder. The Trust shall notify the Institutional Trustee of the
name and address of any agent not a party to this Declaration. If the Trust
fails to appoint or maintain another entity as Registrar or Paying Agent, the
Institutional Trustee shall act as such. The Trust or any of its Affiliates may
act as Paying Agent or Registrar. The Trust shall act as Paying Agent, Registrar
and co-registrar for the Common Securities.
The Trust initially appoints the Institutional Trustee as Registrar and
Paying Agent for the Preferred Securities.
SECTION 7.3 PAYING AGENT TO HOLD MONEY IN TRUST.
The Trust shall require each Paying Agent other than the Institutional
Trustee to agree in writing that the Paying Agent will hold in trust for the
benefit of Holders or the Institutional Trustee all money held by the Paying
Agent for the payment of principal or Distributions on Securities, and will
notify the Institutional Trustee if there are insufficient funds. While any such
insufficiency continues, the Institutional Trustee may require a Paying Agent to
pay all money held by it to the Institutional Trustee. The Trust at any time may
require a Paying Agent to pay all money held by it to the Institutional Trustee
and to account for any money disbursed by it. Upon payment over to the
Institutional Trustee, the Paying Agent (if other than the Trust or an Affiliate
of the Trust) shall have no further liability for the money. If the Trust or the
Sponsor or an Affiliate of the Trust or the Sponsor acts as Paying Agent, it
shall segregate and hold in a separate trust fund for the benefit of the Holders
all money held by it as Paying Agent.
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ARTICLE VIII
DISSOLUTION OF TRUST
SECTION 8.1 DISSOLUTION OF TRUST.
(a) The Trust shall dissolve:
(i) upon the bankruptcy of any Holder of the Common Securities or
the Sponsor;
(ii) upon the filing of a certificate of dissolution or its
equivalent with respect to any Holder of the Common Securities or the Sponsor;
or the revocation of the Holder of the Common Securities or the Sponsor's
charter and the expiration of 90 days after the date of revocation without a
reinstatement thereof;
(iii) upon the entry of a decree of judicial dissolution of any
Holder of the Common Securities, the Sponsor or the Trust;
(iv) when all of the Securities shall have been called for
redemption and the amounts necessary for redemption thereof shall have been paid
to the Holders in accordance with the terms of the Securities;
(v) at the election of the Sponsor (which is wholly within its sole
discretion); provided that the Trust shall have been dissolved in accordance
with the terms of the Securities and all of the Debentures endorsed thereon
shall have been distributed to the Holders of Securities in exchange for all of
the Securities; or
(vi) before the issuance of any Securities, with the consent of all
of the Regular Trustees and the Sponsor.
(b) As soon as is practicable after the occurrence of an event referred to
in Section 8.1(a) or upon the expiration of the term of the Trust set forth in
Section 3.14 and the winding up of the affairs of the Trust, the Trustees shall
file a certificate of cancellation with the Secretary of State of the State of
Delaware.
(c) The provisions of Section 3.9 and Article X shall survive the
termination of the Trust.
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ARTICLE IX
TRANSFER OF INTERESTS
SECTION 9.1 TRANSFER OF SECURITIES.
(a) Securities may only be transferred, in whole or in part, in accordance
with the terms and conditions set forth in this Declaration and in the terms of
the Securities. Any transfer or purported transfer of any Security not made in
accordance with this Declaration shall be null and void.
(b) Subject to this Article IX, Preferred Securities shall be freely
transferable.
(c) Subject to this Article IX, the Sponsor and any Related Party may only
transfer Common Securities to the Sponsor or a Related Party of the Sponsor;
provided that, any such transfer is subject to the condition precedent that the
transferor obtain the written opinion of nationally recognized independent
counsel experienced in such matters that such transfer would not cause more than
an insubstantial risk that:
(i) the Trust would not continue to be classified for United States
federal income tax purposes as a grantor trust; and
(ii) the Trust would be an Investment Company or the transferee
would become an Investment Company.
SECTION 9.2 TRANSFER OF CERTIFICATES.
The Regular Trustees shall provide for the registration of Certificates
and of transfers of Certificates, which will be effected without charge but only
upon payment (with such indemnity as the Regular Trustees may require) in
respect of any tax or other government charges that may be imposed in relation
to it. Upon surrender for registration of transfer of any Certificate, the
Regular Trustees shall cause one or more new Certificates to be issued in the
name of the designated transferee or transferees. Every Certificate surrendered
for registration of transfer shall be accompanied by a written instrument of
transfer in form satisfactory to the Regular Trustees duly executed by the
Holder or such Holder's attorney duly authorized in writing. Each Certificate
surrendered for registration of transfer shall be canceled by the Regular
Trustees. A transferee of a Certificate shall be entitled to the rights and
subject to the obligations of a Holder hereunder upon the receipt by such
transferee of a Certificate. By acceptance of a Certificate, each transferee
shall be deemed to have agreed to be bound by this Declaration.
SECTION 9.3 DEEMED SECURITY HOLDERS.
The Trustees may treat the Person in whose name any Certificate shall be
registered on the books and records of the Trust as the sole holder of such
Certificate and of the Securities represented by such Certificate for purposes
of receiving Distributions and for all other purposes
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whatsoever and, accordingly, shall not be bound to recognize any equitable or
other claim to or interest in such Certificate or in the Securities represented
by such Certificate on the part of any Person, whether or not the Trust shall
have actual or other notice thereof.
SECTION 9.4 BOOK ENTRY INTERESTS.
Unless otherwise specified in the terms of the Preferred Securities, the
Preferred Securities Certificates, on original issuance, will be issued in the
form of one or more, fully registered, global Preferred Security Certificates
(each a "Global Certificate"), to be delivered to DTC, the initial Clearing
Agency, by, or on behalf of, the Trust. Such Global Certificates shall initially
be registered on the books and records of the Trust in the name of Cede & Co.,
the nominee of DTC, and no Preferred Security Beneficial Owner will receive a
definitive Preferred Security Certificate representing such Preferred Security
Beneficial Owner's interests in such Global Certificates, except as provided in
Section 9.7. Unless and until definitive, fully registered Preferred Security
Certificates (the "Definitive Preferred Security Certificates") have been issued
to the Preferred Security Beneficial Owners pursuant to Section 9.7:
(a) the provisions of this Section 9.4 shall be in full force and effect;
(b) the Trust and the Trustees shall be entitled to deal with the Clearing
Agency for all purposes of this Declaration (including the payment of
Distributions on the Global Certificates and receiving approvals, votes or
consents hereunder) as the Holder of the Preferred Securities and the sole
holder of the Global Certificates and shall have no obligation to the Preferred
Security Beneficial Owners;
(c) to the extent that the provisions of this Section 9.4 conflict with
any other provisions of this Declaration, the provisions of this Section 9.4
shall control; and
(d) the rights of the Preferred Security Beneficial Owners shall be
exercised only through the Clearing Agency and shall be limited to those
established by law and agreements between such Preferred Security Beneficial
Owners and the Clearing Agency and/or the Clearing Agency Participants and
receive and transmit payments of Distributions on the Global Certificates to
such Clearing Agency Participants. DTC will make book entry transfers among the
Clearing Agency Participants.
SECTION 9.5 NOTICES TO CLEARING AGENCY.
Whenever a notice or other communication to the Preferred Security Holders
is required under this Declaration, unless and until Definitive Preferred
Security Certificates shall have been issued to the Preferred Security
Beneficial Owners pursuant to Section 9.7, the Regular Trustees shall give all
such notices and communications specified herein to be given to the Preferred
Security Holders to the Clearing Agency, and shall have no notice obligations to
the Preferred Security Beneficial Owners.
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SECTION 9.6 APPOINTMENT OF SUCCESSOR CLEARING AGENCY.
If any Clearing Agency elects to discontinue its services as securities
depositary with respect to the Preferred Securities, the Regular Trustees may,
in their sole discretion, appoint a successor Clearing Agency with respect to
such Preferred Securities.
SECTION 9.7 DEFINITIVE PREFERRED SECURITY CERTIFICATES.
If:
(a) a Clearing Agency elects to discontinue its services as securities
depositary with respect to the Preferred Securities and a successor Clearing
Agency is not appointed within 90 days after such discontinuance pursuant to
Section 9.6; or
(b) the Regular Trustees elect after consultation with the Sponsor to
terminate the book entry system through the Clearing Agency with respect to the
Preferred Securities,
then:
(c) Definitive Preferred Security Certificates shall be prepared by the
Regular Trustees on behalf of the Trust with respect to such Preferred
Securities; and
(d) upon surrender of the Global Certificates by the Clearing Agency,
accompanied by registration instructions, the Regular Trustees shall cause
Definitive Certificates to be delivered to Preferred Security Beneficial Owners
in accordance with the instructions of the Clearing Agency. Neither the Trustees
nor the Trust shall be liable for any delay in delivery of such instructions and
each of them may conclusively rely on, and shall be protected in relying on,
said instructions of the Clearing Agency. The Definitive Preferred Security
Certificates shall be printed, lithographed or engraved or may be produced in
any other manner as is reasonably acceptable to the Regular Trustees, as
evidenced by their execution thereof, and may have such letters, numbers or
other marks of identification or designation and such legends or endorsements as
the Regular Trustees may deem appropriate, or as may be required to comply with
any law or with any rule or regulation made pursuant thereto or with any rule or
regulation of any stock exchange on which Preferred Securities may be listed, or
to conform to usage.
SECTION 9.8 MUTILATED, DESTROYED, LOST OR STOLEN CERTIFICATES.
If:
(a) any mutilated Certificates should be surrendered to the Regular
Trustees, or if the Regular Trustees shall receive evidence to their
satisfaction of the destruction, loss or theft of any Certificate; and
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(b) there shall be delivered to the Regular Trustees such security or
indemnity as may be required by them to keep each of them harmless
then, in the absence of notice that such Certificate shall have been
acquired by a Protected Purchaser (as such term is used in section 8-405(a)(1)
of the UCC as in effect in the State of Delaware (1994 Rev)), any Regular
Trustee on behalf of the Trust shall execute, and cause the Institutional
Trustee to authenticate and deliver, in exchange for or in lieu of any such
mutilated, destroyed, lost or stolen Certificate, a new Certificate of like
denomination. In connection with the issuance of any new Certificate under this
Section 9.8, the Regular Trustees may require the payment of a sum sufficient to
cover any tax or other governmental charge that may be imposed in connection
therewith. Any duplicate Certificate issued pursuant to this Section shall
constitute conclusive evidence of an ownership interest in the relevant
Securities, as if originally issued, whether or not the lost, stolen or
destroyed Certificate shall be found at any time.
ARTICLE X
LIMITATION OF LIABILITY OF HOLDERS OF SECURITIES,
TRUSTEES OR OTHERS
SECTION 10.1 LIABILITY.
(a) Except as expressly set forth in this Declaration, the Preferred
Securities Guarantee and the terms of the Securities, the Sponsor shall not be:
(i) personally liable for the return of any portion of the capital
contributions (or any return thereon) of the Holders of the Securities which
shall be made solely from assets of the Trust; and
(ii) required to pay to the Trust or to any Holder of Securities any
deficit upon dissolution of the Trust or otherwise.
(b) The Holder of the Common Securities shall be liable for all of the
debts and obligations of the Trust (other than with respect to the Securities)
to the extent not satisfied out of the Trust's assets.
(c) Pursuant to Section 3803(a) of the Business Trust Act, the Holders of
the Preferred Securities shall be entitled to the same limitation of personal
liability extended to stockholders of private corporations for profit organized
under the General Corporation Law of the State of Delaware.
SECTION 10.2 EXCULPATION.
(a) No Indemnified Person shall be liable, responsible or accountable in
damages or otherwise to the Trust or any Covered Person for any loss, damage or
claim incurred by reason of
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any act or omission performed or omitted by such Indemnified Person in good
faith on behalf of the Trust and in a manner such Indemnified Person reasonably
believed to be within the scope of the authority conferred on such Indemnified
Person by this Declaration or by law, except that an Indemnified Person shall be
liable for any such loss, damage or claim incurred by reason of such Indemnified
Person's gross negligence or willful misconduct with respect to such acts or
omissions.
(b) An Indemnified Person shall be fully protected in relying in good
faith upon the records of the Trust and upon such information, opinions, reports
or statements presented to the Trust by any Person as to matters the Indemnified
Person reasonably believes are within such other Person's professional or expert
competence and who has been selected with reasonable care by or on behalf of the
Trust, including information, opinions, reports or statements as to the value
and amount of the assets, liabilities, profits, losses, or any other facts
pertinent to the existence and amount of assets from which Distributions to
Holders of Securities might properly be paid.
SECTION 10.3 FIDUCIARY DUTY.
(a) To the extent that, at law or in equity, an Indemnified Person has
duties (including fiduciary duties) and liabilities relating thereto to the
Trust or to any other Covered Person, an Indemnified Person acting under this
Declaration shall not be liable to the Trust or to any other Covered Person for
its good faith reliance on the provisions of this Declaration. The provisions of
this Declaration, to the extent that they restrict the duties and liabilities of
an Indemnified Person otherwise existing at law or in equity (other than the
duties imposed on the Institutional Trustee under the Trust Indenture Act), are
agreed by the parties hereto to replace such other duties and liabilities of
such Indemnified Person.
(b) Unless otherwise expressly provided herein:
(i) whenever a conflict of interest exists or arises between any
Covered Person and any Indemnified Person; or
(ii) whenever this Declaration or any other agreement contemplated
herein or therein provides that an Indemnified Person shall act in a manner that
is, or provides terms that are, fair and reasonable to the Trust or any Holder
of Securities, the Indemnified Person shall resolve such conflict of interest,
take such action or provide such terms, considering in each case the relative
interest of each party (including its own interest) to such conflict, agreement,
transaction or situation and the benefits and burdens relating to such
interests, any customary or accepted industry practices, and any applicable
generally accepted accounting practices or principles. In the absence of bad
faith by the Indemnified Person, the resolution, action or term so made, taken
or provided by the Indemnified Person shall not constitute a breach of this
Declaration or any other agreement contemplated herein or of any duty or
obligation of the Indemnified Person at law or in equity or otherwise.
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(c) Whenever in this Declaration an Indemnified Person is permitted or
required to make a decision:
(i) in its "discretion" or under a grant of similar authority, the
Indemnified Person shall be entitled to consider such interests and factors as
it desires, including its own interests, and shall have no duty or obligation to
give any consideration to any interest of or factors affecting the Trust or any
other Person; or
(ii) in its "good faith" or under another express standard, the
Indemnified Person shall act under such express standard and shall not be
subject to any other or different standard imposed by this Declaration or by
applicable law.
SECTION 10.4 INDEMNIFICATION.
(a) (i) The Debenture Issuer shall indemnify, to the full extent permitted
by law, any Company Indemnified Person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other than
an action by or in the right of the Trust) by reason of the fact that he is or
was a Company Indemnified Person against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit or proceeding if he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the Trust, and, with respect to any criminal action or proceeding,
had no reasonable cause to believe his conduct was unlawful. The termination of
any action, suit or proceeding by judgment, order, settlement, conviction, or
upon a plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the Company Indemnified Person did not act in good faith and in
a manner which he reasonably believed to be in or not opposed to the best
interests of the Trust, and, with respect to any criminal action or proceeding,
had reasonable cause to believe that his conduct was unlawful.
(ii) The Debenture Issuer shall indemnify, to the full extent
permitted by law, any Company Indemnified Person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Trust to procure a judgment in its favor by
reason of the fact that he is or was a Company Indemnified Person against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Trust and except that no such indemnification shall be
made in respect of any claim, issue or matter as to which such Company
Indemnified Person shall have been adjudged to be liable to the Trust unless and
only to the extent that the Court of Chancery of Delaware or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which such Court of Chancery or such other court shall deem proper.
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(iii) To the extent that a Company Indemnified Person shall be
successful on the merits or otherwise (including dismissal of an action without
prejudice or the settlement of an action without admission of liability) in
defense of any action, suit or proceeding referred to in paragraphs (i) and (ii)
of this Section 10.4(a), or in defense of any claim, issue or matter therein, he
shall be indemnified, to the full extent permitted by law, against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith.
(iv) Any indemnification under paragraphs (i) and (ii) of this
Section 10.4(a) (unless ordered by a court) shall be made by the Debenture
Issuer only as authorized in the specific case upon a determination that
indemnification of the Company Indemnified Person is proper in the circumstances
because he has met the applicable standard of conduct set forth in paragraphs
(i) and (ii). Such determination shall be made (1) by the Regular Trustees by a
majority vote of a quorum consisting of such Regular Trustees who were not
parties to such action, suit or proceeding, (2) if such a quorum is not
obtainable, or, even if obtainable, if a quorum of disinterested Regular
Trustees so directs, by independent legal counsel in a written opinion, or (3)
by the Common Security Holder of the Trust.
(v) Expenses (including attorneys' fees) incurred by a Company
Indemnified Person in defending a civil, criminal, administrative or
investigative action, suit or proceeding referred to in paragraphs (i) and (ii)
of this Section 10.4(a) shall be paid by the Debenture Issuer in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such Company Indemnified Person to repay such
amount if it shall ultimately be determined that he is not entitled to be
indemnified by the Debenture Issuer as authorized in this Section 10.4(a).
Notwithstanding the foregoing, no advance shall be made by the Debenture Issuer
if a determination is reasonably and promptly made (i) by the Regular Trustees
by a majority vote of a quorum of disinterested Regular Trustees, (ii) if such a
quorum is not obtainable, or, even if obtainable, if a quorum of disinterested
Regular Trustees so directs, by independent legal counsel in a written opinion
or (iii) the Common Security Holder of the Trust, that, based upon the facts
known to the Regular Trustees, counsel or the Common Security Holder at the time
such determination is made, such Company Indemnified Person acted in bad faith
or in a manner that such person did not believe to be in or not opposed to the
best interests of the Trust, or, with respect to any criminal proceeding, that
such Company Indemnified Person believed or had reasonable cause to believe his
conduct was unlawful. In no event shall any advance be made in instances where
the Regular Trustees, independent legal counsel or Common Security Holder
reasonably determine that such person deliberately breached his duty to the
Trust or its Common or Preferred Security Holders.
(vi) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other paragraphs of this Section 10.4(a) shall not be
deemed exclusive of any other rights to which those seeking indemnification and
advancement of expenses may be entitled under any agreement, vote of
stockholders or disinterested directors of the Debenture Issuer or Preferred
Security Holders of the Trust or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such office. All
rights to indemnification under this Section 10.4(a) shall be deemed to be
provided by a contract between the Debenture Issuer and
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each Company Indemnified Person who serves in such capacity at any time while
this Section 10.4(a) is in effect. Any repeal or modification of this Section
10.4(a) shall not affect any rights or obligations then existing.
(vii) The Debenture Issuer may purchase and maintain insurance on
behalf of any person who is or was a Company Indemnified Person against any
liability asserted against him and incurred by him in any such capacity, or
arising out of his status as such, whether or not the Debenture Issuer would
have the power to indemnify him against such liability under the provisions of
this Section 10.4(a).
(viii) For purposes of this Section 10.4(a), references to "the
Trust" shall include, in addition to the resulting or surviving entity, any
constituent entity (including any constituent of a constituent) absorbed in a
consolidation or merger, so that any person who is or was a director, trustee,
officer or employee of such constituent entity, or is or was serving at the
request of such constituent entity as a director, trustee, officer, employee or
agent of another entity, shall stand in the same position under the provisions
of this Section 10.4(a) with respect to the resulting or surviving entity as he
would have with respect to such constituent entity if its separate existence had
continued.
(ix) The indemnification and advancement of expenses provided by, or
granted pursuant to, this Section 10.4(a) shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a Company
Indemnified Person and shall inure to the benefit of the heirs, executors and
administrators of such a person.
(b) The Sponsor agrees to indemnify (i) the Institutional Trustee, (ii)
the Delaware Trustee, (iii) any Affiliate of the Institutional Trustee and the
Delaware Trustee, and (iv) any officers, directors, shareholders, members,
partners, employees, representatives, custodians, nominees or agents of the
Institutional Trustee and the Delaware Trustee (each of the Persons in (i)
through (iv) being referred to as a "Fiduciary Indemnified Person") for, and to
hold each Fiduciary Indemnified Person harmless against, any loss, liability or
expense incurred without negligence or bad faith on its part, arising out of or
in connection with the acceptance or administration or the trust or trusts
hereunder, including the costs and expenses (including reasonable legal fees and
expenses) of defending itself against or investigating any claim or liability in
connection with the exercise or performance of any of its powers or duties
hereunder. The obligation to indemnify as set forth in this Section 10.4(b)
shall survive the satisfaction and discharge of this Declaration and the
termination of the Trust.
(c) The Sponsor agrees to pay the Institutional Trustee and the Delaware
Trustee, from time to time, such compensation for all services rendered by the
Institutional Trustee and the Delaware Trustee hereunder as may be mutually
agreed upon in writing by the Sponsor and the Institutional Trustee or the
Delaware Trustee, as the case may be, and except as otherwise expressly provided
herein, to reimburse the Institutional Trustee and the Delaware Trustee upon its
or their request for all reasonable expenses (including counsel fees and
expenses), disbursements and advances incurred or made by the Institutional
Trustee or the Delaware
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Trustee, as the case may be, in accordance with the provisions of this
Declaration, except any such expense, disbursement or advance as may be
attributable to its or their negligence or bad faith.
SECTION 10.5 OUTSIDE BUSINESSES.
Any Covered Person, the Sponsor, the Delaware Trustee and the
Institutional Trustee (subject to Section 5.3(c)) may engage in or possess an
interest in other business ventures of any nature or description, independently
or with others, similar or dissimilar to the business of the Trust, and the
Trust and the Holders of Securities shall have no rights by virtue of this
Declaration in and to such independent ventures or the income or profits derived
therefrom, and the pursuit of any such venture, even if competitive with the
business of the Trust, shall not be deemed wrongful or improper. No Covered
Person, the Sponsor, the Delaware Trustee, or the Institutional Trustee shall be
obligated to present any particular investment or other opportunity to the Trust
even if such opportunity is of a character that, if presented to the Trust,
could be taken by the Trust, and any Covered Person, the Sponsor, the Delaware
Trustee and the Institutional Trustee shall have the right to take for its own
account (individually or as a partner or fiduciary) or to recommend to others
any such particular investment or other opportunity. Any Covered Person, the
Delaware Trustee and the Institutional Trustee may engage or be interested in
any financial or other transaction with the Sponsor or any Affiliate of the
Sponsor, or may act as depositary for, trustee or agent for, or act on any
committee or body of holders of, securities or other obligations of the Sponsor
or its Affiliates.
ARTICLE XI
ACCOUNTING
SECTION 11.1 FISCAL YEAR.
The fiscal year ("Fiscal Year") of the Trust shall be the calendar year,
or such other year as is required by the Code.
SECTION 11.2 CERTAIN ACCOUNTING MATTERS.
(a) At all times during the existence of the Trust, the Regular Trustees
shall keep, or cause to be kept, full books of account, records and supporting
documents, which shall reflect in reasonable detail, each transaction of the
Trust. The books of account shall be maintained on the accrual method of
accounting, in accordance with generally accepted accounting principles,
consistently applied. The Trust shall use the accrual method of accounting for
United States federal income tax purposes. The books of account and the records
of the Trust shall be examined by and reported upon as of the end of each Fiscal
Year of the Trust by a firm of independent certified public accountants selected
by the Regular Trustees.
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(b) The Regular Trustees shall cause to be prepared and delivered to each
of the Holders of Securities, within 90 days after the end of each Fiscal Year
of the Trust, annual financial statements of the Trust, including a balance
sheet of the Trust as of the end of such Fiscal Year, and the related statements
of income or loss;
(c) The Regular Trustees shall cause to be duly prepared and delivered to
each of the Holders of Securities, any annual United States federal income tax
information statement, required by the Code, containing such information with
regard to the Securities held by each Holder as is required by the Code and the
Treasury Regulations. Notwithstanding any right under the Code to deliver any
such statement at a later date, the Regular Trustees shall endeavor to deliver
all such statements within 30 days after the end of each Fiscal Year of the
Trust.
(d) The Regular Trustees shall cause to be duly prepared and filed with
the appropriate taxing authority, an annual United States federal income tax
return, on a Form 1041 or such other form required by United States federal
income tax law, and any other annual income tax returns required to be filed by
the Regular Trustees on behalf of the Trust with any state or local taxing
authority.
SECTION 11.3 BANKING.
The Trust shall maintain one or more bank accounts in the name and for the
sole benefit of the Trust; provided, however, that all payments of funds in
respect of the Debentures held by the Institutional Trustee shall be made
directly to the Institutional Trustee Account and no other funds of the Trust
shall be deposited in the Institutional Trustee Account. The sole signatories
for such accounts shall be designated by the Regular Trustees; provided,
however, that the Institutional Trustee shall designate the signatories for the
Institutional Trustee Account.
SECTION 11.4 WITHHOLDING.
The Regular Trustees shall, and shall cause the Trust to, comply with all
withholding requirements under United States federal, state and local law. The
Trust shall request, and the Holders shall provide to the Trust, such forms or
certificates as are necessary to establish an exemption from withholding with
respect to each Holder, and any representations and forms as shall reasonably be
requested by the Trust to assist it in determining the extent of, and in
fulfilling, its withholding obligations. The Regular Trustees shall file
required forms with applicable jurisdictions and, unless an exemption from
withholding is properly established by a Holder, shall remit amounts withheld
with respect to the Holder to applicable jurisdictions. To the extent that the
Trust is required to withhold and pay over any amounts to any authority with
respect to distributions or allocations to any Holder, the amount withheld shall
be deemed to be a distribution in the amount of the withholding to the Holder.
In the event of any claimed over withholding, Holders shall be limited to an
action against the applicable jurisdiction. If the amount required to be
withheld was not withheld from actual Distributions made, the Trust may reduce
subsequent Distributions by the amount of such withholding.
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ARTICLE XII
AMENDMENTS AND MEETINGS
SECTION 12.1 AMENDMENTS.
(a) Except as otherwise provided in this Declaration or by any applicable
terms of the Securities, this Declaration may only be amended by a written
instrument approved and executed by:
(i) the Regular Trustees (or, if there are more than two Regular
Trustees a majority of the Regular Trustees);
(ii) if the amendment affects the rights, powers, duties,
obligations or immunities of the Institutional Trustee, the Institutional
Trustee; and
(iii) if the amendment affects the rights, powers, duties,
obligations or immunities of the Delaware Trustee, the Delaware Trustee;
(b) no amendment shall be made, and any such purported amendment shall be
void and ineffective:
(i) unless, in the case of any proposed amendment, the Institutional
Trustee shall have first received an Officers' Certificate from each of the
Trust and the Sponsor that such amendment is permitted by, and conforms to, the
terms of this Declaration (including the terms of the Securities);
(ii) unless, in the case of any proposed amendment which affects the
rights, powers, duties, obligations or immunities of the Institutional Trustee,
the Institutional Trustee shall have first received:
(A) an Officers' Certificate from each of the Trust and the
Sponsor that such amendment is permitted by, and conforms to, the terms of this
Declaration (including the terms of the Securities); and
(B) an opinion of counsel (who may be counsel to the Sponsor
or the Trust) that such amendment is permitted by, and conforms to, the terms of
this Declaration (including the terms of the Securities); and
(iii) to the extent the result of such amendment would be to:
(A) cause the trust to fail to continue to be classified for
purposes of United States federal income taxation as a grantor trust;
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(B) reduce or otherwise adversely affect the powers of the
Institutional Trustee in contravention of the Trust Indenture Act; or
(C) cause the Trust to be deemed to be an Investment Company
required to be registered under the Investment Company Act;
(c) at such time after the Trust has issued any Securities that remain
outstanding, any amendment that would adversely affect the rights, privileges or
preferences of any Holder of Securities may be effected only with such
additional requirements as may be set forth in the terms of such Securities;
(d) Section 9.1(c) and this Section 12.1 shall not be amended without the
consent of all of the Holders of the Securities;
(e) Article IV shall not be amended without the consent of the Holders of
a Majority in liquidation amount of the Common Securities and;
(f) the rights of the Holders of the Common Securities under Article V to
increase or decrease the number of, and appoint and remove Trustees shall not be
amended without the consent of the Holders of a Majority in liquidation amount
of the Common Securities; and
(g) subject to Section 12.1(c), this Declaration may be amended without
the consent of the Holders of the Securities to:
(i) cure any ambiguity;
(ii) correct or supplement any provision in this Declaration that
may be defective or inconsistent with any other provision of this Declaration;
(iii) add to the covenants, restrictions or obligations of the
Sponsor;
(iv) to conform to any change in Rule 3a-5 or written change in
interpretation or application of Rule 3a-5 by any legislative body, court,
government agency or regulatory authority which amendment does not have a
material adverse effect on the right, preferences or privileges of the Holders;
and
(v) to modify, eliminate and add to any provision of the Declaration
to such extent as may be reasonably necessary to effectuate any of the foregoing
or to otherwise comply with applicable law.
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SECTION 12.2 MEETINGS OF THE HOLDERS OF SECURITIES: ACTION BY WRITTEN
CONSENT.
(a) Meetings of the Holders of any class of Securities may be called at
any time by the Regular Trustees (or as provided in the terms of the Securities)
to consider and act on any matter on which Holders of such class of Securities
are entitled to act under the terms of this Declaration, the terms of the
Securities or the rules of any stock exchange on which the Preferred Securities
are listed or admitted for trading. The Regular Trustees shall call a meeting of
the Holders of such class if directed to do so by the Holders of Securities
representing at least 25% in liquidation amount of such class of Securities.
Such direction shall be given by delivering to the Regular Trustees one or more
calls in a writing stating that the signing Holders of Securities wish to call a
meeting and indicating the general or specific purpose for which the meeting is
to be called. Any Holders of Securities calling a meeting shall specify in
writing the Security Certificates held by the Holders of Securities exercising
the right to call a meeting and only those Securities specified shall be counted
for purposes of determining whether the required percentage set forth in the
second sentence of this paragraph has been met.
(b) Except to the extent otherwise provided in the terms of the
Securities, the following provisions shall apply to meetings of Holders of
Securities:
(i) notice of any such meeting shall be given to all the Holders of
Securities having a right to vote thereat at least 7 days and not more than 60
days before the date of such meeting. Whenever a vote, consent or approval of
the Holders of Securities is permitted or required under this Declaration or the
rules of any stock exchange on which the Preferred Securities are listed or
admitted for trading, such vote, consent or approval may be given at a meeting
of the Holders of Securities. Any action that may be taken at a meeting of the
Holders of Securities may be taken without a meeting if a consent in writing
setting forth the action so taken is signed by the Holders of Securities owning
not less than the minimum amount of Securities in liquidation amount that would
be necessary to authorize or take such action at a meeting at which all Holders
of Securities having a right to vote thereon were present and voting. Prompt
notice of the taking of action without a meeting shall be given to the Holders
of Securities entitled to vote who have not consented in writing. The Regular
Trustees may specify that any written ballot submitted to the Security Holder
for the purpose of taking any action without a meeting shall be returned to the
Trust within the time specified by the Regular Trustees;
(ii) each Holder of a Security may authorize any Person to act for
it by proxy on all matters in which a Holder of Securities is entitled to
participate, including waiving notice of any meeting, or voting or participating
at a meeting. No proxy shall be valid after the expiration of 11 months from the
date thereof unless otherwise provided in the proxy. Every proxy shall be
revocable at the pleasure of the Holder of Securities executing it. Except as
otherwise provided herein, all matters relating to the giving, voting or
validity of proxies shall be governed by the General Corporation Law of the
State of Delaware relating to proxies, and judicial interpretations thereunder,
as if the Trust were a Delaware corporation and the Holders of the Securities
were stockholders of a Delaware corporation;
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(iii) each meeting of the Holders of the Securities shall be
conducted by the Regular Trustees or by such other Person that the Regular
Trustees may designate; and
(iv) unless the Business Trust Act, this Declaration, the terms of
the Securities, the Trust Indenture Act or the listing rules of any stock
exchange on which the Preferred Securities are then listed or trading, otherwise
provides, the Regular Trustees, in their sole discretion, shall establish all
other provisions relating to meetings of Holders of Securities, including notice
of the time, place or purpose of any meeting at which any matter is to be voted
on by any Holders of Securities, waiver of any such notice, action by consent
without a meeting, the establishment of a record date, quorum requirements,
voting in person or by proxy or any other matter with respect to the exercise of
any such right to vote.
ARTICLE XIII
REPRESENTATIONS OF INSTITUTIONAL TRUSTEE AND DELAWARE TRUSTEE
SECTION 13.1 REPRESENTATIONS AND WARRANTIES OF INSTITUTIONAL TRUSTEE.
The Trustee that acts as initial Institutional Trustee represents and
warrants to the Trust and to the Sponsor at the date of this Declaration, and
each Successor Institutional Trustee represents and warrants to the Trust and
the Sponsor at the time of the Successor Institutional Trustee's acceptance of
its appointment as Institutional Trustee that:
(a) the Institutional Trustee is a Delaware banking corporation with trust
powers, duly organized, validly existing and in good standing under the laws of
the State of Delaware, with trust power and authority to execute and deliver,
and to carry out and perform its obligations under the terms of, the
Declaration;
(b) the execution, delivery and performance by the Institutional Trustee
of the Declaration has been duly authorized by all necessary corporate action on
the part of the Institutional Trustee. The Declaration has been duly executed
and delivered by the Institutional Trustee, and it constitutes a legal, valid
and binding obligation of the Institutional Trustee, enforceable against it in
accordance with its terms, subject to applicable bankruptcy, reorganization,
moratorium, insolvency, and other similar laws affecting creditors' rights
generally and to general principles of equity and the discretion of the court
(regardless of whether the enforcement of such remedies is considered in a
proceeding in equity or at law);
(c) the execution, delivery and performance of the Declaration by the
Institutional Trustee does not conflict with or constitute a breach of the
Amended Charter or by-laws of the Institutional Trustee; and
(d) no consent, approval or authorization of, or registration with or
notice to, any State or Federal banking authority governing the banking or trust
powers of the Institutional
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Trustee is required for the execution, delivery or performance by the
Institutional Trustee, of the Declaration.
SECTION 13.2 REPRESENTATIONS AND WARRANTIES OF DELAWARE TRUSTEE.
The Trustee that acts as initial Delaware Trustee represents and warrants
to the Trust and to the Sponsor at the date of this Declaration, and each
Successor Delaware Trustee represents and warrants to the Trust and the Sponsor
at the time of the Successor Delaware Trustee's acceptance of its appointment as
Delaware Trustee that:
(a) The Delaware Trustee is a Delaware banking corporation with trust
powers, duly organized, validly existing and in good standing under the laws of
the State of Delaware, with trust power and authority to execute and deliver,
and to carry out and perform its obligations under the terms of, the
Declaration.
(b) The Delaware Trustee has been authorized to perform its obligations
under the Certificate of Trust and the Declaration. The Declaration under
Delaware law constitutes a legal, valid and binding obligation of the Delaware
Trustee, enforceable against it in accordance with its terms, subject to
applicable bankruptcy, reorganization, moratorium, insolvency, and other similar
laws affecting creditors' rights generally and to general principles of equity
and the discretion of the court (regardless of whether the enforcement of such
remedies is considered in a proceeding in equity or at law).
(c) No consent, approval or authorization of, or registration with or
notice to, any State or Federal banking authority governing the banking or trust
powers of the Institutional Trustee is required for the execution, delivery or
performance by the Delaware Trustee of the Declaration.
(d) The Delaware Trustee has its principal place of business in the State
of Delaware.
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ARTICLE XIV
MISCELLANEOUS
SECTION 14.1 NOTICES.
All notices provided for in this Declaration shall be in writing, duly
signed by the party giving such notice, and shall be delivered, telecopied or
mailed by registered or certified mail, as follows:
(a) if given to the Trust, in care of the Regular Trustees at the Trust's
mailing address set forth below (or such other address as the Trust may give
notice of to the Holders of the Securities):
Hartford Life Capital I
c/o Hartford Life, Inc.
200 Hopmeadow Street
Simsbury, Connecticut 06089
Attention: Gregory A. Boyko
With a copy to: Lynda Godkin
(b) if given to the Delaware Trustee, at the mailing address set forth
below (or such other address as Delaware Trustee may give notice of to the
Holders of the Securities):
Wilmington Trust Company
1100 North Market Street
Wilmington, Delaware 19890-001
Attn: Corporate Trust Administration
(c) if given to the Institutional Trustee, at its Corporate Trust Office
(or such other address as the Institutional Trustee may give notice of to the
Holders of the Securities):
Wilmington Trust Company
1100 North Market Street
Wilmington, Delaware 19890-001
Attn: Corporate Trust Administration
(d) if given to the Holder of the Common Securities, at the mailing
address of the Sponsor set forth below (or such other address as the Holder of
the Common Securities may give notice of to the Trust):
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Hartford Life, Inc.
200 Hopmeadow Street
Simsbury, Connecticut 06089
Attention: Gregory A. Boyko
With a copy to: Lynda Godkin
(e) if given to any other Holder, at the address set forth on the books
and records of the Trust.
All such notices 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 14.2 GOVERNING LAW.
This Declaration and the rights of the parties hereunder shall be governed
by and interpreted in accordance with the laws of the State of Delaware and all
rights and remedies shall be governed by such laws without regard to principles
of conflict of laws.
SECTION 14.3 INTENTION OF THE PARTIES.
It is the intention of the parties hereto that the Trust be classified for
United States federal income tax purposes as a grantor trust. The provisions of
this Declaration shall be interpreted to further this intention of the parties.
SECTION 14.4 HEADINGS.
Headings contained in this Declaration are inserted for convenience of
reference only and do not affect the interpretation of this Declaration or any
provision hereof.
SECTION 14.5 SUCCESSORS AND ASSIGNS.
Whenever in this Declaration any of the parties hereto is named or
referred to, the successors and assigns of such party shall be deemed to be
included, and all covenants and agreements in this Declaration by the Sponsor
and the Trustees shall bind and inure to the benefit of their respective
successors and assigns, whether so expressed.
SECTION 14.6 PARTIAL ENFORCEABILITY.
If any provision of this Declaration, or the application of such provision
to any Person or circumstance, shall be held invalid, the remainder of this
Declaration, or the application of such
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provision to persons or circumstances other than those to which it is held
invalid, shall not be affected thereby.
SECTION 14.7 COUNTERPARTS.
This Declaration may contain more than one counterpart of the signature
page and this Declaration may be executed by the affixing of the signature of
each of the parties hereto one of such counterpart signature pages. All of such
counterpart signature pages shall be read as though one, and they shall have the
same force and effect as though all of the signers had signed a single signature
page.
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IN WITNESS WHEREOF, the undersigned has caused these presents to be
executed as of the day and year first above written.
/s/ Gregory A. Boyko
-------------------------------------------
Gregory A. Boyko, as Regular Trustee
/s/ Lynda Godkin
-------------------------------------------
Lynda Godkin, as Regular Trustee
WILMINGTON TRUST COMPANY, as
Delaware Trustee
By: /s/ Mary C. St. Amand
-----------------------------------------
Name: Mary C. St. Amand
Title: Assistant Vice President
WILMINGTON TRUST COMPANY, as
Institutional Trustee
By: /s/ Mary C. St. Amand
---------------------------------------
Name: Mary C. St. Amand
Title: Assistant Vice President
HARTFORD LIFE, INC., as Sponsor and
Debenture Issuer
By: /s/ Gregory A. Boyko
----------------------------------------
Name:
Title:
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ANNEX I
TERMS OF
7.20% TRUST PREFERRED SECURITIES, SERIES A
7.20% TRUST COMMON SECURITIES, SERIES A
Pursuant to Section 7.1 of the Amended and Restated Declaration of Trust,
dated as of June 29, 1998 (as amended from time to time, the "Declaration"), the
designation, rights, privileges, restrictions, preferences and other terms and
provisions of the Preferred Securities and the Common Securities are set out
below (each capitalized term used but not defined herein has the meaning set
forth in the Declaration or, if not defined in such Declaration, as defined in
the Prospectus referred to below):
1. Designation and Number.
(a) Preferred Securities. Ten million (10,000,000) Preferred Securities of
the Trust with an aggregate liquidation amount with respect to the assets of the
Trust of two-hundred and fifty million dollars ($250,000,000.00) and a
liquidation amount with respect to the assets of the Trust of $25 per preferred
security, are hereby designated for the purposes of identification only as
"7.20% Trust Preferred Securities, Series A" (the "Series A Preferred
Securities"). The Preferred Security Certificates evidencing the Preferred
Securities shall be substantially in the form of Exhibit A-1 to the Declaration,
with such changes and additions thereto or deletions therefrom as may be
required by ordinary usage, custom or practice or to conform to the rules of any
stock exchange on which the Preferred Securities are listed.
(b) Common Securities. Three-hundred and nine thousand two-hundred and
eighty (309,280) Common Securities of the Trust with an aggregate liquidation
amount with respect to the assets of the Trust of seven million seven hundred
thirty-two thousand dollars ($7,732,000.00) and a liquidation amount with
respect to the assets of the Trust of $25 per common security, are hereby
designated for the purposes of identification only as "7.20% Trust Common
Securities, Series A" (the "Common Securities"). The Common Security
Certificates evidencing the Common Securities shall be substantially in the form
of Exhibit A-2 to the Declaration, with such changes and additions thereto or
deletions therefrom as may be required by ordinary usage, custom or practice.
2. Distributions.
(a) Distributions payable on each Security will be fixed at a rate per
annum of 7.20% (the "Coupon Rate") of the stated liquidation amount of $25 per
Security, such rate being the rate of interest payable on the Debentures to be
held by the Institutional Trustee. Distributions in arrears beyond the first
date such Distributions are payable (or would be payable if not for any
Extension Period (as defined below) or default by the Debenture Issuer on the
Debentures) will bear interest thereon compounded quarterly at the Coupon Rate
(to the extent permitted by applicable law). The term "Distributions" as used
herein includes such cash distributions and any such interest payable unless
otherwise stated. A Distribution is payable only to the extent that
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payments are made in respect of the Debentures held by the Institutional Trustee
and to the extent the Institutional Trustee has funds available therefor. The
amount of Distributions payable for any period will be computed for any full
quarterly Distribution period on the basis of a 360-day year of twelve 30-day
months, and for any period shorter than a full quarterly Distribution period for
which Distributions are computed, Distributions will be computed on the basis of
the actual number of days elapsed per 90-day quarter.
(b) Distributions on the Securities will be cumulative, will accrue from
and including June 29, 1998, and will be payable quarterly in arrears, on
January 15, April 15, July 15, and October 15 of each year, commencing on July
15, 1998. When, as and if available for payment, Distributions will be made by
the Institutional Trustee, except as otherwise described below. The Debenture
Issuer has the right under the Indenture to defer payments of interest on the
Debentures by extending the interest payment period from time to time on the
Debentures for a period not exceeding 20 consecutive quarters (each an
"Extension Period"), during which Extension Period no interest shall be due and
payable on the Debentures, provided that no Extension Period may extend beyond
the date of maturity of the Debentures. As a consequence of the Debenture
Issuer's extension of the interest payment period, Distributions will also be
deferred. Despite such deferral, quarterly Distributions will continue to accrue
with interest thereon (to the extent permitted by applicable law) at the Coupon
Rate compounded quarterly during any such Extension Period. In the event that
the Debenture Issuer exercises its right to extend the interest payment period,
then (a) the Debenture Issuer shall not declare or pay any dividend on, make any
distributions with respect to, or redeem, purchase, acquire or make a
liquidation payment with respect to, any of its capital stock or make any
guarantee payment with respect thereto (other than (i) repurchases, redemptions
or other acquisitions of shares of capital stock of Hartford Life in connection
with any employment contract, benefit plan or other similar arrangement with or
for the benefit of employees, officers, directors or consultants, (ii) as a
result of an exchange or conversion of any class or series of Hartford Life's
capital stock for any other class or series of Hartford Life's capital stock,
(iii) the purchase of fractional interests in shares of Hartford Life's capital
stock pursuant to the conversion or exchange provisions of such capital stock or
the security being converted or exchanged, or (iv) distribution of rights under
any shareholders' rights plan adopted by Hartford Life) and (b) the Debenture
Issuer shall not make any payment of interest on or principal of (or premium, if
any, on), or repay, repurchase or redeem, any debt securities issued by the
Debenture Issuer or its subsidiaries that rank pari passu with or junior to the
Debentures. The foregoing, however, will not apply to any stock dividends paid
by Hartford Life where the dividend stock is the same stock as that on which the
dividend is being paid. Prior to the termination of any such Extension Period,
the Debenture Issuer may further extend such Extension Period; provided that
such Extension Period, together with all such previous and further extensions
thereof, may not exceed 20 consecutive quarters; provided, further, that no
Extension Period may extend beyond the maturity of the Debentures. Payments of
accrued Distributions will be payable to Holders as they appear on the books and
records of the Trust on the first record date after the end of the Extension
Period. Upon the termination of any Extension Period and the payment of all
amounts then due, the Debenture Issuer may commence a new Extension Period,
subject to the above requirements. The Regular Trustees will give notice
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to each Holder of any Extension Period upon their receipt of notice thereof from
the Debenture Issuer.
(c) Distributions on the Securities will be payable to the Holders thereof
as they appear on the books and records of the Trust at the close of business on
the relevant record dates. While the Preferred Securities remain in book-entry
only form, the relevant record dates shall be one Business Day prior to the
relevant payment dates which payment dates shall correspond to the interest
payment dates on the Debentures. Subject to any applicable laws and regulations
and the provisions of the Declaration, each such payment in respect of the
Preferred Securities will be made as described under the heading "Description of
the Preferred Securities -- Book-Entry Only Issuance -- The Depository Trust
Company" in the Prospectus Supplement dated June 24, 1998, (the "Prospectus
Supplement") to the Prospectus dated June 24, 1998 (together, the "Prospectus"),
of the Trust included in the Registration Statement on Form S-3 of the Sponsor,
the Trust and certain other business trusts. The relevant record dates for the
Common Securities shall be the same record date as for the Preferred Securities.
If the Preferred Securities shall not continue to remain in book-entry only
form, the relevant record dates for the Preferred Securities shall conform to
the rules of any securities exchange on which the securities are listed and, if
none, shall be selected by the Regular Trustees, which dates shall be at least
14 days but no more than 60 days before the relevant payment dates, which
payment dates shall correspond to the interest payment dates on the Debentures.
Distributions payable on any Securities that are not punctually paid on any
Distribution payment date, as a result of the Debenture Issuer having failed to
make a payment under the Debentures (other than while an Extension Period shall
be continuing) , will cease to be payable to the Person in whose name such
Securities are registered on the relevant record date, and such defaulted
Distribution will instead be payable to the Person in whose name such Securities
are registered on the special record date or other specified date determined in
accordance with the Indenture. If any date on which Distributions are payable on
the Securities is not a Business Day, then payment of the Distribution payable
on such date will be made on the next succeeding day that 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 such Distribution payment date.
(d) In the event that there is any money or other property held by or for
the Trust that is not accounted for hereunder, such property shall be
distributed Pro Rata (as defined herein) among the Holders of the Securities.
3. Liquidation Distribution Upon Dissolution.
In the event of any voluntary or involuntary dissolution or winding-up of
the Trust, the Holders of the Securities on the date of the dissolution or
winding-up, as the case may be, will be entitled to receive out of the assets of
the Trust available for distribution to Holders of Securities after satisfaction
of liabilities of creditors, distributions in an amount equal to the aggregate
of the stated liquidation amount of $25 per Security plus accrued and unpaid
Distributions thereon to the date of payment (such amount being the "Liquidation
Distribution"), unless, in connection
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with such dissolution, or winding-up, Debentures in an aggregate principal
amount equal to the aggregate stated liquidation amount of, with an interest
rate equal to the Coupon Rate, and bearing accrued and unpaid interest in an
amount equal to the accrued and unpaid Distributions on, such Securities
outstanding at such time, have been distributed on a Pro Rata basis to the
Holders of the Securities in exchange for such Securities.
If, upon any such dissolution, the Liquidation Distribution can be paid
only in part because the Trust has insufficient assets available to pay in full
the aggregate Liquidation Distribution, then the amounts payable directly by the
Trust on the Securities shall be paid on a Pro Rata basis.
4. Redemption and Distribution.
(a) Upon the repayment of the Debentures in whole or in part, whether at
maturity or upon redemption (either at the option of the Debenture Issuer or
pursuant to a Special Event as described below), the proceeds from such
repayment or payment shall be simultaneously applied to redeem Securities having
an aggregate liquidation amount equal to the aggregate principal amount of the
Debentures so repaid or redeemed at a redemption price equal to the proceeds
from such repayment or redemption of the Debentures (the "Redemption Price").
Holders shall be given not less than 30 nor more than 60 days notice of such
redemption.
(b) If fewer than all the outstanding Securities are to be so redeemed,
the Securities will be redeemed Pro Rata and the Preferred Securities to be
redeemed will be as described in Section 4(f)(ii) below.
(c) The Debenture Issuer shall have the right, at any time, to dissolve
the Trust and, after satisfaction of creditors, cause Debentures held by the
Institutional Trustee, having an aggregate principal amount equal to the
aggregate stated liquidation amount of, with an interest rate identical to the
Coupon Rate, and with accrued and unpaid interest equal to accrued and unpaid
Distributions on, the Securities outstanding at such time, to be distributed to
the Holders of the Securities in liquidation of such Holders' interests in the
Trust on a Pro Rata basis.
(d) The Debenture Issuer shall have the right, upon not less than 30 nor
more than 60 days notice, to redeem the Debentures, in whole but not in part,
for cash within 90 days following the occurrence of a Tax Event or an Investment
Company Event (each as defined below, and each a "Special Event"), and,
following such redemption, Securities with an aggregate liquidation amount equal
to the aggregate principal amount of the Debentures so redeemed shall be
redeemed by the Trust at the Redemption Price on a Pro Rata basis.
"Tax Event" means that the Regular Trustees shall have received an opinion
of a nationally recognized independent tax counsel experienced in such matters
(a "Tax Event Opinion") to the effect that, as a result of (a) 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, or (b) any interpretation or application
of, or pronouncement with respect to, such laws or regulation, by any
legislative body, court,
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governmental agency or regulatory authority (including the enactment of any
legislation and the publication of any judicial decision or regulatory
determination), which amendment or change is effective or which interpretation,
application or pronouncement is announced on or after June , 1998, there is
more than an insubstantial risk that (i) the Trust would be subject to United
States federal income tax with respect to interest accrued or received on the
Debentures, (ii) the Trust would be subject to more than a de minimis amount of
other taxes, duties or other governmental charges, or (iii) interest payable to
the Trust on the Debentures would not be deductible, in whole or in part, by the
Debenture Issuer for United States federal income tax purposes.
"Investment Company Event" means that the Regular Trustees shall have
received an opinion of a nationally recognized independent counsel experienced
in practice under the Investment Company Act (an "Investment Company Event
Opinion") to the effect that, as a result of the occurrence of a change in law
or regulation or a written 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"), there is a more than an insubstantial
risk that the Trust is or will be considered an Investment Company which is
required to be registered under the Investment Company Act, which Change in 1940
Act Law becomes effective on or after the date of the Prospectus Supplement.
On and from the date fixed by the Regular Trustees for any distribution of
Debentures and dissolution of the Trust: (i) the Securities will no longer be
deemed to be outstanding, (ii) DTC or its nominee (or any successor Clearing
Agency or its nominee), as the record Holder of the Preferred Securities, will
receive a registered global certificate or certificates representing the
Debentures to be delivered upon such distribution and (iii) any certificates
representing Securities, except for certificates representing Preferred
Securities held by DTC or its nominee (or any successor Clearing Agency or its
nominee), will be deemed to represent beneficial interests in the Debentures
having an aggregate principal amount equal to the aggregate stated liquidation
amount of, with an interest rate identical to the Coupon Rate of, and accrued
and unpaid interest equal to accrued and unpaid Distributions on such Securities
until such certificates are presented to the Debenture Issuer or its agent for
transfer or reissue.
(e) The Trust may not redeem fewer than all the outstanding Securities
unless all accrued and unpaid Distributions have been paid on all Securities for
all quarterly Distribution periods terminating on or before the date of
redemption.
(f) If the Debentures are distributed to Holders of the Securities,
pursuant to the terms of the Indenture, the Debenture Issuer will use its best
efforts to have the Debentures listed on the New York Stock Exchange or on such
other exchange as the Preferred Securities were listed immediately prior to the
distribution of the Debentures.
(g) Redemption or Distribution procedures will be as follows:
(i) Notice of any redemption of, or notice of distribution of
Debentures in exchange for the Securities (a "Redemption/Distribution Notice")
will be given by the Trust by
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mail to each Holder of Securities to be redeemed or exchanged not fewer than 30
nor more than 60 days before the date fixed for redemption or exchange thereof
which, in the case of a redemption, will be the date fixed for redemption of the
Debentures. For purposes of the calculation of the date of redemption or
exchange and the dates on which notices are given pursuant to this Section
4(f)(i), a Redemption/Distribution Notice shall be deemed to be given on the day
such notice is first mailed by first-class mail, postage prepaid, to Holders of
Securities. Each Redemption/Distribution Notice shall be addressed to the
Holders of Securities at the address of each such Holder appearing in the books
and records of the Trust. No defect in the Redemption/Distribution Notice or in
the mailing of either thereof with respect to any Holder shall affect the
validity of the redemption or exchange proceedings with respect to any other
Holder.
(ii) In the event that fewer than all the outstanding Securities are
to be redeemed, the Securities to be redeemed shall be redeemed Pro Rata from
each Holder of Preferred Securities, it being understood that, in respect of
Preferred Securities registered in the name of and held of record by DTC or its
nominee (or any successor Clearing Agency or its nominee) or any nominee, the
distribution of the proceeds of such redemption will be made to each Clearing
Agency Participant (or Person on whose behalf such nominee holds such
securities) in accordance with the procedures applied by such agency or nominee.
(iii) If Securities are to be redeemed and the Trust gives a
Redemption/Distribution Notice, which notice may only be issued if the
Debentures are redeemed as set out in this Section 4 (which notice will be
irrevocable), then (A) while the Preferred Securities are in book-entry only
form, with respect to the Preferred Securities, by 12:00 noon, New York City
time, on the redemption date, provided, that the Debenture Issuer has paid the
Institutional Trustee a sufficient amount of cash in connection with the related
redemption or maturity of the Debentures, the Institutional Trustee will deposit
irrevocably with DTC or its nominee (or successor Clearing Agency or its
nominee) funds sufficient to pay the applicable Redemption Price with respect to
the Preferred Securities and will give DTC (or any successor Clearing Agency)
irrevocable instructions and authority to pay the Redemption Price to the
Preferred Security Beneficial Owners, and (B) with respect to Preferred
Securities issued in definitive form and Common Securities, provided that the
Debenture Issuer has paid the Institutional Trustee a sufficient amount of cash
in connection with the related redemption or maturity of the Debentures, the
Institutional Trustee will pay the relevant Redemption Price to the Holders of
such Securities by check mailed to the address of the relevant Holder appearing
on the books and records of the Trust on the redemption date. If a
Redemption/Distribution Notice shall have been given and funds deposited as
required, if applicable, then immediately prior to the close of business on the
date of such deposit, or on the redemption date, as applicable, Distributions
will cease to accrue on the Securities so called for redemption and all rights
of Holders of such Securities so called for redemption will cease, except the
right of the Holders of such Securities to receive the Redemption Price, but
without interest on such Redemption Price. Neither the Regular Trustees nor the
Trust shall be required to register or cause to be registered the transfer of
any Securities that have been so called for redemption. If any date fixed for
redemption of Securities is not a Business Day, then payment of the Redemption
Price payable on such date will be made on
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the next succeeding day that is a Business Day (and without any interest or
other payment in respect of any such delay) except that, if such Business Day
falls in the next calendar year, such payment will be made on the immediately
preceding Business Day, in each case with the same force and effect as if made
on such date fixed for redemption. If payment of the Redemption Price in respect
of any Securities is improperly withheld or refused and not paid either by the
Institutional Trustee or by the Sponsor as guarantor pursuant to the Preferred
Securities Guarantee, Distributions on such Securities will continue to accrue
from the original redemption date to the actual date of payment, in which case
the actual payment date will be considered the date fixed for redemption for
purposes of calculating the Redemption Price.
(iv) Redemption/Distribution Notices shall be sent by the Regular
Trustees on behalf of the Trust to (A) in respect of the Preferred Securities,
DTC or its nominee (or any successor Clearing Agency or its nominee) if the
Global Certificates have been issued or, if Definitive Preferred Security
Certificates have been issued, to the Holder thereof, and (B) in respect of the
Common Securities to the Holder thereof.
(v) Subject to the foregoing and applicable law (including, without
limitation, United States federal securities laws), the Debenture Issuer or its
affiliates may at any time and from time to time purchase outstanding Preferred
Securities by tender, in the open market or by private agreement.
5. Voting Rights - Preferred Securities.
(a) Except as provided under Sections 5(b) and 7 and as otherwise required
by law and the Declaration, the Holders of the Preferred Securities will have no
voting rights.
(b) Subject to the requirements set forth in this paragraph, the Holders
of a Majority in aggregate liquidation amount of the Preferred Securities,
voting separately as a class, may direct the time, method, and place of
conducting any proceeding for any remedy available to the Institutional Trustee,
or direct the exercise of any trust or power conferred upon the Institutional
Trustee under the Declaration, including the right to direct the Institutional
Trustee, as holder of the Debentures, to (i) direct the time, method and place
of conducting any proceeding for any remedy available to the Debenture Trustee,
or exercise any trust or power conferred on the Debenture Trustee with respect
to the Debentures, (ii) waive any past Event of Default that is waivable under
Section 5.13 of the Indenture, (iii) exercise any right to rescind or annul a
declaration that the principal of all the Debentures shall be due and payable or
(iv) consent to any amendment, modification or termination of the Indenture or
the Debentures where such consent shall be required, provided, however, that,
where a consent or action under the Indenture would require the consent or act
of each holder of each Debenture affected thereby, such consent or action under
the Indenture shall not be effective until each Holder of Preferred Securities
shall have consented to such action or provided such consent. The Institutional
Trustee shall not revoke any action previously authorized or approved by a vote
of the Holders of the Preferred Securities. Except with respect to directing the
time, method and place of conducting a proceeding for a remedy available to the
Institutional Trustee, the Institutional Trustee, as holder
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of the Debentures, shall not take any of the actions described in clauses (i),
(ii), (iii) or (iv) above unless the Institutional Trustee has obtained an
opinion of a nationally recognized independent tax counsel experienced in such
matters to the effect that as a result of such action, the Trust will not fail
to be classified as a grantor trust for United States federal income tax
purposes. If the Institutional Trustee fails to enforce its rights under the
Declaration, (other than by reason of the failure to obtain the opinion set
forth in the previous sentence) any Holder of Preferred Securities may, to the
fullest extent permitted by law, directly institute a legal proceeding against
the Debenture Issuer to enforce the Institutional Trustee's rights under the
Debentures without first instituting a legal proceeding against the
Institutional Trustee or any other Person or entity. If a Declaration Event of
Default has occurred and is continuing and such event is attributable to the
failure of the Debenture Issuer to pay interest or principal on the Debentures
on the date such interest or principal is otherwise payable (or in the case of
redemption, on the redemption date), then a Holder of Preferred Securities may
also directly institute a proceeding for enforcement of payment to such Holder
(a "Direct Action") of the principal of or interest on the Debentures having a
principal amount equal to the aggregate liquidation amount of the Preferred
Securities of such Holder on or after the respective due date specified in the
Debentures without first (i) directing the Institutional Trustee to enforce the
terms of the Debentures or (ii) instituting a legal proceeding directly against
the Debenture Issuer to enforce the Institutional Trustee's rights under the
Debentures. Except as provided in the preceding sentence, the Holders of
Preferred Securities will not be able to exercise directly any other remedy
available to the Holders of the Debentures. In connection with such Direct
Action, Hartford Life will be subrogated to the rights of such Holder of
Preferred Securities under the Declaration to the extent of any payment made by
Hartford Life to such Holder of Preferred Securities in such Direct Action.
Any required approval or direction of Holders of Preferred Securities may
be given at a separate meeting of Holders of Preferred Securities convened for
such purpose, at a meeting of all of the Holders of Securities in the Trust or
pursuant to written consent. The Regular Trustees will cause a notice of any
meeting at which Holders of Preferred Securities are entitled to vote, or of any
matter upon which action by written consent of such Holders is to be taken, to
be mailed to each Holder of record of Preferred Securities. Each such notice
will include a statement setting forth (i) the date of such meeting or the date
by which such action is to be taken, (ii) a description of any resolution
proposed for adoption at such meeting on which such Holders are entitled to vote
or of such matter upon which written consent is sought and (iii) instructions
for the delivery of proxies or consents.
No vote or consent of the Holders of the Preferred Securities will be
required for the Trust to redeem and cancel Preferred Securities or to
distribute the Debentures in accordance with the Declaration and the terms of
the Securities.
Notwithstanding that Holders of Preferred Securities are entitled to vote
or consent under any of the circumstances described above, any of the Preferred
Securities that are owned by the Sponsor or any Affiliate of the Sponsor shall
not be entitled to vote or consent and shall, for purposes of such vote or
consent, be treated as if they were not outstanding.
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6. Voting Rights - Common Securities.
(a) Except as provided under Sections 6(b), (c) and 7 as otherwise
required by law and the Declaration, the Holders of the Common Securities will
have no voting rights.
(b) The Holders of the Common Securities are entitled, in accordance with
Article V of the Declaration, to vote to appoint, remove or replace any Trustee
or to increase or decrease the number of Trustees.
(c) Subject to Section 2.6 of the Declaration and only after the Event of
Default with respect to the Preferred Securities has been cured, waived, or
otherwise eliminated and subject to the requirements of the second to last
sentence of this paragraph, the Holders of a Majority in liquidation amount of
the Common Securities, voting separately as a class, may direct the time,
method, and place of conducting any proceeding for any remedy available to the
Institutional Trustee, or direct the exercise of any trust or power conferred
upon the Institutional Trustee under the Declaration, including (i) directing
the time, method, place of conducting any proceeding for any remedy available to
the Debenture Trustee, or exercising any trust or power conferred on the
Debenture Trustee with respect to the Debentures, (ii) waiving any past default
and its consequences that is waivable under Section 5.13 of the Indenture, or
(iii) exercising any right to rescind or annul a declaration that the principal
of all the Debentures shall be due and payable, provided that, where a consent
or action under the Indenture would require the consent or act of the Holders of
greater than a majority in principal amount of Debentures affected thereby (a
"Super Majority"), the Institutional Trustee may only give such consent or take
such action at the written direction of the Holders of at least the proportion
in liquidation amount of the Common Securities which the relevant Super Majority
represents of the aggregate principal amount of the Debentures outstanding.
Pursuant to this Section 6(c), the Institutional Trustee shall not revoke any
action previously authorized or approved by a vote of the Holders of the
Preferred Securities. Other than with respect to directing the time, method and
place of conducting any proceeding for any remedy available to the Institutional
Trustee or the Debenture Trustee as set forth above, the Institutional Trustee
shall not take any action in accordance with the directions of the Holders of
the Common Securities under this paragraph unless the Institutional Trustee has
obtained an opinion of tax counsel to the effect that for the purposes of United
States federal income tax the Trust will not be classified as other than a
grantor trust on account of such action. If the Institutional Trustee fails to
enforce its rights under the Declaration, any Holder of Common Securities may
institute a legal proceeding directly against any Person to enforce the
Institutional Trustee's rights under the without first instituting a legal
proceeding against the Institutional Trustee or any other Person.
Any approval or direction of Holders of Common Securities may be given at
a separate meeting of Holders of Common Securities convened for such purpose, at
a meeting of all of the Holders of Securities in the Trust or pursuant to
written consent. The Regular Trustees will cause a notice of any meeting at
which Holders of Common Securities are entitled to vote, or of any matter upon
which action by written consent of such Holders is to be taken, to be mailed to
each Holder of record of Common Securities. Each such notice will include a
statement setting forth (i)
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<PAGE> 66
the date of such meeting or the date by which such action is to be taken, (ii) a
description of any resolution proposed for adoption at such meeting on which
such Holders are entitled to vote or of such matter upon which written consent
is sought and (iii) instructions for the delivery of proxies or consents.
No vote or consent of the Holders of the Common Securities will be
required for the Trust to redeem and cancel Common Securities or to distribute
the Debentures in accordance with the Declaration and the terms of the
Securities.
7. Amendments to Declaration and Indenture.
(a) In addition to any requirements under Section 12.1 of the Declaration,
if any proposed amendment to the Declaration provides for, or the Regular
Trustees otherwise propose to effect, (i) any action that would adversely affect
the powers, preferences or special rights of the Securities, whether by way of
amendment to the Declaration or otherwise, or (ii) the dissolution, winding-up
or termination of the Trust, other than as described in Section 8.1 of the
Declaration, then the Holders of outstanding Securities as a class, will be
entitled to vote on such amendment or proposal (but not on any other amendment
or proposal) and such amendment or proposal shall not be effective except with
the approval of the Holders of at least a Majority in liquidation amount of the
Securities, voting together as a single class; provided, however, if any
amendment or proposal referred to in clause (i) above would adversely affect
only the Preferred Securities or only the Common Securities, then only the
affected class will be entitled to vote on such amendment or proposal and such
amendment or proposal shall not be effective except with the approval of a
Majority in liquidation amount of such class of Securities.
(b) In the event the consent of the Institutional Trustee as the holder of
the Debentures is required under the Indenture with respect to any amendment,
modification or termination on the Indenture or the Debentures, the
Institutional Trustee shall request the written direction of the Holders of the
Securities with respect to such amendment, modification or termination and shall
vote with respect to such amendment, modification or termination as directed by
a Majority in liquidation amount of the Securities voting together as a single
class; provided, however, that where a consent under the Indenture would require
the consent of the holders of greater than a majority in aggregate principal
amount of the Debentures (a "Super Majority"), the Institutional Trustee may
only give such consent at the direction of the Holders of at least the
proportion in liquidation amount of the Securities which the relevant Super
Majority represents of the aggregate principal amount of the Debentures
outstanding; provided, further, that the Institutional Trustee shall not take
any action in accordance with the directions of the Holders of the Securities
under this Section 7(b) unless the Institutional Trustee has obtained an opinion
of tax counsel to the effect that for the purposes of United States federal
income tax the Trust will not be classified as other than a grantor trust on
account of such action.
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<PAGE> 67
8. Pro Rata.
A reference in these terms of the Securities to any payment, distribution
or treatment as being "Pro Rata" shall mean pro rata to each Holder of
Securities according to the aggregate liquidation amount of the Securities held
by the relevant Holder in relation to the aggregate liquidation amount of all
Securities outstanding unless, in relation to a payment, an Event of Default
under the Declaration has occurred and is continuing, in which case any funds
available to make such payment shall be paid first to each Holder of the
Preferred Securities pro rata according to the aggregate liquidation amount of
Preferred Securities held by the relevant Holder relative to the aggregate
liquidation amount of all Preferred Securities outstanding, and only after
satisfaction of all amounts owed to the Holders of the Preferred Securities, to
each Holder of Common Securities pro rata according to the aggregate liquidation
amount of Common Securities held by the relevant Holder relative to the
aggregate liquidation amount of all Common Securities outstanding.
9. Ranking.
The Preferred Securities rank pari passu and payment thereon shall be made
Pro Rata with the Common Securities except that, where an Event of Default
occurs and is continuing under the Indenture in respect of the Debentures held
by the Institutional Trustee, the rights of Holders of the Common Securities to
payment in respect of Distributions and payments upon liquidation, redemption
and otherwise are subordinated to the rights to payment of the Holders of the
Preferred Securities.
10. Listing.
The Regular Trustees shall use their best efforts to cause the Preferred
Securities to be listed on the New York Stock Exchange, Inc.
11. Acceptance of Securities Guarantee and Indenture.
Each Holder of Preferred Securities and Common Securities, by the
acceptance thereof, agrees to the provisions of the Preferred Securities
Guarantee, including the subordination provisions therein and to the provisions
of the Indenture.
12. No Preemptive Rights.
The Holders of the Securities shall have no preemptive or similar rights
to subscribe for any additional securities.
13. Miscellaneous.
These terms constitute a part of the Declaration.
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<PAGE> 68
The Sponsor will provide a copy of any one or more of the Declaration, the
Preferred Securities Guarantee and the Indenture to a Holder without charge on
written request to the Sponsor at its principal place of business.
12
<PAGE> 69
EXHIBIT A-1 FORM OF PREFERRED SECURITY CERTIFICATE
[IF THE PREFERRED SECURITY IS TO BE A GLOBAL CERTIFICATE INSERT THIS
PREFERRED SECURITY IS A GLOBAL CERTIFICATE WITHIN THE MEANING OF THE DECLARATION
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF THE DEPOSITORY TRUST
COMPANY (THE "DEPOSITARY") OR A NOMINEE OF THE DEPOSITARY. THIS PREFERRED
SECURITY IS EXCHANGEABLE FOR PREFERRED SECURITIES REGISTERED IN THE NAME OF A
PERSON OTHER THAN THE DEPOSITARY OR ITS NOMINEE ONLY IN THE LIMITED
CIRCUMSTANCES DESCRIBED IN THE DECLARATION AND NO TRANSFER OF THIS PREFERRED
SECURITY (OTHER THAN A TRANSFER OF THIS PREFERRED SECURITY 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) MAY BE REGISTERED EXCEPT IN
LIMITED CIRCUMSTANCES.
UNLESS THIS PREFERRED SECURITY IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW
YORK) TO THE TRUST OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR
PAYMENT, AND ANY PREFERRED 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 SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.]
Certificate Number __________
Number of Preferred Securities _____________
CUSIP NO. _________
Certificate Evidencing Preferred Securities of
HARTFORD LIFE CAPITAL I
[ ]% Trust Preferred Securities, Series A (Liquidation Amount $25 per
Preferred Security)
HARTFORD LIFE CAPITAL I, a statutory business trust created under the laws
of the State of Delaware (the "Trust"), hereby certifies that Cede & Co. (the
"Holder") is the registered owner of ________________________ preferred
securities of the Trust representing preferred undivided preferred beneficial
interests in the assets of the Trust designated the [ ]% Trust Preferred
Securities, Series A (the "Preferred Securities"). The Preferred Securities are
transferable on the books and records of the Trust, in person or by a duly
authorized attorney,
A1-1
<PAGE> 70
upon surrender of this certificate duly endorsed and in proper form for
transfer. The designation, rights, privileges, restrictions, preferences and
other terms and provisions of the Preferred Securities are set forth in, and
this certificate and the Preferred Securities represented hereby are issued and
shall in all respects be subject to, the provisions of the Amended and Restated
Declaration of Trust of the Trust dated as of [June __], 1998, as the same may
be amended from time to time (the "Declaration"), including the designation of
the terms of the Preferred Securities as set forth in Annex I thereto.
Capitalized terms used herein but not defined shall have the meaning given them
in the Declaration. The Holder is entitled to the benefits of the Preferred
Securities Guarantee to the extent provided therein. The Sponsor will provide a
copy of the Declaration, the Preferred Securities Guarantee and the Indenture to
a Holder without charge upon written request to the Sponsor at its principal
place of business.
The Holder of this certificate, by accepting this certificate, is deemed
to have (i) agreed to the terms of the Indenture and the Debentures, including
that the Debentures are subordinate and junior in right of payment to all Senior
Indebtedness (as defined in the Indenture) and (ii) agreed to the terms of the
Preferred Securities Guarantee, including that the Preferred Securities
Guarantee is (A) subordinate and junior in right of payment to all other
liabilities of Hartford Life, (B) pari passu with the most senior preferred or
preference stock now or hereafter issued by Hartford Life and with any guarantee
now or hereafter issued by Hartford Life with respect to preferred or preference
stock of Hartford Life's affiliates and (C) senior to Hartford Life's common
stock.
Upon receipt of this certificate, the Holder is bound by the Declaration
and is entitled to the benefits thereunder.
By acceptance, the Holder agrees to treat, for United States federal
income tax purposes, the Debentures as indebtedness and the Preferred Securities
as evidence of indirect beneficial ownership in the Debentures.
IN WITNESS WHEREOF, the Trust has executed this certificate this day of
____, ____.
HARTFORD LIFE CAPITAL I
___________________________________
, as Regular Trustee
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<PAGE> 71
INSTITUTIONAL TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Preferred Securities referred to in the
within-mentioned Declaration.
By: _______________________________________
Authorized Signatory
A1-3
<PAGE> 72
[FORM OF REVERSE SECURITY]
Distributions payable on each Preferred Security will be fixed at a rate
per annum of ___% (the "Coupon Rate") of the stated liquidation amount of $_____
per Preferred Security, such rate being the rate of interest payable on the
Debentures to be held by the Institutional Trustee. Distributions in arrears
will bear interest thereon compounded quarterly at the Coupon Rate (to the
extent permitted by applicable law). The term "Distributions" as used herein
includes such cash distributions and any such interest payable unless otherwise
stated. A Distribution is payable only to the extent that payments are made in
respect of the Debentures held by the Institutional Trustee and to the extent
the Institutional Trustee has funds available therefor. The amount of
Distributions payable for any period will be computed for any full quarterly
Distribution period on the basis of a 360-day year of twelve 30-day months, and
for any period of less than a full calendar month the number of days elapsed in
such month.
Distributions on the Preferred Securities will be cumulative, will accrue
from the date of original issuance and will be payable quarterly in arrears, on
the following dates, which dates correspond to the interest payment dates on the
Debentures: January 15, April 15, July 15 and October 15 of each year,
commencing on ___________ 1998, except as otherwise described below. So long as
no Event of Default (or an event which would be an Event of Default with the
giving of required notice or the passage of time) has occurred and is
continuing, the Debenture Issuer has the right under the Indenture to defer
payments of interest by extending the interest payment period from time to time
on the Debentures for a period not exceeding 20 consecutive quarters (each an
"Extension Period") and, as a consequence of such deferral, Distributions will
also be deferred. Despite such deferral, quarterly Distributions will continue
to accrue with interest thereon (to the extent permitted by applicable law) at
the Coupon Rate compounded quarterly during any such Extension Period. Prior to
the termination of any such Extension Period, the Debenture Issuer may further
extend such Extension Period so long as no Event of Default (or an event which
would be an Event of Default with the giving of required notice or the passage
of time) has occurred and is continuing; provided that such Extension Period
together with all such previous and further extensions thereof may not exceed 20
consecutive quarters or extend beyond the maturity (whether at the stated
maturity or by declaration of acceleration, call for redemption or otherwise) of
the Debentures under the Indenture. Payments of accrued Distributions will be
payable to Holders as they appear on the books and records of the Trust on the
first record date after the end of the Extension Period. Upon the termination of
any Extension Period and the payment of all amounts then due, the Debenture
Issuer may commence a new Extension Period, subject to the above requirements.
The Preferred Securities shall be redeemable as provided in the
Declaration.
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<PAGE> 73
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned assigns and transfers this Preferred
Security Certificate to:
_______________________________________________________________________________
_______________________________________________________________________________
___________________________ (Insert assignee's social security or tax
identification number)_________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_____________________ (Insert address and zip code of assignee) and
irrevocably appoints___________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
___________________________________________________________________ agent to
transfer this Preferred Security Certificate on the books of the Trust. The
agent may substitute another to act for him or her.
Date: ________________________
Signature: ___________________
(Sign exactly as your name appears on the other side of this Preferred
Security Certificate)
<PAGE> 74
EXHIBIT A-2
FORM OF COMMON SECURITY CERTIFICATE
TRANSFER OF THIS CERTIFICATE IS SUBJECT TO THE CONDITIONS SET FORTH IN
THE DECLARATION REFERRED TO BELOW
Certificate Number ___________
Number of Common Securities ___________
Certificate Evidencing Common Securities of ____________
HARTFORD LIFE CAPITAL I
[ ]% Trust Common Securities, Series A (Liquidation Amount $25 per
Common Security)
HARTFORD LIFE CAPITAL I, a statutory business trust created under the laws
of the State of Delaware (the "Trust"), hereby certifies that Hartford Life,
Inc., a Delaware corporation, (the "Holder") is the registered owner of
three-hundred and nine thousand, two-hundred and eighty (309,280) common
securities of the Trust representing undivided beneficial interests in the
assets of the Trust designated the [ ]% Trust Common Securities, Series A (the
"Common Securities"). The Common Securities are transferable on the books and
records of the Trust, in person or by a duly authorized attorney, upon surrender
of this certificate duly endorsed and in proper form for transfer and
satisfaction of the other conditions set forth in the Declaration (as defined
below), including, without limitation, Section 9.1 thereof. The designation,
rights, privileges, restrictions, preferences and other terms and provisions of
the Common Securities represented hereby are issued and shall in all respects be
subject to the provisions of the Amended and Restated Declaration of Trust of
the Trust dated as of [June __], 1998, as the same may be amended from time to
time (the "Declaration"), including the designation of the terms of the Common
Securities as set forth in Annex I thereto. Capitalized terms used herein but
not defined shall have the meaning given them in the Declaration. The Sponsor
will provide a copy of the Declaration and the Indenture to a Holder without
charge upon written request to the Sponsor at its principal place of business.
Upon receipt of this certificate, the Holder is bound by the Declaration
and is entitled to the benefits thereunder.
The Holder of this certificate, by accepting this certificate, is deemed
to have agreed to the terms of the Indenture and the Debentures, including that
the Debentures are subordinate and junior in right of payment to all Senior
Indebtedness (as defined in the Indenture) as and to the extent provided in the
Indenture.
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<PAGE> 75
By acceptance, the Holder agrees to treat, for United States federal
income tax purposes, the Debentures as indebtedness and the Common Securities as
evidence of indirect beneficial ownership in the Debentures.
IN WITNESS WHEREOF, the Trust has executed this certificate this day of
______, 1998.
HARTFORD LIFE CAPITAL I
_____________________________________
, as Regular Trustee
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<PAGE> 76
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned assigns and transfers this Common Security
Certificate to:
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________ (Insert
assignee's social security or tax identification number)_______________________
_______________________________________________________________________________
_______________________________________________________________________________
_________________________________________ (Insert address and zip code of
assignee) and irrevocably appoints_____________________________________________
_______________________________________________________________________________
______________________________________ agent to transfer this Common Security
Certificate on the books of the Trust. The agent may substitute another to act
for him or her.
Date: ________________________
Signature: ___________________ (Sign exactly as your name appears on the
other side of this Common Security Certificate)
<PAGE> 1
EXHIBIT 4.09
PREFERRED SECURITIES GUARANTEE AGREEMENT
HARTFORD LIFE CAPITAL I
DATED AS OF JUNE 29, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I
DEFINITIONS AND INTERPRETATION
SECTION 1.1 Definitions and Interpretation.................................. 1
ARTICLE II
TRUST INDENTURE ACT
SECTION 2.1 Trust Indenture Act; Application................................ 5
SECTION 2.2 Lists of Holders of Securities.................................. 6
SECTION 2.3 Reports by the Preferred Guarantee Trustee...................... 6
SECTION 2.4 Periodic Reports to Preferred Guarantee Trustee................. 6
SECTION 2.5 Evidence of Compliance with Conditions Precedent................ 6
SECTION 2.6 Events of Default; Waiver....................................... 7
SECTION 2.7 Event of Default; Notice........................................ 7
SECTION 2.8 Conflicting Interests........................................... 7
ARTICLE III
POWERS, DUTIES AND RIGHTS OF PREFERRED GUARANTEE TRUSTEE
SECTION 3.1 Powers and Duties of the Preferred Guarantee Trustee............ 7
SECTION 3.2 Certain Rights of Preferred Guarantee Trustee................... 9
SECTION 3.3 Not Responsible for Recitals or Issuance of Guarantee........... 11
ARTICLE IV
PREFERRED GUARANTEE TRUSTEE
SECTION 4.1 Preferred Guarantee Trustee; Eligibility........................ 11
SECTION 4.2 Appointment, Removal and Resignation of Preferred Guarantee
Trustees........................................................ 12
ARTICLE V
GUARANTEE
SECTION 5.1 Guarantee....................................................... 13
SECTION 5.2 Waiver of Notice and Demand..................................... 13
SECTION 5.3 Obligations Not Affected........................................ 13
SECTION 5.4 Rights of Holders............................................... 14
SECTION 5.5 Guarantee of Payment............................................ 15
SECTION 5.6 Subrogation..................................................... 15
SECTION 5.7 Independent Obligations......................................... 15
</TABLE>
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<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE VI
LIMITATION OF TRANSACTIONS; SUBORDINATION
SECTION 6.1 Limitation of Transactions...................................... 15
SECTION 6.2 Ranking......................................................... 16
ARTICLE VII
TERMINATION
SECTION 7.1 Termination..................................................... 16
ARTICLE VIII
INDEMNIFICATION
SECTION 8.1 Exculpation..................................................... 16
SECTION 8.2 Indemnification................................................. 17
ARTICLE IX
MISCELLANEOUS
SECTION 9.1 Successors and Assigns.......................................... 18
SECTION 9.2 Amendments...................................................... 18
SECTION 9.3 Notices......................................................... 18
SECTION 9.4 Benefit......................................................... 19
SECTION 9.5 Governing Law................................................... 19
</TABLE>
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<PAGE> 4
PREFERRED SECURITIES GUARANTEE AGREEMENT
This GUARANTEE AGREEMENT (the "Preferred Securities Guarantee"), dated as
of June 29, 1998, is executed and delivered by Hartford Life, Inc., a Delaware
corporation (the "Guarantor"), and Wilmington Trust Company, as trustee (the
"Preferred Guarantee Trustee"), for the benefit of the Holders (as defined
herein) from time to time of the Preferred Securities (as defined herein) of
Hartford Life Capital I, a Delaware statutory business trust (the "Issuer").
WHEREAS, pursuant to an Amended and Restated Declaration of Trust (the
"Declaration"), dated as of June 29, 1998, among the trustees of the Issuer
named therein, the Guarantor, as sponsor, and the holders from time to time of
undivided beneficial interests in the assets of the Issuer, the Issuer is
issuing on the date hereof 10,000,000 preferred securities, having an aggregate
liquidation amount of $250,000,000, designated the 7.20% Trust Preferred
Securities, Series A (the "Preferred Securities");
WHEREAS, as incentive for the Holders to purchase the Preferred
Securities, the Guarantor desires irrevocably and unconditionally to agree, to
the extent set forth in this Preferred Securities Guarantee, to pay to the
Holders 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 Preferred Securities
Guarantee for the benefit of the Holders.
ARTICLE I
DEFINITIONS AND INTERPRETATION
SECTION 1.1 DEFINITIONS AND INTERPRETATION.
In this Preferred Securities Guarantee, unless the context otherwise
requires:
(a) Capitalized terms used in this Preferred Securities Guarantee but not
defined in the preamble above have the respective meanings assigned to them in
this Section 1.1;
(b) a term defined anywhere in this Preferred Securities Guarantee has the
same meaning throughout;
(c) all references to "the Preferred Securities Guarantee" or "this
Preferred Securities Guarantee" are to this Preferred Securities Guarantee as
modified, supplemented or amended from time to time;
<PAGE> 5
(d) all references in this Preferred Securities Guarantee to Articles and
Sections are to Articles and Sections of this Preferred Securities Guarantee,
unless otherwise specified;
(e) a term defined in the Trust Indenture Act has the same meaning when
used in this Preferred Securities Guarantee, unless otherwise defined in this
Preferred Securities Guarantee or unless the context otherwise requires; and
(f) a reference to the singular includes the plural and vice versa.
"Authorized Officer" of a Person means any Person that is authorized to
bind such Person.
"Affiliate" has the same meaning as given to that term in Rule 405 of the
Securities Act of 1933, as amended, or any successor rule thereunder.
"Business Day" means any day other than a Saturday, Sunday or a day on
which banking institutions in the City of New York, New York or Wilmington,
Delaware are permitted or required by any applicable law to close.
"Common Securities" means the securities representing common undivided
beneficial interests in the assets of the Issuer.
"Corporate Trust Office" means the office of the Preferred Guarantee
Trustee at which the corporate trust business of the Preferred Guarantee Trustee
shall, at any particular time, be principally administered, which office at the
date of execution of this Agreement is located at Rodney Square North, 1100
North Market Street, Wilmington, Delaware 19890, Attention:
Corporate Trust Administration.
"Covered Person" means any Holder or beneficial owner of Preferred
Securities.
"Debentures" means the series of junior subordinated debt securities of
the Guarantor designated the 7.20% Junior Subordinated Deferrable Interest
Debentures, Series A, due 2038 held by the Institutional Trustee (as defined
in the Declaration) of the Issuer.
"Event of Default" means a default by the Guarantor on any of its payment
or other obligations under this Preferred Securities Guarantee.
"Guarantee Payments" means the following payments or distributions,
without duplication, with respect to the Preferred Securities, to the extent not
paid or made by the Issuer: (i) any accrued and unpaid Distributions (as defined
in Annex I to the Declaration) that are required to be paid on the Preferred
Securities, to the extent the Issuer has funds available therefor, (ii) the
redemption price of $25 per Preferred Security, plus all accrued and unpaid
Distributions to the date of redemption (the "Redemption Price"), to the extent
the Issuer has
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<PAGE> 6
funds available therefor, with respect to any Preferred Securities called for
redemption by the Issuer and (iii) upon a
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<PAGE> 7
voluntary or involuntary dissolution, winding-up or termination of the Issuer
(other than in connection with the distribution of Debentures to the Holders in
exchange for Preferred Securities as provided in the Declaration or the
redemption of all of the Preferred Securities upon the maturity or redemption of
all of the Debentures as provided in the Declaration) the lesser of (a) the
aggregate of the liquidation amount of $25 per Preferred Security and all
accrued and unpaid Distributions on the Preferred Securities to the date of
payment, or (b) the amount of assets of the Issuer remaining for distribution to
Holders in liquidation of the Issuer (in either case, the "Liquidation
Distribution").
"Holder" shall mean 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 or any Affiliate of the Guarantor.
"Indemnified Person" means the Preferred Guarantee Trustee, any Affiliate
of the Preferred Guarantee Trustee, or any officers, directors, shareholders,
members, partners, employees, representatives, nominees, custodians or agents of
the Preferred Guarantee Trustee.
"Indenture" means the Indenture dated as of June 1, 1998, among the
Guarantor and Wilmington Trust Company, as trustee, and any indenture
supplemental thereto pursuant to which the Debentures are to be issued to the
Institutional Trustee of the Issuer.
"Majority in liquidation amount of the Securities" means, except as
provided by the Trust Indenture Act, a vote by Holder(s), voting separately as a
class, holding Preferred Securities representing more than 50% of the aggregate
liquidation amount (including the stated amount that would be paid on
redemption, liquidation or otherwise, plus accrued and unpaid Distributions to
the date upon which the voting percentages are determined) of all Preferred
Securities.
"Officers' Certificate" means, with respect to any Person, a certificate
signed by two Authorized Officers of such Person. Any Officers' Certificate
delivered with respect to compliance with a condition or covenant provided for
in this Preferred Securities Guarantee shall include:
(a) a statement that each officer signing the Officers' Certificate has
read the covenant or condition 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
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<PAGE> 8
(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.
"Preferred Guarantee Trustee" means Wilmington Trust Company, until a
Successor Preferred Guarantee Trustee has been appointed and has accepted such
appointment pursuant to the terms of this Preferred Securities Guarantee and
thereafter means each such Successor Preferred Guarantee Trustee.
"Responsible Officer" means, with respect to the Preferred Guarantee
Trustee, any officer within the Corporate Trust Office of the Preferred
Guarantee Trustee, including any vice-president, any assistant vice-president,
any assistant secretary, the treasurer, any assistant treasurer or other officer
of the Corporate Trust Office of the Preferred 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.
"Successor Preferred Guarantee Trustee" means a successor Preferred
Guarantee Trustee possessing the qualifications to act as Preferred Guarantee
Trustee under Section 4.1.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as amended.
ARTICLE II
TRUST INDENTURE ACT
SECTION 2.1 TRUST INDENTURE ACT; APPLICATION
(a) This Preferred Securities Guarantee is subject to the provisions of
the Trust Indenture Act that are required to be part of this Preferred
Securities Guarantee and shall, to the extent applicable, be governed by such
provisions; and
(b) if and to the extent that any provision of this Preferred Securities
Guarantee limits, qualifies or conflicts with the duties imposed by Section 310
to 317, inclusive, of the Trust Indenture Act, such imposed duties shall
control.
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<PAGE> 9
SECTION 2.2 LISTS OF HOLDERS OF SECURITIES.
(a) The Guarantor shall, or shall cause the Institutional Trustee to,
provide the Preferred Guarantee Trustee with a list, in such form as the
Preferred Guarantee Trustee may reasonably require, of the names and addresses
of the Holders ("List of Holders") as of such date, (i) within one Business Day
after January 1 and June 30 of each year, and (ii) at any other time within 30
days of receipt by the Guarantor of a written request for a List of Holders as
of a date no more than 14 days before such List of Holders is given to the
Preferred Guarantee Trustee; provided, that the Guarantor shall not be obligated
to provide such List of Holders at any time the List of Holders does not differ
from the most recent List of Holders given to the Preferred Guarantee Trustee by
the Guarantor. The Preferred Guarantee Trustee may destroy any List of Holders
previously given to it on receipt of a new List of Holders. Unless supplemented,
amended or restated pursuant to this Section 2.2(a), the Preferred Guarantee
Trustee shall be entitled to rely exclusively on the last list of Holders
provided to it by the Guarantor or any Institutional Trustee.
(b) The Preferred Guarantee Trustee shall comply with its obligations
under Sections 311(a), 311(b) and 312(b) of the Trust Indenture Act.
SECTION 2.3 REPORTS BY THE PREFERRED GUARANTEE TRUSTEE.
Within 60 days after April 15 of each year, the Preferred 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 Preferred Guarantee Trustee shall
also comply with the requirements of Section 313(d) of the Trust Indenture Act.
SECTION 2.4 PERIODIC REPORTS TO PREFERRED GUARANTEE TRUSTEE.
The Guarantor shall provide to the Preferred Guarantee Trustee, the
Securities and Exchange Commission and the Holders such documents, reports and
information as required by Section 314 (if any) 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 2.5 EVIDENCE OF COMPLIANCE WITH CONDITIONS PRECEDENT.
The Guarantor shall provide to the Preferred Guarantee Trustee such
evidence of compliance with any conditions precedent, if any, provided for in
this Preferred Securities Guarantee 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.
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SECTION 2.6 EVENTS OF DEFAULT; WAIVER.
The Holders of a Majority in liquidation amount of Preferred Securities
may, by vote, on behalf of the Holders of all of the Preferred Securities, 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 Preferred
Securities Guarantee, but no such waiver shall extend to any subsequent or other
default or Event of Default or impair any right consequent thereon.
SECTION 2.7 EVENT OF DEFAULT; NOTICE.
(a) The Preferred 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 actually known to a
Responsible Officer of the Preferred Guarantee Trustee, unless such defaults
have been cured before the giving of such notice; provided, that, the Preferred
Guarantee Trustee shall be protected in withholding such notice if and so long
as a Responsible Officer of the Preferred Guarantee Trustee in good faith
determines that the withholding of such notice is in the interests of the
Holders.
(b) The Preferred Guarantee Trustee shall not be deemed to have knowledge
of any Event of Default unless the Preferred Guarantee Trustee shall have
received written notice, or of which a Responsible Officer of the Preferred
Guarantee Trustee charged with the administration of the Declaration shall have
obtained actual knowledge.
SECTION 2.8 CONFLICTING INTERESTS.
The Declaration shall be deemed to be specifically described in this
Preferred Securities Guarantee 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 PREFERRED GUARANTEE TRUSTEE
SECTION 3.1 POWERS AND DUTIES OF THE PREFERRED GUARANTEE TRUSTEE.
(a) This Preferred Securities Guarantee shall be held by the Preferred
Guarantee Trustee for the benefit of the Holders, and the Preferred Guarantee
Trustee shall not transfer its right, title and interest in this Preferred
Securities Guarantee to any Person except a Holder exercising his or her rights
pursuant to Section 5.4(b) or to a Successor Preferred Guarantee Trustee on
acceptance by such Successor Preferred Guarantee Trustee of its appointment to
act as Successor Preferred Guarantee Trustee. The right, title and interest of
the Preferred Guarantee Trustee shall automatically vest in any Successor
Preferred Guarantee Trustee, and such vesting
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and cessation of title shall be effective whether or not conveyancing documents
have been executed and delivered pursuant to the appointment of such Successor
Preferred Guarantee Trustee.
(b) If an Event of Default actually known to a Responsible Officer of the
Preferred Guarantee Trustee has occurred and is continuing, the Preferred
Guarantee Trustee shall enforce this Preferred Securities Guarantee for the
benefit of the Holders of the Preferred Securities.
(c) The Preferred 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 Preferred Securities Guarantee, and no implied covenants shall be read into
this Preferred Securities Guarantee against the Preferred Guarantee Trustee. In
case an Event of Default has occurred (that has not been cured or waived
pursuant to Section 2.6) and is actually known to a Responsible Officer of the
Preferred Guarantee Trustee, the Preferred Guarantee Trustee shall exercise such
of the rights and powers vested in it by this Preferred Securities Guarantee,
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 Preferred Securities Guarantee shall be construed
to relieve the Preferred 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 Preferred Guarantee
Trustee shall be determined solely by the express provisions of this Preferred
Securities Guarantee, and the Preferred Guarantee Trustee shall not be liable
except for the performance of such duties and obligations as are specifically
set forth in this Preferred Securities Guarantee, and no implied covenants or
obligations shall be read into this Preferred Securities Guarantee against the
Preferred Guarantee Trustee; and
(B) in the absence of bad faith on the part of the Preferred
Guarantee Trustee, the Preferred 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 Preferred Guarantee
Trustee and substantially conforming to the requirements of this Preferred
Securities Guarantee; but in the case of any such certificates or opinions that
by any provision hereof are specifically required to be furnished to the
Preferred Guarantee Trustee, the Preferred Guarantee Trustee shall be under a
duty to examine the same to determine whether or not they substantially conform
to the requirements of this Preferred Securities Guarantee;
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(ii) the Preferred Guarantee Trustee shall not be liable for any
error of judgment made in good faith by a Responsible Officer of the Preferred
Guarantee Trustee, unless it shall be proved that the Preferred Guarantee
Trustee was negligent in ascertaining the pertinent facts upon which such
judgment was made;
(iii) the Preferred 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 amount of the Preferred Securities relating to the time, method and
place of conducting any proceeding for any remedy available to the Preferred
Guarantee Trustee, or exercising any trust or power conferred upon the Preferred
Guarantee Trustee under this Preferred Securities Guarantee; and
(iv) no provision of this Preferred Securities Guarantee shall
require the Preferred 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 Preferred
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 Preferred Securities Guarantee or indemnity, reasonably satisfactory to the
Preferred Guarantee Trustee, against such risk or liability is not reasonably
assured to it.
SECTION 3.2 CERTAIN RIGHTS OF PREFERRED GUARANTEE TRUSTEE.
(a) Subject to the provisions of Section 3.1:
(i) The Preferred Guarantee Trustee may conclusively 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
Preferred Securities Guarantee shall be sufficiently evidenced by an Officers'
Certificate.
(iii) Whenever, in the administration of this Preferred Securities
Guarantee, the Preferred Guarantee Trustee shall deem it desirable that a matter
be proved or established before taking, suffering or omitting any action
hereunder, the Preferred Guarantee Trustee (unless other evidence is herein
specifically prescribed) may, in the absence of bad faith on its part, request
and conclusively rely upon an Officers' Certificate which, upon receipt of such
request, shall be promptly delivered by the Guarantor.
(iv) The Preferred Guarantee Trustee shall have no duty to see to
any recording, filing or registration of any instrument (or any rerecording,
refiling or reregistration thereof).
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(v) The Preferred Guarantee Trustee may consult with counsel, and
the written advice or opinion of such counsel with respect to legal matters
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 accordance with
such advice or opinion. Such counsel may be counsel to the Guarantor or any of
its Affiliates and may include any of its employees. The Preferred Guarantee
Trustee shall have the right at any time to seek instructions concerning the
administration of this Preferred Securities Guarantee from any court of
competent jurisdiction.
(vi) The Preferred Guarantee Trustee shall be under no obligation to
exercise any of the rights or powers vested in it by this Preferred Securities
Guarantee at the request or direction of any Holder, unless such Holder shall
have provided to the Preferred Guarantee Trustee such security and indemnity,
reasonably satisfactory to the Preferred Guarantee Trustee, against the costs,
expenses (including attorneys' fees and expenses and the expenses of the
Preferred Guarantee Trustee's agents, nominees or custodians) 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 Preferred
Guarantee Trustee; provided that, nothing contained in this Section 3.2(a)(vi)
shall be taken to relieve the Preferred Guarantee Trustee, upon the occurrence
of an Event of Default, of its obligation to exercise the rights and powers
vested in it by this Preferred Securities Guarantee.
(vii) The Preferred 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 Preferred Guarantee Trustee, in its discretion, may make such
further inquiry or investigation into such facts or matters as it may see fit.
(viii) The Preferred Guarantee Trustee may execute any of the trusts
or powers hereunder or perform any duties hereunder either directly or by or
through agents, nominees, custodians or attorneys, and the Preferred Guarantee
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.
(ix) Any action taken by the Preferred Guarantee Trustee or its
agents hereunder shall bind the Holders of the Preferred Securities, and the
signature of the Preferred Guarantee Trustee or its agents alone shall be
sufficient and effective to perform any such action. No third party shall be
required to inquire as to the authority of the Preferred Guarantee Trustee to so
act or as to its compliance with any of the terms and provisions of this
Preferred Securities Guarantee, both of which shall be conclusively evidenced by
the Preferred Guarantee Trustee's or its agent's taking such action.
(x) Whenever in the administration of this Preferred Securities
Guarantee the Preferred Guarantee Trustee shall deem it desirable to receive
instructions with respect to
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enforcing any remedy or right or taking any other action hereunder, the
Preferred Guarantee Trustee (i) may request instructions from the Holders of a
Majority in liquidation amount of the Preferred Securities, (ii) may refrain
from enforcing such remedy or right or taking such other action until such
instructions are received, and (iii) shall be protected in conclusively relying
on or acting in accordance with such instructions.
(b) No provision of this Preferred Securities Guarantee shall be deemed to
impose any duty or obligation on the Preferred 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
Preferred Guarantee Trustee shall be unqualified or incompetent in accordance
with applicable law, to perform any such act or acts or to exercise any such
right, power, duty or obligation. No permissive power or authority available to
the Preferred Guarantee Trustee shall be construed to be a duty.
SECTION 3.3 NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF GUARANTEE.
The recitals contained in this Guarantee shall be taken as the statements
of the Guarantor, and the Preferred Guarantee Trustee does not assume any
responsibility for their correctness. The Preferred Guarantee Trustee makes no
representation as to the validity or sufficiency of this Preferred Securities
Guarantee.
ARTICLE IV
PREFERRED GUARANTEE TRUSTEE
SECTION 4.1 PREFERRED GUARANTEE TRUSTEE; ELIGIBILITY.
(a) There shall at all times be a Preferred Guarantee Trustee which shall:
(i) not be an Affiliate of the Guarantor; and
(ii) be a corporation organized and doing business under the laws of
the United States of America or any State or Territory thereof or of the
District of Columbia, or a corporation or Person permitted by the Securities and
Exchange Commission to act as an institutional trustee under the Trust Indenture
Act, authorized under such laws to exercise corporate trust powers, having a
combined capital and surplus of at least 50 million U.S. dollars ($50,000,000),
and subject to supervision or examination by Federal, State, Territorial or
District of Columbia authority. If such corporation publishes reports of
condition at least annually, pursuant to law or to the requirements of the
supervising or examining authority referred to above, then, for the purposes of
this Section 4.1(a)(ii), 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.
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(b) If at any time the Preferred Guarantee Trustee shall cease to be
eligible to so act under Section 4.1(a), the Preferred Guarantee Trustee shall
immediately resign in the manner and with the effect set out in Section 4.2(c).
(c) If the Preferred Guarantee Trustee has or shall acquire any
"conflicting interest" within the meaning of Section 310(b) of the Trust
Indenture Act, the Preferred Guarantee Trustee and Guarantor shall in all
respects comply with the provisions of Section 310(b) of the Trust Indenture
Act.
SECTION 4.2 APPOINTMENT, REMOVAL AND RESIGNATION OF PREFERRED GUARANTEE
TRUSTEES.
(a) Subject to Section 4.2(b), the Preferred Guarantee Trustee may be
appointed or removed without cause at any time by the Guarantor.
(b) The Preferred Guarantee Trustee shall not be removed in accordance
with Section 4.2(a) until a Successor Preferred Guarantee Trustee has been
appointed and has accepted such appointment by written instrument executed by
such Successor Preferred Guarantee Trustee and delivered to the Guarantor.
(c) The Preferred Guarantee Trustee appointed to office shall hold office
until a Successor Preferred Guarantee Trustee shall have been appointed or until
its removal or resignation. The Preferred Guarantee Trustee may resign from
office by an instrument in writing executed by the Preferred Guarantee Trustee
and delivered to the Guarantor, which resignation shall not take effect until a
Successor Preferred Guarantee Trustee has been appointed and has accepted such
appointment by instrument in writing executed by such Successor Preferred
Guarantee Trustee and delivered to the Guarantor and the resigning Preferred
Guarantee Trustee, whereupon the resigning Preferred Guarantee Trustee shall be
released and discharged of the trusts and other duties imposed on such trustee
in connection herewith.
(d) If no Successor Preferred Guarantee Trustee shall have been appointed
and accepted appointment as provided in this Section 4.2 within 60 days after
delivery to the Guarantor of an instrument of resignation, the resigning
Preferred Guarantee Trustee may petition any court of competent jurisdiction for
appointment of a Successor Preferred Guarantee Trustee. Such court may
thereupon, after prescribing such notice, if any, as it may deem proper, appoint
a Successor Preferred Guarantee Trustee.
(e) No Preferred Guarantee Trustee shall be liable for the acts or
omissions to act of any Successor Preferred Guarantee Trustee.
(f) Upon termination of this Preferred Securities Guarantee or removal or
resignation of the Preferred Guarantee Trustee pursuant to this Section 4.2, the
Guarantor shall pay to the
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Preferred Guarantee Trustee all amounts accrued and owing to such
Preferred Guarantee Trustee to the date of such termination, removal or
resignation.
ARTICLE V
GUARANTEE
SECTION 5.1 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 pursuant to the Declaration or by the Guarantor
pursuant to the Indenture), as and when due, regardless of any defense, right of
set-off or counterclaim that 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 5.2 WAIVER OF NOTICE AND DEMAND.
The Guarantor hereby waives notice of acceptance of this Preferred
Securities Guarantee and of any liability to which it applies or may apply,
presentment, demand for payment, any right to require a proceeding first against
the 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 5.3 OBLIGATIONS NOT AFFECTED.
The obligations, covenants, agreements and duties of the Guarantor under
this Preferred Securities Guarantee 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;
(b) the extension of time for the payment by the Issuer of all or any
portion of the Distributions, 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 (other than an extension of time for
payment of Distributions, Redemption Price, Liquidation Distribution or other
sum payable that results from the extension of any interest payment period on
the Debentures as permitted by the Indenture);
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(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) to the extent permitted by law, 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 5.3 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
consent of, the Guarantor with respect to the happening of any of the foregoing.
SECTION 5.4 RIGHTS OF HOLDERS.
(a) The Holders of a Majority in liquidation amount of the Preferred
Securities have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Preferred Guarantee Trustee in
respect of this Preferred Securities Guarantee or exercising any trust or power
conferred upon the Preferred Guarantee Trustee under this Preferred Securities
Guarantee.
(b) If the Preferred Guarantee Trustee fails to enforce its rights under
this Preferred Securities Guarantee, any Holder may directly institute a legal
proceeding against the Guarantor to enforce the Preferred Guarantee Trustee's
rights under this Preferred Securities Guarantee, without first instituting a
legal proceeding against the Issuer, the Preferred Guarantee Trustee or any
other Person or entity.
(c) A Holder may also directly institute a legal proceeding against the
Guarantor to enforce such Holder's right to receive payment under this Preferred
Securities Guarantee without first (i) directing the Preferred Guarantee Trustee
to enforce the terms of this Preferred Securities Guarantee or (ii) instituting
a legal proceeding directly against the Issuer or any other Person or entity.
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SECTION 5.5 GUARANTEE OF PAYMENT.
This Preferred Securities Guarantee creates a guarantee of payment and not
of collection (i.e., a Covered Person may institute a legal proceeding directly
against the Guarantor to enforce its rights under the Preferred Securities
Guarantee without first instituting a legal proceeding against any other person
or entity). This Preferred Securities Guarantee will not be discharged except by
payment of the Guarantee Payments in full to the extent not previously paid or
upon Distribution to the Holders of the corresponding series of Debentures as
provided in the Declaration.
SECTION 5.6 SUBROGATION.
The Guarantor shall be subrogated to all (if any) rights of the Holders
against the Issuer in respect of any amounts paid to such Holders by the
Guarantor under this Preferred Securities Guarantee; provided, however, that the
Guarantor shall not (except to the extent required by mandatory provisions of
law) be entitled to enforce or exercise any right that it may acquire by way of
subrogation or any indemnity, reimbursement or other agreement, in all cases as
a result of payment under this Preferred Securities Guarantee, if, at the time
of any such payment, any amounts are due and unpaid under this Preferred
Securities Guarantee. 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 5.7 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 Preferred Securities Guarantee
notwithstanding the occurrence of any event referred to in subsections (a)
through (g), inclusive, of Section 5.3 hereof.
ARTICLE VI
LIMITATION OF TRANSACTIONS; SUBORDINATION
SECTION 6.1 LIMITATION OF TRANSACTIONS.
So long as any Preferred Securities remain outstanding, if there shall
have occurred any event that would constitute an Event of Default or an event of
default under the Declaration, then (a) the Guarantor shall not declare or pay
any dividend on, make any distributions with respect to, or redeem, purchase,
acquire or make a liquidation payment with respect to, any of its capital stock
or make any guarantee payment with respect thereto (other than (i) repurchases,
redemptions or other acquisitions of shares of capital stock of the Guarantor in
connection with any employment contract, benefit plan or other similar
arrangement with or for the benefit of
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employees, officers, directors or consultants, (ii) as a result of a
reclassification of the Guarantor's capital stock, or the exchange or conversion
of any class or series of the Guarantor's capital stock for any other class or
series of the Guarantor's capital stock, (iii) the purchase of fractional
interests in shares of the Guarantor's capital stock pursuant to the conversion
or exchange provisions of such capital stock or the security being converted or
exchanged or (iv) distribution of rights under any shareholders' rights plan
adopted by the Company) and (b) the Guarantor shall not make any payment of
interest on, or principal of (or premium, if any, on), or repay, repurchase or
redeem, any debt securities issued by the Guarantor which rank pari passu with
or junior to the Debentures and the Guarantor shall not make any guarantee
payments with respect thereto (other than pursuant to this Preferred Security
Guarantee); provided, however, the Guarantor may declare and pay a stock
dividend where the dividend stock is the same stock as that on which the
dividend is being paid.
SECTION 6.2 RANKING.
This Preferred Securities Guarantee will constitute an unsecured
obligation of the Guarantor and will rank (i) subordinate and junior in right of
payment to all other liabilities of the Guarantor, (ii) pari passu with the most
senior preferred or preference stock now or hereafter issued by the Guarantor
and with any guarantee now or hereafter entered into by the Guarantor in respect
of any preferred or preference stock of any Affiliate of the Guarantor, and
(iii) senior to the Guarantor's common stock.
ARTICLE VII
TERMINATION
SECTION 7.1 TERMINATION.
This Preferred Securities Guarantee shall terminate upon (i) full payment
of the Redemption Price of all Preferred Securities, (ii) the distribution of
the Debentures to the Holders of all of the Preferred Securities or (iii) full
payment of the amounts payable in accordance with the Declaration upon
liquidation of the Issuer. Notwithstanding the foregoing, this Preferred
Securities Guarantee 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
under the Preferred Securities or under this Preferred Securities Guarantee.
ARTICLE VIII
INDEMNIFICATION
SECTION 8.1 EXCULPATION.
(a) No Indemnified Person shall be liable, responsible or accountable in
damages or otherwise to the Guarantor or any Covered Person for any loss, damage
or claim incurred by
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reason of any act or omission performed or omitted by such Indemnified Person in
good faith in accordance with this Preferred Securities Guarantee and in a
manner that such Indemnified Person reasonably believed to be within the scope
of the authority conferred on such Indemnified Person by this Preferred
Securities Guarantee or by law, except that an Indemnified Person shall be
liable for any such loss, damage or claim incurred by reason of such Indemnified
Person's negligence or willful misconduct with respect to such acts or
omissions.
(b) An Indemnified Person shall be fully protected in relying in good
faith upon the records of the Guarantor and upon such information, opinions,
reports or statements presented to the Guarantor by any Person as to matters the
Indemnified Person reasonably believes are within such other Person's
professional or expert competence and who has been selected with reasonable care
by or on behalf of the Guarantor, including information, opinions, reports or
statements as to the value and amount of the assets, liabilities, profits,
losses, or any other facts pertinent to the existence and amount of assets from
which Distributions to Holders might properly be paid.
SECTION 8.2 INDEMNIFICATION.
(a) To the fullest extent permitted by applicable law, the Guarantor shall
indemnify and hold harmless each Indemnified Person from and against any loss,
damage or claim incurred by such Indemnified Person by reason of any act or
omission performed or omitted by such Indemnified Person in good faith in
accordance with this Guarantee Agreement and in a manner such Indemnified Person
reasonably believed to be within the scope of authority conferred on such
Indemnified Person by this Guarantee Agreement, except that no Indemnified
Person shall be entitled to be indemnified in respect of any loss, damage or
claim incurred by such Indemnified Person by reason of such Indemnified Person's
negligence or willful misconduct with respect to such acts or omissions.
(b) To the fullest extent permitted by applicable law, reasonable expenses
(including legal fees) incurred by an Indemnified Person in defending any claim,
demand, action, suit or proceeding shall, from time to time, be advanced by the
Guarantor prior to the final disposition of such claim, demand, action, suit or
proceeding upon receipt by the Guarantor of an undertaking by or on behalf of
the Indemnified Person to repay such amount if it shall be determined that the
Indemnified Person is not entitled to be indemnified as authorized in Section
8.2(a).
(c) The obligation to indemnify as set forth in this Section 8.2 shall
survive the termination of the Preferred Securities Guarantee.
(d) The Guarantor agrees to pay to the Preferred Guarantee Trustee
compensation for its services as shall be mutually agreed upon by the Guarantor
and the Preferred Guarantee Trustee. The Guarantor shall reimburse the Preferred
Guarantee Trustee upon request for all reasonable out-of-pocket expenses
incurred by it, including the reasonable compensation and
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expenses of the Preferred Guarantee Trustee's agents and counsel, except any
expense as may be attributable to the negligence of the Preferred Guarantee
Trustee.
ARTICLE IX
MISCELLANEOUS
SECTION 9.1 SUCCESSORS AND ASSIGNS.
All guarantees and agreements contained in this Preferred Securities
Guarantee 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.
SECTION 9.2 AMENDMENTS.
Except with respect to any changes that do not adversely affect the rights
of Holders (in which case no consent of Holders will be required), this
Preferred Securities Guarantee may be amended only with the prior approval of
the Holders of not less than a Majority in aggregate liquidation amount
(including the stated amount that would be paid on redemption, liquidation or
otherwise, plus accrued and unpaid Distributions to the date upon which the
voting percentages are determined) of all the outstanding Preferred Securities.
The provisions of Section 12.2 of the Declaration with respect to meetings of
Holders apply to the giving of such approval. This Preferred Securities
Guarantee may not be amended, and no amendment hereof that affects the Preferred
Guarantee Trustee's rights, duties or immunities hereunder or otherwise shall be
effective, unless such amendment is executed by the Preferred Guarantee Trustee
(which shall have no obligation to execute any such amendment, but may do so in
its sole discretion).
SECTION 9.3 NOTICES.
All notices provided for in this Preferred Securities Guarantee shall be
in writing, duly signed by the party giving such notice, and shall be delivered,
telecopied or mailed by registered or certified mail, as follows:
(a) If given to the Preferred Guarantee Trustee, at the Preferred
Guarantee Trustee's mailing address set forth below (or such other address as
the Preferred Guarantee Trustee may give notice of to the Holders): Wilmington
Trust Company, Rodney Square North, 1100 North Market Street, Wilmington,
Delaware 19890, Attention: Corporate Trust Administration.
(b) If given to the Guarantor, at the Guarantor's mailing address set
forth below (or such other address as the Guarantor may give notice of to the
Holders): Hartford Life, Inc., 200 Hopmeadow Street, Simsbury, Connecticut
06089, Attention: Gregory A. Boyko and Lynda Godkin.
-18-
<PAGE> 22
(c) If given to any Holder, at the address set forth on the books and
records of the Issuer.
All such notices 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 9.4 BENEFIT.
This Preferred Securities Guarantee is solely for the benefit of the
Holders of the Preferred Securities and, subject to Section 3.1(a), is not
separately transferable from the Preferred Securities.
SECTION 9.5 GOVERNING LAW.
THIS PREFERRED SECURITIES GUARANTEE SHALL BE GOVERNED BY, AND CONSTRUED
AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, AND ALL
RIGHTS AND REMEDIES SHALL BE GOVERNED BY SUCH LAWS WITHOUT REGARD FOR THE
PRINCIPLES OF ITS CONFLICTS OF LAWS.
-19-
<PAGE> 23
THIS PREFERRED SECURITIES GUARANTEE is executed as of the day and year
first above written.
HARTFORD LIFE, INC,. as Guarantor
By: /s/ Gregory A. Boyko
--------------------------------
Name:
Title:
WILMINGTON TRUST COMPANY,
as Preferred Guarantee Trustee
By: /s/ Mary C. St. Amand
--------------------------------
Name: Mary C. St. Amand
Title:
-20-
<PAGE> 1
EXHIBIT 10.08
1997 HARTFORD LIFE, INC.
DEFERRED RESTRICTED STOCK UNIT PLAN
ARTICLE I
CREATION AND PURPOSE
1.1 CREATION OF THE PLAN. This 1997 Hartford Life, Inc. Deferred Restricted
Stock Unit Plan (the "Plan") is created effective May 22, 1997 pursuant to the
terms of the 1997 Hartford Life, Inc. 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 Participating
Companies 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 Class A Common Stock of
Hartford Life, Inc. ("Units") may be made under the Plan, in the discretion of
the Committee, to Key Employees of Participating Companies who properly elect to
participate in the Plan provided, however, that notwithstanding anything herein
to the contrary, and to the extent permitted by applicable law, no award of
Units shall be made hereunder and no Stock or certificates for shares of Stock
shall be issued hereunder, and the Company shall have no obligation to make any
award of Units hereunder or to issue any Stock or certificates for shares of
Stock hereunder, if such award or issuance would cause the direct or indirect
percentage ownership by The Hartford Financial Services Group, Inc. of the
combined voting power or the value of the capital stock of the Company to fall
below 80%. 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 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 "AWARD DATE" means the date designated by the Committee for the award of
Units pursuant
<PAGE> 2
to the Plan.
2.3 "BOARD OF DIRECTORS" means the Board of Directors of Hartford Life, Inc.
2.4 "BENEFICIARY" shall have the meaning assigned by the Incentive Stock Plan.
2.5 "CHANGE OF CONTROL" shall have the meaning assigned by the Incentive Stock
Plan.
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 Hartford Life, Inc. and its subsidiaries, and their
successors and assigns.
2.8 "DIVIDEND AMOUNT" means the per share cash dividend amount paid on the Stock
on a particular dividend payment date.
2.9 "DIVIDEND CONVERSION PRICE" means the Fair Market Value of one share of the
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 1997 Hartford Life, Inc. 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 1997 Hartford Life, Inc. 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.
<PAGE> 3
2.21 "RETIREMENT" shall have the meaning assigned by the Incentive Stock Plan.
2.22 "STOCK" shall mean the Class A Common Stock ($.01 par value) of Hartford
Life, Inc.
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 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 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 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.
4.3 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
<PAGE> 4
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.
ARTICLE VI
DIVIDEND EQUIVALENTS
6.1 DIVIDEND EQUIVALENTS ON ELECTIVE UNITS. As soon as practicable after any
dividend is paid on the 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
<PAGE> 5
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 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 of the
Fair Market Value of the Stock on such date.
7.3 VOLUNTARY DEFERRAL. Upon such terms and conditions as the Committee may
determine, a 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 a Participating 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 CHANGE OF CONTROL. Notwithstanding anything herein to the contrary, upon the
occurrence
<PAGE> 6
of a Change of Control, any Premium Units then credited to each Participant's
Account shall immediately become fully vested, and each Participant shall be
paid, immediately following the date of such Change of Control, a lump sum cash
amount equal to the number of whole and fractional Elective Units credited to
the Participant's Account plus the Participant's vested whole and fractional
Premium Units, multiplied by the Formula Price as defined in the 1997 Hartford
Life, Inc. Incentive Stock Plan.
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 Senior Vice President, Human
Resources, of The Hartford Financial Services Group, Inc. 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.
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
<PAGE> 7
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 pursuant 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.
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 Stock to be issued hereunder may be made available from
authorized but unissued stock, shares held by the Company in treasury or shares
purchased in 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 Committee or the Plan
Administrator to the extent (a) required
<PAGE> 8
by applicable law, or (b) required to maintain a favorable tax status for the
Plan , provided that in the event of a Change of Control, no amendment or
termination thereafter shall impair or reduce the rights of any person with
respect to any award made under 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.
<PAGE> 1
EXHIBIT 10.09
1997 HARTFORD LIFE, INC.
RESTRICTED STOCK PLAN FOR NON-EMPLOYEE DIRECTORS
ARTICLE I -- PLAN ADMINISTRATION AND ELIGIBILITY
1.1 PURPOSE
The purpose of the 1997 Hartford Life, Inc. Restricted Stock Plan for
Non-Employee Directors (the "Plan") is to attract and retain persons of ability
as directors of Hartford Life, Inc. (the "Company") and to provide them with a
closer identity with the interests of the Company's stockholders by paying the
Annual Retainer in shares of Class A Common Stock of the Company (the "Stock")
subject to certain restrictions as described herein (the "Restricted Stock").
1.2 ADMINISTRATION
The Plan shall be administered by the Compensation and Personnel
Committee of the Board of Directors (the "Committee"). The Committee shall have
the responsibility of interpreting the Plan and establishing and amending such
rules and regulations necessary or appropriate for the administration of the
Plan. All interpretations of the Plan or any Restricted Stock awards issued
under it shall be final and binding upon all persons having an interest in the
Plan. No member of the Committee shall be liable for any action or determination
taken or made in good faith with respect to this Plan or any award granted
hereunder.
1.3 ELIGIBILITY
Directors of the Company who are not employees of the Company or The
Hartford Financial Services Group, Inc. or any subsidiary of either of the
foregoing shall be eligible to participate in the Plan.
1.4 STOCK SUBJECT TO THE PLAN
(a) The maximum number of shares which may be granted under the Plan
shall be 100,000 shares of Stock.
(b) If any Restricted Stock is forfeited by a Director in accordance
with the provisions of Section 2.2(c), such shares of Restricted Stock shall be
restored to the total number of shares available for grant pursuant to the Plan.
(c) Upon the grant of a Restricted Stock award the Company may
distribute newly issued Stock, treasury Stock, reacquired Stock, Stock purchased
in the open market, or any combination of the foregoing.
<PAGE> 2
(d) Notwithstanding anything herein to the contrary, to the extent
permitted by applicable law, no award of Restricted Stock shall be made under
the Plan, and the Company shall have no obligation to make any award of
Restricted Stock under the Plan, if such award would cause the direct or
indirect percentage ownership of The Hartford Financial Services Group, Inc. of
the combined voting power or the value of the capital stock of the Company to
fall below 80%.
ARTICLE II -- RESTRICTED STOCK
2.1 RESTRICTED STOCK AWARDS
Restricted Stock awards shall be made automatically on the date of the
Annual Meeting of Stockholders, to each Director elected at the meeting or
continuing in office following the meeting. The award shall equal the number of
whole shares arrived at by dividing the Annual Retainer that is in effect for
the 12 month period beginning with the date of the Annual Meeting (the "Service
Year") by the Fair Market Value of the Company's Stock. Fractional shares shall
be paid in cash.
(a) "Annual Retainer" shall mean the amount that is payable to a
Director for service on the Board of Directors during the Service Year. Annual
Retainer shall not include fees paid for attendance at any Board or Committee
meeting.
(b) "Fair Market Value" shall mean the average of the high and low
prices per share of the Company's Stock on the date of the Annual Meeting, as
reported by the New York Stock Exchange Composite Tape.
2.2 TERMS AND CONDITIONS OF RESTRICTED STOCK AWARDS
(a) Written Documentation -- Restricted Stock awards shall be evidenced
by such written notice, agreement or other documentation as the Committee deems
appropriate.
(b) Shares held in Escrow -- The Restricted Stock subject to such award
shall be registered in the name of the Director and held in escrow by the
Committee until the restrictions on such shares lapse as described below.
(c) Restrictions -- Restricted Stock granted to a Director may not be
sold, assigned, transferred, pledged or otherwise disposed of, except by will or
the laws of descent and distribution, prior to the earliest of the following
dates:
(1) The fifth anniversary of the date of grant.
(2) Retirement from the Board at age 72.
<PAGE> 3
(3) A "Change of Control" of the Company. A "Change of Control"
shall be deemed to have occurred if:
(i) a report on Schedule 13D shall be filed with the Securities and
Exchange Commission pursuant to Section 13(d) of the Securities
Exchange Act of 1934 (the "Act") disclosing that any Person (within
the meaning of Section 13(d) of the Act), other than the Company or
The Hartford Financial Services Group, Inc. or a subsidiary of
either of the foregoing or any employee benefit plan sponsored by
the Company or The Hartford Financial Services Group, Inc. or a
subsidiary of either of the foregoing, is the Beneficial Owner of
the greater of (A) the percentage of the outstanding stock of the
Company entitled to vote in the election of directors of the
Company owned at such time by The Hartford Financial Services
Group, Inc., or (B) twenty percent or more of the outstanding stock
of the Company entitled to vote in the election of directors of the
Company;
(ii) any Person (within the meaning of Section 13(d) of the Act), other
than the Company or The Hartford Financial Services Group, Inc. or
a subsidiary of either of the foregoing or any employee benefit
plan sponsored by the Company or The Hartford Financial Services
Group, Inc. or a subsidiary of either of the foregoing, shall
purchase shares pursuant to a tender offer or exchange offer to
acquire any stock of the Company (or securities convertible into
such stock) for cash, securities or any other consideration,
provided that after consummation of the offer, the Person in
question is the Beneficial Owner, directly or indirectly, of the
greater of (A) the percentage of the outstanding stock of the
Company entitled to vote in the election of directors of the
Company owned at such time by The Hartford Financial Services
Group, Inc., or (B) fifteen percent or more of the outstanding
stock of the Company entitled to vote in the election of directors
of the Company (calculated as provided in paragraph (d) of Rule
13d-3 under the Act in the case of rights to acquire stock);
(iii) the stockholders of the Company shall approve (A) any consolidation
or merger of the Company in which the Company is not the continuing
or surviving corporation or pursuant to which shares of stock of
the Company entitled to vote in the election of directors of the
Company would be converted into cash, securities or other property,
other than a merger of the Company in which holders of such stock
of the Company immediately prior to the merger have the same
proportionate ownership of common stock entitled to vote in the
election of directors of the surviving corporation immediately
after the merger as immediately before, or (B) any sale, lease,
exchange or other transfer (in one transaction or a series of
related transactions) of all or substantially all the assets of the
Company;
(iv) within any 12 month period, the persons who were directors of the
Company immediately before the beginning of such period (the
"Incumbent Directors")
<PAGE> 4
shall cease (for any reason other than death) to constitute at
least a majority of the Board of the Company or the board of
directors of any successor to the Company, provided that any
director who was not a director at the beginning of such period
shall be deemed to be an Incumbent Director if such director (A)
was elected to the Board of the Company by, or on the
recommendation of or with the approval of, at least two-thirds of
the directors who then qualified as Incumbent Directors either
actually or by prior operation of this clause (iv), and (B) was not
designated by a Person who has entered into an agreement with the
Company to effect a transaction described in the immediately
preceding clause (iii); or
(v) a "Change of Control" as defined in The Hartford 1995 Incentive
Stock Plan, as amended from time to time, occurs with respect to
The Hartford Financial Services Group, Inc. at a time when The
Hartford Financial Services Group, Inc. directly or indirectly owns
more than 50% of the combined voting power and the value of the
capital stock of the Company;
provided that a sale of all of the interest of The Hartford Financial Services
Group, Inc. in the Company shall not be considered a Change of Control for
purposes of this Plan.
(4) Death of the Director.
(5) Disability of the Director, as defined in The Hartford
Investment and Savings Plan, as amended from time to time.
(6) Resignation by the Director under cases of special
circumstances and the Committee, in its sole discretion, consents to waive any
remaining restrictions.
(d) Dividends and Voting Rights -- The Director shall, subject to
Section 2.2(c), possess all incidents of ownership of the shares of Restricted
Stock including the right to receive dividends with respect to such shares and
to vote such shares.
(e) The Company shall deliver to the Director, or the beneficiary of
such Director, if applicable, unrestricted certificates for all of the shares of
Stock that were awarded to the Director as Restricted Stock (a) immediately
following any lapse of restrictions on such shares pursuant to Section 2.2(c)(3)
hereof, or (b) within 30 days following any lapse of restrictions under the
remaining provisions of Section 2.2(c). If the Director discontinues serving on
the Board prior to the date upon which restrictions lapse as described under
Section 2.2(c), such Director's Restricted Stock will be forfeited by the
Director and transferred to and reacquired by the Company at no cost to the
Company.
(f) Special Definitions for Change of Control. For purposes of Section
2.2(c)(3), the following special definitions apply.
(i) "Beneficial Owner" means any Person who, directly or
indirectly, has the right to vote or dispose of or has "beneficial ownership"
(within the meaning of Rule 13d-3 under the
<PAGE> 5
Act) of any securities of a company, including any such right pursuant to any
agreement, arrangement or understanding (whether or not in writing), provided
that: (i) a Person shall not be deemed the Beneficial Owner of any security as a
result of an agreement, arrangement or understanding to vote such security (A)
arising solely from a revocable proxy or consent given in response to a public
proxy or consent solicitation made pursuant to, and in accordance with, the Act
and the applicable rules and regulations thereunder, or (B) made in connection
with, or to otherwise participate in, a proxy or consent solicitation made, or
to be made, pursuant to, and in accordance with, the applicable provisions of
the Act and the applicable rules and regulations thereunder, in either case
described in clause (A) or (B) above, whether or not such agreement, arrangement
or understanding is also then reportable by such Person on Schedule 13D under
the Act (or any comparable or successor report); and (ii) a Person engaged in
business as an underwriter of securities shall not be deemed to be the
Beneficial Owner of any security acquired through such Person's participation in
good faith in a firm commitment underwriting until the expiration of forty days
after the date of such acquisition.
(ii) "Person" has the meaning ascribed to such term in Section 3(a)(9)
of the Act, as supplemented by Section 13(d)(3) of the Act; provided, however,
that Person shall not include (i) The Hartford Financial Services Group, Inc.,
the Company, any subsidiary of the Company or any other Person controlled by the
Company, (ii) any trustee or other fiduciary holding securities under any
employee benefit plan of The Hartford Financial Services Group, Inc., the
Company or of any subsidiary of the Company, or (iii) a corporation owned,
directly or indirectly, by the stockholders of the Company in substantially the
same proportions as their ownership of securities of the Company.
(g) In the event of a Change of Control, no amendment, suspension or
termination of the Plan thereafter shall impair or reduce the rights of any
person with respect to any award made under the Plan
ARTICLE III -- GENERAL PROVISIONS
3.1 AUTHORITY
Appropriate officers of the Company designated by the Committee are
authorized to execute Restricted Stock agreements, and amendments thereto, in
the name of the Company, as directed from time to time by the Committee.
3.2 ADJUSTMENTS IN THE EVENT OF CHANGE IN COMMON STOCK OF THE COMPANY
In the event of any reorganization, merger, recapitalization,
consolidation, liquidation, stock dividend, stock split, reclassification,
combination of shares, rights offering, split-up, or extraordinary dividend
(including a spin-off) or divestiture, or any other change in the corporate
structure or shares, the number and kind of shares which thereafter may be
granted under the Plan and the number of shares of Restricted Stock awarded
pursuant to Section 2.1 with respect to which all restrictions have not lapsed,
shall be appropriately adjusted consistent with such
<PAGE> 6
change in such manner as the Board in its discretion may deem equitable to
prevent substantial dilution or enlargement of the rights granted to, or
available for, Directors participating in the Plan. Any fractional shares
resulting from such adjustments shall be eliminated.
3.3 RIGHTS OF DIRECTORS
The Plan shall not be deemed to create any obligation on the part of
the Board to nominate any Director for reelection by the Company's stockholders
or to retain any Director at any particular rate of compensation. The Company
shall not be obligated to issue Stock pursuant to an award of Restricted Stock
for which the restrictions hereunder have lapsed if such issuance would
constitute a violation of any applicable law. Except as provided herein, no
Director shall have any rights as a stockholder with respect to any shares of
Restricted Stock awarded to such Director.
3.4 BENEFICIARY
A Director may file with the Committee a written designation of a
beneficiary on such form as may be prescribed by the Committee and may, from
time to time, amend or revoke such designation. In the event of the death of a
Director, the Director's designated beneficiary shall have the right to receive
the shares of Restricted Stock awarded pursuant to the Plan. If no designated
beneficiary survives the Director, the executor or administrator of the
Director's estate shall be deemed to be the Director's beneficiary.
3.5 LAWS AND REGULATIONS
The Committee shall have the right to condition any issuance of Stock
to any Director hereunder on such Director's undertaking in writing to comply
with such restrictions on the subsequent disposition of such Stock as the
Committee shall deem necessary or advisable as a result of any applicable law or
regulation. The Committee may postpone the delivery of Stock following the lapse
of restrictions with respect to awards of Restricted Stock for such time as the
Committee in its discretion may deem necessary, in order to permit the Company
with reasonable diligence (i) to effect or maintain registration of the Plan, or
the shares of Stock issuable upon the lapse of certain restrictions respecting
awards of Restricted Stock, under the Securities Act of 1933 or the securities
laws of any applicable jurisdiction, or (ii) to determine that such shares and
the Plan are exempt from such registration; the Company shall not be obligated
by virtue of any Restricted Stock agreement or any provision of the Plan to
recognize the lapse of certain restrictions respecting awards of Restricted
Stock or issue shares in violation of said Act or of the law of the government
having jurisdiction thereof.
3.6 Amendment, Suspension and Discontinuance of the Plan
The Board may from time to time amend, suspend or discontinue the Plan,
provided that the Board may not, without the approval of the holders of a
majority of the outstanding Stock entitled to vote, take any action which would
cause the Plan to no longer comply with Rule 16b-3 under the Act, or any
successor rule or other regulatory requirement.
<PAGE> 7
No amendment, suspension or discontinuance of the Plan shall impair a
Director's right under a Restricted Stock award previously granted to the
Director without the Director's consent.
3.7 GOVERNING LAW
This Plan and all determinations made and actions taken pursuant hereto
shall be governed by the laws of the State of Connecticut.
3.8 EFFECTIVE DATE AND DURATION OF THE PLAN
This Plan shall be effective on May 22, 1997, subject to approval of
the Plan by the sole stockholder of the Company, Hartford Accident and Indemnity
Insurance Company, and shall terminate on December 31, 2007, provided that
grants of Restricted Stock made prior to the termination of the Plan may vest
following such termination in accordance with their terms.
<PAGE> 1
EXHIBIT 12
HARTFORD LIFE, INC. AND SUBSIDIARIES
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES AND EARNINGS
TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
<TABLE>
<CAPTION>
(In millions) 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
EARNINGS $ 585 $ 480 $ 31 $ 226 $ 223
ADD:
FIXED CHARGES
Interest expense 58 58 55 35 29
Interest factor attributable to rentals 10 9 9 8 8
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL FIXED CHARGES 68 67 64 43 37
- ---------------------------------------------------------------------------------------------------------------------------------
EARNINGS, AS DEFINED $ 653 $ 547 $ 95 $ 269 $ 260
- ---------------------------------------------------------------------------------------------------------------------------------
FIXED CHARGES
Fixed charges above $ 68 $ 67 $ 64 $ 43 $ 37
Dividends on subsidiary preferred stock -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL FIXED CHARGES AND PREFERRED DIVIDEND REQUIREMENTS $ 68 $ 67 $ 64 $ 43 $ 37
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS
Earnings, as defined, to total fixed charges (1) 9.6 8.2 1.5 6.3 7.0
- ---------------------------------------------------------------------------------------------------------------------------------
Earnings, as defined, to total fixed charges and preferred
dividend requirements 9.6 8.2 1.5 6.3 7.0
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The 1996 earnings to total fixed charges ratio, excluding charges of $348,
before-tax, primarily related to the recognition of losses in the
Company's guaranteed investment contract business, was 6.9.
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF HARTFORD LIFE, INC.
<TABLE>
<CAPTION>
JURISDICTION NAMES UNDER
OF WHICH COMPANY
COMPANY NAME INCORPORATION DOES BUSINESS
- ------------ ------------- -------------
<S> <C> <C>
Alpine Life Insurance Company Connecticut "Alpine"
American Maturity Life Insurance Company (60%) Connecticut "AML"
AML Financial, Inc. Connecticut n/a
Brazilcap Capitalizacao S.A. (17%) Brazil n/a
CAB Corporation (50%) British Virgin Islands n/a
Consultora de Capitales S.A.
Sociedad Gerente De Fondos Corriunes De Enversion (50%) Argentina n/a
Federal Capitalizacao S.A. (24.5%) Brazil n/a
Galicia Vida Compania de Seguros S.A. (40%) Argentina "Galica Vida"
Hartford Advisers HLS Fund, Inc. Maryland n/a
Hartford Bond HLS Fund, Inc. Maryland n/a
Hartford Calma Company (60%) Florida n/a
Hartford Capital Appreciation HLS Fund, Inc. Maryland n/a
Hartford - Comprehensive Employee Benefit Service Company Connecticut "CEBSCO"
Hartford Dividend and Growth HLS Fund, Inc. Maryland n/a
Hartford Equity Sales Company, Inc. Connecticut "HESCO"
Hartford Financial Services, LLC Delaware n/a
Hartford Financial Services Life Insurance Company Connecticut n/a
Hartford Index HLS Fund, Inc. Maryland n/a
Hartford International Advisers HLS Fund, Inc. Maryland n/a
Hartford International Life Reassurance Corporation Connecticut n/a
Hartford International Opportunities HLS Fund, Inc. Maryland n/a
Hartford Investment Financial Services Company Delaware n/a
Hartford Life and Accident Insurance Company Connecticut "HLA"
Hartford Life and Annuity Insurance Company Connecticut n/a
Hartford Life Insurance Company of Canada (96.89%) Canada n/a
Hartford Life Insurance Company Connecticut n/a
Hartford MidCap HLS Fund, Inc. Maryland n/a
Hartford Money Market HLS Fund, Inc. Maryland n/a
Hartford Mortgage Securities HLS Fund, Inc. Maryland n/a
Hartford Securities Distribution Company, Inc. Connecticut n/a
Hartford Seguros de Retiro S.A. Argentina n/a
Hartford Seguros de Vida (S.A.) Argentina n/a
Hartford Series Fund, Inc., on behalf of the following Series:
Hartford Global Leaders HLS Fund Maryland n/a
Hartford Growth and Income HLS Fund Maryland n/a
Hartford High Yield HLS Fund Maryland n/a
Hartford Small Company HLS Fund, Inc. Maryland n/a
Hartford Stock HLS Fund, Inc. Maryland n/a
HL Investment Advisors, LLC Connecticut n/a
HLIC Canada Holdings, Inc. Canada n/a
</TABLE>
<PAGE> 2
EXHIBIT 21
SUBSIDIARIES OF HARTFORD LIFE, INC. (CONTINUED)
<TABLE>
<CAPTION>
JURISDICTION NAMES UNDER
OF WHICH COMPANY
COMPANY NAME INCORPORATION DOES BUSINESS
- ------------ ------------- -------------
<S> <C> <C>
Icatu Hartford Administracao de Beneficios Ltda. Brazil n/a
Icatu Hartford Fundo de Pensao Brazil Icatu-Hartford
Icatu Hartford Capitalizacao S.A. (45%) Brazil n/a
Icatu Hartford Seguros S.A. (45%) Brazil n/a
Instituto de Salta Campana de Seguros de Vida S.A. (90%) Argentina n/a
International Corporate Marketing Group, Inc. Connecticut n/a
ITT Hartford Life International, Ltd. Connecticut n/a
ITT Hartford Life, Ltd. Bermuda n/a
ITT Hartford Seguros de Vida (50%) Uruguay n/a
ITT Hartford Sudamericana Holding S.A. Argentina n/a
MS Fund America 1993-K SPE Inc. Delaware n/a
PLANCO, Incorporated Pennsylvania "PLANCO Enterprises
Inc." Texas only
PLANCO Financial Services, Inc. Pennsylvania n/a
Royal Life Insurance Company of America Connecticut n/a
The Evergreen Group Incorporated New York n/a
The Hartford Mutual Funds, Inc., on behalf of the
following Series:
The Hartford Advisers Fund Maryland n/a
The Hartford Bond Income Strategy Fund Maryland n/a
The Hartford Capital Appreciation Fund Maryland n/a
The Hartford Dividend and Growth Fund Maryland n/a
The Hartford Global Leaders Fund Maryland n/a
The Hartford Growth and Income Fund Maryland n/a
The Hartford High Yield Fund Maryland n/a
The Hartford International Opportunities Fund Maryland n/a
The Hartford MidCap Fund Maryland n/a
The Hartford Money Market Fund Maryland n/a
The Hartford Small Company Fund Maryland n/a
The Hartford Stock Fund Maryland n/a
Thesis S.A. Argentina n/a
U.O.R. S.A. (47.75%) Argentina n/a
</TABLE>
<PAGE> 1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Hartford Life, 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-8 (File Nos. 333-28805 and 333-28807) and
(ii) on Forms S-3 (File Nos. 333-21865 and 333-56283).
ARTHUR ANDERSEN LLP
Hartford, Connecticut
March 29, 1999
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<DEBT-HELD-FOR-SALE> 17,692
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 140
<MORTGAGE> 211
<REAL-ESTATE> 0
<TOTAL-INVEST> 24,882
<CASH> 36
<RECOVER-REINSURE> 900
<DEFERRED-ACQUISITION> 3,842
<TOTAL-ASSETS> 122,022
<POLICY-LOSSES> 5,717
<UNEARNED-PREMIUMS> 42
<POLICY-OTHER> 19,767
<POLICY-HOLDER-FUNDS> 90,628
<NOTES-PAYABLE> 650
250<F1>
0
<COMMON> 1
<OTHER-SE> 2,492
<TOTAL-LIABILITY-AND-EQUITY> 122,022
3,833
<INVESTMENT-INCOME> 1,955
<INVESTMENT-GAINS> 0
<OTHER-INCOME> 0
<BENEFITS> 3,227
<UNDERWRITING-AMORTIZATION> 441
<UNDERWRITING-OTHER> 1,444
<INCOME-PRETAX> 585
<INCOME-TAX> 199
<INCOME-CONTINUING> 386
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 386
<EPS-PRIMARY> 2.76
<EPS-DILUTED> 2.75
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
<FN>
<F1>REPRESENTS COMPANY OBLIGATED MANDATORILY REDEEMABLE
PREFERRED SECURITIES OF SUBSIDIARY TRUST HOLDING SOLELY
PARENT JUNIOR SUBORDINATED DEBENTURES.
</FN>
</TABLE>
