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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For The Quarterly Period Ended June 30, 1997
OR
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ____________ to ______________
Commission file number 0-19277
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3317783
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
HARTFORD PLAZA, HARTFORD, CONNECTICUT 06115-1900
(Address of principal executive offices)
(860) 547-5000
(Registrant's telephone number, including area code)
ITT HARTFORD GROUP, INC.
(Former name)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No[ ]
As of July 31, 1997, there were outstanding 118,245,642 shares of Common Stock,
$0.01 par value per share, of the registrant.
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<PAGE>
INDEX
PART I. FINANCIAL INFORMATION
- - -----------------------------
ITEM 1. FINANCIAL STATEMENTS PAGE
----
Consolidated Statements of Income - Second Quarter and Six Months
Ended June 30, 1997 and 1996 3
Consolidated Balance Sheets - June 30, 1997 and December 31, 1996 4
Consolidated Statements of Cash Flows - Six Months Ended June 30,
1997 and 1996 5
Notes to Consolidated Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 7
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 16
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 17
Signature 18
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<PAGE>
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
ITEM 1. FINANCIAL STATEMENTS
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
Second Quarter Ended Six Months Ended
June 30, June 30,
--------------------------- --------------------------
(In millions, except for per share data) 1997 1996 1997 1996
- - ----------------------------------------------------------------- ------------- ------------- ------------ -------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
REVENUES
Earned premiums $ 2,468 $ 2,403 $ 4,920 $ 5,059
Net investment income 638 601 1,267 1,204
Net realized capital gains 36 22 73 41
- - ---- ------------------------------------------------------------ ------------- ------------- ------------ -------------
TOTAL REVENUES 3,142 3,026 6,260 6,304
------------------------------------------------------------ ------------- ------------- ------------ -------------
BENEFITS, CLAIMS AND EXPENSES
Benefits, claims and claim adjustment expenses 1,928 2,042 3,886 4,083
Amortization of deferred policy acquisition costs 477 450 931 861
Other expenses 462 355 894 1,067
- - ---- ------------------------------------------------------------ ------------- ------------- ------------ -------------
TOTAL BENEFITS, CLAIMS AND EXPENSES 2,867 2,847 5,711 6,011
------------------------------------------------------------ ------------- ------------- ------------ -------------
OPERATING INCOME 275 179 549 293
Equity gain on HLI initial public offering 368 -- 368 --
- - ----------------------------------------------------------------- ------------- ------------- ------------ -------------
INCOME BEFORE INCOME TAXES AND MINORITY INTEREST 643 179 917 293
Income tax expense 64 36 134 54
- - ----------------------------------------------------------------- ------------- ------------- ------------ -------------
INCOME BEFORE MINORITY INTEREST 579 143 783 239
Minority interest in consolidated subsidiary (5) -- (5) --
- - ----------------------------------------------------------------- ------------- ------------- ------------ -------------
NET INCOME $ 574 $ 143 $ 778 $ 239
------------------------------------------------------------ ------------- ------------- ------------ -------------
EARNINGS PER SHARE $ 4.86 $ 1.22 $ 6.60 $ 2.04
CASH DIVIDENDS DECLARED PER SHARE $ 0.40 $ 0.40 $ 0.80 $ 0.80
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 118.0 117.2 117.8 117.2
- - ----------------------------------------------------------------- ------------- ------------- ------------ -------------
<FN>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
</FN>
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
(In millions, except for share data) 1997 1996
- - ------------------------------------------------------------------------------------------ ---------------- -----------------
(Unaudited)
<S> <C> <C>
ASSETS
Investments
Fixed maturities, available for sale, at fair value (amortized cost of
$33,339 and $31,178) $ 33,658 $ 31,449
Equity securities, available for sale, at fair value (cost of $1,591 and $1,581) 2,072 1,865
Policy loans, at outstanding balance 3,757 3,839
Other investments, at cost 466 486
- - ------------------------------------------------------------------------------------------ ---------------- -----------------
Total investments 39,953 37,639
Cash 135 112
Premiums receivable and agents' balances 2,009 1,797
Reinsurance recoverables 11,249 11,229
Deferred policy acquisition costs 3,816 3,535
Deferred income tax 1,392 1,480
Other assets 2,688 2,596
Separate account assets 59,875 50,452
- - ------------------------------------------------------------------------------------------ ---------------- -----------------
TOTAL ASSETS $ 121,117 $ 108,840
------------------------------------------------------------------------------------ -- ------------- --- -------------
LIABILITIES
Future policy benefits, unpaid claims and claim adjustment expenses
Property and casualty $ 18,552 $ 18,303
Life 4,678 4,371
Other policy claims and benefits payable 21,377 22,220
Unearned premiums 2,959 2,797
Short-term debt 88 500
Long-term debt 1,682 1,032
Company obligated mandatorily redeemable preferred securities of subsidiary trusts
holding solely parent junior subordinated debentures 1,000 1,000
Other liabilities 5,225 3,645
Separate account liabilities 59,875 50,452
- - ------------------------------------------------------------------------------------------ ---------------- -----------------
TOTAL LIABILITIES 115,436 104,320
------------------------------------------------------------------------------------ ---------------- -----------------
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY 324 --
STOCKHOLDERS' EQUITY
Common stock - authorized 200,000,000, issued 119,865,713 and
119,194,412 shares, par value $0.01 1 1
Capital surplus 1,664 1,642
Retained earnings 3,199 2,515
Treasury stock - 1,638,000 shares (30) (30)
Cumulative translation adjustments (4) 40
Unrealized gain on securities, net of tax 527 352
- - ----- ------------------------------------------------------------------------------------ ---------------- -----------------
TOTAL STOCKHOLDERS' EQUITY 5,357 4,520
------------------------------------------------------------------------------------ ---------------- -----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 121,117 $ 108,840
------------------------------------------------------------------------------ -- ------------- --- -------------
<FN>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
</FN>
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
June 30,
----------------------------------
(In millions) 1997 1996
- - ------------------------------------------------------------------------------------------ ---------------- -----------------
(Unaudited)
OPERATING ACTIVITIES
<S> <C> <C>
Net income $ 778 $ 239
ADJUSTMENTS TO NET INCOME
Depreciation and amortization 38 39
Net realized capital gains (73) (41)
Equity gain on HLI initial public offering (368) --
Change in receivables, payables and accruals (176) (217)
Accrued and deferred taxes 146 (163)
Increase in liabilities for future policy benefits, unpaid claims and claim
adjustment expenses and unearned premiums 635 216
Increase in deferred policy acquisition costs (294) (311)
(Increase) decrease in reinsurance recoverables and other related assets (179) 310
Minority interest in consolidated subsidiary 5 --
Other, net 330 283
- - ------------------------------------------------------------------------------------------ ---------------- -----------------
CASH PROVIDED BY OPERATING ACTIVITIES 842 355
- - ------------------------------------------------------------------------------------------ ---------------- -----------------
INVESTING ACTIVITIES
Purchase of investments (23,539) (19,641)
Sale of investments 7,568 8,977
Maturity of investments 14,597 10,468
Additions to plant, property and equipment (28) (28)
- - ------------------------------------------------------------------------------------------ ---------------- -----------------
CASH USED FOR INVESTING ACTIVITIES (1,402) (224)
- - ------------------------------------------------------------------------------------------ ---------------- -----------------
FINANCING ACTIVITIES
Short-term debt, net (412) (386)
Long-term debt, net 650 --
Net proceeds from issuance of company obligated mandatorily redeemable
preferred securities of subsidiary trusts holding solely parent junior
subordinated debentures
-- 484
Dividends paid (95) (47)
Net disbursements for investment and universal life-type contracts charged from
policyholder accounts (265) (128)
Net proceeds from sale of minority interest in subsidiary 687 --
Other, net 22 5
- - ------------------------------------------------------------------------------------------ ---------------- -----------------
CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES 587 (72)
- - ------------------------------------------------------------------------------------------ ---------------- -----------------
Foreign exchange rate effect on cash (4) 2
- - ------------------------------------------------------------------------------------------ ---------------- -----------------
Increase in cash 23 61
Cash - beginning of period 112 95
========================================================================================== ================ =================
CASH - END OF PERIOD $ 135 $ 156
- - ------------------------------------------------------------------------------------------ -- ------------- -- --------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
- - ------------------------------------------------
NET CASH PAID (REFUNDS RECEIVED) DURING THE PERIOD FOR:
Income taxes $ (57) $ 163
Interest $ 116 $ 70
<FN>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
</FN>
</TABLE>
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<PAGE>
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN MILLIONS EXCEPT FOR SHARE DATA UNLESS OTHERWISE STATED)
(UNAUDITED)
- - --------------------------------------------------------------------------------
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
- - --------------------------------------------------------------------------------
(A) BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of The Hartford
Financial Services Group, Inc. ("The Hartford" or the "Company", formerly ITT
Hartford Group, Inc.) have been prepared in accordance with generally accepted
accounting principles for interim periods. Less than majority-owned entities in
which The Hartford has at least a 20% interest are reported on an equity basis.
In the opinion of management, these statements include all normal recurring
adjustments necessary to present fairly the financial position, results of
operations and cash flows for the periods presented. For a description of
accounting policies, see Note 1 of Notes to Consolidated Financial Statements
for the fiscal year ended December 31, 1996 included in The Hartford's 1996 Form
10-K Annual Report.
Certain reclassifications have been made to prior year financial information to
conform to current year presentation.
(B) CHANGES IN ACCOUNTING PRINCIPLES
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share". This
statement establishes standards for computing and presenting earnings per share
("EPS") and applies to entities with publicly held common stock or potential
common stock. This statement simplifies the standards for computing earnings per
share previously found in Accounting Principles Board Opinion No. 15, "Earnings
per Share", and makes them comparable to international EPS standards. It
replaces the presentation of primary EPS with the presentation of basic EPS. It
also requires dual presentation of basic and diluted EPS on the face of the
income statement for all entities with complex capital structures and requires a
reconciliation of the numerator and denominator of the basic EPS computation to
the numerator and denominator of the diluted EPS computation. This statement is
effective for financial statements for both interim and annual periods ending
after December 15, 1997. Adoption of SFAS No. 128 is not expected to have a
material effect on the Company's earnings per share calculation.
NOTE 2. THE OFFERING
On February 10, 1997, Hartford Life, Inc. ("HLI"), the holding company parent of
The Hartford's significant life insurance subsidiaries, filed a registration
statement with the Securities and Exchange Commission, as amended, relating to
the initial public offering of HLI class A common stock (the "Offering").
Pursuant to the Offering on May 22, 1997, HLI sold to the public 26 million
shares at $28.25 per share and received proceeds, net of offering expenses, of
$687.
The 26 million shares sold in the Offering represent approximately 18.6% of the
equity ownership in HLI and approximately 4.4% of the combined voting power of
HLI's class A and class B common stock. The Hartford owns all of the 114 million
outstanding shares of class B common stock of HLI, representing approximately
81.4% of the equity ownership in HLI and approximately 95.6% of the combined
voting power of HLI's class A and class B common stock. Holders of class A
common stock generally have identical rights to the holders of class B common
stock except that the holders of class A common stock are entitled to one vote
per share while holders of class B common stock are entitled to five votes per
share on all matters submitted to a vote of HLI's stockholders.
In connection with the Offering, The Hartford reported a $368 gain related to
the increased value of its equity ownership in HLI. Management used or will use
the proceeds from the Offering to reduce certain debt outstanding, to fund
growth initiatives, and for other general corporate purposes. The Hartford's
current intent is to continue to beneficially own at least 80% of HLI, but it is
under no contractual obligation to do so.
NOTE 3. DEBT
On February 14, 1997, HLI filed a shelf registration statement for the issuance
and sale of up to $1.0 billion in the aggregate of senior debt securities,
subordinated debt securities and preferred stock of HLI. On June 17, 1997, HLI
issued and sold $650 of unsecured redeemable long-term debt in the form of notes
and debentures. Of this amount, $200 was in the form of 6.90% notes due June 15,
2004, $200 of 7.10% notes due June 15, 2007, and $250 of 7.65% debentures due
June 15, 2027. Interest on each of the notes and debentures is payable
semi-annually on June 15 and December 15, of each year, commencing December 15,
1997. HLI also issued $50 of short-term debt in the form of commercial paper.
HLI used the proceeds from these issuances for the repayment of short-term debt
and for other general corporate purposes.
In the first quarter of 1997, HLI borrowed $1.1 billion against a $1.3 billion
unsecured short-term credit facility with four banks. During the second quarter
of 1997, HLI retired the borrowing with proceeds from the Offering and the new
debt issuances (discussed above), and subsequently reduced the capacity of its
unsecured short-term credit facility from $1.3 billion to $250.
NOTE 4. CONTINGENCIES
(A) LITIGATION
The Hartford is involved in various legal actions, some of which involve claims
for substantial amounts. In the opinion of management, the ultimate liability
with respect to such lawsuits is not expected to be material to the consolidated
financial position, results of operations or cash flows of The Hartford.
(B) ENVIRONMENTAL AND ASBESTOS CLAIMS
Information regarding environmental and asbestos claims may be found in the
Environmental and Asbestos Claims section of the Management's Discussion and
Analysis of Financial Condition and Results of Operations.
- 6 -
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(DOLLAR AMOUNTS IN MILLIONS EXCEPT PER SHARE DATA UNLESS OTHERWISE STATED)
Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A") addresses the financial condition of The Hartford as of June
30, 1997, compared with December 31, 1996, and its results of operations for the
second quarter and six months ended June 30, 1997 compared with the equivalent
1996 periods. This discussion should be read in conjunction with the MD&A
included in The Hartford's 1996 Form 10-K Annual Report.
Certain of the statements contained herein (other than statements of historical
fact) are forward-looking statements. Such forward-looking statements are made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. The forward-looking statements are made based upon
management's expectations and beliefs concerning future developments and their
potential effect upon The Hartford. There can be no assurance that future
developments will be in accordance with management's expectations or that the
effect of future developments on The Hartford will be those anticipated by
management. Actual results could differ materially from those expected by The
Hartford, depending on the outcome of certain factors, including those described
with the forward-looking statements herein.
Certain reclassifications have been made to prior year financial information to
conform to the current year presentation.
================================================================================
INDEX
================================================================================
Consolidated Results of Operations: Operating Summary 7
North American Property & Casualty 8
Life 9
International 10
Other Operations and Minority Interest 10
Environmental and Asbestos Claims 10
Investments 12
Capital Resources and Liquidity 15
================================================================================
CONSOLIDATED RESULTS OF OPERATIONS: OPERATING SUMMARY
================================================================================
<TABLE>
<CAPTION>
OPERATING SUMMARY SECOND QUARTER ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------- -------------- -------------- --------------
1997 1996 1997 1996
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
TOTAL REVENUES $ 3,142 $ 3,026 $ 6,260 $ 6,304
- - --------------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 574 $ 143 $ 778 $ 239
Less: Net realized capital gains, after-tax 24 16 49 28
Equity gain on HLI initial public offering 368 -- 368 --
- - --------------------------------------------------------------------------------------------------------------------------------
CORE EARNINGS $ 182 $ 127 $ 361 $ 211
- - --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Revenues for the second quarter ended June 30, 1997 increased $116, or 4%, from
the second quarter of 1996 and decreased $44, or 1%, for the first six months of
1997 compared to the same prior year period. Excluding corporate-owned life
insurance ("COLI") premiums, which decreased as a result of the Health Insurance
Portability and Accountability Act of 1996 ("HIPA Act of 1996"), which phases
out the deductibility of interest on policy loans under leveraged COLI by 1998,
revenues increased $182, or 6%, and $387, or 7%, respectively, for the second
quarter and six months ended June 30, 1997. The increase for both periods was
due primarily to higher fees earned due to growth in individual variable annuity
account values, an increase in premiums and other considerations resulting from
strong group disability sales, growth in Reinsurance operations and AARP
(American Association of Retired Persons) personal lines as well as new business
attributable to a recent agreement with Nationwide Building Society in the
United Kingdom. Higher net investment income and net realized capital gains also
contributed to the increase.
The Hartford defines "core earnings" as after-tax operational results excluding,
as applicable, net realized capital gains or losses, the cumulative effect of
accounting changes, allocated Distribution items (as defined in The Hartford's
1996 Form 10-K Annual Report) and certain other items. Core earnings is an
internal performance measure used by the Company in the management of its
operations. Management believes that this performance measure delineates the
results of operations of the Company's ongoing lines of business in a manner
that allows for a better understanding of the underlying trends in the Company's
current business. However, core earnings should only be analyzed in conjunction
with, and not in lieu of, net income and may not be comparable to other
performance measures used by the Company's competitors.
Net income, excluding the impact of net realized capital gains, after-tax, and a
$368 equity gain resulting from the the Offering of 18.6% of HLI (for additional
information, see Capital Resources and Liquidity section under "The Offering")
was $182 and $361 for the second quarter and six months of 1997, respectively,
compared with $127 and $211 for the comparable prior year periods. The increase
in core earnings of $55, or 43%, for the second quarter and $150, or 71%, for
the first six months of 1997 was partially due to significantly lower
catastrophe and severe winter storm losses totaling $3 and $19, after-tax, for
the second quarter and six months ended June 30, 1997, respectively, compared to
$30 and $107, after-tax, for the same periods in 1996. Excluding the impact of
these losses, core earnings for the second quarter increased $28, or 18%, to
$185 and for the first six months
- 7 -
<PAGE>
of 1997 increased $62, or 19%, to $380 over the comparable prior year periods.
This improvement was driven by premium growth in AARP and Reinsurance
operations, increased investment income, growth in earnings on Life annuities,
the reduction of incurred environmental and asbestos losses and the reduction of
losses in the Guaranteed Investment Contract division.
The effective tax rates for the second quarter and six months ended June 30,
1997, excluding the equity gain in HLI, were 23% and 24%, respectively, compared
to 20% and 18% for the comparable periods in 1996. Tax-exempt interest earned on
invested assets was a principal cause of effective tax rates lower than the 35%
U.S. statutory rate.
SEGMENT RESULTS
The Hartford's reporting segments, which reflect the management structure of the
Company, consist of North American Property & Casualty, Life, International and
Other Operations and Minority Interest.
Below is a summary of core earnings by segment.
<TABLE>
<CAPTION>
SECOND QUARTER ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------- -------------- -------------- --------------
1997 1996 1997 1996
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
North American Property & Casualty $ 100 $ 65 $ 204 $ 91
Life 74 44 136 83
International 13 20 27 41
Other Operations and Minority Interest (5) (2) (6) (4)
- - --------------------------------------------------------------------------------------------------------------------------------
CORE EARNINGS $ 182 $ 127 $ 361 $ 211
- - --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The sections that follow analyze each segment's results. Specific topics such as
environmental and asbestos reserves and investment results are discussed
separately following the segment overviews.
<TABLE>
<CAPTION>
================================================================================
NORTH AMERICAN PROPERTY & CASUALTY
================================================================================
OPERATING SUMMARY SECOND QUARTER ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------- -------------- -------------- --------------
1997 1996 1997 1996
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
TOTAL REVENUES $ 1,656 $ 1,609 $ 3,261 $ 3,162
- - --------------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 111 $ 68 $ 215 $ 94
Less: Net realized capital gains, after-tax 11 3 11 3
- - --------------------------------------------------------------------------------------------------------------------------------
CORE EARNINGS $ 100 $ 65 $ 204 $ 91
- - --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Core earnings for the North American Property & Casualty segment were $100 for
the second quarter ended June 30, 1997, an increase of $35, or 54%, from the
comparable period in 1996. This improvement was primarily due to a $27 decrease
in after-tax underwriting loss. Core earnings increased 124% to $204 for the
first six months of 1997 as compared to 1996. Of this $113 increase, $104 was
from improved underwriting results due primarily to significantly lower
catastrophe and weather-related losses. Additionally, increased after-tax net
investment income was partially offset by higher debt service costs. (For an
analysis of net investment income, see the Investments section.)
UNDERWRITING RESULTS
Underwriting results represent premiums earned less incurred claims, claim
adjustment expenses and underwriting expenses. The following table displays
written premiums, underwriting results and combined ratios for The Hartford's
North American Property & Casualty segment:
<TABLE>
<CAPTION>
SECOND QUARTER ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------- -------------- -------------- --------------
1997 1996 1997 1996
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Written premiums $ 1,439 $ 1,435 $ 2,927 $ 2,892
Underwriting results, before-tax $ (40) $ (80) $ (60) $ (220)
Combined ratio [1] 102.7 104.6 101.7 106.8
- - --------------------------------------------------------------------------------------------------------------------------------
<FN>
[1] "Combined ratio" is a common industry measurement of property and casualty
underwriting profitability. This ratio is the sum of the ratio of incurred
claims and claim adjustment expenses to premiums earned and the ratio of
underwriting expenses incurred to premiums written.
</FN>
</TABLE>
The North American Property & Casualty segment's written premiums were flat for
the second quarter and up 1% for the six months ended June 30, 1997 compared to
the equivalent prior year periods. Continued solid written premium growth in
Reinsurance operations and AARP personal lines was offset by a decrease in
Agency Personal lines and a decrease in Commercial Insurance Operations as both
of these markets remain intensely competitive.
Underwriting results, before-tax, for the second quarter ended June 30, 1997
improved $40 over the comparable prior year period, resulting in a 1.9 point
improvement in the combined ratio primarily due to strong performance in the
automobile and homeowners' personal lines. For the six months ended June 30,
1997 underwriting results improved by $160, primarily driven by a $136 (4.8
points of combined ratio) improvement in property catastrophe and other
weather-related loss experience. Improvement in both 1997 periods also reflected
the reduction of incurred environmental and asbestos losses as a result of the
charge taken in the third quarter of 1996 upon completion of the Company's
environmental and asbestos database study (for further discussion see
Environmental and Asbestos Claims section).
<TABLE>
<CAPTION>
================================================================================
LIFE
================================================================================
OPERATING SUMMARY [1] SECOND QUARTER ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------- -------------- -------------- --------------
1997 1996 1997 1996
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
TOTAL REVENUES $ 1,042 $ 987 $ 2,097 $ 2,290
- - --------------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 73 $ 43 $ 136 $ 82
Less: Net realized capital losses, after-tax (1) (1) -- (1)
- - --------------------------------------------------------------------------------------------------------------------------------
CORE EARNINGS $ 74 $ 44 $ 136 $ 83
- - --------------------------------------------------------------------------------------------------------------------------------
<FN>
[1] Life results are presented at 100%. The 18.6% minority interest in HLI is
reflected in Other Operations and Minority Interest section.
</FN>
</TABLE>
The Life segment operates in three principal divisions: Annuity, Individual Life
Insurance and Employee Benefits. The Life segment also maintains a Guaranteed
Investment Contracts division, which is primarily comprised of business written
prior to 1995 and a Corporate Operation through which it reports items that are
not directly allocable to any of its business divisions.
The Annuity division focuses on the savings and retirement needs of the growing
number of individuals who are preparing for retirement or have already retired.
The variety of products sold within this segment reflects the diverse nature of
the market. These include individual variable annuities, fixed market value
adjusted (MVA) annuities, deferred compensation and retirement plan services for
municipal governments and corporations, structured settlement contracts and
other special purpose annuity contracts, investment management contracts and
mutual funds. The Individual Life division, which focuses on the high end estate
and business planning markets, sells a variety of life insurance products,
including variable life and universal life. The Employee Benefits division sells
group insurance products, including group life and group disability insurance,
and corporate owned life insurance ("COLI") and engages in certain international
operations. The Guaranteed Investment Contracts division consists of guaranteed
rate contract ("GRC") business that is supported by assets held in either the
Company's general account or a guaranteed separate account and includes Closed
Book GRC. The Company decided in 1995, after a thorough review of its GRC
business, that it would significantly de-emphasize general account GRC, choosing
to focus its distribution efforts on other products sold through other
divisions. Management expects no material income or loss from the Guaranteed
Investment Contracts division in the future.
On May 22, 1997, HLI, the holding company parent of The Hartford's significant
life subsidiaries, completed the Offering of 18.6% of its common stock. (For
additional information, see Capital Resources and Liquidity section under "The
Offering".)
Revenues for the second quarter ended June 30, 1997 increased $55, or 6%, from
the second quarter of 1996 and decreased 193, or 8%, for the first six months of
1997 compared to the same prior year period. Excluding COLI premiums, which
decreased as a result of the HIPA Act of 1996, which phases out the
deductibility of interest on policy loans under leveraged COLI by 1998, revenues
increased $121, or 16%, and $238, or 15%, respectively, for the second quarter
and six months ended June 30, 1997. The increase for both periods was due
primarily to an increase in premiums and other considerations resulting from
higher fees earned due to growth in individual variable annuity account values
reported in the Annuity division as well as strong group disability sales in the
Group Insurance operation of the Employee Benefits division. Additionally, new
individual annuity sales were approximately $2.5 billion and $5.1 billion for
the second quarter and six months ended June 30, 1997, respectively, similar to
sales of $2.7 billion and $4.9 billion, respectively, for the same periods of
1996.
Core earnings increased $30, or 68%, and $53, or 64%, in the second quarter of
1997 and six months ended June 30, 1997, respectively, compared to the prior
year periods. This increase was driven by growth in the Annuity, Individual Life
Insurance and Employee Benefits operations of 36%, 20% and 20%, respectively,
for the second quarter and 33%, 21%, and 17%, respectively, for the six months,
and the reduction of losses in the Guaranteed Investment Contracts division as a
result of the actions taken in the third quarter of 1996. Partially offsetting
the growth in income was an increase in interest expense in the Corporate
Operation as a result of increased indebtedness in conjunction with the
Offering. (For additional information, see Capital Resources and Liquidity
section under "The Offering".)
- 9 -
<PAGE>
================================================================================
INTERNATIONAL
================================================================================
<TABLE>
<CAPTION>
OPERATING SUMMARY SECOND QUARTER ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------- -------------- -------------- --------------
1997 1996 1997 1996
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
TOTAL REVENUES $ 407 $ 386 $ 824 $ 771
- - --------------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 29 $ 32 $ 65 $ 65
Less: Net realized capital gains, after-tax 16 12 38 24
- - --------------------------------------------------------------------------------------------------------------------------------
CORE EARNINGS $ 13 $ 20 $ 27 $ 41
- - --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Revenues for the second quarter and six months ended June 30, 1997 increased
$21, or 5%, and $53, or 7%, respectively, over the comparable periods in 1996.
New business attributable to a recent agreement with Nationwide Building Society
at ITT London & Edinburgh, in the United Kingdom, to exclusively underwrite its
homeowners business, together with higher net realized capital gains resulted in
the increase. (For an analysis of net realized capital gains, see the
Investments section.) Foreign exchange impacts on revenues for the second
quarter and six months ended June 30, 1997 were negligible.
Core earnings in the International segment for the second quarter and six months
ended June 30, 1997 decreased $7, or 35%, and $14, or 34%, respectively,
compared to the same periods in 1996. A second quarter decrease of $7, or 54%,
and six month decrease of $15, or 56%, in core earnings at ITT London &
Edinburgh, due primarily to soft market conditions in the motor line was the
primary reason for the decline in segment core earnings. Foreign exchange had a
negligible impact on core earnings for the second quarter and six months ended
June 30, 1997.
================================================================================
OTHER OPERATIONS AND MINORITY INTEREST
================================================================================
<TABLE>
<CAPTION>
OPERATING SUMMARY SECOND QUARTER ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------- -------------- -------------- --------------
1997 1996 1997 1996
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
TOTAL REVENUES $ 37 $ 44 $ 78 $ 81
- - --------------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ 361 $ -- $ 362 $ (2)
Less: Net realized capital gains (losses), after-tax (2) 2 -- 2
Equity gain on HLI initial public offering 368 -- 368 --
- - --------------------------------------------------------------------------------------------------------------------------------
CORE EARNINGS $ (5) $ (2) $ (6) $ (4)
- - --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Other Operations consist of property and casualty operations of The Hartford
which have discontinued writing new and renewal business. These operations
primarily include First State Insurance Company and its subsidiaries as well as
Fencourt Reinsurance Company, Ltd. and Excess Insurance Company Limited, which
has been reclassified from ITT London & Edinburgh in the International segment
for all periods presented. The primary focus of these operations is the proper
disposition of claims, resolving disputes and collecting reinsurance proceeds
related largely to business underwritten and reinsured prior to 1985. The equity
gain consists of a non-taxable realized gain following the sale of 18.6% of The
Hartford's principal Life subsidiary, HLI. (For additional information, see Note
2 in Notes to Consolidated Financial Statements and Capital Resources and
Liquidity section under "The Offering".)
Core earnings includes an 18.6% minority interest in HLI's operating results of
$(5) for both 1997 periods presented. (For additional information regarding
HLI's results, see the Life section.)
================================================================================
ENVIRONMENTAL AND ASBESTOS CLAIMS
================================================================================
The Hartford continues to receive claims asserting damages from environmental
exposures and for injuries from asbestos and asbestos-related products, both of
which affect the North American Property & Casualty, International and Other
Operations segments. Environmental claims relate primarily to pollution and
related clean-up costs. With regard to these claims, uncertainty exists which
impacts the ability of insurers and reinsurers to estimate the ultimate reserves
for unpaid losses and related settlement expenses. The Hartford finds that
conventional reserving techniques cannot estimate the ultimate cost of these
claims because of inadequate development patterns and inconsistent emerging
legal doctrine. For the majority of environmental claims and many types of
asbestos claims, unlike any other type of contractual claim, there is almost no
agreement or consistent precedent to determine what, if any, coverage exists or
which, if any, policy years and insurers or reinsurers may be liable. Further
uncertainty arises with environmental claims since claims are often made under
policies, the existence of which may be in dispute, the terms of which may have
changed over many years, which may or may not provide for legal defense costs,
and which may or may not contain environmental exclusion clauses that may be
absolute or allow for fortuitous events. Courts in different jurisdictions have
reached disparate conclusions on similar issues and in certain situations have
broadened the interpretation of policy coverage and liability issues. In light
of the extensive claim settlement process for environmental and asbestos claims,
involving comprehensive fact gathering, subject matter expertise and intensive
litigation, The Hartford established
- 10 -
<PAGE>
an environmental claims facility in 1992 to defend itself aggressively against
unwarranted claims and to minimize costs.
Within the property and casualty insurance industry, progress has been made in
developing sophisticated, alternative methodologies utilizing company experience
and supplemental databases to assess environmental and asbestos liabilities.
Consistent with The Hartford's practice of using the best developed techniques
to estimate the Company's environmental and asbestos exposures, a study was
conducted in 1996 utilizing internal staff supplemented by outside legal and
actuarial consultants. Use of these new methodologies resulted in The Hartford
adjusting its environmental and asbestos liabilities in the third quarter of
1996. (For additional information, see The Hartford's 1996 Form 10-K Annual
Report.)
Reserve activity for both reported and unreported environmental and asbestos
claims, including reserves for legal defense costs, for the six months ended
June 30, 1997 and the year ended December 31, 1996, was as follows (net of
reinsurance):
<TABLE>
<CAPTION>
ENVIRONMENTAL AND ASBESTOS CLAIMS
CLAIMS AND CLAIM ADJUSTMENT EXPENSES
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1997 DECEMBER 31, 1996
---------------- ----------- ----------- ---------------- ----------- -----------
Environmental Asbestos Total Environmental Asbestos Total
---------------- ----------- ----------- ---------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Beginning liability $ 1,439 $ 717 $ 2,156 $ 926 $ 410 $ 1,336
Claims and claim adjustment expenses incurred -- 1 1 603 322 925
Claims and claim adjustment expenses paid (42) (12) (54) (124) (35) (159)
Other [1] -- -- -- 34 20 54
- - ---------------------------------------------------------------------------------------------------------------------------------
ENDING LIABILITY [1] [2] $ 1,397 $ 706 $ 2,103 $ 1,439 $ 717 $ 2,156
- - ---------------------------------------------------------------------------------------------------------------------------------
<FN>
[1] The 1996 ending liability includes reclassifications of reserves that were
not previously identified as environmental and asbestos.
[2] The ending liabilities are net of reinsurance on reported and unreported
claims of $1,895 and $1,972 for June 30, 1997 and December 31, 1996,
respectively. Gross of reinsurance, as of June 30, 1997 and December 31, 1996
reserves for environmental and asbestos were $2,253 and $1,745 and $2,342 and
$1,786, respectively.
</FN>
</TABLE>
The Hartford believes that the environmental and asbestos reserves reported at
June 30, 1997 are a reasonable estimate of the ultimate remaining liability for
these claims based upon known facts, current assumptions and The Hartford's
methodologies. Future social, economic, legal or legislative developments may
alter the original intent of policies and the scope of coverage. The Hartford
will continue to evaluate new developments and methodologies as they become
available for use in supplementing the Company's ongoing analysis and review of
its environmental and asbestos exposures. These future reviews may result in a
change in reserves, impacting The Hartford's results of operations in the period
in which the reserve estimates are changed. While the effects of future changes
in facts, legal and other issues could have a material effect on future results
of operations, The Hartford does not expect such changes would have a material
effect on its liquidity or financial condition.
- 11 -
<PAGE>
================================================================================
INVESTMENTS
================================================================================
An important element of the financial results of The Hartford is return on
invested assets. The Hartford's investment activities are divided between the
reportable segments of North American Property & Casualty, Life, International,
and Other Operations. The investment portfolios for these segments are managed
based on the underlying characteristics and nature of their respective
liabilities.
The ratings referenced in the fixed maturities by credit quality tables are
based on the ratings of a nationally recognized rating organization or, if not
rated, assigned based on the Company's internal analysis of such securities.
Please refer to The Hartford's 1996 Form 10-K Annual Report for a description of
the Company's investment objectives and policies.
NORTH AMERICAN PROPERTY & CASUALTY
Total invested assets were $14.5 billion at June 30, 1997 and were comprised
primarily of fixed maturities of $12.8 billion and other investments of $1.7
billion, primarily equity securities.
FIXED MATURITIES BY TYPE
- - -----------------------------------------------------------------
JUNE 30, 1997 DECEMBER 31, 1996
- - ------------------------- ---------- -------- ---------- --------
FAIR FAIR
TYPE VALUE PERCENT VALUE PERCENT
- - ------------------------- ---------- -------- ---------- --------
Municipal - tax-exempt $7,186 56.2% $7,123 63.2%
Corporate 2,546 19.9% 2,160 19.1%
Short-term 832 6.5% 419 3.7%
ABS 518 4.1% 206 1.8%
MBS - agency 475 3.7% 213 1.9%
CMO 408 3.2% 655 5.8%
Commercial MBS 333 2.6% 107 0.9%
Gov't/Gov't agencies - For. 321 2.5% 279 2.5%
Municipal - taxable 62 0.5% 68 0.6%
Gov't/Gov't agencies - U.S. 49 0.4% 15 0.1%
Redeemable pref'd stock 47 0.4% 47 0.4%
- - ------------------------- ---------- -------- ---------- --------
TOTAL FIXED MATURITIES $12,777 100.0% $11,292 100.0%
- - ------------------------- ---------- -------- ---------- --------
This segment maintains a high quality fixed maturity portfolio. At June 30,
1997, approximately 95% of the fixed maturity portfolio was invested in
investment-grade securities.
FIXED MATURITIES BY CREDIT QUALITY
- - ------------------------------------------------------------------
JUNE 30, 1997 DECEMBER 31, 1996
- - -------------------------- ------------------ -------------------
FAIR FAIR
CREDIT QUALITY VALUE PERCENT VALUE PERCENT
- - -------------------------- --------- -------- ---------- --------
U.S. Gov't/Gov't agencies $ 820 6.4% $ 720 6.4%
AAA 4,743 37.1% 4,296 38.0%
AA 2,619 20.5% 2,714 24.0%
A 2,149 16.8% 1,731 15.3%
BBB 1,042 8.2% 830 7.4%
BB & below 572 4.5% 582 5.2%
Short-term 832 6.5% 419 3.7%
- - -------------------------- --------- -------- ---------- --------
TOTAL FIXED MATURITIES $12,777 100.0% $11,292 100.0%
- - -------------------------- --------- -------- ---------- --------
The taxable equivalent duration of the June 30, 1997 fixed maturity portfolio
was 4.6 years compared to 5.0 years at December 31, 1996. Duration is defined as
the market price sensitivity of the portfolio to parallel shifts in the yield
curve.
The North American Property & Casualty segment uses a minimal amount of
derivatives in managing its investments. The notional amount of derivatives was
$125 and $1 as of June 30, 1997 and December 31, 1996, respectively.
INVESTMENT RESULTS
The table below summarizes the North American Property & Casualty segment's
results.
SECOND QUARTER SIX MONTHS ENDED
ENDED JUNE 30, JUNE 30,
------------------- -------------------
1997 1996 1997 1996
- - -------------------------- --------- -------- --------- ---------
Net investment income,
before-tax $193 $166 $370 $327
Net investment income,
after-tax [1] $154 $132 $297 $259
Yield on average
invested assets, 5.9% 5.7% 5.6% 5.6%
before-tax [2]
Yield on average
invested assets, 4.7% 4.5% 4.5% 4.5%
after-tax [1] [2]
Net realized capital
gains, before tax $17 $4 $17 $4
- - -----------------------------------------------------------------
[1] Due to the significant holdings in tax-exempt investments an after-tax net
investment income and after-tax yield are also included.
[2] Represents annualized six months net investment income (excluding net
realized capital gains) divided by average invested assets at cost (fixed
maturities at amortized cost).
For the second quarter ended June 30, 1997, before-tax net investment income was
$193 compared to $166 in 1996, an increase of 16%, while after-tax net
investment income increased 17%. For the six months ended June 30, 1997,
before-tax net investment income was $370 compared to $327 in 1996, an increase
of 13%, while after-tax net investment income increased 15%. The increase in net
investment income for both periods was primarily due to an increase in invested
assets as a result of increased operating cash flow, investment of the proceeds
from the sale of Quarterly Income Preferred Securities and repayment of
allocated advances from HLI, partially offset by the repayment of short-term
debt.
For the second quarter ended June 30, 1997, before-tax yields on average
invested assets increased to 5.9% from 5.7% in 1996, while the after-tax yields
increased to 4.7% from 4.5%. The increase in both before and after-tax yields is
the result of a portfolio re-balancing which occurred in 1996. The re-balancing
shifted assets from taxable securities to longer duration and higher yielding
tax-exempt bonds. For the six months ended June 30, 1997, before and after-tax
yields on average invested assets remained unchanged at 5.6% and 4.5%,
respectively.
Realized capital gains of $43, primarily generated from opportunities in a
strong equity market, were offset by $26 of real estate writedowns for both 1997
periods presented.
LIFE
Invested assets, excluding separate accounts, totaled $20.4 billion at June 30,
1997 and were comprised of $16.3 billion of fixed maturities, $3.8 billion of
policy loans, and other investments of $317. Policy loans, which carry a
weighted-average interest rate of 10.16% as of June 30, 1997 are secured by the
cash value of the life policy. These loans do not mature in a conventional
sense, but expire in conjunction with the related policy liabilities.
- 12 -
<PAGE>
FIXED MATURITIES BY TYPE
- - -----------------------------------------------------------------
JUNE 30, 1997 DECEMBER 31, 1996
- - -------------------------- ------------------ -------------------
FAIR FAIR
TYPE VALUE PERCENT VALUE PERCENT
- - -------------------------- --------- -------- ---------- --------
Corporate $7,696 47.3% $7,587 48.3%
ABS 3,468 21.3% 2,693 17.1%
Commercial MBS 1,468 9.0% 1,098 7.0%
CMO 1,136 7.0% 2,150 13.7%
Short-term 1,022 6.3% 765 4.9%
MBS - agency 646 3.9% 402 2.6%
Gov't/Gov't agencies - For. 387 2.4% 395 2.5%
Municipal-taxable 252 1.6% 266 1.7%
Gov't/Gov't agencies - U.S. 201 1.2% 355 2.2%
- - -------------------------- --------- -------- ---------- --------
TOTAL FIXED MATURITIES $16,276 100.0% $15,711 100.0%
- - -------------------------- --------- -------- ---------- --------
During the first six months of 1997, the Company reduced its CMO exposure by 47%
with the proceeds redeployed primarily into the asset backed sector. This is
consistent with the Company's objective of managing exposure to securities that
"underperform" in a falling interest rate environment.
The Life segment continued to maintain a high quality fixed maturities
portfolio. As of June 30, 1997, approximately 99% of the fixed maturities
portfolio was invested in investment-grade securities.
FIXED MATURITIES BY CREDIT QUALITY
- - --------------------------------------------------------------------
JUNE 30, 1997 DECEMBER 31, 1996
- - ------------------------- -------------------- -------------------
FAIR FAIR
CREDIT QUALITY VALUE PERCENT VALUE PERCENT
- - ------------------------- --------- ---------- --------- ---------
U.S. Gov't/Gov't agencies $ 1,718 10.5% $ 353 2.2%
AAA 3,043 18.7% 4,695 29.9%
AA 1,901 11.7% 1,902 12.1%
A 5,692 35.0% 5,366 34.2%
BBB 2,862 17.6% 2,581 16.4%
BB & below 38 0.2% 49 0.3%
Short-term 1,022 6.3% 765 4.9%
- - ------------------------- --------- ---------- --------- ---------
TOTAL FIXED MATURITIES $16,276 100.0% $15,711 100.0%
- - ------------------------- --------- ---------- --------- ---------
INVESTMENT RESULTS
The table below summarizes the Life segment's results.
SECOND QUARTER SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------- -------------------
1997 1996 1997 1996
- - ------------------------- --------- --------- --------- ---------
Net investment income,
before-tax $362 $354 $737 $717
Yield on average
invested assets, 7.2% 7.1% 7.4% 7.2%
before-tax [1]
Net realized capital
losses, before-tax $(2) $(1) $(1) $(1)
- - ----------------------------------------------------------------
[1] Represents annualized six months net investment income (excluding net
realized capital gains) divided by average invested assets at cost (fixed
maturities at amortized cost).
For the second quarter ended June 30, 1997, net investment income totaled $362
compared to $354 in 1996, an increase of 2%. For the six months ended June 30,
1997, net investment income was $737 compared to $717 in 1996, an increase of
3%. For the second quarter ended June 30, 1997, before-tax yields increased to
7.2% from 7.1% in 1996; and, for the six months ended June 30, 1997 before-tax
yields increased to 7.4% from 7.2% in 1996. The increase in net investment
income and yields was primarily attributable to the repositioning of the Closed
Book GRC portfolio, including the sale of certain lower yielding securities
whose proceeds were reinvested at substantially higher rates.
ASSET AND LIABILITY MANAGEMENT STRATEGIES
The Life segment employs several risk management tools to quantify and manage
interest rate risk arising from its investments and fixed rate liabilities.
Management monitors the changes in present value between assets and liabilities
resulting from various interest rate scenarios using integrated asset/liability
measurement systems and a proprietary system that simulates the impacts of
parallel and non-parallel yield curve shifts. Based on this current and
prospective information, management implements risk reducing techniques to
improve the match between assets and liabilities.
Derivatives play an important role in facilitating the management of interest
rate risk, creating opportunities to fund obligations to policyholders and
contractholders, hedging against risks that affect the value of certain
liabilities and adjust broad investment risk characteristics as a result of any
significant changes in market risks. As an end user of derivatives, the segment
employs a variety of derivative financial instruments, including swaps, caps,
floors, forwards and exchange-traded financial futures and options in order to
hedge exposure to price, foreign currency and/or interest rate risk on
anticipated investment purchases or existing assets and liabilities. The
notional amounts of derivative contracts represent the basis upon which pay and
receive amounts are calculated and are not reflective of credit risk for
derivative contracts. Credit risk for derivative contracts is limited to the
amounts calculated to be due to the Company on such contracts. The Company
believes it maintains prudent policies regarding the financial stability and
credit standing of its major counterparties and typically requires credit
enhancement provisions to further limit its credit risk. Many of these
derivative contracts are bilateral agreements that are not assignable without
the consent of the relevant counterparty. Notional amounts pertaining to
derivative financial instruments totaled $9.2 billion at June 30, 1997 ($6.8
billion related to life insurance investments and $2.4 billion related to life
insurance liabilities) and $10.9 billion at December 31, 1996 ($8.3 billion
related to life insurance investments and $2.6 billion related to life insurance
liabilities). The decrease in notional amounts pertaining to derivative
financial instruments was primarily due to continued liquidation of the Closed
Book GRC asset portfolio. Management believes that the use of derivatives allows
the Company to sell more innovative products, capitalize on market opportunities
and execute a more flexible investment strategy for its general account
portfolio.
INTERNATIONAL
Invested assets, excluding separate accounts, totaled $2.8 billion at June 30,
1997 and were comprised of fixed maturities of $2.3 billion and other
investments of $460, primarily equity securities.
- 13 -
<PAGE>
FIXED MATURITIES BY TYPE
- - -----------------------------------------------------------------
JUNE 30, 1997 DECEMBER 31, 1996
- - ------------------------- ------------------- ------------------
FAIR FAIR
TYPE VALUE PERCENT VALUE PERCENT
- - -------------------------- --------- -------- ---------- --------
Gov't/Gov't agencies - For. $1,141 48.9% $1,384 63.1%
Corporate 590 25.3% 401 18.3%
Short-term 562 24.1% 379 17.3%
Gov't/Gov't agencies - U.S. 40 1.7% 29 1.3%
- - -------------------------- --------- -------- ---------- --------
TOTAL FIXED MATURITIES $2,333 100.0% $2,193 100.0%
- - -------------------------- --------- -------- ---------- --------
As of June 30, 1997, the fixed maturities portfolio consisted of 100% investment
grade securities with no security rated lower than A. Minimal use is made of
derivatives which, if purchased, are used for hedging market and foreign
exchange risk.
FIXED MATURITIES BY CREDIT QUALITY
- - ------------------------------------------------------------------
JUNE 30, 1997 DECEMBER 31, 1996
- - -------------------------- ------------------ -------------------
FAIR FAIR
CREDIT QUALITY VALUE PERCENT VALUE PERCENT
- - -------------------------- --------- --------- --------- --------
AAA $1,493 64.0% $1,750 79.8%
AA 274 11.7% 60 2.7%
A 4 0.2% 4 0.2%
Short-term 562 24.1% 379 17.3%
- - -------------------------- --------- --------- --------- --------
TOTAL FIXED MATURITIES $2,333 100.0% $2,193 100.0%
- - -------------------------- --------- --------- --------- --------
INVESTMENT RESULTS
The table below summarizes the International segment's results.
SECOND QUARTER SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------ -------------------
1997 1996 1997 1996
- - -------------------------- --------- -------- --------- ---------
Net investment income,
before-tax $43 $43 $84 $86
Yield on average
invested assets, 6.6% 7.2% 6.4% 7.2%
before-tax [1]
Net realized capital
gains, before-tax $24 $17 $57 $36
- - -----------------------------------------------------------------
[1] Represents annualized six months net investment income (excluding net
realized capital gains) divided by average invested assets at cost (fixed
maturities at amortized cost).
For the second quarter ended June 30, 1997 and June 30, 1996, net investment
income totaled $43. For the six months ended June 30, 1997, net investment
income totaled $84 compared to $86 in 1996, a decrease of 2%. For the second
quarter ended June 30, 1997, before-tax yields decreased to 6.6% from 7.2% in
1996; and for the six months ended June 30, 1997, before-tax yields decreased to
6.4% from 7.2% in 1996. The decrease in net investment income and yields was
primarily due to special dividends received on certain utility equity securities
owned in 1996 which generated additional investment income.
Net realized capital gains were $24 for the second quarter ended June 30, 1997,
and $57 for the six months ended June 30, 1997, primarily the result of
opportunities in a strong equity market.
OTHER OPERATIONS
Invested assets were $2.3 billion at June 30, 1997 and were mostly comprised of
fixed maturities.
FIXED MATURITIES BY TYPE
- - -----------------------------------------------------------------
JUNE 30, 1997 DECEMBER 31, 1996
- - -------------------------- ------------------ -------------------
FAIR FAIR
TYPE VALUE PERCENT VALUE PERCENT
- - -------------------------- --------- -------- ---------- --------
Corporate $1,452 63.9% $1,458 64.7%
Short-term 225 9.9% 248 11.0%
Gov't/Gov't agencies - U.S. 130 5.7% 141 6.2%
ABS 130 5.7% 148 6.6%
Commercial MBS 119 5.3% 88 3.9%
Gov't/Gov't agencies - For. 104 4.6% 72 3.2%
MBS - agency 44 1.9% 36 1.6%
Municipal - taxable 36 1.6% 22 1.0%
CMO 32 1.4% 40 1.8%
- - -------------------------- --------- -------- ---------- --------
TOTAL FIXED MATURITIES $2,272 100.0% $2,253 100.0%
- - -------------------------- --------- -------- ---------- --------
Other Operations maintains a 100% investment grade fixed maturity portfolio.
FIXED MATURITIES BY CREDIT QUALITY
- - ------------------------------------------------------------------
JUNE 30, 1997 DECEMBER 31, 1996
- - -------------------------- ------------------ -------------------
FAIR FAIR
CREDIT QUALITY VALUE PERCENT VALUE PERCENT
- - -------------------------- --------- -------- ---------- --------
U.S. Gov't/Gov't agencies $206 9.1% $216 9.6%
AAA 354 15.6% 253 11.2%
AA 246 10.8% 365 16.2%
A 1,107 48.7% 1,093 48.5%
BBB 134 5.9% 78 3.5%
Short-term 225 9.9% 248 11.0%
- - -------------------------- --------- -------- ---------- --------
TOTAL FIXED MATURITIES $2,272 100.0% $2,253 100.0%
- - -------------------------- --------- -------- ---------- --------
INVESTMENT RESULTS
The table below summarizes Other Operations segment's results.
SECOND QUARTER SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------ -------------------
1997 1996 1997 1996
- - -------------------------- --------- -------- --------- ---------
Net investment income,
before-tax $40 $38 $76 $74
Yield on average
invested assets, 7.0% 6.5% 6.6% 6.3%
before-tax [1]
Net realized capital
gains, before-tax $(3) $2 $-- $2
- - -----------------------------------------------------------------
[1] Represents annualized six months net investment income (excluding net
realized capital gains) divided by average invested assets at cost (fixed
maturities at amortized cost).
For the second quarter ended June 30, 1997, before-tax yields increased to 7.0%
from 6.5% in 1996 primarily due to portfolio re-balancing from lower yielding
short-term securities to higher yielding long-term securities.
- 14 -
<PAGE>
================================================================================
CAPITAL RESOURCES AND LIQUIDITY
================================================================================
Capital resources and liquidity represent the overall financial strength of The
Hartford and its ability to generate strong cash flows from each of the business
segments and borrow funds at competitive rates to meet operating and growth
needs. The capital structure of The Hartford consists of debt, minority interest
and equity, summarized as follows:
<TABLE>
<CAPTION>
JUNE 30, 1997 DECEMBER 31, 1996
- - --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Short-term debt $ 88 $ 500
Long-term debt 1,682 1,032
Company obligated mandatorily redeemable preferred securities of subsidiary trusts
holding solely parent junior subordinated debentures (QUIPS) 1,000 1,000
- - --------------------------------------------------------------------------------------------------------------------------------
TOTAL DEBT $ 2,770 $ 2,532
-------------------------------------------------------------------------------------------------------------------------
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY $ 324 $ --
-------------------------------------------------------------------------------------------------------------------------
Equity excluding unrealized gain on securities, net of tax $ 4,830 $ 4,168
Unrealized gain on securities, net of tax 527 352
- - --------------------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY $ 5,357 $ 4,520
-------------------------------------------------------------------------------------------------------------------------
TOTAL CAPITALIZATION EXCLUDING UNREALIZED GAIN ON SECURITIES, NET OF TAX $ 7,924 $ 6,700
-------------------------------------------------------------------------------------------------------------------------
Debt to equity excluding unrealized gain on securities, net of tax 57% 61%
Debt to capitalization excluding unrealized gain on securities, net of tax 35% 38%
- - --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
CAPITALIZATION
The Hartford's total capitalization, excluding unrealized gain on securities,
net of tax, increased by $1,224 as of June 30, 1997 compared to December 31,
1996. This change primarily was the result of earnings and the effects of the
offering and additional net borrowings, partially offset by dividends declared
on The Hartford common stock. The Company's debt to equity and debt to
capitalization ratios (both excluding unrealized gain on securities, net of tax)
improved at June 30, 1997 as compared to December 31, 1996 primarily as a result
of earnings and the effects of the offering partially offset by increased
consolidated debt entered into by HLI as described below.
THE OFFERING
On February 10, 1997, Hartford Life, Inc. ("HLI"), the holding company parent of
The Hartford's significant life insurance subsidiaries, filed a registration
statement with the Securities and Exchange Commission, as amended, relating to
the initial public offering of HLI class A common stock (the "Offering").
Pursuant to the Offering on May 22, 1997, HLI sold to the public 26 million
shares at $28.25 per share and received proceeds, net of offering expenses, of
$687.
The 26 million shares sold in the Offering represent approximately 18.6% of the
equity ownership in HLI and approximately 4.4% of the combined voting power of
HLI's class A and class B common stock. The Hartford owns all of the 114 million
outstanding shares of class B common stock of HLI, representing approximately
81.4% of the equity ownership in HLI and approximately 95.6% of the combined
voting power of HLI's class A and class B common stock. Holders of class A
common stock generally have identical rights to the holders of class B common
stock except that the holders of class A common stock are entitled to one vote
per share while holders of class B common stock are entitled to five votes per
share on all matters submitted to a vote of HLI's stockholders.
In connection with the Offering, The Hartford reported a $368 gain related to
the increased value of its equity ownership in HLI. Management used or will use
the proceeds from the Offering to reduce certain debt outstanding, to fund
growth initiatives, and for other general corporate purposes. The Hartford's
current intent is to continue to beneficially own at least 80% of HLI, but it is
under no contractual obligation to do so.
DEBT
On February 14, 1997, HLI filed a shelf registration statement for the issuance
and sale of up to $1.0 billion in the aggregate of senior debt securities,
subordinated debt securities and preferred stock of HLI. On June 17, 1997, HLI
issued and sold $650 of unsecured redeemable long-term debt in the form of notes
and debentures. Of this amount, $200 was in the form of 6.90% notes due June 15,
2004, $200 of 7.10% notes due June 15, 2007, and $250 of 7.65% debentures due
June 15, 2027. Interest on each of the notes and debentures is payable
semi-annually on June 15 and December 15, of each year, commencing December 15,
1997. HLI also issued $50 of short-term debt in the form of commercial paper.
HLI used the proceeds from these issuances for the repayment of short-term debt
and for other general corporate purposes.
In the first quarter of 1997, HLI borrowed $1.1 billion against a $1.3 billion
unsecured short-term credit facility with four banks. During the second quarter
of 1997, HLI retired the borrowing with proceeds from the Offering and the new
debt issuances (discussed above), and subsequently reduced the capacity of its
unsecured short-term credit facility from $1.3 billion to $250.
DIVIDENDS
On May 2, 1997, The Hartford declared a dividend on its common stock of $0.40
per share payable on July 1, 1997 to all shareholders of record as of June 2,
1997.
- 15 -
<PAGE>
CASH FLOWS
SIX MONTHS ENDED
JUNE 30,
----------------------------
1997 1996
- - ----------------------------------------------------------------
Cash provided by operating
activities $ 842 $ 355
Cash used for investing activities $ (1,402) $ (224)
Cash provided by (used for) $ $
financing activities 587 (72)
Cash - end of period $ 135 $ 156
- - ----------------------------------------------------------------
The change in cash provided by or used for financing activities between periods
was due primarily to the proceeds of $687 from the Offering, partially offset by
declines in investment-type contracts written in the Life segment, coupled with
increases in investment-type contract maturities in 1997. The increase in cash
used for investing activities reflects the investment of the additional cash
from operating and financing activities. Operating cash flows in both periods
have been more than adequate to meet liquidity requirements.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Hartford is a defendant in various lawsuits arising out of its business. In
the opinion of management, the ultimate liability with respect to such lawsuits
is not expected to be material to the consolidated financial position, results
of operations or cash flow of The Hartford.
The Hartford is involved in claim litigation arising in the ordinary course of
business and accounts for such activity through the establishment of policy
reserves. As further discussed in the MD&A under the Environmental and Asbestos
Claims section, The Hartford continues to receive environmental and asbestos
claims which involve significant uncertainty regarding policy coverage issues.
Regarding these claims, The Hartford continually reviews its overall reserve
levels, reserving methodologies and reinsurance coverages.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 2, 1997, The Hartford held its annual meeting of stockholders. The
following matters were considered and voted upon: (1) the election of directors
to serve for a one year term; (2) the amendment of the Company's certificate of
incorporation to change the Company's name from ITT Hartford Group, Inc. to The
Hartford Financial Services Group, Inc.; (3) the approval of certain material
terms of the Company's annual executive bonus program; (4) the approval of
certain material terms of The Hartford 1995 Incentive Stock Plan; (5) the
approval of certain material terms of the 1997 Hartford Life, Inc. Incentive
Stock Plan; and (6) the ratification of the appointment of Arthur Andersen LLP
as independent auditors of the Company for the fiscal year ending December 31,
1997.
Each of the nominees for election as directors was elected to the Board of
Directors, and each of the other items set forth above was approved. Set forth
below is the vote tabulation relating to the election of directors and each of
the other items voted upon:
(1) Election of Directors
Name of Director
Nominees Shares For Shares Withheld*
----------------------- ----------------- -------------------
Bette B. Anderson 101,434,666 1,268,239
Rand V. Araskog 100,632,434 2,070,471
Ramani Ayer 101,001,799 1,701,106
Robert A. Burnett 101,446,443 1,256,462
Donald R. Frahm 101,033,058 1,669,847
Arthur A. Hartman 101,374,802 1,328,103
Paul G. Kirk, Jr. 101,424,823 1,278,082
Lowndes A. Smith 101,045,967 1,658,938
H. Patrick Swygert 101,442,353 1,260,552
DeRoy C. Thomas 100,945,185 1,757,720
Gordon I. Ulmer 101,443,536 1,259,369
David K. Zwiener 101,025,576 1,677,329
----------------------- ----------------- -------------------
Shares withheld include broker non-votes and abstentions.
(2) Amendment of the Company's Certificate of Incorporation to Change the
Company Name
Shares For 101,866,542
Shares Against 499,828
Shares Abstained 336,535
(3) Approval of Certain Material Terms of the Company's Annual Executive Bonus
Program
Shares For 97,278,443
Shares Against 4,424,293
Shares Abstained 1,000,169
(4) Approval of Certain Material Terms of The Hartford 1995 Incentive Stock Plan
Shares For 95,636,812
Shares Against 6,115,987
Shares Abstained 950,106
- 16 -
<PAGE>
(5) Approval of Certain Material Terms of the 1997 Hartford Life, Inc. Incentive
Stock Plan
Shares For 94,077,589
Shares Against 7,703,968
Shares Abstained 921,348
(6) Ratification of the appointment of Arthur Andersen LLP
Shares For 102,080,373
Shares Against 330,397
Shares Abstained 292,135
There were 117,850,584 shares of the Company's common stock that were issued and
outstanding and entitled to vote at the annual meeting as of the March 4, 1997
record date.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - See Exhibits Index.
(b) Reports on Form 8-K - None.
- 17 -
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
The Hartford Financial Services Group, Inc.
(Registrant)
/s/ James J. Westervelt
---------------------------------------------
James J. Westervelt
Senior Vice President and Group Controller
(Chief Accounting Officer)
AUGUST 13, 1997
- 18 -
<PAGE>
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
FORM 10-Q
EXHBITS INDEX
EXHIBIT #
- - ---------
3.01 Amended and Restated Certificate of Incorporation of The Hartford
Financial Services Group, Inc. ("The Hartford", formerly known as ITT
Hartford Group, Inc.), amended effective May 2, 1997, is filed
herewith.
3.02 Amended Bylaws of The Hartford, amended effective May 2, 1997, are
filed herewith.
10.01 Master Intercompany Agreement among Hartford Life, Inc. ("Hartford
Life"), The Hartford and with respect to Articles VI and XII, Hartford
Fire Insurance Company, was filed as Exhibit 10.01 to Hartford Life's
Form 10-Q filed for the quarter ended June 30, 1997, and is
incorporated herein by reference.
10.02 Tax Sharing Agreement among The Hartford and its subsidiaries,
including Hartford Life, was filed as Exhibit 10.02 to Hartford Life's
Form 10-Q filed for the quarter ended June 30, 1997, and is
incorporated herein by reference.
10.03 Management Agreement between Hartford Life Insurance Company and The
Hartford Investment Management Company, was filed as Exhibit 10.03 to
Hartford Life's Form 10-Q filed the quarter ended June 30, 1997, and
is incorporated herein by reference.
10.04 Management Agreement among certain subsidiaries of Hartford Life and
Hartford Investment Services, Inc., was filed as Exhibit 10.04 to
Hartford Life's Form 10-Q filed the quarter ended June 30, 1997, and
is incorporated herein by reference.
10.05 Sublease Agreement between Hartford Fire Insurance Company and
Hartford Life was filed as Exhibit 10.05 to Hartford Life's Form 10-Q
filed for the quarter ended June 30, 1997, and is incorporated herein
by reference.
10.06 1997 Hartford Life, Inc. Incentive Stock Plan was filed as Exhibit
10.07 to Hartford Life's Form 10-Q filed for the quarter ended June
30, 1997, and is incorporated herein by reference.
10.07 1997 Hartford Life, Inc. Deferred Restricted Stock Unit Plan was filed
as Exhibit 10.08 to Hartford Life's Form 10-Q filed for the quarter
ended June 30, 1997, and is incorporated herein by reference.
10.08 1997 Hartford Life, Inc. Restricted Stock Plan for Non-Employee
Directors was filed as Exhibit 10.09 to Hartford Life's Form 10-Q
filed for the quarter ended June 30, 1997, and is incorporated herein
by reference.
10.09 Promissory Note dated February 20, 1997, executed by Hartford Life for
the benefit of Hartford Accident & Indemnity Company, was filed as
Exhibit 10.09 to Hartford Life's Registration Statement on Form S-1
(Amendment No. 2) dated April 24, 1997 (Registration No. 333-21459)
and is incorporated herein by reference.
- 19 -
<PAGE>
10.10 Promissory Note dated April 4, 1997, executed by Hartford Life for the
benefit of Hartford Accident and Indemnity Company, was filed as
Exhibit 10.16 to Hartford Life's Registration Statement on Form S-1
(Amendment No. 2) dated April 24, 1997 (Registration No. 333-21459)
and is incorporated herein by reference.
11.01 Computation of Earnings Per Share is filed herewith.
27 Financial Data Schedule is filed herewith.
- 20 -
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 11.01
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
COMPUTATION OF EARNINGS PER SHARE
(In millions, except per share data)
Second Quarter Ended Six Month Ended
June 30, June 30,
------------------------------- ------------------------------
1997 1996 1997 1996
- - --------------------------------------------------------------- --------------- --------------- -------------- ---------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net income $ 574 $ 143 $ 778 $ 239
Weighted average common shares outstanding 118.0 117.2 117.8 117.2
Earnings per share $ 4.86 $ 1.22 $ 6.60 $ 2.04
- - --------------------------------------------------------------- -- ------------ -- ------------ -- ----------- --- -----------
</TABLE>
- 21 -
<PAGE>
EXHIBIT 3.01
AMENDED AND
RESTATED CERTIFICATE OF INCORPORATION
OF
ITT HARTFORD GROUP, INC.
ITT HARTFORD GROUP, INC., a Corporation organized and existing under the
laws of the State of Delaware, hereby certifies as follows:
1. The name of the Corporation is ITT HARTFORD GROUP, INC. The date of filing
of its original Certificate of Incorporation with the Secretary of State
was December 9, 1985.
2. This Amended and Restated Certificate of Incorporation restates and
integrates and further amends the Certificate of Incorporation of this
Corporation by amending ARTICLE FIRST to read in its entirety as follows:
"The name of the Corporation is THE HARTFORD FINANCIAL SERVICES GROUP, INC.
(the "Corporation")."
3. The text of the Certificate of Incorporation as amended or supplemented
heretofore is further amended hereby to read as herein set forth in full:
ARTICLE FIRST
-------------
The name of the Corporation is THE HARTFORD FINANCIAL SERVICES GROUP, INC.
(the "Corporation").
ARTICLE SECOND
--------------
The address of the registered office of the Corporation in the State of
Delaware is 1209 Orange Street, Wilmington, New Castle County, Delaware 19801.
The name of the registered agent of the Corporation at such address is The
Corporation Trust Company.
ARTICLE THIRD
-------------
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the Delaware General Corporation
Law.
ARTICLE FOURTH
--------------
(a) The aggregate number of shares of stock that the Corporation shall have
authority to issue is 250,000,000 shares, consisting of 200,000,000 shares
designated "Common Stock" and 50,000,000 shares designated "Preferred
Stock." The shares of Common Stock and the shares of Preferred Stock shall
have a par value of $.01 per share.
<PAGE>
Amended and Restated Certificate of Incorporation
ITT Hartford Group, Inc.
Page 2
(b) The Board of Directors of the Corporation shall have the full authority
permitted by law, at any time and from time to time, to divide the
authorized and unissued shares of Preferred Stock into classes or series,
or both, and to determine the following provisions, designations, powers,
preferences and relative, participating, optional and other special rights
and the qualifications, limitations or restrictions thereof for shares of
any such class or series of Preferred Stock:
(1) the designation of such class or series, the number of shares to
constitute such class or series and the stated or liquidation value
thereof;
(2) whether the shares of such class or series shall have voting rights,
in addition to any voting rights provided by law, and, if so, the
terms of such voting rights;
(3) the dividends, if any, payable on such class or series, whether any
such dividends shall be cumulative, and, if so, the rate or rates
thereof, from what dates, the conditions and dates upon which such
dividends shall be payable, the preference or relation which such
dividends shall bear to the dividends payable on any shares of stock
of any other class or any other series of the same class;
(4) whether the shares of such class or series shall be subject to
redemption at the option of the Corporation and/or the holders of such
class or series, or upon the happening of a specified event, and, if
so, the times, price or prices, and other conditions of such
redemption, including securities or other property payable upon any
such redemption, if any;
(5) the amount or amounts, if any, payable upon shares of such class or
series upon, and the rights of the holders of such class or series in,
the voluntary or involuntary liquidation, dissolution or winding up,
or any distribution of the assets, of the Corporation;
(6) whether the shares of such class or series shall be subject to the
operation of a retirement or sinking fund and, if so, the extent to
and manner in which any such retirement or sinking fund shall be
applied to the purchase or redemption of the shares of such class or
series for retirement or other corporate purposes and the terms and
provisions relative to the operation thereof;
(7) whether the shares of such class or series shall be convertible into,
or exchangeable for, shares of stock of any other class or any other
series of the same class or any securities, whether or not issued by
the Corporation, at the option of the Corporation and/or the holders
of such class or series, or upon the happening
<PAGE>
Amended and Restated Certificate of Incorporation
ITT Hartford Group, Inc.
Page 3
of a specified event, and, if so, the price or prices or the rate or
rates of conversion or exchange and the method, if any, of adjusting
the same, and any other terms and conditions of conversion or
exchange;
(8) the limitations and restrictions, if any, to be effective while any
shares of such class or series are outstanding upon the payment of
dividends or the making of other distributions on, and upon the
purchase, redemption or other acquisition by the Corporation of, the
Common Stock or shares of stock of any other class or any other series
of the same class;
(9) the conditions or restrictions, if any, upon the creation of
indebtedness of the Corporation or upon the issuance of any additional
shares of stock, including additional shares of such class or series
or of any other series of the same class or of any other class;
(10) the ranking (be it pari passu, junior or senior) of each class or
series vis-a-vis any other class or series of any class of Preferred
Stock as to the payment of dividends, the distribution of assets and
all other matters; and
(11) any other powers, preferences and relative, participating, optional
and other special rights and any qualifications, limitations or
restrictions thereof, insofar as they are not inconsistent with the
provisions of this Certificate of Incorporation, to the full extent
permitted in accordance with the laws of the State of Delaware.
(c) Such divisions and determinations may be accomplished by an amendment to
this ARTICLE FOURTH, which amendment may be made solely by action of the
Board of Directors, which shall have the full authority permitted by law to
make such divisions and determinations.
(d) The powers, preferences and relative, participating, optional and other
special rights of each class or series of Preferred Stock and the
qualifications, limitations or restrictions thereof, if any, may differ
from those of any and all other classes or series at any time outstanding;
provided that each series of a class is given a distinguishing designation
and that all shares of a series have powers, preferences and relative,
participating, optional and other special rights and the qualifications,
limitations or restrictions thereof identical with those of other shares of
the same series and, except to the extent otherwise provided in the
description of the series, with those other series of the same class.
(e) Holders of shares of Preferred Stock shall be entitled to receive, when, as
and if declared by the Board of Directors, out of funds legally available
for the payment thereof,
<PAGE>
Amended and Restated Certificate of Incorporation
ITT Hartford Group, Inc.
Page 4
dividends at the rates fixed by the Board of Directors for the respective
series before any dividends shall be declared and paid, or set aside for
payment, on shares of Common Stock with respect to the same dividend
period. Nothing in this ARTICLE FOURTH shall limit the power of the Board
of Directors to create a series of Preferred Stock with dividends the rate
of which is calculated by reference to, and the payment of which is
concurrent with, dividends on shares of Common Stock.
(f) In the event of the voluntary or involuntary liquidation, dissolution or
winding up of the Corporation, holders of shares of each series of
Preferred Stock will be entitled to receive the amount fixed for such
series upon any such event plus, in the case of any series on which
dividends will have been determined by the Board of Directors to be
cumulative, an amount equal to all dividends accumulated and unpaid thereon
to the date of final distribution whether or not earned or declared before
any distribution shall be paid, or set aside for payment, to holders of
Common Stock. If the assets of the Corporation are not sufficient to pay
such amounts in full, holders of all shares of Preferred Stock will
participate in the distribution of assets ratably in proportion to the full
amounts to which they are entitled or in such order or priority, if any, as
will have been fixed in the resolution or resolutions providing for the
issue of the series of Preferred Stock. Neither the merger nor
consolidation of the Corporation into or with any other corporation, nor a
sale, transfer or lease of all or part of its assets, will be deemed a
liquidation, dissolution or winding up of the Corporation within the
meaning of this paragraph except to the extent specifically provided for
herein. Nothing in this ARTICLE FOURTH shall limit the power of the Board
of Directors to create a series of Preferred Stock for which the amount to
be distributed upon any liquidation, dissolution or winding up of the
Corporation is calculated by reference to, and the payment of which is
concurrent with, the amount to be distributed to the holders of shares of
Common Stock.
(g) The Corporation, at the option of the Board of Directors, may redeem all or
part of the shares of any series of Preferred Stock on the terms and
conditions fixed for such series.
(h) Except as otherwise required by law, as otherwise provided herein or as
otherwise determined by the Board of Directors as to the shares of any
series of Preferred Stock prior to the issuance of any such shares, the
holders of Preferred Stock shall have no voting rights and shall not be
entitled to any notice of meetings of stockholders.
(i) Each holder of shares of Common Stock shall be entitled to one vote for
each share of Common Stock held of record on all matters on which the
holders of shares of Common Stock are entitled to vote. Except as otherwise
required by law, this Certificate of Incorporation or any certificate of
designations providing for the creation of any series of Preferred Stock,
the holders of outstanding shares of Common Stock shall have and
<PAGE>
Amended and Restated Certificate of Incorporation
ITT Hartford Group, Inc.
Page 5
possess the exclusive right to notice of stockholders' meetings and the
exclusive power to vote. No stockholder will be permitted to cumulate votes
at any election of directors.
(j) Subject to all the rights of the Preferred Stock, the holders of the Common
Stock shall be entitled to receive, when, as and if declared by the Board
of Directors, out of funds legally available for the payment thereof,
dividends payable in cash, stock or otherwise. Upon any liquidation,
dissolution or winding up of the Corporation, whether voluntary or
involuntary, and after the holders of the Preferred Stock of each series
shall have been paid in full in cash the amounts to which they respectively
shall be entitled or a sum sufficient for such payment in full shall have
been set aside, the remaining net assets of the Corporation shall be
distributed pro rata to the holders of the Common Stock in accordance with
their respective rights and interest, to the exclusion of the holders of
the Preferred Stock.
ARTICLE FIFTH
-------------
(a) Any action required or permitted to be taken by the stockholders of the
Corporation must be effected at a duly called annual or special
stockholders' meeting and may not be effected by consent in writing by such
stockholders. Special meetings of stockholders of the Corporation may be
called by the Chairman of the Board of Directors or by a majority vote of
the entire Board of Directors.
(b) Stockholders of the Corporation shall not have any preemptive rights to
subscribe for additional issues of stock of the Corporation except as may
be agreed from time to time by the Corporation and any such stockholder.
(c) Notwithstanding the foregoing, whenever the holders of any one or more
classes or series of Preferred Stock issued by the Corporation, if any,
shall have the right, voting separately by class or series, to elect
directors at an annual or special meeting of stockholders, an election,
term of office, filling of vacancies and other features of such
directorships shall be governed by the terms of the applicable resolution
or resolutions of the Board of Directors adopted pursuant to ARTICLE FOURTH
of this Certificate of Incorporation.
ARTICLE SIXTH
-------------
To the fullest extent permitted by applicable law as then in effect, no
director or officer shall be personally liable to the Corporation or any of its
stockholders for damages for breach of fiduciary duty as a director or officer,
except for liability (a) for any breach of the Director's duty of loyalty to the
Corporation or its stockholders, (b) for acts or omissions not in good faith or
<PAGE>
Amended and Restated Certificate of Incorporation
ITT Hartford Group, Inc.
Page 6
which involve intentional misconduct or a knowing violation of law, (c) under
Section 174 of the Delaware General Corporation Law, (d) for any transaction
from which the director derived an improper personal benefit or (e) for any act
or omission occurring prior to the effective date of this ARTICLE SIXTH. Any
repeal or modification of this ARTICLE SIXTH by the stockholders of the
Corporation shall not adversely affect any right or protection of a director or
officer of the Corporation existing at the time of such repeal or modification
with respect to acts or omissions occurring prior to such repeal or
modification.
ARTICLE SEVENTH
---------------
The holders of the capital stock of the Corporation shall not be personally
liable for the payment of the Corporation's debts and the private property of
the holders of the capital stock of the Corporation shall not be subject to the
payment of debts of the Corporation to any extent whatsoever.
ARTICLE EIGHTH
--------------
Subject to any express provision of the laws of the State of Delaware, this
Certificate of Incorporation or the Bylaws of the Corporation, the Bylaws of the
Corporation may from time to time be supplemented, amended or repealed, or new
Bylaws may be adopted, by the Board of Directors at any regular or special
meeting of the Board of Directors, if such supplement, amendment, repeal or
adoption is approved by a majority of the entire Board of Directors. Subject to
any express provision of the laws of the State of Delaware, this Certificate of
Incorporation or the Bylaws of the Corporation, the Bylaws of the Corporation
may from time to time be supplemented, amended or repealed, or new Bylaws may be
adopted, by the stockholders at any regular or special meeting of the
stockholders at which a quorum is present, if such supplement, amendment, repeal
or adoption is approved by the affirmative vote of the holders of at least a
majority of the voting power of all outstanding shares of stock of the
Corporation entitled to vote generally in an election of directors.
ARTICLE NINTH
-------------
The Corporation reserves the right to supplement, amend or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by the laws of the State of Delaware and all rights
conferred on stockholders herein are granted subject to this reservation.
4. This Amended and Restated Certificate of Incorporation was duly adopted by
vote of stockholders in accordance with Sections 242 and 245 of the General
Corporation Law of the State of Delaware.
<PAGE>
Amended and Restated Certificate of Incorporation
ITT Hartford Group, Inc.
Page 7
IN WITNESS WHEREOF, said ITT HARTFORD GROUP, INC. has caused this
Certificate to be signed by Michael O'Halloran, its Vice President and Corporate
Secretary, this ___ day of May, 1997.
ITT HARTFORD GROUP, INC.
By__________________________
Michael O'Halloran
Vice President &
Corporate Secretary
ES/BYLAWS/COFIHTGP.ES
<PAGE>
EXHIBIT 3.02
================================================================
BY-LAWS
of
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
adopted by the
Board of Directors
on
October 10, 1995
and
amended on
May 2, 1997
================================================================
<PAGE>
2
Table of Contents
-----------------
Section Page
------- ----
1. STOCKHOLDERS ............................................... 1
1.1 Place ...................................................... 1
1.2 Day and Time of Annual Meetings of Stockholders ............ 1
1.3 Purposes of Annual Meetings ................................ 1
1.4 Special Meetings of Stockholders ........................... 2
1.5 Notice of Meetings of Stockholders ......................... 2
1.6 Quorum of Stockholders ..................................... 3
1.7 Chairman and Secretary of Meeting .......................... 4
1.8 Voting by Stockholders ..................................... 4
1.9 Proxies .................................................... 4
1.10 Inspectors ................................................. 5
1.11 List of Stockholders ....................................... 5
1.12 Confidential Voting ........................................ 6
1.13 Action by Written Consent .................................. 6
2 DIRECTORS .................................................. 6
2.1 Powers of Directors ........................................ 6
2.2 Number, Method of Election, Terms of Office of Directors ... 7
2.3 Vacancies on Board ......................................... 8
2.4 Meetings of the Board ...................................... 8
2.5 Quorum and Action .......................................... 9
2.6 Presiding Officer and Secretary of Meeting ................. 10
2.7 Action by Consent without Meeting .......................... 10
<PAGE>
3
2.8 Standing Committees ........................................ 10
2.9 Other Committees ........................................... 12
2.10 Compensation of Directors .................................. 12
2.11 Independent Directors ...................................... 12
3. OFFICERS ................................................... 13
3.1 Officers, Titles, Elections, Terms ......................... 13
3.2 General Powers of Officers ................................. 14
3.3 Powers and Duties of the Chairman .......................... 14
3.4 Powers and Duties of the President ......................... 15
3.5 Powers and Duties of Executive Vice Presidents, Senior Vice 15
Presidents and Vice Presidents
3.6 Powers and Duties of the Chief Financial Officer ........... 15
3.7 Powers and Duties of the Controller and Assistant Controllers 15
3.8 Powers and Duties of the Treasurer and Assistant Treasurers 16
3.9 Powers and Duties of the Secretary and Assistant Secretaries 17
4. INDEMNIFICATION ............................................ 17
4.1 Right to Indemnification and Effect of Amendments .......... 17
4.2 Insurance, Contracts and Funding ........................... 18
4.3 Indemnification; Not Exclusive Right ....................... 18
4.4 Advancement of Expenses; Procedures; Presumptions and Effect 19
Certain Proceedings; Remedies
4.5 Indemnification of Employees and Agents .................... 23
4.6 Severability ............................................... 24
5. CAPITAL STOCK .............................................. 24
5.1 Stock Certificates ......................................... 24
5.2 Record Ownership ........................................... 25
<PAGE>
4
5.3 Transfer of Record Ownership ............................... 25
5.4 Lost, Stolen or Destroyed Certificates ..................... 26
5.5 Transfer Agent; Registrar; Rules Respecting Certificates ... 26
5.6 Fixing Record Date for Determination of Stockholders of Recor 26
6. SECURITIES HELD BY THE CORPORATION ......................... 27
6.1 Voting ..................................................... 27
6.2 General Authorization to Transfer Securities Held by the Corp 27
7. DEPOSITARIES AND SIGNATORIES ............................... 28
7.1 Depositaries ............................................... 28
7.2 Signatories ................................................ 28
8. SEAL ....................................................... 29
9. FISCAL YEAR ................................................ 29
10. WAIVER OF OR DISPENSING WITH NOTICE ........................ 29
11. AMENDMENT OF BY-LAWS ....................................... 30
12. OFFICES AND AGENT .......................................... 30
BY-LAWS
OF
THE HARTFORD FINANCIAL SERVICES GROUP,INC.
(A DELAWARE CORPORATION, THE "CORPORATION")
(EFFECTIVE OCTOBER 25, 1995)
1. STOCKHOLDERS.
1.1 Place of Stockholders' Meetings. All meetings of the stockholders of the
Corporation shall be held at such place or places, within or outside the state
of Delaware, as may be fixed by the Corporation's Board of Directors (the
"Board", and each member thereof a "Director") from time to time or as shall be
specified in the respective notices thereof.
<PAGE>
5
1.2 Day and Time of Annual Meetings of Stockholders. An annual meeting of
stockholders shall be held at such place (within or outside the state of
Delaware), date and hour as shall be determined by the Board and designated in
the notice thereof.
1.3 Purposes of Annual Meetings. (a) At each annual meeting, the stockholders
shall elect the members of the Board for the succeeding year. At any such annual
meeting any business properly brought before the meeting may be transacted.
(b) To be properly brought before an annual meeting, business must be (i)
specified in the notice of the meeting (or any supplement thereto) given by or
at the direction of the Board, (ii) otherwise properly brought before the
meeting by or at the direction of the Board or (iii) otherwise properly brought
before the meeting by a stockholder. For business to be properly brought before
an annual meeting by a stockholder, the stockholder must have given written
notice thereof, either by personal delivery or by United States mail, postage
prepaid, to the Secretary, not later than 90 days in advance of the anniversary
date of the immediately preceding annual meeting (or not more than ten days
after the first public disclosure, which may include any public filing with the
Securities and Exchange Commission, of the Originally Scheduled Date of the
annual meeting, whichever is earlier). Any such notice shall set forth as to
each matter the stockholder proposes to bring before the annual meeting (i) a
brief description of the business desired to be brought before the meeting and
the reasons for conducting such business at the meeting and in the event that
such business includes a proposal to amend either the Certificate of
Incorporation or By-laws of the Corporation, the language of the proposed
amendment, (ii) the name and address of the stockholder proposing such business,
(iii) a representation that the stockholder is a holder of record of stock of
the Corporation entitled to vote at such meeting and intends to appear in person
or by proxy at the meeting to propose such business, and (iv) any material
interest of the stockholder in such business. No business shall be conducted at
an annual meeting of stockholders except in accordance with this Section 1.3(b),
and the presiding officer of any annual meeting of stockholders may refuse to
permit any business to be brought before an annual meeting without compliance
with the foregoing procedures. For purposes of this Section 1.3(b), the
"Originally Scheduled Date" of any meeting of stockholders shall be the date
first publicly disclosed on which such meeting is scheduled to occur regardless
of whether such meeting is continued or adjourned and regardless of whether any
subsequent notice is given for such meeting or the record date of such meeting
is changed.
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6
1.4 Special Meetings of Stockholders. Except as otherwise expressly required
by applicable law, special meetings of the stockholders or of any class or
series entitled to vote may be called for any purpose or purposes by the
Chairman or by a majority vote of the entire Board, to be held at such place
(within or outside the state of Delaware), date and hour as shall be determined
by the Board and designated in the notice thereof. Only such business as is
specified in the notice of any special meeting of the stockholders shall come
before such meeting.
1.5 Notice of Meetings of Stockholders. Except as otherwise expressly
required or permitted by applicable law, not less than ten days nor more than
sixty days before the date of every stockholders' meeting the Secretary shall
cause to be delivered to each stockholder of record entitled to vote at such
meeting written notice stating the place, day and time of the meeting and, in
the case of a special meeting, the purpose or purposes for which the meeting is
called. Except as provided in Section 1.6(d) or as otherwise expressly required
by applicable law, notice of any adjourned meeting of stockholders need not be
given if the time and place thereof are announced at the meeting at which the
adjournment is taken. Any notice, if mailed, shall be deemed to be given when
deposited in the United States mail, postage prepaid, addressed to the
stockholder at the address for notices to such stockholder as it appears on the
records of the Corporation.
1.6 Quorum of Stockholders. (a) Unless otherwise expressly required by
applicable law, at any meeting of the stockholders, the presence in person or by
proxy of stockholders entitled to cast a majority of votes thereat shall
constitute a quorum for the entire meeting, notwithstanding the withdrawal of
stockholders entitled to cast a sufficient number of votes in person or by proxy
to reduce the number of votes represented at the meeting below a quorum. Shares
of the Corporation's stock belonging to the Corporation or to another
corporation, if a majority of the shares entitled to vote in an election of the
directors of such other corporation is held by the Corporation, shall neither be
counted for the purpose of determining the presence of a quorum nor entitled to
vote at any meeting of the stockholders.
(b) At any meeting of the stockholders at which a quorum shall be present, a
majority of those present in person or by proxy may adjourn the meeting from
time to time without notice other than announcement at the meeting. In the
absence of a quorum, the officer presiding thereat shall have power to adjourn
the meeting from time to time until a quorum shall be present. Notice of any
adjourned meeting other than announcement at the meeting shall not be required
to be given, except as provided in Section 1.6(d) below and
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except where expressly required by applicable law.
(c) At any adjourned meeting at which a quorum shall be present, any business
may be transacted which might have been transacted at the meeting originally
called, but only those stockholders entitled to vote at the meeting as
originally noticed shall be entitled to vote at any adjournment or adjournments
thereof unless a new record date is fixed by the Board.
(d) If an adjournment is for more than thirty days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given in the manner specified in Section 1.5 to
each stockholder of record entitled to vote at the meeting.
1.7 Chairman and Secretary of Meeting. The Chairman or, in his or her
absence, another officer of the Corporation designated by the Chairman, shall
preside at meetings of the stockholders. The Secretary shall act as secretary of
the meeting, or in the absence of the Secretary, an Assistant Secretary shall so
act, or if neither is present, then the presiding officer may appoint a person
to act as secretary of the meeting.
1.8 Voting by Stockholders. (a) Except as otherwise expressly required by
applicable law, at every meeting of the stockholders each stockholder shall be
entitled to the number of votes specified in the Certificate of Incorporation or
any certificate of designations providing for the creation of any series of
Preferred Stock, in person or by proxy, for each share of stock standing in his
or her name on the books of the Corporation on the date fixed pursuant to the
provisions of Section 5.6 of these By-laws as the record date for the
determination of the stockholders who shall be entitled to receive notice of and
to vote at such meeting.
(b) When a quorum is present at any meeting of the stockholders, all
questions shall be decided by the vote of a majority in voting power of the
stockholders present in person or by proxy and entitled to vote at such meeting,
unless a question is one upon which by express provision of law, the Certificate
of Incorporation or these By-laws, a different vote is required, in which case
such express provision shall govern and control the decision of such question.
(c) Except as required by applicable law, the vote at any meeting of
stockholders on any question need not be by ballot, unless so directed by the
presiding officer of the meeting. On a vote by ballot, each ballot shall be
signed by the stockholder voting, or by his or her attorney-in-fact, if
authorized by proxy, and shall state the number of shares voted.
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8
1.9 Proxies. Any stockholder entitled to vote at any meeting of stockholders
may vote either in person or by his or her attorney-in-fact or proxy. Every
proxy shall be in writing and shall be subscribed by the stockholder or his or
her duly authorized attorney-in-fact, but need not be sealed, witnessed or
acknowledged.
1.10 Inspectors. (a) The election of Directors and any other vote by ballot
at any meeting of the stockholders shall be supervised by one or more
inspectors. Such inspectors may be appointed by the Chairman before or at the
meeting. If the Chairman shall not have so appointed such inspectors or if one
or both inspectors so appointed shall refuse to serve or shall not be present,
such appointment shall be made by the officer presiding at the meeting. Each
inspector, before entering upon the discharge of his or her duties, shall take
and sign an oath faithfully to execute the duties of inspector with strict
impartiality and according to the best of his or her ability.
(b) The inspectors shall (i) ascertain the number of shares of the
Corporation outstanding and the voting power of each, (ii) determine the shares
represented at any meeting of stockholders and the validity of the proxies and
ballots, (iii) count all proxies and ballots, (iv) determine and retain for a
reasonable period a record of the disposition of any challenges made to any
determination by the inspectors, and (v) certify their determination of the
number of shares represented at the meeting, and their count of all proxies and
ballots. The inspectors may appoint or retain other persons or entities to
assist the inspectors in the performance of the duties of the inspectors.
(c) If there are three or more inspectors, the act of a majority shall
govern. On request of the officer presiding at such meeting, the inspectors
shall make a report of any challenge, question or matter determined by them and
execute a certificate of any fact found by them. Any report or certificate made
by them shall be prima face evidence of the facts therein stated and of the vote
as certified by them, and such report or certificate shall be filed with the
minutes of such meeting.
1.11 List of Stockholders. (a) At least ten days before every meeting of
stockholders, the Chief Financial Officer shall cause to be prepared and made a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order and showing the address of each stockholder and the number of
shares registered in the name of each stockholder.
(b) During ordinary business hours for a period of at least ten days prior to
the meeting, such list shall be open to examination by any stockholder for any
purpose germane to the meeting, either at a place within the city where the
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9
meeting is to be held, which place shall be specified in the notice of the
meeting, or if not so specified, at the place where the meeting is to be held.
(c) The list shall also be produced and kept at the time and place of the
meeting during the whole time of the meeting, and it may be inspected by any
stockholder who is present.
(d) The stock ledger shall be the only evidence as to who are the
stockholders entitled to examine the stock ledger, the list required by this
Section 1.11 or the books of the Corporation, or to vote in person or by proxy
at any meeting of stockholders.
1.12 Confidential Voting. (a) Proxies and ballots that identify the votes of
specific stockholders shall be kept in confidence by the tabulators and the
inspectors of election unless (i) there is an opposing solicitation with respect
to the election or removal of Directors, (ii) disclosure is required by
applicable law, (iii) a stockholder expressly requests or otherwise authorizes
disclosure, or (iv) the Corporation concludes in good faith that a bona fide
dispute exists as to the authenticity of one or more proxies, ballots or votes,
or as to the accuracy of any tabulation of such proxies, ballots or votes.
(b) The tabulators and inspectors of election and any authorized agents or
other persons engaged in the receipt, count and tabulation of proxies and
ballots shall be advised of this By-law and instructed to comply herewith.
(c) The inspectors of election shall certify, to the best of their knowledge
based on due inquiry, that proxies and ballots have been kept in confidence as
required by this Section 1.12.
1.13 Action by Written Consent. Any action required or permitted to be taken
by the stockholders of the Corporation must be effected at a duly called annual
or special stockholders' meeting and may not be effected by consent in writing
by such stockholders.
2. DIRECTORS.
2.1 Powers of Directors. The business and affairs of the Corporation shall be
managed by or under the direction of the Board, which may exercise all the
powers of the Corporation except such as are by applicable law, the Certificate
of Incorporation or these By-laws required to be exercised or performed by the
stockholders.
2.2 Number, Method of Election, Terms of Office of Directors. The number of
Directors which shall constitute the whole Board shall be such as from time to
time shall be
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10
determined by resolution adopted by a majority of the entire Board, but the
number shall not be less than three nor more than twenty-five, provided that the
tenure of a Director shall not be affected by any decrease in the number of
Directors so made by the Board. Each Director shall hold office until the next
annual meeting of stockholders and until his or her successor is elected and
qualified or until his or her earlier death, retirement, resignation or removal
from office in accordance with these By-laws or any applicable law or pursuant
to an order of a court. Directors need not be stockholders of the Corporation or
citizens of the United States of America.
Nominations of persons for election as Directors may be made by the Board or
by any stockholder entitled to vote for the election of Directors. Any
stockholder entitled to vote for the election of Directors may nominate a person
or persons for election as Directors only if written notice of such
stockholder's intent to make such nomination is given in accordance with the
procedures for bringing business before the meeting set forth in Section 1.3(b)
of these By-laws, either by personal delivery or by United States mail, postage
prepaid, to the Secretary not later than (i) with respect to an election to be
held at an annual meeting of stockholders, 90 days in advance of the anniversary
date of the immediately preceding annual meeting (or not more than ten days
after the first public disclosure, which may include any public filing with the
Securities and Exchange Commission, of the Originally Scheduled Date of the
annual meeting, whichever is earlier) and (ii) with respect to an election to be
held at a special meeting of stockholders for the election of Directors, the
close of business on the seventh day following the date on which notice of such
meeting is first given to stockholders. Each such notice shall set forth: (a)
the name and address of the stockholder who intends to make the nomination and
of the person or persons to be nominated; (b) a representation that the
stockholder is a holder of record of stock of the Corporation entitled to vote
at such meeting and intends to appear in person or by proxy at the meeting to
nominate the person or persons specified in the notice; (c) a description of all
arrangements or understandings between the stockholder and each nominee and any
other person or persons (naming such person or persons) pursuant to which the
nomination or nominations are to be made by the stockholder; (d) such other
information regarding each nominee proposed by such stockholder as would have
been required to be included in a proxy statement filed pursuant to the proxy
rules of the Securities and Exchange Commission had each nominee been nominated,
or intended to be nominated, by the Board; and (e) the consent of each nominee
to serve as a Director if so elected. The presiding officer of any meeting of
stockholders to elect Directors and the Board may refuse to acknowledge the
nomination of any person not made in compliance with the foregoing procedure.
For purposes of this Section 2.2, the "Originally Scheduled Date" of any
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11
meeting of stockholders shall be the date first publicly disclosed on which such
meeting is scheduled to occur regardless of whether such meeting is continued or
adjourned and regardless of whether any subsequent notice is given for such
meeting or the record date of such meeting is changed.
At each meeting of the stockholders for the election of Directors at which a
quorum is present, the persons receiving the greatest number of votes, up to the
number of Directors to be elected, shall be the Directors.
2.3 Vacancies on Board. (a) Any Director may resign from office at any time
by delivering a written resignation to the Chairman or the Secretary. The
resignation will take effect at the time specified therein, or, if no time is
specified, at the time of its receipt by the Corporation. The acceptance of a
resignation shall not be necessary to make it effective, unless expressly so
provided in the resignation.
(b) Any vacancy and any newly created Directorship resulting from any
increase in the authorized number of Directors may be filled by vote of a
majority of the Directors then in office, though less than a quorum, and any
Director so chosen shall hold office until the next annual election of Directors
by the stockholders and until a successor is duly elected and qualified or until
his or her earlier death, retirement, resignation or removal from office in
accordance with these By-laws or any applicable law or pursuant to an order of a
court. If there are no Directors in office, then an election of Directors may be
held in the manner provided by applicable law.
2.4 Meetings of the Board. (a) The Board may hold its meetings, both regular
and special, either within or outside the state of Delaware, at such places as
from time to time may be determined by the Board or as may be designated in the
respective notices or waivers of notice thereof.
(b) Regular meetings of the Board shall be held at such times and at such
places as from time to time shall be determined by the Board.
(c) The first meeting of each newly elected Board shall be held as soon as
practicable after the annual meeting of the stockholders and shall be for the
election of officers and the transaction of such other business as may come
before it.
(d) Special meetings of the Board shall be held whenever called by direction
of the Chairman or at the request of Directors constituting one-third of the
number of Directors then in office.
(e) Members of the Board or any Committee of the Board may
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12
participate in a meeting of the Board or Committee, as the case may be, by means
of conference telephone or similar communications equipment by means of which
all persons participating in the meeting can hear each other, and such
participation shall constitute presence in person at such meeting.
(f) The Secretary shall give notice to each Director of any meeting of the
Board by mailing the same at least two days before the meeting or by
telegraphing or delivering the same not later than the day before the meeting.
Such notice need not include a statement of the business to be transacted at, or
the purpose of, any such meeting. Any and all business may be transacted at any
meeting of the Board. No notice of any adjourned meeting need be given. No
notice to or waiver by any Director shall be required with respect to any
meeting at which the Director is present.
2.5 Quorum and Action. Except as otherwise expressly required by applicable
law, the Certificate of Incorporation or these By-laws, at any meeting of the
Board, the presence of at least one-third of the entire Board shall constitute a
quorum for the transaction of business; but if there shall be less than a quorum
at any meeting of the Board, a majority of those present may adjourn the meeting
from time to time. Unless otherwise provided by applicable law, the Certificate
of Incorporation or these By-laws, the vote of a majority of the Directors
present (and not abstaining) at any meeting at which a quorum is present shall
be necessary for the approval and adoption of any resolution or the approval of
any act of the Board.
2.6 Presiding Officer and Secretary of Meeting. The Chairman or, in the
absence of the Chairman, a member of the Board selected by the members present,
shall preside at meetings of the Board. The Secretary shall act as secretary of
the meeting, but in the Secretary's absence the presiding officer may appoint a
secretary of the meeting.
2.7 Action by Consent without Meeting. Any action required or permitted to be
taken at any meeting of the Board or of any Committee thereof may be taken
without a meeting if all members of the Board or Committee, as the case may be,
consent thereto in writing and the writing or writings are filed with the
minutes of proceedings of the Board or Committee.
2.8 Standing Committees. By resolution adopted by a majority of the entire
Board, the Board shall elect, from among its members, individuals to serve on
the Standing Committees established by this Section 2.8. Each Standing Committee
shall be comprised of such number of Directors, not less than three, as shall be
elected to such Committee, provided that no officer or employee of the
Corporation shall be eligible to serve on the Audit, Compensation and
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13
Personnel or Nominating Committees. Each Committee shall keep a record of all
its proceedings and report the same to the Board. One-third of the members of a
Committee, but not less than two, shall constitute a quorum, and the act of a
majority of the members of a Committee present at any meeting at which a quorum
is present shall be the act of the Committee. Each Standing Committee shall meet
at the call of its chairman or any two of its members. The chairmen of the
various Committees shall preside, when present, at all meetings of such
Committees, and shall have such powers and perform such duties as the Board may
from time to time prescribe. The Standing Committees of the Board, and functions
of each, are as follows:
(a) Compensation and Personnel Committee. The Compensation and Personnel
Committee shall exercise the power of oversight of the compensation and benefits
of the employees of the Corporation, and shall be charged with evaluating
management performance, and establishing executive compensation. This Committee
shall have access to its own independent outside compensation counsel and shall
consist of a majority of independent directors. For purposes of this Section
2.8(a), "independent director" shall mean a Director who: (i) has not been
employed by the Corporation in an executive capacity within the past five years;
(ii) is not, and is not affiliated with a company or firm that is, an advisor or
consultant to the Corporation; (iii) is not affiliated with a significant
customer or supplier of the Corporation; (iv) has no personal services
contract(s) with the Corporation; (v) is not affiliated with a tax-exempt entity
that receives significant contributions from the Corporation; and (vi) is not a
familial relative of any person described by Clauses (i) through (v). This
By-law shall not be amended or repealed except by a majority of the voting power
of the stockholders present in person or by proxy and entitled to vote at any
meeting at which a quorum is present.
(b) Audit Committee. The Audit Committee shall recommend the selection of the
independent auditors for the Corporation, confirm the scope of audits to be
performed by such auditors, review audit results and internal accounting and
control procedures and policies, review the fees paid to the Corporation's
independent auditors, and review and recommend approval of the audited financial
statements of the Corporation and the annual reports to stockholders. The Audit
Committee shall also review expense accounts of senior executives.
(c) Finance Committee. The Finance Committee shall have the responsibility
for reviewing capital expenditures and appropriations and maximizing the
effective use of the assets of the Corporation and its subsidiaries. The Finance
Committee shall also have the responsibility for directing investment allocation
and risk management policies.
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14
(d) Legal and Public Affairs Committee. The Legal and Public Affairs
Committee shall review and consider major claims and litigation and legal,
regulatory, intellectual property and related governmental policy matters
affecting the Corporation and its subsidiaries. The Legal and Public Affairs
Committee shall review and approve management policies and programs relating to
compliance with legal and regulatory requirements, business ethics and
environmental matters. The Legal and Public Affairs Committee shall also review
and define the Corporation's social responsibilities, including issues of
significance to the Corporation, its stockholders and its employees.
(e) Nominating Committee. The Nominating Committee shall make recommendations
as to the organization, size and composition of the Board and Committees
thereof, propose nominees for election to the Board and the Committees thereof,
and consider the qualifications, compensation and retirement of Directors.
2.9 Other Committees. By resolution passed by a majority of the entire Board,
the Board may also appoint from among its members such other Committees,
Standing or otherwise, as it may from time to time deem desirable and may
delegate to such Committees such powers of the Board as it may consider
appropriate, consistent with applicable law, the Certificate of Incorporation
and these By-laws.
2.10 Compensation of Directors. Unless otherwise restricted by the
Certificate of Incorporation or these By-laws, Directors shall receive for their
services on the Board or any Committee thereof such compensation and benefits,
including the granting of options, together with expenses, if any, as the Board
may from time to time determine. The Directors may be paid a fixed sum for
attendance at each meeting of the Board or Committee thereof and/or a stated
annual sum as a Director, together with expenses, if any, of attendance at each
meeting of the Board or Committee thereof. Nothing herein contained shall be
construed to preclude any Director from serving the Corporation in any other
capacity and receiving compensation therefor.
2.11 Independent Directors. (a) Independence of Nominees for Election as
Directors at the Annual Meeting. The persons nominated by the Board for election
as Directors at any annual meeting of the stockholders of the Corporation shall
include a sufficient number of persons who have been, on the date of their
nomination, determined by the Board to be eligible to be classified as
independent directors such that if all such nominees are elected, the majority
of all Directors holding office would be independent directors.
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15
(b) Directors Elected to Fill Vacancies on the Board. If the Board elects
Directors between annual meetings of stockholders to fill vacancies or newly
created Directorships, the majority of all Directors holding office immediately
after such elections shall be independent directors.
(c) Definition of Independent Director. For purposes of this Section 2.11,
"independent director" shall mean a Director who: (i) has not been employed by
the Corporation in an executive capacity within the past five years; (ii) is
not, and is not affiliated with a company or a firm that is, an adviser or
consultant to the Corporation; (iii) is not affiliated with a significant
customer or supplier of the Corporation; (iv) has no personal services
contract(s) with the Corporation; (v) is not affiliated with a tax-exempt entity
that receives significant contributions from the Corporation; (vi) is not a
familial relative of any person described by Clauses (i) through (v); and (vii)
is free of any other relationship which would interfere with the exercise of
independent judgment by such Director.
3. OFFICERS.
3.1 Officers, Titles, Elections, Terms. (a) The Board may from time to time
elect a Chairman, a President, one or more Executive Vice Presidents, one or
more Senior Vice Presidents, one or more Vice Presidents, a Chief Financial
Officer, a Controller, a Treasurer, a Secretary, a General Counsel, one or more
Assistant Controllers, one or more Assistant Treasurers, one or more Assistant
Secretaries, and one or more Associate or Assistant General Counsels, to serve
at the pleasure of the Board or otherwise as shall be specified by the Board at
the time of such election and until their successors are elected and qualified
or until their earlier death, retirement, resignation or removal from office in
accordance with these By-laws or any applicable law or pursuant to an order of a
court.
(b) The Board may elect or appoint at any time such other officers or agents
with such duties as it may deem necessary or desirable. Such other officers or
agents shall serve at the pleasure of the Board or otherwise as shall be
specified by the Board at the time of such election or appointment and, in the
case of such other officers, until their successors are elected and qualified or
until their earlier death, retirement, resignation or removal from office in
accordance with these By-laws or any applicable law or pursuant to an order of a
court. Each such officer or agent shall have such authority and shall perform
such duties as may be provided herein or as the Board may prescribe. The Board
may from time to time authorize any officer or agent to appoint and remove any
other such officer or agent and to prescribe such person's authority and duties.
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(c) No person may be elected or appointed an officer who is not a citizen of
the United States of America if such election or appointment is prohibited by
applicable law or regulation.
(d) Any vacancy in any office may be filled for the unexpired portion of the
term by the Board. Each officer elected or appointed during the year shall hold
office until the next annual meeting of the Board at which officers are
regularly elected or appointed and until his or her successor is elected or
appointed and qualified or until his or her earlier death, retirement,
resignation or removal from office in accordance with these By-laws or any
applicable law or pursuant to an order of a court.
(e) Any officer or agent elected or appointed by the Board may be removed at
any time by the affirmative vote of a majority of the entire Board.
(f) Any officer may resign from office at any time. Such resignation shall be
made in writing and given to the President or the Secretary. Any such
resignation shall take effect at the time specified therein, or, if no time is
specified, at the time of its receipt by the Corporation. The acceptance of a
resignation shall not be necessary to make it effective, unless expressly so
provided in the resignation.
3.2 General Powers of Officers. Except as may be otherwise provided by
applicable law or in Article 6 or Article 7 of these By-laws, the Chairman, the
President, any Executive Vice President, any Senior Vice President, any Vice
President, the Chief Financial Officer, the General Counsel, the Controller, the
Treasurer and the Secretary, or any of them, may (i) execute and deliver in the
name of the Corporation, in the name of any Division of the Corporation or in
both names any agreement, contract, instrument, power of attorney or other
document pertaining to the business or affairs of the Corporation or any
Division of the Corporation, including without limitation agreements or
contracts with any government or governmental department, agency or
instrumentality, and (ii) delegate to any employee or agent the power to execute
and deliver any such agreement, contract, instrument, power of attorney or other
document.
3.3 Powers and Duties of the Chairman. The Chairman shall be the Chief
Executive of the Corporation and shall report directly to the Board. Except in
such instances as the Board may confer powers in particular transactions upon
any other officer, and subject to the control and direction of the Board, the
Chairman shall manage and direct the business and affairs of the Corporation and
shall communicate to the Board and any Committee thereof reports, proposals and
recommendations for their respective
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17
consideration or action. He or she may do and perform all acts on behalf of the
Corporation and shall preside at meetings of the Board and the stockholders.
3.4 Powers and Duties of the President. The President shall have such powers
and perform such duties as the Board or the Chairman may from time to time
prescribe or as may be prescribed in these By-laws.
3.5 Powers and Duties of Executive Vice Presidents, Senior Vice Presidents
and Vice Presidents. Executive Vice Presidents, Senior Vice Presidents and Vice
Presidents shall have such powers and perform such duties as the Board or the
Chairman may from time to time prescribe or as may be prescribed in these
By-laws.
3.6 Powers and Duties of the Chief Financial Officer. The Chief Financial
Officer shall have such powers and perform such duties as the Board or the
Chairman may from time to time prescribe or as may be prescribed in these
By-laws. The Chief Financial Officer shall cause to be prepared and maintained
(i) at the office of the Corporation, a stock ledger containing the names and
addresses of all stockholders and the number of shares held by each and (ii) the
list of stockholders for each meeting of the stockholders as required by Section
1.11 of these By-laws. The Chief Financial Officer shall be responsible for the
custody of all stock books and of all unissued stock certificates.
3.7 Powers and Duties of the Controller and Assistant Controllers. (a) The
Controller shall be responsible for the maintenance of adequate accounting
records of all assets, liabilities, capital and transactions of the Corporation.
The Controller shall prepare and render such balance sheets, income statements,
budgets and other financial statements and reports as the Board or the Chairman
may require, and shall perform such other duties as may be prescribed or
assigned pursuant to these By-laws and all other acts incident to the position
of Controller.
(b) Each Assistant Controller shall perform such duties as from time to time
may be assigned by the Controller or by the Board. In the event of the absence,
incapacity or inability to act of the Controller, then any Assistant Controller
may perform any of the duties and may exercise any of the powers of the
Controller.
3.8 Powers and Duties of the Treasurer and Assistant Treasurers. (a) The
Treasurer shall have the care and custody of all the funds and securities of the
Corporation except as may be otherwise ordered by the Board, and shall cause
such funds (i) to be invested or reinvested from time to time for the benefit of
the Corporation as may be
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designated by the Board, the Chairman, the President, the Chief Financial
Officer or the Treasurer or (ii) to be deposited to the credit of the
Corporation in such banks or depositories as may be designated by the Board, the
Chairman, the President, the Chief Financial Officer or the Treasurer, and shall
cause such securities to be placed in safekeeping in such manner as may be
designated by the Board, the Chairman, the President, the Chief Financial
Officer or the Treasurer.
(b) The Treasurer, any Assistant Treasurer or such other person or persons as
may be designated for such purpose by the Board, the Chairman, the President,
the Chief Financial Officer or the Treasurer may endorse in the name and on
behalf of the Corporation all instruments for the payment of money, bills of
lading, warehouse receipts, insurance policies and other commercial documents
requiring such endorsement.
(c) The Treasurer, any Assistant Treasurer or such other person or persons as
may be designated for such purpose by the Board, the Chairman, the President,
the Chief Financial Officer or the Treasurer (i) may sign all receipts and
vouchers for payments made to the Corporation, (ii) shall render a statement of
the cash account of the Corporation to the Board as often as it shall require
the same; and (iii) shall enter regularly in books to be kept for that purpose
full and accurate account of all moneys received and paid on account of the
Corporation and of all securities received and delivered by the Corporation.
(d) The Treasurer shall perform such other duties as may be prescribed or
assigned pursuant to these By-laws and all other acts incident to the position
of Treasurer. Each Assistant Treasurer shall perform such duties as may from
time to time be assigned by the Treasurer or by the Board. In the event of the
absence, incapacity or inability to act of the Treasurer, then any Assistant
Treasurer may perform any of the duties and may exercise any of the powers of
the Treasurer.
3.9 Powers and Duties of the Secretary and Assistant Secretaries. (a) The
Secretary shall keep the minutes of all proceedings of the stockholders, the
Board and the Committees of the Board. The Secretary shall attend to the giving
and serving of all notices of the Corporation, in accordance with the provisions
of these By-laws and as required by applicable law. The Secretary shall be the
custodian of the seal of the Corporation. The Secretary shall affix or cause to
be affixed the seal of the Corporation to such contracts, instruments and other
documents requiring the seal of the Corporation, and when so affixed may attest
the same and shall perform such other duties as may be prescribed or assigned
pursuant to these By-laws and all other acts incident to the position of
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19
Secretary.
(b) Each Assistant Secretary shall perform such duties as may from time to
time be assigned by the Secretary or by the Board. In the event of the absence,
incapacity or inability to act of the Secretary, then any Assistant Secretary
may perform any of the duties and may exercise any of the powers of the
Secretary.
4. INDEMNIFICATION.
4.1(a) Right to Indemnification. The Corporation, to the fullest extent
permitted by applicable law as then in effect, shall indemnify any person who is
or was a Director or officer of the Corporation and who is or was involved in
any manner (including, without limitation, as a party or a witness) or is
threatened to be made so involved in any threatened, pending or completed
investigation, claim, action, suit or proceeding, whether civil, criminal,
administrative or investigative (including, without limitation, any action, suit
or proceeding by or in the right of the Corporation to procure a judgment in its
favor) (a "Proceeding") by reason of the fact that such person is or was a
Director, officer, employee or agent of the Corporation or is or was serving at
the request of the Corporation as a director, officer, employee, fiduciary or
agent of another corporation, partnership, joint venture, trust or other
enterprise (including, without limitation, any employee benefit plan) (a
"Covered Entity"), against all expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by such
person in connection with such Proceeding; provided, however, that the foregoing
shall not apply to a Director or officer of the Corporation with respect to a
Proceeding that was commenced by such Director or officer prior to a Change in
Control (as defined in Section 4.4(e)(i) of this Article 4). Any Director or
officer of the Corporation entitled to indemnification as provided in this
Section 4.1(a) is hereinafter called an "Indemnitee". Any right of an Indemnitee
to indemnification shall be a contract right and shall include the right to
receive, prior to the conclusion of any Proceeding, payment of any expenses
actually and reasonably incurred by the Indemnitee in connection with such
Proceeding, consistent with the provisions of applicable law as then in effect
and the other provisions of this Article 4.
(b) Effect of Amendments. Neither the amendment or repeal of, nor the
adoption of a provision inconsistent with, any provision of this Article 4
(including, without limitation, this Section 4.1(b)) shall adversely affect the
rights of any Director or officer under this Article 4 (i) with respect to any
Proceeding commenced or threatened prior to such amendment, repeal or adoption
of an inconsistent provision or (ii) after the occurrence of a Change in
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20
Control, with respect to any Proceeding arising out of any action or omission
occurring prior to such amendment, repeal or adoption of an inconsistent
provision, in either case without the written consent of such Director or
officer.
4.2 Insurance, Contracts and Funding. The Corporation may purchase and
maintain insurance to protect itself and any indemnified person against any
expenses, judgments, fines and amounts paid in settlement as specified in
Section 4.1(a) or Section 4.5 of this Article 4 or incurred by any indemnified
person in connection with any Proceeding referred to in such Sections, to the
fullest extent permitted by applicable law as then in effect. The Corporation
may enter into contracts with any Director, officer, employee or agent of the
Corporation or any director, officer, employee, fiduciary or agent of any
Covered Entity in furtherance of the provisions of this Article 4 and may create
a trust fund or use other means (including, without limitation, a letter of
credit) to ensure the payment of such amounts as may be necessary to effect
indemnification as provided in this Article 4.
4.3 Indemnification; Not Exclusive Right. The right of indemnification
provided in this Article 4 shall not be exclusive of any other rights to which
any indemnified person may otherwise be entitled, and the provisions of this
Article 4 shall inure to the benefit of the heirs and legal representatives of
any indemnified person under this Article 4 and shall be applicable to
Proceedings commenced or continuing after the adoption of this Article 4,
whether arising from acts or omissions occurring before or after such adoption.
4.4 Advancement of Expenses; Procedures; Presumptions and Effect of Certain
Proceedings; Remedies. In furtherance, but not in limitation, of the foregoing
provisions, the following procedures, presumptions and remedies shall apply with
respect to the advancement of expenses and the right to indemnification under
this Article 4:
(a) Advancement of Expenses. All reasonable expenses incurred by or on behalf
of the Indemnitee in connection with any Proceeding shall be advanced to the
Indemnitee by the Corporation within 20 days after the receipt by the
Corporation of a statement or statements from the Indemnitee requesting such
advance or advances from time to time, whether prior to or after final
disposition of such Proceeding. Any such statement or statements shall
reasonably evidence the expenses incurred by the Indemnitee and shall include
any written affirmation or undertaking required by applicable law in effect at
the time of such advance.
(b) Procedures for Determination of Entitlement to
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21
Indemnification. (i) To obtain indemnification under this Article 4, an
Indemnitee shall submit to the Secretary of the Corporation a written request,
including such documentation and information as is reasonably available to the
Indemnitee and reasonably necessary to determine whether and to what extent the
Indemnitee is entitled to indemnification (the "Supporting Documentation"). The
determination of the Indemnitee's entitlement to indemnification shall be made
not later than 60 days after receipt by the Corporation of the written request
for indemnification together with the Supporting Documentation. The Secretary of
the Corporation shall, promptly upon receipt of such a request for
indemnification, advise the Board in writing that the Indemnitee has requested
indemnification.
(ii) The Indemnitee's entitlement to indemnification under this Article 4
shall be determined in one of the following ways: (A) by a majority vote of the
Disinterested Directors (as hereinafter defined), if they constitute a quorum of
the Board; (B) by a written opinion of Independent Counsel as hereinafter
defined) if (x) a Change in Control (as hereinafter defined) shall have occurred
and the Indemnitee so requests or (y) a quorum of the Board consisting of
Disinterested Directors is not obtainable or, even if obtainable, a majority of
such Disinterested Directors so directs; (C) by the stockholders of the
Corporation (but only if a majority of the Disinterested Directors, if they
constitute a quorum of the Board, presents the issue of entitlement to
indemnification to the stockholders for their determination); or (D) as provided
in Section 4.4(c) of this Article 4.
(iii) In the event the determination of entitlement to indemnification is to
be made by Independent Counsel pursuant to Section 4.4(b)(ii), a majority of the
Disinterested Directors shall select the Independent Counsel, but only an
Independent Counsel to which the Indemnitee does not reasonably object;
provided, however, that if a Change in Control shall have occurred, the
Indemnitee shall select such Independent Counsel, but only an Independent
Counsel to which a majority of the Disinterested Directors does not reasonably
object.
(c) Presumptions and Effect of Certain Proceedings. Except as otherwise
expressly provided in this Article 4, if a Change in Control shall have
occurred, the Indemnitee shall be presumed to be entitled to indemnification
under this Article 4 (with respect to actions or failures to act occurring prior
to such Change in Control) upon submission of a request for indemnification
together with the Supporting Documentation in accordance with Section 4.4(b) of
this Article 4, and thereafter the Corporation shall have the burden of proof to
overcome that presumption in reaching a contrary determination. In any event, if
the person or
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22
persons empowered under Section 4.4(b) of this Article 4 to determine
entitlement to indemnification shall not have been appointed or shall not have
made a determination within 60 days after receipt by the Corporation of the
request therefor together with the Supporting Documentation, the Indemnitee
shall be deemed to be, and shall be, entitled to indemnification unless (A) the
Indemnitee misrepresented or failed to disclose a material fact in making the
request for indemnification or in the Supporting Documentation or (B) such
indemnification is prohibited by law. The termination of any Proceeding
described in Section 4.1 of this Article 4, or of any claim, issue or matter
therein, by judgment, order, settlement or conviction, or upon a plea of nolo
contendere or its equivalent, shall not, of itself, adversely affect the right
of the Indemnitee to indemnification or create a presumption that the Indemnitee
did not act in good faith and in a manner which the Indemnitee reasonably
believed to be in or not opposed to the best interests of the Corporation or,
with respect to any criminal Proceeding, that the Indemnitee had reasonable
cause to believe that his or her conduct was unlawful.
(d) Remedies of Indemnitee. (i) In the event that a determination is made
pursuant to Section 4.4(b) of this Article 4 that the Indemnitee is not entitled
to indemnification under this Article 4, (A) the Indemnitee shall be entitled to
seek an adjudication of his or her entitlement to such indemnification either,
at the Indemnitee's sole option, in (x) an appropriate court of the state of
Delaware or any other court of competent jurisdiction or (y) an arbitration to
be conducted by a single arbitrator pursuant to the rules of the American
Arbitration Association; (B) any such judicial proceeding or arbitration shall
be de novo and the Indemnitee shall not be prejudiced by reason of such adverse
determination; and (C) if a Change in Control shall have occurred, in any such
judicial proceeding or arbitration the Corporation shall have the burden of
proving that the Indemnitee is not entitled to indemnification under this
Article 4 (with respect to actions or failures to act occurring prior to such
Change in Control).
(ii) If a determination shall have been made or deemed to have been made,
pursuant to Section 4.4(b) or (c) of this Article 4, that the Indemnitee is
entitled to indemnification, the Corporation shall be obligated to pay the
amounts constituting such indemnification within five days after such
determination has been made or deemed to have been made and shall be
conclusively bound by such determination unless (A) the Indemnitee
misrepresented or failed to disclose a material fact in making the request for
indemnification or in the Supporting Documentation or (B) such indemnification
is prohibited by law. In the event that (x) advancement of expenses is not
timely made pursuant to Section 4.4(a) of this Article 4 or (y) payment of
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23
indemnification is not made within five days after a determination of
entitlement to indemnification has been made or deemed to have been made
pursuant to Section 4.4(b) or (c) of this Article 4, the Indemnitee shall be
entitled to seek judicial enforcement of the Corporation's obligation to pay to
the Indemnitee such advancement of expenses or indemnification. Notwithstanding
the foregoing, the Corporation may bring an action, in an appropriate court in
the state of Delaware or any other court of competent jurisdiction, contesting
the right of the Indemnitee to receive indemnification hereunder due to the
occurrence of an event described in Subclause (A) or (B) of this Clause (ii) (a
"Disqualifying Event"); provided, however, that in any such action the
Corporation shall have the burden of proving the occurrence of such
Disqualifying Event.
(iii) The Corporation shall be precluded from asserting in any judicial
proceeding or arbitration commenced pursuant to this Section 4.4(d) that the
procedures and presumptions of this Article 4 are not valid, binding and
enforceable and shall stipulate in any such court or before any such arbitrator
that the Corporation is bound by all the provisions of this Article 4.
(iv) In the event that the Indemnitee, pursuant to this Section 4.4(d), seeks
a judicial adjudication of or an award in arbitration to enforce his or her
rights under, or to recover damages for breach of, this Article 4, the
Indemnitee shall be entitled to recover from the Corporation, and shall be
indemnified by the Corporation against, any expenses actually and reasonably
incurred by the Indemnitee if the Indemnitee prevails in such judicial
adjudication or arbitration. If it shall be determined in such judicial
adjudication or arbitration that the Indemnitee is entitled to receive part but
not all of the indemnification or advancement of expenses sought, the expenses
incurred by the Indemnitee in connection with such judicial adjudication or
arbitration shall be prorated accordingly.
(e) Definitions. For purposes of this Article 4:
(i) "Change in Control" means a change in control of the Corporation of a
nature that would be required to be reported in response to Item 6(e) (or any
successor provision) of Schedule 14A of Regulation 14A (or any amendment or
successor provision thereto) promulgated under the Securities Exchange Act of
1934 (the "Act"), whether or not the Corporation is then subject to such
reporting requirement; provided that, without limitation, such a change in
control shall be deemed to have occurred if (A) any "person" (as such term is
used in Sections 13(d) and 14(d) of the Act) is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Act), directly or indirectly, of
securities of the Corporation representing
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24
20% or more of the voting power of all outstanding shares of stock of the
Corporation entitled to vote generally in an election of Directors without the
prior approval of at least two-thirds of the members of the Board in office
immediately prior to such acquisition; (B) the Corporation is a party to any
merger or consolidation in which the Corporation is not the continuing or
surviving corporation or pursuant to which shares of the Corporation's common
stock would be converted into cash, securities or other property, other than a
merger of the Corporation in which the holders of the Corporation's common stock
immediately prior to the merger have the same proportionate ownership of common
stock of the surviving corporation immediately after the merger; (C) there is a
sale, lease, exchange or other transfer (in one transaction or a series of
related transactions) of all, or substantially all, the assets of the
Corporation, or liquidation or dissolution of the Corporation; (D) the
Corporation is a party to a merger, consolidation, sale of assets or other
reorganization, or a proxy contest, as a consequence of which members of the
Board in office immediately prior to such transaction or event constitute less
than a majority of the Board thereafter; or (E) during any period of two
consecutive years, individuals who at the beginning of such period constituted
the Board (including for this purpose any new Director whose election or
nomination for election by the stockholders was approved by a vote of at least
two-thirds of the Directors then still in office who were Directors at the
beginning of such period) cease for any reason to constitute at least a majority
of the Board.
(ii) "Disinterested Director" means a Director who is not or was not a party
to the proceeding in respect of which indemnification is sought by the
Indemnitee.
(iii) "Independent Counsel" means a law firm or a member of a law firm that
neither presently is, nor in the past five years has been, retained to
represent: (a) the Corporation or the Indemnitee in any matter material to
either such party or (b) any other party to the Proceeding giving rise to a
claim for indemnification under this Article 4. Notwithstanding the foregoing,
the term "Independent Counsel" shall not include any person who, under
applicable standards of professional conduct, would have a conflict of interest
in representing either the Corporation or the Indemnitee in an action to
determine the Indemnitee's rights under this Article 4.
4.5 Indemnification of Employees and Agents. Notwithstanding any other
provision of this Article 4, the Corporation, to the fullest extent permitted by
applicable law as then in effect, may indemnify any person other than a Director
or officer of the Corporation who is or was an employee or agent of the
Corporation and who is or was involved in any manner (including, without
limitation, as a party or a witness) or is threatened to be made so involved
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25
in any threatened, pending or completed Proceeding by reasons of the fact that
such person is or was an employee or agent of the Corporation or, at the request
of the Corporation, a director, officer, employee, fiduciary or agent of a
Covered Entity against all expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by such
person in connection with such Proceeding. The Corporation may also advance
expenses incurred by such employee, fiduciary or agent in connection with any
such Proceeding, consistent with the provisions of applicable law as then in
effect.
4.6 Severability. If any of this Article 4 shall be held to be invalid,
illegal or unenforceable for any reason whatsoever: (i) the validity, legality
and enforceability of the remaining provisions of this Article 4 (including,
without limitation, all portions of any Section of this Article 4 containing any
such provision held to be invalid, illegal or unenforceable, that are not
themselves invalid, illegal or unenforceable) shall not in any way be affected
or impaired thereby; and (ii) to the fullest extent possible, the provisions of
this Article 4 (including, without limitation, all portions of any Section of
this Article 4 containing any such provision held to be invalid, illegal or
unenforceable, that are not themselves invalid, illegal or unenforceable) shall
be construed so as to give effect to the intent manifested by the provision held
invalid, illegal or unenforceable.
5. CAPITAL STOCK
5.1 Stock Certificates. (a) Every holder of stock in the Corporation shall be
entitled to have a certificate certifying the number of shares owned by him or
her in the Corporation and designating the class and series of stock to which
such shares belong, which certificate shall otherwise be in such form as the
Board shall prescribe and as provided in Section 5.1(d). Each such certificate
shall be signed by, or in the name of, the Corporation by the Chairman or the
President or any Vice President, and by the Treasurer or any Assistant Treasurer
or the Secretary or any Assistant Secretary.
(b) If such certificate is countersigned by a transfer agent other than the
Corporation or its employee, or by a registrar other than the Corporation or its
employee, the signatures of the officers of the Corporation may be facsimiles,
and, if permitted by applicable law, any other signature on the certificate may
be a facsimile.
(c) In case any officer who has signed or whose facsimile signature has been
placed upon a certificate shall have ceased to be such officer before such
certificate is issued, it may be issued by the Corporation with the same effect
as if such person were such officer at the date of issue.
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26
(d) Certificates of stock shall be issued in such form not inconsistent with
the Certificate of Incorporation. They shall be numbered and registered in the
order in which they are issued. No certificate shall be issued until fully paid.
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27
(e) All certificates surrendered to the Corporation shall be cancelled (other
than treasury shares) with the date of cancellation and shall be retained by the
Chief Financial Officer, together with the powers of attorney to transfer and
the assignments of the shares represented by such certificates, for such period
of time as such officer shall designate.
5.2 Record Ownership. A record of the name of the person, firm or corporation
and address of such holder of each certificate, the number of shares represented
thereby and the date of issue thereof shall be made on the Corporation's books.
The Corporation shall be entitled to treat the holder of record of any share of
stock as the holder in fact thereof, and accordingly shall not be bound to
recognize any equitable or other claim to or interest in any share on the part
of any person, whether or not it shall have express or other notice thereof,
except as required by applicable law.
5.3 Transfer of Record Ownership. Transfers of stock shall be made on the
books of the Corporation only by direction of the person named in the
certificate or such person's attorney, lawfully constituted in writing, and only
upon the surrender of the certificate therefor and a written assignment of the
shares evidenced thereby. Whenever any transfer of stock shall be made for
collateral security, and not absolutely, it shall be so expressed in the entry
of the transfer if, when the certificates are presented to the Corporation for
transfer, both the transferor and transferee request the Corporation to do so.
5.4 Lost, Stolen or Destroyed Certificates. Certificates representing shares
of the stock of the Corporation shall be issued in place of any certificate
alleged to have been lost, stolen or destroyed in such manner and on such terms
and conditions as the Board from time to time may authorize in accordance with
applicable law.
5.5 Transfer Agent; Registrar; Rules Respecting Certificates. The Corporation
shall maintain one or more transfer offices or agencies where stock of the
Corporation shall be transferable. The Corporation shall also maintain one or
more registry offices where such stock shall be registered. The Board may make
such rules and regulations as it may deem expedient concerning the issue,
transfer and registration of stock certificates in accordance with applicable
law.
5.6 Fixing Record Date for Determination of Stockholders of Record. (a) The
Board may fix, in advance, a date as the record date for the purpose of
determining the stockholders entitled to notice of, or to vote at, any meeting
of the
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28
stockholders or any adjournment thereof, which record date shall not precede the
date upon which the resolution fixing the record date is adopted by the Board,
and which record date shall not be more than sixty days nor less than ten days
before the date of a meeting of the stockholders. If no record date is fixed by
the Board, the record date for determining the stockholders entitled to notice
of or to vote at a stockholders' meeting shall be at the close of business on
the day next preceding the day on which notice is given, or, if notice is
waived, at the close of business on the day next preceding the day on which the
meeting is held. A determination of stockholders of record entitled to notice of
or to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board may fix a new record date for the
adjourned meeting.
(b) The Board may fix, in advance, a date as the record date for the purpose
of determining the stockholders entitled to receive payment of any dividend or
other distribution or the allotment of any rights, or entitled to exercise any
rights in respect of any change, conversion or exchange of stock, or in order to
make a determination of the stockholders for the purpose of any other lawful
action, which record date shall not precede the date upon which the resolution
fixing the record date is adopted by the Board, and which record date shall not
be more than sixty calendar days prior to such action. If no record date is
fixed by the Board, the record date for determining the stockholders for any
such purpose shall be at the close of business on the day on which the Board
adopts the resolution relating thereto.
6. SECURITIES HELD BY THE CORPORATION.
6.1 Voting. Unless the Board shall otherwise order, the Chairman, the
President, any Executive Vice President, any Senior Vice President, any Vice
President, the Chief Financial Officer, the Controller, the Treasurer or the
Secretary shall have full power and authority, on behalf of the Corporation, to
attend, act and vote at any meeting of the stockholders of any corporation in
which the Corporation may hold stock and at such meeting to exercise any or all
rights and powers incident to the ownership of such stock, and to execute on
behalf of the Corporation a proxy or proxies empowering another or others to act
as aforesaid. The Board from time to time may confer like powers upon any other
person or persons.
6.2 General Authorization to Transfer Securities Held by the Corporation. (a)
Any of the following officers, to wit: the Chairman, the President, any
Executive Vice President, any Senior Vice President, any Vice President, the
Chief Financial Officer, the Controller, the Treasurer, any Assistant
Controller, any Assistant Treasurer, and each of
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29
them, hereby is authorized and empowered to transfer, convert, endorse, sell,
assign, set over and deliver any and all shares of stock, bonds, debentures,
notes, subscription warrants, stock purchase warrants, evidences of
indebtedness, or other securities now or hereafter standing in the name of or
owned by the Corporation, and to make, execute and deliver any and all written
instruments of assignment and transfer necessary or proper to effectuate the
authority hereby conferred.
(b) Whenever there shall be annexed to any instrument of assignment and
transfer executed pursuant to and in accordance with the foregoing Section
6.2(a), a certificate of the Secretary or any Assistant Secretary in office at
the date of such certificate setting forth the provisions hereof and stating
that they are in full force and effect and setting forth the names of persons
who are then officers of the corporation, all persons to whom such instrument
and annexed certificate shall thereafter come shall be entitled, without further
inquiry or investigation and regardless of the date of such certificate, to
assume and to act in reliance upon the assumption that (i) the shares of stock
or other securities named in such instrument were theretofore duly and properly
transferred, endorsed, sold, assigned, set over and delivered by the
Corporation, and (ii) with respect to such securities, the authority of these
provisions of these By-laws and of such officers is still in full force and
effect.
7. DEPOSITARIES AND SIGNATORIES.
7.1 Depositaries. The Chairman, the President, the Chief Financial Officer,
and the Treasurer are each authorized to designate depositaries for the funds of
the Corporation deposited in its name or that of a Division of the Corporation,
or both, and the signatories with respect thereto in each case, and from time to
time, to change such depositaries and signatories, with the same force and
effect as if each such depositary and the signatories with respect thereto and
changes therein had been specifically designated or authorized by the Board; and
each depositary designated by the Board or by the Chairman, the President, the
Chief Financial Officer, or the Treasurer shall be entitled to rely upon the
certificate of the Secretary or any Assistant Secretary of the Corporation or of
a Division of the Corporation setting forth the fact of such designation and of
the appointment of the officers of the Corporation or of the Division or of both
or of other persons who are to be signatories with respect to the withdrawal of
funds deposited with such depositary, or from time to time the fact of any
change in any depositary or in the signatories with respect thereto.
7.2 Signatories. Unless otherwise designated by the Board or by the Chairman,
the President, the Chief Financial
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30
Officer or the Treasurer, all notes, drafts, checks, acceptances, orders for the
payment of money and all other negotiable instruments obligating the Corporation
for the payment of money shall be (a) signed by the Treasurer or any Assistant
Treasurer and (b) countersigned by the Controller or any Assistant Controller,
or (c) either signed or countersigned by the Chairman, the President, any
Executive Vice President, any Senior Vice President or any Vice President in
lieu of either the officers designated in Clause (a) or the officers designated
in Clause (b) of this Section 7.2.
8. SEAL.
The seal of the Corporation shall be in such form and shall have such content
as the Board shall from time to time determine.
9. FISCAL YEAR.
The fiscal year of the Corporation shall end on December 31 in each year, or
on such other date as the Board shall determine.
10. WAIVER OF OR DISPENSING WITH NOTICE.
(a) Whenever any notice of the time, place or purpose of any meeting of the
stockholders is required to be given by applicable law, the Certificate of
Incorporation or these By-laws, a written waiver of notice, signed by a
stockholder entitled to notice of a stockholders' meeting, whether by telegraph,
cable or other form of recorded communication, whether signed before or after
the time set for a given meeting, shall be deemed equivalent to notice of such
meeting. Attendance of a stockholder in person or by proxy at a stockholders'
meeting shall constitute a waiver of notice to such stockholder of such meeting,
except when the stockholder attends the meeting for the express purpose of
objecting at the beginning of the meeting to the transaction of any business
because the meeting was not lawfully called or convened.
(b) Whenever any notice of the time or place of any meeting of the Board or
Committee of the Board is required to be given by applicable law, the
Certificate of Incorporation or these By-laws, a written waiver of notice signed
by a Director, whether by telegraph, cable or other form of recorded
communication, whether signed before or after the time set for a given meeting,
shall be deemed equivalent to notice of such meeting. Attendance of a Director
at a meeting in person (or by conference telephone or similar communications
equipment) shall constitute a waiver of notice to such Director of such meeting.
(c) No notice need be given to any person with whom
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31
communication is made unlawful by any law of the United States or any rule,
regulation, proclamation or executive order issued under any such law.
11. AMENDMENT OF BY-LAWS.
Except as otherwise provided in Section 2.8(a) of these By-laws, these
By-laws, or any of them, may from time to time be supplemented, amended or
repealed, or new By-laws may be adopted, by the Board at any regular or special
meeting of the Board, if such supplement, amendment, repeal or adoption is
approved by a majority of the entire Board. These By-laws, or any of them, may
from time to time be supplemented, amended or repealed, or new By-laws may be
adopted, by the stockholders at any regular or special meeting of the
stockholders at which a quorum is present, if such supplement, amendment, repeal
or adoption is approved by the affirmative vote of the holders of at least a
majority of the voting power of all outstanding shares of stock of the
Corporation entitled to vote generally in an election of directors.
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32
12. OFFICES AND AGENT
(a) Registered Office and Agent. The registered office of the Corporation in
the State of Delaware shall be 1209 Orange Street, Wilmington, Delaware 19801.
The name of the registered agent is The Corporation Trust Company. Such
registered agent has a business office identical with such registered office.
(b) Other Offices. The Corporation may also have offices at other places,
either within or outside the State of Delaware, as the Board of Directors may
from time to time determine or as the business of the Corporation may require.
State of }
} ss.
County of }
This is to certify that the foregoing is a true copy of the Bylaws of The
Hartford Financial Services Group, Inc. in full force and effect on this date.
Attest:
______________________________
Secretary
Dated:
ES/bylaws/htfdfins.bl
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<DEBT-HELD-FOR-SALE> 33,658
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 2,072
<MORTGAGE> 2
<REAL-ESTATE> 43
<TOTAL-INVEST> 39,953
<CASH> 135
<RECOVER-REINSURE> 11,249
<DEFERRED-ACQUISITION> 3,816
<TOTAL-ASSETS> 121,117
<POLICY-LOSSES> 23,230
<UNEARNED-PREMIUMS> 2,959
<POLICY-OTHER> 21,377
<POLICY-HOLDER-FUNDS> 59,875
<NOTES-PAYABLE> 1,770
1,000 <F1>
0
<COMMON> 1
<OTHER-SE> 5,356
<TOTAL-LIABILITY-AND-EQUITY> 121,117
4,920
<INVESTMENT-INCOME> 1,267
<INVESTMENT-GAINS> 73
<OTHER-INCOME> 0
<BENEFITS> 3,886
<UNDERWRITING-AMORTIZATION> 931
<UNDERWRITING-OTHER> 774
<INCOME-PRETAX> 917
<INCOME-TAX> 134
<INCOME-CONTINUING> 778
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 778
<EPS-PRIMARY> 6.60
<EPS-DILUTED> 6.60
<RESERVE-OPEN> 0 <F2>
<PROVISION-CURRENT> 0 <F2>
<PROVISION-PRIOR> 0 <F2>
<PAYMENTS-CURRENT> 0 <F2>
<PAYMENTS-PRIOR> 0 <F2>
<RESERVE-CLOSE> 0 <F2>
<CUMULATIVE-DEFICIENCY> 0 <F2>
<FN>
<F1> REPRESENTS COMPANY OBLIGATED MANDATORILY REDEEMABLE PREFERRED
SECURITIES OF SUBSIDIARY TRUSTS HOLDING SOLELY PARENT JUNIOR
SUBORDINATED DEBENTURES.
<F2> AMOUNTS FOR SECURITIES ACT INDUSTRY GUIDE 6 AND EXCHANGE ACT INDUSTRY
GUIDE 4 DISCLOSURES ARE REQUIRED FOR ANNUAL FILINGS ONLY. ACCORDINGLY,
NO AMOUNTS WILL BE REPORTED FOR INTERIM FILINGS.
</FN>
</TABLE>
