Filed Pursuant to Rule 424(b)(5)
Registration No. 333-88762
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED AUGUST 15, 2002)
6,000,000 EQUITY UNITS
(INITIALLY CONSISTING OF 6,000,000 CORPORATE UNITS)
[THE HARTFORD LOGO]
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
6% EQUITY UNITS
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Each Equity Unit will have a stated amount of $50 and will consist of a
purchase contract issued by us and, initially, $50 principal amount of our
senior notes due November 16, 2008, which we refer to as a Corporate Unit.
- The purchase contract will obligate you to purchase from us, no later than
November 16, 2006, for a price of $50 in cash, the following number of
shares of our common stock, subject to anti-dilution adjustments:
- if the average closing price of our common stock over the 20-trading
day period ending on the third trading day prior to November 16, 2006
equals or exceeds $57.6450, 0.8674 shares of our common stock;
- if the average closing price of our common stock over the same period
is less than $57.6450 but greater than $47.2500, a number of shares of
our common stock having a value, based on the 20-trading day average
closing price, equal to $50; and
- if the average closing price of our common stock over the same period
is less than or equal to $47.2500, 1.0582 shares of our common stock.
- We will also pay you quarterly contract adjustment payments at a rate of
1.9% per year of the stated amount of $50 per Equity Unit, or $0.95 per
year, as described in this prospectus supplement.
- The senior notes will initially bear interest at a rate of 4.1% per year,
payable quarterly. The senior notes will be remarketed as described in
this prospectus supplement. Following a successful remarketing, the
interest rate on the senior notes will be reset.
- If there is a successful remarketing prior to the third business day
immediately preceding November 16, 2006, or if a special event redemption
described in this prospectus supplement occurs prior to November 16, 2006,
the senior notes comprising a part of the Corporate Units will be replaced
by the Treasury portfolio described in this prospectus supplement.
- You can create Treasury Units from Corporate Units by substituting
Treasury securities for the senior notes or your applicable ownership
interest in the Treasury portfolio comprising a part of the Corporate
Units, and you can recreate Corporate Units by substituting senior notes
or your applicable ownership interest in the Treasury portfolio for the
Treasury securities comprising a part of the Treasury Units.
- The senior notes or, if substituted for the senior notes, the Treasury
securities or your applicable ownership interest in the Treasury
portfolio, as the case may be, will be pledged to us to secure your
obligation under the related purchase contract.
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Concurrently with this offering, we are offering, by means of a separate
prospectus supplement, 6,350,000 shares of our common stock (or 7,302,500
shares, if the underwriters exercise in full their over-allotment option).
Neither offering is contingent upon the other.
The Corporate Units have been approved for listing on the New York Stock
Exchange under the symbol "HIG PrA", subject to official notice of issuance. Our
common stock is traded on the New York Stock Exchange under the symbol "HIG." On
September 9, 2002, the reported last sale price of our common stock on the New
York Stock Exchange was $47.49 per share.
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INVESTING IN THE EQUITY UNITS INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING
ON PAGE S-14 OF THIS PROSPECTUS SUPPLEMENT.
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PER
CORPORATE UNIT TOTAL
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Public offering price....................................... $50.00 $300,000,000
Underwriting discounts and commissions...................... $ 1.60 $ 9,600,000
Proceeds, before expenses, to The Hartford.................. $48.40 $290,400,000
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The underwriters may also purchase up to an additional 600,000 Corporate
Units at the public offering price less the underwriting discounts and
commissions until 30 days after the date of this prospectus supplement in order
to cover over-allotments, if any.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus supplement or the accompanying prospectus is truthful or complete.
Any representation to the contrary is a criminal offense.
The Corporate Units will be ready for delivery on or about September 13,
2002.
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Joint Book-running Managers
BANC OF AMERICA SECURITIES LLC MORGAN STANLEY SALOMON SMITH BARNEY
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A.G. EDWARDS & SONS, INC.
EDWARD D. JONES & CO., L.P.
GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
UBS WARBURG
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The date of this prospectus supplement is September 9, 2002
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
About This Prospectus Supplement............................ S-1
Forward-Looking Statements.................................. S-1
Prospectus Supplement Summary............................... S-2
Risk Factors................................................ S-14
Use of Proceeds............................................. S-18
Common Stock Price Range and Dividends...................... S-18
Capitalization.............................................. S-19
Ratio of Earnings to Fixed Charges.......................... S-20
Selected Financial Information.............................. S-21
Accounting Treatment........................................ S-23
Description of the Equity Units............................. S-24
Description of the Purchase Contracts....................... S-28
Certain Provisions of the Purchase Contracts, the Purchase
Contract Agreement and the Pledge Agreement............... S-40
Description of the Senior Notes............................. S-44
United States Federal Income Tax Consequences............... S-48
ERISA Considerations........................................ S-54
Underwriting................................................ S-55
Validity of the Equity Units................................ S-57
Experts..................................................... S-57
Special Note Regarding Our Former Auditors.................. S-57
PROSPECTUS
About This Prospectus....................................... ii
The Hartford Financial Services Group, Inc.................. 1
The Hartford Capital Trusts................................. 2
Use of Proceeds............................................. 4
Ratio of Earnings to Fixed Charges.......................... 4
Description of the Debt Securities.......................... 5
Description of Junior Subordinated Debentures............... 17
Description of Capital Stock of The Hartford Financial
Services Group, Inc....................................... 29
Description of Warrants..................................... 38
Description of Stock Purchase Contracts and Stock Purchase
Units..................................................... 39
Description of Preferred Securities......................... 40
Description of Guarantee.................................... 52
Description of Corresponding Junior Subordinated
Debentures................................................ 54
Relationship Among The Preferred Securities, the
Corresponding Junior Subordinated Debentures and the
Guarantees................................................ 57
Plan of Distribution........................................ 59
Legal Opinions.............................................. 60
Experts..................................................... 60
Where You Can Find More Information......................... 60
Incorporation by Reference.................................. 60
i
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS. WE HAVE
NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION OTHER THAN THAT CONTAINED
OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING
PROSPECTUS. THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS MAY BE ACCURATE ONLY AS OF THEIR RESPECTIVE DATES.
WE ARE OFFERING TO SELL, AND ARE SEEKING OFFERS TO BUY, THE EQUITY UNITS
ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE PERMITTED. THE DISTRIBUTION OF
THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS AND THE OFFERING OF
THE EQUITY UNITS IN CERTAIN JURISDICTIONS MAY BE RESTRICTED BY LAW. PERSONS
OUTSIDE THE UNITED STATES WHO COME INTO POSSESSION OF THIS PROSPECTUS SUPPLEMENT
AND THE ACCOMPANYING PROSPECTUS MUST INFORM THEMSELVES ABOUT AND OBSERVE ANY
RESTRICTIONS RELATING TO THE OFFERING OF THE EQUITY UNITS AND THE DISTRIBUTION
OF THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS OUTSIDE THE UNITED
STATES. THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS DO NOT
CONSTITUTE, AND MAY NOT BE USED IN CONNECTION WITH, AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES OFFERED BY THIS PROSPECTUS
SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS BY ANY PERSON IN ANY JURISDICTION IN
WHICH IT IS UNLAWFUL FOR SUCH PERSON TO MAKE SUCH AN OFFER OR SOLICITATION.
ii
ABOUT THIS PROSPECTUS SUPPLEMENT
This document is in two parts. The first part is this prospectus
supplement, which describes the specific terms of this Equity Units offering and
also adds to and updates information contained in the accompanying prospectus
and the documents incorporated by reference into the prospectus. The second
part, the accompanying prospectus, gives more general information, some of which
does not apply to this offering.
If the description of this offering varies between this prospectus
supplement and the accompanying prospectus, you should rely on the information
contained in or incorporated by reference into this prospectus supplement.
Unless we have indicated otherwise, or the context otherwise requires,
references in this prospectus supplement and the accompanying prospectus to "The
Hartford," "we," "us" and "our" or similar terms are to The Hartford Financial
Services Group, Inc. and its subsidiaries.
FORWARD-LOOKING STATEMENTS
Some of the statements contained in this prospectus supplement and the
accompanying prospectus, other than statements of historical fact, are
forward-looking statements. These forward-looking statements are made pursuant
to the safe harbor provisions of the Private Securities Litigation Reform Act of
1995 and include estimates and assumptions related to economic, competitive and
legislative developments. These forward-looking statements are subject to change
and uncertainty which are, in many instances, beyond our control and have been
made based upon management's expectations and beliefs concerning future
developments and their potential effect upon us. There can be no assurance that
future developments will be in accordance with management's expectations or that
the effect of future developments on us will be those anticipated by management.
Actual results could differ materially from those expected by us, depending on
the outcome of various factors. These factors include:
- the uncertain nature of damage theories and loss amounts and the
development of additional facts related to the September 11, 2001
terrorist attack;
- the response of reinsurance companies under reinsurance contracts, the
impact of increasing reinsurance rates, and the adequacy of reinsurance
to protect us against losses;
- the possibility of more unfavorable loss experience than anticipated;
- the possibility of general economic and business conditions that are less
favorable than anticipated;
- the incidence and severity of catastrophes, both natural and man-made;
- the effect of changes in interest rates, the stock markets or other
financial markets;
- stronger than anticipated competitive activity;
- unfavorable legislative, regulatory or judicial developments;
- the difficulty in predicting our potential exposure for environmental and
asbestos claims and related litigation;
- our ability to distribute our products through distribution channels,
both current and future;
- the uncertain effects of emerging claim and coverage issues;
- the effect of assessments and other surcharges for guaranty funds and
second-injury funds and other mandatory pooling arrangements;
- a downgrade in our claims-paying, financial strength or credit ratings;
- the ability of our subsidiaries to pay dividends to us; and
- other factors described in such forward-looking statements.
S-1
PROSPECTUS SUPPLEMENT SUMMARY
This summary contains basic information about us and this offering. Because
it is a summary, it does not contain all of the information that you should
consider before investing. You should read this entire prospectus supplement
carefully, including the section entitled "Risk Factors" and our financial
statements and the notes thereto before making an investment decision. Except as
otherwise noted, all information in this prospectus supplement assumes no
exercise of the underwriters' over-allotment option.
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
We are a diversified insurance and financial services holding company. We
are among the largest providers of investment products, individual life, group
life and disability insurance products, and property and casualty insurance
products in the United States. Hartford Fire Insurance Company, or Hartford
Fire, founded in 1810, is the oldest of our subsidiaries. Our companies write
insurance and reinsurance in the United States and internationally. At June 30,
2002, our total assets were $179.6 billion and our total stockholders' equity
was $9.7 billion.
We were formed in December 1985 as a wholly-owned subsidiary of ITT
Corporation. On December 19, 1995, all our outstanding shares were distributed
to ITT Corporation's stockholders and we became an independent company. On May
2, 1997, we changed our name from ITT Hartford Group, Inc. to our current name,
The Hartford Financial Services Group, Inc.
As a holding company that is separate and distinct from our insurance
subsidiaries, we have no significant business operations of our own. Therefore,
we rely on the dividends from our insurance company subsidiaries, which are
primarily domiciled in Connecticut, as the principal source of cash flow to meet
our obligations. These obligations include payments on our debt securities and
the payment of dividends on our capital stock, including preferred stock. The
Connecticut insurance holding company laws limit the payment of dividends by
Connecticut-domiciled insurers. Under these laws, the insurance subsidiaries may
only make their dividend payments out of earned surplus. In addition, these laws
require notice to and approval by the state insurance commissioner for the
declaration or payment by those subsidiaries of any dividend if the dividend and
other dividends or distributions made within the preceding twelve months exceeds
the greater of:
- 10% of the insurer's policyholder surplus as of December 31 of the
preceding year, and
- net income, or net gain from operations if the subsidiary is a life
insurance company, for the previous calendar year, in each case
determined under statutory insurance accounting principles.
The insurance holding company laws of the other jurisdictions in which our
insurance subsidiaries are incorporated generally contain similar, and in some
instances more restrictive, limitations on the payment of dividends. Our
insurance subsidiaries are permitted to pay us up to a maximum of approximately
$577 million in dividends in 2002 without prior approval.
Our rights to participate in any distribution of assets of any of our
subsidiaries, for example, upon their liquidation or reorganization, and the
ability of holders of the securities to benefit indirectly from a distribution,
are subject to the prior claims of creditors of the applicable subsidiary,
except to the extent that we may be a creditor of that subsidiary. Claims on
these subsidiaries by persons other than us include, as of June 30, 2002, claims
by policyholders for benefits payable amounting to $46.4 billion, claims by
separate account holders of $110.2 billion, and other liabilities including
claims of trade creditors, claims from guaranty associations and claims from
holders of debt obligations amounting to $13.4 billion.
Our principal executive offices are located at Hartford Plaza, Hartford,
Connecticut 06115, and our telephone number is (860) 547-5000.
S-2
THE OFFERING
WHAT ARE EQUITY UNITS?
Equity Units may be either Corporate Units or Treasury Units as described
below. The Equity Units offered will initially consist of 6,000,000 Corporate
Units (or 6,600,000 Corporate Units if the underwriters exercise their
over-allotment option in full), each with a stated amount of $50. You can create
Treasury Units from the Corporate Units in the manner described below under "How
can I create Treasury Units from Corporate Units?"
WHAT ARE THE COMPONENTS OF A CORPORATE UNIT?
Each Corporate Unit consists of a purchase contract and, initially, $50
principal amount of our senior notes due November 16, 2008. The senior note that
is a component of a Corporate Unit is owned by you, but it will be pledged to us
to secure your obligation under the related purchase contract. If the senior
notes are successfully remarketed prior to the third business day preceding
November 16, 2006, or if a special event redemption occurs prior to November 16,
2006, in each case as described in this prospectus supplement, the senior notes
comprising part of the Corporate Units will be replaced by the Treasury
portfolio described below, under "What is the Treasury Portfolio?," and your
applicable ownership interest in the Treasury portfolio will then be pledged to
us through the collateral agent to secure your obligation under the related
purchase contract.
WHAT IS A PURCHASE CONTRACT?
Each purchase contract underlying an Equity Unit obligates the holder of
the purchase contract to purchase, and obligates us to sell, on November 16,
2006, which we refer to as the purchase contract settlement date, for $50 in
cash, a number of newly issued shares of our common stock equal to the
"settlement rate." The settlement rate will be calculated, subject to adjustment
under the circumstances set forth in "Description of the Purchase
Contracts -- Anti-Dilution Adjustments," as follows:
- if the applicable market value of our common stock is equal to or greater
than $57.6450, which we refer to as the threshold appreciation price, the
settlement rate will be 0.8674 shares of our common stock;
- if the applicable market value of our common stock is less than the
threshold appreciation price but greater than $47.2500, which we refer to
as the reference price, the settlement rate will be a number of shares of
our common stock equal to $50 divided by the applicable market value; and
- if the applicable market value of our common stock is less than or equal
to the reference price, the settlement rate will be 1.0582 shares of our
common stock.
"Applicable market value" means the average of the closing price per share
of our common stock on each of the twenty consecutive trading days ending on the
third trading day immediately preceding the purchase contract settlement date.
The reference price represents approximately a 0.5% discount to the reported
last sale price of our common stock on the New York Stock Exchange on September
9, 2002. The threshold appreciation price represents a 22% appreciation over the
reference price.
CAN I SETTLE THE PURCHASE CONTRACT EARLY?
You can settle a purchase contract at any time on or prior to the fifth
business day immediately preceding the purchase contract settlement date by
paying $50 cash, in which case 0.8674 shares of our common stock will be issued
to you pursuant to the purchase contract. In addition, if we are involved in a
merger in which at least 30% of the consideration for our common stock consists
of cash or cash equivalents, you will have the right to accelerate and settle
the purchase contract early at the settlement rate in effect immediately prior
to the closing of that merger.
S-3
Your early settlement right is subject to the condition that, if required
under the U.S. federal securities laws, we have a registration statement under
the Securities Act of 1933 in effect covering the shares of common stock and
other securities, if any, deliverable upon settlement of a purchase contract. We
have agreed that, if required by U.S. federal securities laws, we will use
commercially reasonable efforts to have a registration statement in effect
covering those shares of common stock and other securities to be delivered in
respect of the purchase contracts being settled.
WHAT ARE TREASURY UNITS?
Treasury Units are units created from Corporate Units and consist of a
purchase contract and a 5% undivided beneficial interest in a zero-coupon U.S.
Treasury security with a principal amount of $1,000 that matures on November 15,
2006 (CUSIP No. 912820GQ4), which we refer to as a Treasury security. The
interest in the Treasury security that is a component of a Treasury Unit will be
owned by you, but will be pledged to us through the collateral agent to secure
your obligation under the related purchase contract.
HOW CAN I CREATE TREASURY UNITS FROM CORPORATE UNITS?
Unless the Treasury portfolio has replaced the senior notes as a component
of the Corporate Units, each holder of Corporate Units will have the right, at
any time on or prior to the fifth business day immediately preceding the
purchase contract settlement date, to substitute for the related senior notes
held by the collateral agent, Treasury securities in a total principal amount at
maturity equal to the aggregate principal amount of the senior notes for which
substitution is being made. Because Treasury securities are issued in integral
multiples of $1,000, holders of Corporate Units may make this substitution only
in integral multiples of 20 Corporate Units. If the Treasury portfolio has
replaced the senior notes as a component of the Corporate Units, holders of
Corporate Units will have the right, at any time on or prior to the second
business day immediately preceding the purchase contract settlement date, to
substitute Treasury securities for the applicable ownership interest in the
Treasury portfolio as a component of the Corporate Unit, but holders of
Corporate Units can only make this substitution in integral multiples of 80,000
Corporate Units. Each of these substitutions will create Treasury Units, and the
applicable senior notes or applicable ownership interest in the Treasury
portfolio will be released to the holder and be separately tradable from the
Treasury Units.
HOW CAN I RECREATE CORPORATE UNITS FROM TREASURY UNITS?
Unless the Treasury portfolio has replaced the senior notes as a component
of the Corporate Units, each holder of Treasury Units will have the right, at
any time on or prior to the fifth business day immediately preceding the
purchase contract settlement date, to substitute for the related Treasury
securities held by the collateral agent, senior notes having a principal amount
equal to the aggregate principal amount at stated maturity of the Treasury
securities for which substitution is being made. Because Treasury securities are
issued in integral multiples of $1,000, holders of Treasury Units may make these
substitutions only in integral multiples of 20 Treasury Units. If the Treasury
portfolio has replaced the senior notes as a component of the Corporate Units,
holders of Treasury Units will have the right, at any time on or prior to the
second business day immediately preceding the purchase contract settlement date,
to substitute the applicable ownership interest in the Treasury portfolio for
the Treasury securities as a component of the Treasury Units, but holders of
Treasury Units can only make this substitution in integral multiples of 80,000
Treasury Units. Each of these substitutions will recreate Corporate Units and
the applicable Treasury securities will be released to the holder and be
separately tradable from the Corporate Units.
WHAT PAYMENTS AM I ENTITLED TO AS A HOLDER OF CORPORATE UNITS?
Holders of Corporate Units will be entitled to receive quarterly cash
distributions consisting of interest payments calculated at the rate of 4.1% per
year on senior notes (or distributions on the applicable ownership interest in
the Treasury portfolio if the senior notes have been replaced by the Treasury
S-4
portfolio), and contract adjustment payments payable by us at the rate of 1.9%
per year on the stated amount of $50 per Corporate Unit until the earlier of the
purchase contract settlement date and the most recent quarterly payment date on
or before any early settlement of the related purchase contracts.
WHAT PAYMENTS WILL I BE ENTITLED TO IF I CONVERT MY CORPORATE UNITS TO TREASURY
UNITS?
Holders of Treasury Units will be entitled to receive quarterly contract
adjustment payments payable by us at the rate of 1.9% per year on the stated
amount of $50 per Treasury Unit. There will be no distributions in respect of
the Treasury securities that are a component of the Treasury Units but the
holders of the Treasury Units will continue to receive the scheduled quarterly
interest payments on the senior notes that were released to them when they
created the Treasury Units as long as they continue to hold the senior notes.
DO WE HAVE THE OPTION TO DEFER CURRENT PAYMENTS?
No, we do not have the right to defer the payment of contract adjustment
payments in respect of the Equity Units or the payment of interest on the senior
notes.
WHAT ARE THE PAYMENT DATES FOR THE EQUITY UNITS?
The payments described above in respect of the Equity Units will be payable
quarterly in arrears on February 16, May 16, August 16 and November 16 of each
year, commencing November 16, 2002.
WHAT IS REMARKETING?
Except as described below, the senior notes held by Corporate Unit holders
as part of a Corporate Unit will be remarketed on the third business day
immediately preceding August 16, 2006 (the date three months prior to the
purchase contract settlement date), which we refer to as the initial remarketing
date. The remarketing agent will use its reasonable efforts to obtain a price
for the remarketed senior notes equal to approximately 100.50% of the purchase
price for the Treasury portfolio. To obtain that price, the remarketing agent
may reset the interest rate on the senior notes, as described below.
If the remarketing of the senior notes on the initial remarketing date
fails or does not occur because a condition precedent, such as the registration
requirement described below, is not satisfied, the senior notes will continue to
be a component of Corporate Units and the remarketing agent will use its
reasonable efforts to remarket the senior notes on the third business day
immediately preceding September 16, 2006, which we call the second remarketing
date, and on the third business day immediately preceding October 16, 2006,
which we call the third remarketing date, in each case at a price of
approximately 100.50% of the purchase price of the Treasury portfolio.
Following a successful remarketing of the senior notes on any of these
remarketing dates, the portion of the proceeds from the remarketing equal to the
Treasury portfolio purchase price will be applied to purchase the Treasury
portfolio. The Corporate Unit holder's applicable ownership interest in the
Treasury portfolio will be substituted for the senior notes as a component of
the Corporate Units and will be pledged to us through the collateral agent to
secure the Corporate Unit holder's obligation under the purchase contracts. On
the purchase contract settlement date, a portion of the proceeds from the
Treasury portfolio equal to the principal amount of the senior notes will
automatically be applied to satisfy the Corporate Unit holder's obligation to
purchase common stock under the purchase contracts and proceeds from the
Treasury portfolio equal to the interest payment (assuming no reset of the
interest rate) that would have been due on the senior notes on November 16, 2006
will be paid to the holders of the Corporate Units.
The remarketing agent will deduct, as a remarketing fee, an amount not
exceeding 25 basis points (.25%) of the Treasury portfolio purchase price from
any proceeds from the remarketing of the senior notes in excess of the Treasury
portfolio purchase price. The remarketing agent will then remit any remaining
portion of the proceeds for the benefit of the holders.
S-5
If a successful remarketing of the senior notes has not occurred on or
prior to the third remarketing date, the remarketing agent will use its
reasonable efforts to remarket the senior notes on the third business day
immediately preceding the purchase contract settlement date, which we refer to
as the final remarketing date, at a price of approximately 100.50% of the
principal amount of the senior notes remarketed.
If the remarketing of the senior notes on the final remarketing date is
successful, a portion of the proceeds from this remarketing equal to the
aggregate principal amount of the senior notes sold in the remarketing that
comprised part of the Corporate Units will automatically be applied to satisfy
in full each Corporate Unit holder's obligations to purchase common stock under
the related purchase contracts on the purchase contract settlement date. The
remarketing agent will deduct, as a remarketing fee, an amount not exceeding 25
basis points (.25%) of the aggregate principal amount of the remarketed senior
notes from proceeds from the remarketing in excess of the aggregate principal
amount of the senior notes remarketed. The remarketing agent will then remit any
remaining portion of the proceeds for the benefit of the holders.
Remarketing on any remarketing date will be considered successful and no
further attempts will be made if the resulting proceeds (net of any fees and
commissions, if any) are at least 100% of the Treasury portfolio purchase price
in the case of a remarketing prior to the final remarketing date or the
aggregate principal amount of the senior notes in the case of the final
remarketing date.
WHAT HAPPENS IF THE SENIOR NOTES ARE NOT SUCCESSFULLY REMARKETED?
If a successful remarketing of the senior notes underlying your Corporate
Units has not occurred on or prior to the final remarketing date, we will
deliver our common stock to you pursuant to the purchase contracts and, unless
you have delivered the purchase price in cash to us before the final remarketing
date, we will exercise our rights as a secured party with respect to the senior
notes that have been pledged to us through the collateral agent to secure your
obligation under the related purchase contracts, and your obligation under those
purchase contracts will be deemed to be satisfied in full. In addition, holders
of senior notes that remain outstanding will have the right to put their senior
notes to us for $50 per senior note, plus accrued and unpaid interest, on
December 31, 2006, which we call the exercise date, by notifying the indenture
trustee on or prior to the fifth business day before the exercise date.
DO I HAVE TO PARTICIPATE IN THE REMARKETING?
You may elect not to participate in any remarketing and to retain the
senior notes underlying your Corporate Units by (1) creating Treasury Units at
any time on or prior to the second business day prior to any of the remarketing
dates or (2) if the first three remarketing attempts have failed, notifying the
purchase contract agent of your intention to pay cash to satisfy your obligation
under the related purchase contracts on or prior to the fifth business day
before the purchase contract settlement date and delivering the cash payment
required under the purchase contracts to the collateral agent on or prior to the
fourth business day before the purchase contract settlement date. Following a
successful remarketing prior to the third business day immediately preceding the
purchase contract settlement date, holders of Treasury Units can recreate a
Corporate Unit, at any time prior to the second business day immediately
preceding the purchase contract settlement date, as described under "How can I
recreate Corporate Units from Treasury Units?"
WHAT IS THE TREASURY PORTFOLIO?
If there is a successful remarketing prior to the third business day
preceding the purchase contract settlement date or if a special event redemption
described under "Description of the Senior Notes -- Optional
Redemption -- Special Event" occurs prior to the purchase contract settlement
date, the senior
S-6
notes will be replaced by the Treasury portfolio. The Treasury portfolio is a
portfolio of U.S. Treasury securities consisting of:
- U.S. Treasury securities (or principal or interest strips thereof) that
mature on or prior to November 15, 2006 in an aggregate amount equal to
the principal amount of the senior notes included in Corporate Units, and
- either:
(1) in the case of a successful remarketing prior to the third business
day preceding the purchase contract settlement date, U.S. Treasury
securities (or principal or interest strips thereof) that mature on or
prior to November 15, 2006 in an aggregate amount equal to the
aggregate interest payment (assuming no reset of the interest rate)
that would have been due on November 16, 2006 on the principal amount
of the senior notes included in the Corporate Units, or
(2) in the case of a special event redemption, U.S. Treasury securities
(or principal or interest strips thereof) that mature on or prior to
the business day immediately preceding each scheduled interest payment
after the date of the special event redemption and on or prior to the
purchase contract settlement date in an aggregate amount at maturity
equal to the aggregate interest payment (assuming no reset of the
interest rate) that would have been due on such interest payment date
on the principal amount of the senior notes included in the Corporate
Units.
IF I AM HOLDING A SENIOR NOTE AS A SEPARATE SECURITY FROM THE CORPORATE UNITS,
CAN I STILL PARTICIPATE IN A REMARKETING OF THE SENIOR NOTES?
Holders of senior notes that are not part of the Corporate Units may elect,
in the manner described in this prospectus supplement, to have their senior
notes remarketed by the remarketing agent along with the senior notes included
in the Corporate Units. See "Description of the Senior Notes -- Optional
Remarketing". Such holders may also participate in any remarketing by recreating
Corporate Units from their Treasury Units at any time on or prior to the second
business day immediately prior to any of the remarketing dates.
BESIDES PARTICIPATING IN A REMARKETING, HOW ELSE CAN I SATISFY MY OBLIGATION
UNDER THE PURCHASE CONTRACTS?
Holders of Corporate Units or Treasury Units may also satisfy their
obligations, or their obligations will be terminated, under the purchase
contracts as follows:
- through early settlement as described under "Can I settle the purchase
contract early?" above;
- if the first three remarketing attempts have failed, through cash
settlement prior to the final remarketing date in the case of holders of
Corporate Units, unless the Treasury portfolio has replaced the senior
notes as a part of the Corporate Units, by notifying the purchase
contract agent on or prior to the fifth business day prior to November
16, 2006 and delivering the cash payment required under the related
purchase contracts on or prior to the fourth business day immediately
prior to November 16, 2006;
- through the automatic application of the proceeds of the Treasury
securities in the case of the Treasury Units or the Treasury portfolio in
the case of Corporate Units if the Treasury portfolio has replaced the
senior notes as a component of the Corporate Units;
- through the foreclosure of the senior notes included in the Corporate
Units, if no successful remarketing has occurred and none of the above
events has taken place; or
- without any further action, upon the termination of the purchase
contracts as a result of our bankruptcy, insolvency or reorganization.
S-7
If the holder of a Corporate Unit or Treasury Unit settles a purchase
contract early, or if the holder's purchase contract is terminated as a result
of our bankruptcy, insolvency or reorganization, such holder will have no right
to receive any accrued contract adjustment payments.
WHAT INTEREST PAYMENTS WILL I RECEIVE ON THE SENIOR NOTES?
Interest on the senior notes will be payable quarterly in arrears initially
at the annual rate of 4.1% per annum to, but excluding, the reset effective
date, which will be the third business day following the date on which a
remarketing of the senior notes is successfully completed. Following a reset of
the interest rate, interest will be payable on the senior notes at the reset
rate from and including the reset effective date to, but excluding, November 16,
2008. If there is not a successful remarketing of the senior notes, the interest
rate will not be reset and the senior notes will continue to bear interest at
the initial interest rate.
WHAT ARE THE INTEREST PAYMENT DATES ON THE SENIOR NOTES?
The interest payment dates on the senior notes are February 16, May 16,
August 16 and November 16 of each year, commencing November 16, 2002 and ending
on the maturity date of the senior notes.
WHEN WILL THE INTEREST RATE ON THE SENIOR NOTES BE RESET AND WHAT IS THE RESET
RATE?
Unless a special event redemption has occurred, the interest rate on the
senior notes will be reset on the date of a successful remarketing and the reset
rate will become effective three business days thereafter. The reset rate will
be the interest rate determined by the remarketing agent as the rate the senior
notes should bear in order for the senior notes included in the Corporate Units
to have an approximate aggregate market value on the remarketing date of 100.50%
of the Treasury portfolio purchase price, in the case of a remarketing prior to
the final remarketing date, or 100.50% of the aggregate principal amount of the
senior notes, in the case of the final remarketing. The interest rate on the
senior notes will not be reset if there is not a successful remarketing. The
reset rate may not exceed the maximum rate, if any, permitted by applicable law.
WHEN MAY THE SENIOR NOTES BE REDEEMED?
The senior notes are redeemable at our option, in whole but not in part,
upon the occurrence and continuation of a tax event or an accounting event at
any time prior to the earlier of the date of a successful remarketing and the
purchase contract settlement date, as described in this prospectus supplement
under "Description of the Senior Notes -- Optional Redemption -- Special Event".
Following any such redemption of the senior notes, which we refer to as a
special event redemption, the redemption price for the senior notes that are a
component of Corporate Units will be paid to the collateral agent who will
purchase the Treasury portfolio and remit any remaining proceeds to the holders.
Thereafter, the applicable ownership interest in the Treasury portfolio will
replace the senior notes as a component of the Corporate Units and will be
pledged to us through the collateral agent. Holders of senior notes that are not
a component of Corporate Units will receive the redemption price paid in such
special event redemption.
WHAT IS THE RANKING OF THE SENIOR NOTES?
The senior notes will rank equally with all of our other unsecured and
unsubordinated obligations. The indenture under which the senior notes will be
issued will not limit our ability to issue or incur other debt or issue
preferred stock. See "Description of the Debt Securities" in the accompanying
prospectus.
WHAT ARE THE FEDERAL INCOME TAX CONSEQUENCES?
Because a Corporate Unit will initially consist of a purchase contract and
a senior note, the purchase price of each Corporate Unit will be allocated
between the purchase contract and the related senior note in proportion to their
relative fair market values at the time of purchase. We expect that as of the
date of
S-8
issuance of the Corporate Units, the fair market value of each purchase contract
will be $0.00 and the fair market value of each senior note will be $50.
The senior notes will be subject to the regulations concerning contingent
payment debt instruments. As such, a holder will be subject to federal income
tax on the accrual of original issue discount in respect of the senior notes.
Such accrual of original issue discount by you may be in excess of stated
interest payments actually received by you. In addition, any gain recognized in
respect of the senior notes prior to the earlier of the date the interest rate
is reset and the final remarketing date will be ordinary income.
If a holder owns Treasury Units, such holder will be required to include in
gross income such holder's allocable share of any original issue discount or
acquisition discount on the Treasury securities that accrues in such year.
We intend to report the purchase contract adjustment payments as income to
holders, but holders may want to consult their tax advisor concerning
alternative characterizations.
Because there is no statutory, judicial or administrative authority
directly addressing the tax treatment of Equity Units or instruments similar to
Equity Units, each holder is urged to consult its own tax advisor concerning the
tax consequences of an investment in Equity Units.
FOR ADDITIONAL INFORMATION, SEE "UNITED STATES FEDERAL INCOME TAX CONSEQUENCES"
IN THIS PROSPECTUS SUPPLEMENT, STARTING ON PAGE S-48.
WHAT ARE THE RIGHTS AND PRIVILEGES OF THE COMMON STOCK?
The shares of our common stock that you will be obligated to purchase under
the purchase contracts have one vote per share. For more information, please see
the discussion of our common stock in this prospectus supplement under the
heading "Risk Factors," and in the accompanying prospectus under the heading
"Description of Capital Stock of The Hartford Financial Services Group, Inc."
WHAT ARE THE USES OF PROCEEDS FROM THE OFFERING?
We intend to use the net proceeds from the sale of the Corporate Units for
general corporate purposes, including capital contributions to our subsidiaries.
See "Use of Proceeds" in this prospectus supplement.
S-9
THE OFFERING -- EXPLANATORY DIAGRAMS
The following diagrams demonstrate some of the key features of the purchase
contracts, senior notes, Corporate Units and Treasury Units, and the
transformation of Corporate Units into Treasury Units and senior notes.
The following diagrams assume that the senior notes are successfully
remarketed and the interest rate on the senior notes is reset on the third
business day immediately preceding the purchase contract settlement date.
PURCHASE CONTRACT
Corporate Units and Treasury Units both include a purchase contract under
which the holder agrees to purchase shares of our common stock on the purchase
contract settlement date. In addition, these purchase contracts include
unsecured contract adjustment payments as shown in the diagrams on the following
pages.
VALUE OF SHARES DELIVERED NUMBER OF SHARES DELIVERED
UPON SETTLEMENT OF A PURCHASE CONTRACT UPON SETTLEMENT OF A PURCHASE CONTRACT
[APPLICABLE MARKET VALUE DIAGRAMS]
APPLICABLE MARKET VALUE(6) APPLICABLE MARKET VALUE(6)
---------------
Notes:
(1) If the applicable market value of our common stock is less than or equal to
the reference price of $47.2500, the number of shares of our common stock to
be delivered to a holder of an Equity Unit will be calculated by dividing
the stated amount of $50 by the reference price.
(2) If the applicable market value of our common stock is between the reference
price and the threshold appreciation price of $57.6450, the number of shares
of our common stock to be delivered to a holder of an Equity Unit will be
calculated by dividing the stated amount of $50 by the applicable market
value.
(3) If the applicable market value of our common stock is greater than or equal
to the threshold appreciation price, the number of shares of our common
stock to be delivered to a holder of an Equity Unit will be calculated by
dividing the stated amount by the threshold appreciation price.
S-10
(4) The reference price represents approximately a 0.5% discount to the reported
last sale price of our common stock on the NYSE on September 9, 2002.
(5) The threshold appreciation price represents a 22% appreciation over the
reference price.
(6) The "applicable market value" means the average of the closing price per
share of our common stock on each of the twenty consecutive trading days
ending on the third trading day immediately preceding the purchase contract
settlement date.
CORPORATE UNITS
A Corporate Unit consists of two components as described below:
PURCHASE CONTRACT
(Owed to Holder)
Common Stock
+
Contract Adjustment
Payment
1.9% per annum
paid quarterly
(Owed to The Hartford)
$50 at Settlement
(November 16, 2006)
SENIOR NOTE
(Owed to Holder)
Interest
4.1% per annum
paid quarterly
(at reset rate from
November 16, 2006)
(Owed to Holder)
$50 at Maturity
(November 16, 2008)
- The holder of a Corporate Unit owns the senior note that forms a part of
the Corporate Unit but will pledge it to us to secure its obligation
under the related purchase contract.
- The foregoing analysis assumes the senior notes are successfully
remarketed on the third business day immediately preceding November 16,
2006. If the remarketing were to be successful prior to such date,
following the remarketing of the senior notes, the applicable ownership
interest in the Treasury portfolio will replace the senior note as a
component of the Corporate Unit and the reset rate would be effective
three business days following the successful remarketing.
- If the Treasury portfolio has replaced the senior notes as a result of a
special event redemption prior to November 16, 2006, the applicable
ownership interest in the Treasury portfolio will also replace the senior
note as a component of the Corporate Unit.
S-11
TREASURY UNITS
A Treasury Unit consists of two components as described below:
PURCHASE CONTRACT
(Owed to Holder)
Common Stock
+
Contract Adjustment
Payment
1.9% per annum
paid quarterly
(Owed to The Hartford)
$50 at Settlement
(November 16, 2006)
TREASURY SECURITY
(Owed to Holder)
$50 at Maturity
(November 15, 2006)
- The holder owns the Treasury security that forms a part of the Treasury
Unit but will pledge it to us through the collateral agent to secure its
obligations under the related purchase contract. Unless the purchase
contract is terminated as a result of our bankruptcy, insolvency or
reorganization or the holder recreates a Corporate Unit, the Treasury
security will be used to satisfy the holder's obligation under the
related purchase contract.
- Treasury Units can only be created with integral multiples of 20
Corporate Units.
SENIOR NOTES
Senior notes have the terms described below:
SENIOR NOTE
(Owed to Holder)
Interest
4.1% per annum
paid quarterly
(at reset rate from
November 16, 2006)
(Owed to Holder)
$50 at Maturity
(November 16, 2008)
TRANSFORMING CORPORATE UNITS INTO TREASURY UNITS AND SENIOR NOTES
- To create a Treasury Unit, a holder separates a Corporate Unit into its
components -- the purchase contract and the senior note, and then
combines the purchase contract with a Treasury security that matures on
the day immediately preceding the purchase contract settlement date.
S-12
- The Treasury security together with the purchase contract constitutes a
Treasury Unit. The senior note, which is no longer a component of the
Corporate Unit, is released to the holder and is tradable as a separate
security.
- A holder owns the Treasury security that forms a part of the Treasury
Unit but will pledge it to us through the collateral agent to secure its
obligation under the related purchase contract.
[CHART]
- Following the successful remarketing of the senior notes or a special
event redemption, the applicable ownership interest in the Treasury
portfolio, rather than the senior note, will be released to the holder
upon the transformation of a Corporate Unit into a Treasury Unit and will
be tradable separately.
- The holder can also transform Treasury Units and senior notes (or,
following a successful remarketing of the senior notes or a special event
redemption, the applicable ownership interest in the Treasury portfolio)
into Corporate Units. Following that transformation, the Treasury
security, which will no longer be a component of the Treasury Unit, will
be released to the holder and will be tradable as a separate security.
- Unless the Treasury portfolio has replaced the senior notes as a
component of the Corporate Units, the transformation of Corporate Units
into Treasury Units requires integral multiples of 20 Corporate Units,
and the transformation of Treasury Units into Corporate Units also
requires multiples of 20 Treasury Units. If the Treasury portfolio has
replaced the senior notes as a component of the Corporate Units, the
transformation of Corporate Units into Treasury Units requires integral
multiples of 80,000 Corporate Units, and the transformation of Treasury
Units into Corporate Units requires integral multiples of 80,000 Treasury
Units.
S-13
RISK FACTORS
Before purchasing the Equity Units, you should carefully consider the
following risk factors as well as the other information contained in this
prospectus supplement, the accompanying prospectus and the information
incorporated by reference in order to evaluate an investment in the Equity
Units.
YOU ASSUME THE RISK THAT THE MARKET VALUE OF OUR COMMON STOCK MAY DECLINE.
Although as a holder of Corporate Units or Treasury Units you will be the
beneficial owner of the related senior notes, applicable ownership interest in
the Treasury portfolio or Treasury securities, as the case may be, you do have
an obligation to buy shares of our common stock pursuant to the purchase
contract that is a part of the Corporate Units and Treasury Units. On November
16, 2006, unless you pay cash to satisfy your obligation under the purchase
contract or the purchase contracts are terminated due to our bankruptcy,
insolvency or reorganization, (i) in the case of Corporate Units, either (x) the
principal of the appropriate applicable ownership interest in the Treasury
portfolio when paid at maturity or (y) either the proceeds derived from the
successful remarketing of the senior notes or, if no successful remarketing has
occurred, the foreclosure of the senior notes, or (ii) in the case of Treasury
Units, the principal of the related Treasury securities when paid at maturity,
will automatically be used to purchase a specified number of shares of our
common stock on your behalf.
The number of shares of our common stock that you will receive upon the
settlement of a purchase contract is not fixed but instead will depend on the
average of the closing price per share of our common stock on the 20 consecutive
trading days ending on the third trading day immediately preceding November 16,
2006, which we refer to as the applicable market value. There can be no
assurance that the market value of common stock received by you on the purchase
contract settlement date will be equal to or greater than the price per share
paid by you for our common stock. If the applicable market value of the common
stock is less than $47.2500, the market value of the common stock issued to you
pursuant to each purchase contract on November 16, 2006 (assuming that the
market value is the same as the applicable market value of the common stock)
will be less than the effective price per share paid by you for the common stock
on the date of issuance of the Equity Units. Accordingly, you assume the risk
that the market value of the common stock may decline, and that the decline
could be substantial.
THE OPPORTUNITY FOR EQUITY APPRECIATION PROVIDED BY AN INVESTMENT IN THE EQUITY
UNITS IS LESS THAN THAT PROVIDED BY A DIRECT INVESTMENT IN OUR COMMON STOCK.
Your opportunity for equity appreciation afforded by investing in the
Equity Units is less than your opportunity for equity appreciation if you
directly invested in our common stock. This opportunity is less because the
market value of the common stock to be received by you pursuant to the purchase
contract on November 16, 2006 (assuming that the market value is the same as the
applicable market value of the common stock) will only exceed the price per
share paid by you for our common stock on the purchase contract settlement date
if the applicable market value of the common stock exceeds the threshold
appreciation price (which represents an appreciation of 22% over $47.2500). If
the applicable market value of our common stock exceeds the reference price but
falls below the threshold appreciation price, you realize no equity appreciation
of the common stock for the period during which you own the purchase contract.
Furthermore, if the applicable market value of our common stock equals or
exceeds the threshold appreciation price, you would receive on November 16, 2006
only approximately 82% of the value of the shares of common stock you could have
purchased with $50 at the reported last sale price of our common stock on the
date of issuance of the Equity Units.
THE TRADING PRICES FOR THE CORPORATE UNITS AND TREASURY UNITS WILL BE DIRECTLY
AFFECTED BY THE TRADING PRICES OF OUR COMMON STOCK.
The trading prices of Corporate Units and Treasury Units in the secondary
market will be directly affected by the trading prices of our common stock, the
general level of interest rates and our credit
S-14
quality. It is impossible to predict whether the price of the common stock or
interest rates will rise or fall. Trading prices of the common stock will be
influenced by our operating results and prospects and by economic, financial and
other factors. In addition, general market conditions, including the level of,
and fluctuations in the trading prices of stocks generally, and sales of
substantial amounts of common stock by us in the market after the offering of
the Equity Units, or the perception that such sales could occur, could affect
the price of our common stock. Fluctuations in interest rates may give rise to
arbitrage opportunities based upon changes in the relative value of the common
stock underlying the purchase contracts and of the other components of the
Equity Units. Any such arbitrage could, in turn, affect the trading prices of
the Corporate Units, Treasury Units, senior notes and our common stock.
IF YOU HOLD CORPORATE UNITS OR TREASURY UNITS, YOU WILL NOT BE ENTITLED TO ANY
RIGHTS WITH RESPECT TO OUR COMMON STOCK, BUT YOU WILL BE SUBJECT TO ALL CHANGES
MADE WITH RESPECT TO OUR COMMON STOCK.
If you hold Corporate Units or Treasury Units, you will not be entitled to
any rights with respect to our common stock (including, without limitation,
voting rights and rights to receive any dividends or other distributions on the
common stock), but you will be subject to all changes affecting the common
stock. You will only be entitled to rights on the common stock if and when we
deliver shares of common stock in exchange for Corporate Units or Treasury Units
on November 16, 2006, or as a result of early settlement, as the case may be,
and the applicable record date, if any, for the exercise of rights occurs after
that date. For example, in the event that an amendment is proposed to our
articles of incorporation or by-laws requiring stockholder approval and the
record date for determining the stockholders of record entitled to vote on the
amendment occurs prior to delivery of the common stock, you will not be entitled
to vote on the amendment, although you will nevertheless be subject to any
changes in the powers, preferences or special rights of our common stock.
WE MAY ISSUE ADDITIONAL SHARES OF COMMON STOCK AND THEREBY MATERIALLY AND
ADVERSELY AFFECT THE PRICE OF OUR COMMON STOCK.
The number of shares of common stock that you are entitled to receive on
November 16, 2006 or as a result of early settlement of a purchase contract, is
subject to adjustment for certain events arising from stock splits and
combinations, stock dividends and certain other actions by us that modify our
capital structure. We will not adjust the number of shares of common stock that
you are to receive on November 16, 2006, or as a result of early settlement of a
purchase contract for other events, including offerings of common stock for cash
by us or in connection with acquisitions. We are not restricted from issuing
additional common stock during the term of the purchase contracts and have no
obligation to consider your interests for any reason. If we issue additional
shares of common stock, it may materially and adversely affect the price of our
common stock and, because of the relationship of the number of shares to be
received on November 16, 2006 to the price of the common stock, such other
events may adversely affect the trading price of the Corporate Units or Treasury
Units.
THE SECONDARY MARKET FOR THE CORPORATE UNITS, TREASURY UNITS OR SENIOR NOTES MAY
BE ILLIQUID.
It is not possible to predict how Corporate Units, Treasury Units or senior
notes will trade in the secondary market or whether the market will be liquid or
illiquid. There is currently no secondary market for either our Corporate Units,
Treasury Units or senior notes. The Corporate Units have been approved for
listing on the New York Stock Exchange, subject to official notice of issuance.
If the Treasury Units or the senior notes are separately traded to a sufficient
extent that applicable exchange listing requirements are met, we will try to
list the Treasury Units or the senior notes on the same exchange as the
Corporate Units. There can be no assurance as to the liquidity of any market
that may develop for the Corporate Units, the Treasury Units or the senior
notes, your ability to sell these securities or whether a trading market, if it
develops, will continue. In addition, in the event you were to substitute
Treasury securities for senior notes or senior notes for Treasury securities,
thereby converting your Treasury Units to Corporate Units or your Corporate
Units to Treasury Units, as the case may be, the liquidity of Corporate Units or
Treasury Units could be adversely affected. There can be no assurance that the
Corporate Units will not
S-15
be delisted from the New York Stock Exchange or that trading in the Corporate
Units will not be suspended as a result of your election to create Treasury
Units by substituting collateral, which could cause the number of Corporate
Units to fall below the requirement for listing securities on the New York Stock
Exchange.
YOUR RIGHTS TO THE PLEDGED SECURITIES WILL BE SUBJECT TO OUR SECURITY INTEREST.
Although you will be the beneficial owner of the related senior notes,
Treasury securities or applicable ownership interest in the Treasury portfolio,
as applicable, those securities will be pledged to us through the collateral
agent to secure your obligations under the related purchase contracts. Thus,
your rights to the pledged securities will be subject to our security interest.
Additionally, notwithstanding the automatic termination of the purchase
contracts, in the event that we become the subject of a case under the U.S.
Bankruptcy Code, the delivery of the pledged securities to you may be delayed by
the imposition of the automatic stay under Section 362 of the Bankruptcy Code
and claims arising out of the senior notes, like all other claims in bankruptcy
proceedings, will be subject to the equitable jurisdiction and powers of the
bankruptcy court.
THE SENIOR NOTES MAY BE REDEEMED UPON THE OCCURRENCE OF A SPECIAL EVENT.
We may redeem the senior notes, on not less than 30 days' nor more than 60
days' prior written notice, in whole but not in part, at any time before the
earlier of the date of a successful remarketing of the senior notes underlying
the Corporate Units and the purchase contract settlement date if a special event
occurs and continues under the circumstances described in this prospectus
supplement. If we exercise this option, we will redeem the senior notes for cash
at the redemption amount plus accrued and unpaid interest, if any, which we
refer to as the redemption price. Unless the senior notes have been successfully
remarketed, if the special event redemption occurs before November 16, 2006, the
redemption price payable to you as a holder of the Corporate Units will be
distributed to the collateral agent, who in turn will purchase the Treasury
portfolio on your behalf, and will remit the remainder of the redemption price,
if any, to the holder, and the Treasury portfolio will be substituted for the
senior notes as collateral to secure your obligations under the purchase
contracts related to the Corporate Units. If your senior notes are not
components of Corporate Units, you will receive redemption payments directly.
There can be no assurance as to the impact on the market prices for the
Corporate Units if the Treasury portfolio is substituted as collateral in place
of any senior notes redeemed. A special event redemption will be a taxable event
to the holders of the senior notes.
THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND
DISPOSITION OF THE EQUITY UNITS ARE UNCLEAR.
No statutory, judicial or administrative authority directly addresses the
treatment of the Equity Units or instruments similar to the Equity Units for
United States federal income tax purposes. As a result, the United States
federal income tax consequences of the purchase, ownership and disposition of
Equity Units are not entirely clear. In addition, any gain on the disposition of
a senior note prior to the earlier of the date the interest rate is reset and
the final remarketing date, generally will be treated as ordinary interest
income; thus, the ability to offset such interest income with a loss, if any, on
a purchase contract may be limited. For additional tax related risks, see
"Prospectus Supplement Summary -- The Offering" and "United States Federal
Income Tax Consequences."
THE PURCHASE CONTRACT AGREEMENT WILL NOT BE QUALIFIED UNDER THE TRUST INDENTURE
ACT AND THE OBLIGATIONS OF THE PURCHASE CONTRACT AGENT ARE LIMITED.
The purchase contract agreement between us and the purchase contract agent
will not be qualified as an indenture under the Trust Indenture Act of 1939, and
the purchase contract agent will not be required to qualify as a trustee under
the Trust Indenture Act. Thus, you will not have the benefit of the protection
of the Trust Indenture Act with respect to the purchase contract agreement or
the purchase contract agent. The senior notes constituting a part of the
Corporate Units will be issued pursuant to an indenture, which will be qualified
under the Trust Indenture Act. Accordingly, if you hold Corporate Units, you
will
S-16
have the benefit of the protections of the Trust Indenture Act only to the
extent applicable to the senior notes included in the Corporate Units. The
protections generally afforded the holder of a security issued under an
indenture that has been qualified under the Trust Indenture Act include:
- disqualification of the indenture trustee for "conflicting interests," as
defined under the Trust Indenture Act;
- provisions preventing a trustee that is also a creditor of the issuer
from improving its own credit position at the expense of the security
holders immediately prior to or after a default under such indenture; and
- the requirement that the indenture trustee deliver reports at least
annually with respect to certain matters concerning the indenture trustee
and the securities.
THE SENIOR NOTES WILL BE CLASSIFIED AS CONTINGENT PAYMENT DEBT INSTRUMENTS AND
YOU WILL BE REQUIRED TO ACCRUE ORIGINAL ISSUE DISCOUNT.
For United States federal income tax purposes, the senior notes will be
classified as contingent payment debt instruments. As a result, you will be
required to include original issue discount in income during your ownership of
the senior notes, subject to some adjustments. Such accrual of original issue
discount by you may be in excess of stated interest payments actually received
by you. Additionally, you will generally be required to recognize ordinary
income on the gain, if any, recognized in respect of the senior notes prior to
the earlier of the date the interest rate is reset and the final remarketing
date. See "United States Federal Income Tax Consequences".
THE TRADING PRICE OF THE SENIOR NOTES MAY NOT FULLY REFLECT THE VALUE OF THEIR
ACCRUED BUT UNPAID INTEREST.
The senior notes may trade at a price that does not fully reflect the value
of their accrued but unpaid interest. If you dispose of your senior notes
between record dates for interest payments, you will be required to include in
gross income the daily portions of original issue discount through the date of
disposition in income as ordinary income, and to add this amount to your
adjusted tax basis in the senior notes disposed of. To the extent the selling
price is less than your adjusted tax basis, you will recognize a loss.
WE ARE AN INSURANCE HOLDING COMPANY WITH NO SIGNIFICANT BUSINESS OPERATIONS OF
OUR OWN, AND OUR INSURANCE SUBSIDIARIES' ABILITY TO PAY DIVIDENDS TO US IS
RESTRICTED BY LAW.
As a holding company that is separate and distinct from our insurance
subsidiaries, we have no significant business operations of our own. Therefore,
we rely on the dividends from our insurance company subsidiaries as the
principal source of cash flow to meet our obligations, including our obligations
under the senior notes and our obligations to make contract adjustment payments
under the purchase contracts. Moreover, applicable insurance holding company
laws limit the payment of dividends by our insurance subsidiaries. Our
subsidiaries have no obligation to pay any amounts due on the senior notes or
with respect to contract adjustment payments, and all such amounts will be
structurally subordinated to the obligations and liabilities of our
subsidiaries. The indenture relating to the senior notes does not limit our
ability or the ability of our subsidiaries to issue or incur additional
unsecured debt or preferred stock. In addition, our obligation to make contract
adjustment payments is subordinated. See "Prospectus Supplement Summary -- The
Hartford Financial Services Group, Inc." for further details on our
subsidiaries' ability to pay dividends to us.
S-17
USE OF PROCEEDS
Our net proceeds, after deducting underwriting discounts and commissions,
from the sale of the Corporate Units will be approximately $290.4 million. In
addition, we expect to receive net proceeds of approximately $286.5 million from
our concurrent common stock offering after deducting underwriting discounts and
commissions. We intend to contribute approximately $300 million of the net
proceeds from both of these offerings to the capital of our property and
casualty insurance subsidiaries and to use the balance of the net proceeds for
general corporate purposes, which may include additional capital contributions
to our subsidiaries.
COMMON STOCK PRICE RANGE AND DIVIDENDS
Our common stock is traded on the New York Stock Exchange under the symbol
"HIG." The following table sets forth the reported high and low sales prices for
our common stock as quoted by the New York Stock Exchange and the dividends
declared per share of common stock for the periods indicated:
PRICE RANGE CASH
--------------- DIVIDEND
HIGH LOW PER SHARE
------ ------ ---------
2000
First Quarter........................................... $52.75 $29.38 $0.24
Second Quarter.......................................... 64.00 44.25 0.24
Third Quarter........................................... 73.75 56.38 0.24
Fourth Quarter.......................................... 79.31 65.44 0.25
2001
First Quarter........................................... $67.75 $55.15 $0.25
Second Quarter.......................................... 70.46 56.88 0.25
Third Quarter........................................... 69.28 50.10 0.25
Fourth Quarter.......................................... 62.83 53.91 0.26
2002
First Quarter........................................... $68.56 $59.93 $0.26
Second Quarter.......................................... 69.97 58.04 0.26
Third Quarter (through September 9, 2002)............... 58.63 45.50 0.26
The reported last sale price for our common stock on the New York Stock
Exchange on September 9, 2002 was $47.49 per share. At August 31, 2002, there
were 247,666,241 shares of our common stock outstanding held by approximately
32,000 registered stockholders.
Our dividend decisions are based on and affected by a number of factors,
including our operating requirements and the impact of regulatory restrictions.
S-18
CAPITALIZATION
The following table sets forth as of June 30, 2002, on a consolidated
basis:
- our actual capitalization;
- our actual capitalization, as adjusted to reflect the issuance on August
29, 2002 of $300 million aggregate principal amount of 4.70% Senior Notes
due September 1, 2007 and the anticipated repayment upon maturity of $300
million aggregate principal amount of 6.375% Senior Notes due November 1,
2002;
- our adjusted capitalization after giving effect to the consummation of
the sale of the Corporate Units in this offering; and
- our adjusted capitalization after giving effect to the consummation of
the sale of the Corporate Units in this offering and the common stock in
the concurrent common stock offering.
Our offerings of the Corporate Units and of the common stock are not
conditioned upon each other.
The following data is qualified in its entirety by our financial statements
and other information contained elsewhere in this prospectus supplement and the
accompanying prospectus, or incorporated by reference.
AS OF JUNE 30, 2002
----------------------------------------------------------------------------
AS ADJUSTED
TO REFLECT THE AS ADJUSTED TO REFLECT
SENIOR NOTES AS ADJUSTED TO REFLECT THE SENIOR NOTES ISSUED
ISSUED THE SENIOR NOTES ISSUED AUGUST 29, 2002, THIS
AUGUST 29, AUGUST 29, 2002 AND OFFERING AND THE
ACTUAL 2002(1) THIS OFFERING COMMON STOCK OFFERING
------- -------------- ----------------------- -----------------------
(UNAUDITED, IN MILLIONS)
Short-Term Debt............................. $ 615 $ 315 $ 315 $ 315
Long-Term Debt other than the 4.1% Senior
Notes due November 16, 2008 issued in
connection with the Corporate Units....... 1,965 2,265 2,265 2,265
4.1% Senior Notes due November 16,
2008(2)................................... -- -- 300 300
Company Obligated Mandatorily Redeemable
Preferred Securities of Subsidiary Trusts
Holding Solely Junior Subordinated
Debentures (trust preferred securities)... 1,429 1,429 1,429 1,429
Equity excluding unrealized gain on
securities and other, net of
tax(3)(4)(5).............................. 8,790 8,790 8,768 9,068
Unrealized gain on securities and other, net
of tax(3)................................. 866 866 866 866
------- ------- ------- -------
Total Stockholders' Equity............. 9,656 9,656 9,634 9,934
------- ------- ------- -------
Total Capitalization................... $13,665 $13,665 $13,943 $14,243
======= ======= ======= =======
---------------
(1) Adjusted to reflect the issuance of $300 aggregate principal amount of 4.70%
Senior Notes due September 1, 2007 and the anticipated repayment upon
maturity of $300 aggregate principal amount of 6.375% Senior Notes due
November 1, 2002.
(2) Issued in connection with the sale of the Corporate Units.
(3) Other represents the net gain on cash-flow hedging instruments as a result
of our adoption of Statement of Financial Accounting Standards ("SFAS") No.
133, as amended, "Accounting for Derivative Instruments and Hedging
Activities."
(4) Reflects an adjustment of approximately $22 representing the present value
of the contract adjustment payments payable in connection with the Equity
Units and assumes a fair market value of $0 for the purchase contracts.
(5) Excludes the effect of issuance costs allocated to the purchase contracts
issued in connection with this offering and the effect of issuance costs
pertaining to the concurrent common stock offering.
S-19
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth our ratio of consolidated earnings to fixed
charges for the years and the periods indicated:
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
----------- --------------------------------
2002 2001 2001 2000 1999 1998 1997
---- ---- ---- ---- ---- ---- ----
Ratio of Consolidated Earnings to Fixed
Charges(1)..................................... 4.4 4.4 2.0 5.5 5.4 6.5 7.5
Ratio of Consolidated Earnings to Fixed Charges,
including Interest Credited to
Contractholders(2)............................. 1.7 1.8 1.2 2.0 1.8 1.8 2.2
---------------
(1) Excluding the impact of the terrorist attack on September 11, 2001 of $678
million, the consolidated earnings to fixed charges ratio was 3.8 for the
year ended December 31, 2001. Excluding the equity gain on the Hartford
Life, Inc. initial public offering of $368 million, the consolidated
earnings to fixed charges ratio was 6.1 for the year ended December 31,
1997.
(2) Excluding the impact of the terrorist attack on September 11, 2001 of $678
million, the consolidated earnings to fixed charges ratio, including
interest credited to contractholders, was 1.6 for the year ended December
31, 2001. Excluding the equity gain on the Hartford Life, Inc. initial
public offering of $368 million, the consolidated earnings to fixed charges
ratio, including interest credited to contractholders, was 1.9 for the year
ended December 31, 1997.
For purposes of computing the ratio of consolidated earnings to fixed
charges, "earnings" consist of income from operations before federal income
taxes and fixed charges. "Fixed charges" consist of interest expense,
capitalized interest, amortization of debt expense and an imputed interest
component for rental expense. "Fixed charges, including interest credited to
contractholders" also include all interest paid or credited to the holders of
our policies, annuities and investment contracts.
S-20
SELECTED FINANCIAL INFORMATION
The selected financial data for each of the years during the five year
period ended December 31, 2001 were derived from our audited consolidated
financial statements which have been examined and reported upon by Arthur
Andersen LLP, independent public accountants. The selected financial data at and
for the six months ended June 30, 2002 were derived from our unaudited
consolidated financial statements which have been reviewed by Deloitte & Touche
LLP, independent accountants, and include all adjustments, consisting of normal
recurring accruals, which we consider necessary for a fair presentation of our
financial position and results of operations as of that date and for that
period. The selected financial data at and for the six months ended June 30,
2001 were derived from our unaudited consolidated financial statements which
include all adjustments, consisting of normal recurring accruals, which we
consider necessary for a fair presentation of our financial position and results
of operations as of that date and for that period.
The table below reflects our consolidated financial position and results of
operations. All material intercompany transactions and balances have been
eliminated. On May 21, 1998, our board of directors declared a two-for-one stock
split effected in the form of a 100% stock dividend distributed on July 15, 1998
to stockholders of record as of June 24, 1998. Share and per share data have
been restated to reflect the effect of the split.
You should read the following amounts in conjunction with our consolidated
financial statements and the related notes that are incorporated in this
prospectus supplement by reference.
SIX MONTHS ENDED
------------------- YEAR ENDED DECEMBER 31,
JUNE 30, JUNE 30, ----------------------------------------------------
2002 2001 2001 2000 1999 1998 1997
-------- -------- -------- -------- -------- -------- --------
(IN MILLIONS, EXCEPT FOR PER SHARE DATA)
INCOME STATEMENT DATA
Revenues(1).............. $ 7,785 $ 7,569 $ 15,147 $ 14,703 $ 13,528 $ 15,022 $ 13,461
======== ======== ======== ======== ======== ======== ========
Net income(2)(3)......... $ 477 $ 466 $ 507 $ 974 $ 862 $ 1,015 $ 1,332
======== ======== ======== ======== ======== ======== ========
EARNINGS PER SHARE DATA
Basic(2)(3)............ $ 1.93 $ 1.99 $ 2.13 $ 4.42 $ 3.83 $ 4.36 $ 5.64
Diluted(2)(3).......... $ 1.91 $ 1.95 $ 2.10 $ 4.34 $ 3.79 $ 4.30 $ 5.58
Dividends declared per
common share........... $ 0.52 $ 0.50 $ 1.01 $ 0.97 $ 0.92 $ 0.85 $ 0.80
BALANCE SHEET DATA
Assets................... $179,637 $177,927 $181,238 $171,532 $167,051 $150,632 $131,743
======== ======== ======== ======== ======== ======== ========
Long-term debt........... $ 1,965 $ 2,263 $ 1,965 $ 1,862 $ 1,548 $ 1,548 $ 1,482
Company obligated
mandatorily redeemable
preferred securities of
subsidiary trusts
holding solely junior
subordinated
debentures............. $ 1,429 $ 1,444 $ 1,412 $ 1,243 $ 1,250 $ 1,250 $ 1,000
Total stockholders'
equity................. $ 9,656 $ 8,479 $ 9,013 $ 7,464 $ 5,466 $ 6,423 $ 6,085
======== ======== ======== ======== ======== ======== ========
---------------
(1) The year ended December 31, 2001 includes a $91 reduction in premiums from
reinsurance cessions related to the terrorist attack on September 11, 2001.
1998 includes $541 related to the recapture of an in force block of
Corporate Owned Life Insurance business from MBL Life Assurance Co. of New
Jersey. 1998 and 1997 includes revenue of $1,117 and $1,225, respectively,
from London & Edinburgh, which was sold in November 1998.
S-21
(2) The year ended December 31, 2001 includes $440 of losses ($1.85 per basic
and $1.82 per diluted share) related to the terrorist attack on September
11, 2001 and a $130 tax benefit ($0.55 per basic and $0.54 per diluted
share) at Hartford Life, Inc. ("HLI"). 1997 includes an equity gain of $368
($1.56 per basic and $1.54 per diluted share) resulting from the initial
public offering of HLI.
(3) The six months ended June 30, 2001 and the year ended December 31, 2001
include a $34 after-tax charge ($0.14 per basic and $0.15 per diluted share
for the period ended June 30, 2001 and $0.14 per basic and diluted share for
the period ended December 31, 2001) related to the cumulative effect of
accounting changes for our adoption of SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities" and Emerging Issues Task
Force Issue 99-20, "Recognition of Interest Income and Impairment on
Purchased and Retained Beneficial Interests in Securitized Financial
Assets." The year ended December 31, 2001 also includes an $8 extraordinary
after-tax loss ($0.04 per basic and $0.03 per diluted share) related to the
retirement of our 8.35% Cumulative Quarterly Income Preferred Securities.
S-22
ACCOUNTING TREATMENT
The net proceeds from the sale of the Corporate Units will be allocated
first to the purchase contracts to the extent of their fair value, with the
remainder allocated to the senior notes. The present value of the Corporate
Units contract adjustment payments will be initially charged to stockholders'
equity, with an offsetting credit to liabilities. This liability is accreted
over four years by interest charges to the income statement based on a constant
rate calculation. Subsequent contract adjustment payments reduce this liability.
The purchase contracts are forward transactions in our common stock. Upon
settlement of each purchase contract, we will receive $50 on the purchase
contract and will issue the requisite number of shares of our common stock. The
$50 that we receive will be credited to stockholders' equity.
Before the issuance of our common stock upon settlement of the purchase
contracts, the purchase contracts will be reflected in our diluted earnings per
share calculations using the treasury stock method. Under this method, the
number of shares of our common stock used in calculating diluted earnings per
share (based on the settlement formula applied at the end of the reporting
period) is deemed to be increased by the excess, if any, of the number of shares
that would be issued upon settlement of the purchase contracts over the number
of shares that could be purchased by us in the market (at the average market
price during the period) using the proceeds receivable upon settlement.
Consequently we anticipate there will be no dilutive effect on our earnings per
share except during periods when the average market price of our common stock is
above $57.6450.
The Financial Accounting Standards Board ("FASB") has issued an exposure
draft entitled "Accounting for Financial Instruments with Characteristics of
Liabilities, Equity or Both." Under the proposed Statement, some financial
instruments indexed to an issuer's own stock that are currently recorded in the
stockholders' equity section of the issuer's balance sheet would be accounted
for as a derivative instrument under the provisions of FASB Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities." The proposed
Statement would require that, in the initial year of adoption, an entity restate
all financial statements for earlier years presented for the effects of
financial instruments within its scope that were outstanding at any time during
the initial year of adoption. The proposed Statement would be effective for
fiscal years beginning after June 15, 2002. If adopted as currently issued, the
proposed Statement would not change the accounting for the purchase contract;
however, because the exposure draft is subject to future deliberations, the
ultimate outcome and timing of the exposure draft and its effect on the
financial statement presentation of this offering is uncertain.
The Emerging Issues Task Force ("EITF") of the FASB is also considering an
issue related to the accounting for certain securities and financial
instruments, including securities such as the Equity Units. One proposal being
considered under this issue, if adopted, could result in instruments like the
purchase contracts being accounted for as derivative instruments pursuant to the
provisions of FASB Statement No. 133, "Accounting for Derivative Instruments and
Hedging Activities." Under these provisions the changes in fair value of such
instruments would be recorded as an adjustment to the instruments' carrying
value with an offsetting adjustment to earnings. Another proposal under
consideration would not alter the accounting for the purchase contracts
discussed herein. As part of its deliberations on this topic, the EITF may also
choose to expand this issue's scope to include consideration of whether
instruments such as the Equity Units should be accounted for on a combined
basis, or continue to be accounted for as separate instruments. A scope
expansion of this nature may also examine the method in which the Equity Units
are included in an issuer's diluted earnings per share calculation. The FASB's
ultimate conclusions on the exposure draft discussed in the preceding paragraph
may affect any consensus of the EITF.
S-23
DESCRIPTION OF THE EQUITY UNITS
The following is a summary of the terms of the Equity Units. This summary,
together with the summary of some of the provisions of the related documents
described below, contains a description of all of the material terms of the
Equity Units but is not necessarily complete. We refer you to the copies of
those documents which have been or will be filed and incorporated by reference
in the registration statement of which this prospectus supplement and
accompanying prospectus form a part. This summary supplements the description of
the stock purchase units in the accompanying prospectus, and, to the extent it
is inconsistent, replaces the description in the accompanying prospectus.
We will issue the Equity Units under the purchase contract agreement
between us and JPMorgan Chase Bank, who we refer to as the purchase contract
agent. Equity Units may be either Corporate Units or Treasury Units. The Equity
Units will initially consist of 6,000,000 Corporate Units (or 6,600,000
Corporate Units if the underwriters exercise their over-allotment option in
full), each with a stated amount of $50.
CORPORATE UNITS
Each Corporate Unit will consist of a unit comprising:
(a) a purchase contract under which
(1) the holder will agree to purchase from us, and we will agree to sell
to the holder, not later than November 16, 2006, which we refer to
as the purchase contract settlement date, for $50 in cash, a number
of newly issued shares of our common stock equal to the settlement
rate described below under "Description of the Purchase
Contracts -- Purchase of Common Stock," subject to anti-dilution
adjustments, and
(2) we will pay the holder quarterly contract adjustment payments at the
rate of 1.9% per year on the stated amount of $50, or $0.95 per
year, and
(b) either:
(1) a senior note issued by us having a $50 principal amount, or
(2) following a successful remarketing of the senior notes prior to the
third business day immediately preceding the purchase contract
settlement date, or the occurrence of a special event redemption,
the applicable ownership interest in a portfolio of U.S. Treasury
securities, which we refer to as the Treasury portfolio.
"Applicable ownership interest" means, with respect to a Corporate Unit and
the U.S. Treasury securities in the Treasury portfolio,
(1) a 5% undivided beneficial ownership interest in $1,000 face amount of
U.S. Treasury securities (or principal or interest strips thereof)
included in the Treasury portfolio that matures on or prior to November
15, 2006, and
(2) for the scheduled interest payment date on the senior notes that occurs
on November 16, 2006, in the case of a successful remarketing of the
senior note included in that Corporate Unit prior to the third business
day immediately preceding the purchase contract settlement date, or for
each scheduled interest payment date on the senior notes after the date
of a special event redemption and on or before the purchase contract
settlement date, in the case of a special event redemption, a 0.05125%
undivided beneficial ownership interest in $1,000 face amount of U.S.
Treasury securities (or principal or interest strips thereof) included
in the Treasury portfolio that mature on or prior to the business day
immediately preceding such payment date.
The purchase price of each Equity Unit will be allocated between the
related purchase contract and the related senior note in proportion to their
respective fair market values at the time of issuance. We expect that, at the
time of issuance, the fair market value of each senior note will be $50 and the
fair
S-24
market value of each purchase contract will be $0.00. This position generally
will be binding on each beneficial owner of each Equity Unit but not on the IRS.
As long as a unit is in the form of a Corporate Unit, your senior note or
the appropriate applicable ownership interest in the Treasury portfolio, as
applicable, forming a part of the Corporate Unit will be pledged to us through
the collateral agent to secure your obligation to purchase common stock under
the related purchase contract.
CREATING TREASURY UNITS
Unless the Treasury portfolio has replaced the senior notes as a component
of the Corporate Units as a result of a successful remarketing prior to the
third business day preceding November 16, 2006 or a special event redemption
prior to November 16, 2006, each holder of Corporate Units will have the right,
at any time on or prior to the fifth business day immediately preceding the
purchase contract settlement date, to substitute for the related senior notes
held by the collateral agent, zero-coupon Treasury securities that mature on
November 15, 2006 (CUSIP No. 912820GQ4), which we refer to as a Treasury
security, in a total principal amount at maturity equal to the aggregate
principal amount of the senior notes for which substitution is being made.
Because Treasury securities are issued in integral multiples of $1,000,
holders of Corporate Units may make this substitution only in integral multiples
of 20 Corporate Units.
If the Treasury portfolio has replaced the senior notes as a component of
the Corporate Units, holders of Corporate Units will have the right, at any time
on or prior to the second business day immediately preceding the purchase
contract settlement date, to substitute Treasury securities for the applicable
ownership interest in the Treasury portfolio as a component of the Corporate
Unit, but holders of Corporate Units can only make this substitution in integral
multiples of 80,000 Corporate Units. Each of these substitutions will create
Treasury Units, and the applicable senior notes or applicable ownership interest
in the Treasury portfolio will be released to the holder and be separately
tradable from the Treasury Units.
Each Treasury Unit will consist of a unit with a stated amount of $50
comprising:
(a) a purchase contract under which
(1) the holder will agree to purchase from us, and we will agree to sell
to the holder, not later than the purchase contract settlement date,
for $50 in cash, a number of newly issued shares of our common stock
equal to the settlement rate, subject to anti-dilution adjustments,
and
(2) we will pay the holder quarterly contract adjustment payments at the
rate of 1.9% per year on the stated amount of $50, or $0.95 per year
and
(b) a 5% undivided beneficial interest in a Treasury security with a
principal amount of $1,000.
To create 20 Treasury Units, unless the Treasury portfolio has replaced the
senior notes as a component of the Corporate Units, the Corporate Unit holder
will:
- deposit with the collateral agent a Treasury security that has a
principal amount at maturity of $1,000 which must be purchased in the
open market at the Corporate Unit holder's expense, and
- transfer 20 Corporate Units to the purchase contract agent accompanied by
a notice stating that the holder has deposited a Treasury security with
the collateral agent and requesting the release to the holder of the
senior notes relating to the 20 Corporate Units.
Upon the deposit and receipt of an instruction from the purchase contract
agent, the collateral agent will release the related senior notes from the
pledge under the pledge agreement, free and clear of our security interest, to
the purchase contract agent. The purchase contract agent then will:
- cancel the 20 Corporate Units,
S-25
- transfer the related senior notes to the holder, and
- deliver 20 Treasury Units to the holder.
The Treasury security will be substituted for the senior notes and will be
pledged to us through the collateral agent to secure the holder's obligation to
purchase common stock under the related purchase contracts. The related senior
notes released to the holder thereafter will trade separately from the resulting
Treasury Units.
If the Treasury portfolio has replaced the senior notes as a component of
the Corporate Units, the Corporate Unit holder will follow the same procedure to
create a Treasury Unit, except the holder will have to deposit integral
multiples of 80,000 Corporate Units.
RECREATING CORPORATE UNITS
Unless the Treasury portfolio has replaced the senior notes as a component
of the Corporate Units, each holder of Treasury Units will have the right at any
time on or prior to the fifth business day immediately preceding the purchase
contract settlement date, to substitute for the related Treasury securities held
by the collateral agent, the senior notes having a principal amount equal to the
aggregate principal amount at stated maturity of the Treasury securities for
which substitution is being made.
Because Treasury securities are issued in integral multiples of $1,000,
holders of Treasury Units may make these substitutions only in integral
multiples of 20 Treasury Units.
If the Treasury portfolio has replaced the senior notes as a component of
the Corporate Units, holders of Treasury Units will have the right, at any time
on or prior to the second business day immediately preceding the purchase
contract settlement date, to substitute the applicable ownership interests in
the Treasury portfolio for the Treasury securities that were a component of the
Treasury Units, but holders of Treasury Units can only make this substitution in
integral multiples of 80,000 Treasury Units.
Each of these substitutions will recreate Corporate Units, and the
applicable Treasury securities will be released to the holder and be separately
tradable from the Corporate Units.
To create 20 Corporate Units, unless the Treasury portfolio has replaced
the senior notes as a component of the Corporate Units, the Treasury Unit holder
will:
- deposit with the collateral agent 20 senior notes, which must be
purchased in the open market at the holder's expense unless otherwise
owned by the holder, and
- transfer 20 Treasury Unit certificates to the purchase contract agent
accompanied by a notice stating that the Treasury Unit holder has
deposited 20 senior notes with the collateral agent and requesting the
release to the holder of the Treasury security relating to the Treasury
Units.
Upon the deposit and receipt of an instruction from the purchase contract
agent, the collateral agent will release the related Treasury securities from
the pledge under the pledge agreement, free and clear of our security interest,
to the purchase contract agent. The purchase contract agent will then
- cancel the 20 Treasury Units,
- transfer the related Treasury security to the holder, and
- deliver 20 Corporate Units to the holder.
The substituted senior notes or the applicable ownership interests in the
Treasury portfolio will be pledged to us through the collateral agent to secure
the Corporate Unit holder's obligation to purchase common stock under the
related purchase contracts.
If the Treasury portfolio has replaced the senior notes as a component of
the Corporate Units, the Treasury Unit holder will follow the same procedure to
create a Corporate Unit, except the holder will have to deposit integral
multiples of 80,000 Treasury Units.
S-26
Holders that elect to substitute pledged securities, thereby creating
Treasury Units or recreating Corporate Units, will be responsible for any fees
or expenses payable in connection with the substitution.
CURRENT PAYMENTS
Holders of Corporate Units will be entitled to receive quarterly cash
distributions consisting of interest payments calculated at the rate of 4.1% per
year on senior notes (or distributions on the applicable ownership interest in
the Treasury portfolio if the senior notes have been replaced by the Treasury
portfolio), and contract adjustment payments payable by us at the rate of 1.9%
per year on the stated amount of $50 per Corporate Unit until the earlier of the
purchase contract settlement date and the most recent quarterly payment date on
or before any early settlement of the related purchase contracts.
Holders of Treasury Units will be entitled to receive quarterly contract
adjustment payments payable by us at the rate of 1.9% per year on the stated
amount of $50 per Treasury Unit until the earlier of the purchase contract
settlement date and the most recent quarterly payment date on or before any
early settlement of the related purchase contracts. There will be no
distributions in respect of the Treasury securities that are a component of the
Treasury Units but the holders of the Treasury Units will continue to receive
the scheduled quarterly interest payments on the senior notes that were released
to them when the Treasury Units were created for as long as they hold the senior
notes.
RANKING
Our obligations with respect to the senior notes will be senior and
unsecured and will rank equally with all of our other unsecured and
unsubordinated obligations. The indenture under which the senior notes will be
issued will not limit our ability to issue or incur other debt or issue
preferred stock. See "Description of the Senior Notes" in the accompanying
prospectus.
Our obligations with respect to the contract adjustment payments will be
subordinate in right of payment to our senior indebtedness. "Senior
indebtedness" with respect to the contract adjustment payments means
indebtedness of any kind unless the instrument under which such indebtedness is
incurred expressly provides that it is on a parity in right of payment with or
subordinate in right of payment to the contract adjustment payments.
VOTING AND CERTAIN OTHER RIGHTS
Holders of purchase contracts forming part of the Corporate Units or
Treasury Units, in their capacities as such holders, will have no voting or
other rights in respect of the common stock.
LISTING OF THE SECURITIES
The Corporate Units have been approved for listing on the New York Stock
Exchange under the symbol "HIG PrA", subject to official notice of issuance.
Unless and until substitution has been made as described in "-- Creating
Treasury Units" or "-- Recreating Corporate Units," neither the senior notes nor
the applicable ownership interest in the Treasury portfolio component of a
Corporate Unit will trade separately from the Corporate Units. The senior notes
or the applicable ownership interest in the Treasury portfolio component will
trade as a unit with the purchase contract component of the Corporate Units. If
the Treasury Units or the senior notes are separately traded to a sufficient
extent that applicable exchange listing requirements are met, we will try to
list the Treasury Units or the senior notes on the same exchange as the
Corporate Units are then listed, including, if applicable, the New York Stock
Exchange.
MISCELLANEOUS
We or our affiliates may from time to time purchase any of the securities
offered by this prospectus supplement which are then outstanding by tender, in
the open market or by private agreement.
S-27
DESCRIPTION OF THE PURCHASE CONTRACTS
This section summarizes some of the terms of the purchase contract
agreement, purchase contracts, pledge agreement, remarketing agreement and
senior note indenture. The summary should be read together with the purchase
contract agreement, pledge agreement, remarketing agreement and senior note
indenture, forms of which have been or will be filed and incorporated by
reference as exhibits to the registration statement of which this prospectus
supplement and the accompanying prospectus form a part.
PURCHASE OF COMMON STOCK
Each purchase contract underlying a Corporate Unit or Treasury Unit will
obligate the holder of the purchase contract to purchase, and us to sell, on the
purchase contract settlement date, for an amount in cash equal to the stated
amount of the Corporate Unit or Treasury Unit, a number of newly issued shares
of our common stock equal to the "settlement rate." The settlement rate will be
calculated, subject to adjustment under the circumstances described in
"-- Anti-Dilution Adjustments," as follows:
- If the applicable market value of our common stock is equal to or greater
than the threshold appreciation price of $57.6450, the settlement rate
will be 0.8674 shares of our common stock, which is equal to the stated
amount divided by the threshold appreciation price.
Accordingly, if the market value for the common stock increases between
the date of this prospectus supplement and the period during which the
applicable market value is measured and the applicable market value is
greater than the threshold appreciation price, the aggregate market value
of the shares of common stock issued upon settlement of each purchase
contract will be higher than the stated amount, assuming that the market
price of the common stock on the purchase contract settlement date is the
same as the applicable market value of the common stock. If the
applicable market value is the same as the threshold appreciation price,
the aggregate market value of the shares issued upon settlement will be
equal to the stated amount, assuming that the market price of the common
stock on the purchase contract settlement date is the same as the
applicable market value of the common stock.
- If the applicable market value of our common stock is less than the
threshold appreciation price but greater than the reference price of
$47.2500, the settlement rate will be a number of shares of our common
stock equal to $50 divided by the applicable market value.
Accordingly, if the market value for the common stock increases between
the date of this prospectus supplement and the period during which the
applicable market value is measured, but the applicable market value is
less than the threshold appreciation price, the aggregate market value of
the shares of common stock issued upon settlement of each purchase
contract will be equal to the stated amount, assuming that the market
price of the common stock on the purchase contract settlement date is the
same as the applicable market value of the common stock.
- If the applicable market value of our common stock is less than or equal
to the reference price, the settlement rate will be 1.0582 shares of our
common stock, which is equal to the stated amount divided by the
reference price.
Accordingly, if the market value for the common stock decreases between
the date of this prospectus supplement and the period during which the
applicable market value is measured and the applicable market value is
less than the reference price, the aggregate market value of the shares
of common stock issued upon settlement of each purchase contract will be
less than the stated amount, assuming that the market price on the
purchase contract settlement date is the same as the applicable market
value of the common stock. If the applicable market value is the same as
the reference price, the aggregate market value of the shares will be
equal to the stated amount, assuming that the market price of the common
stock on the purchase contract settlement date is the same as the
applicable market value of the common stock.
S-28
"Applicable market value" means the average of the closing price per share
of our common stock on each of the twenty consecutive trading days ending on the
third trading day immediately preceding the purchase contract settlement date.
The reference price represents approximately a 0.5% discount to the last
reported sale price of our common stock on the New York Stock Exchange on
September 9, 2002. The threshold appreciation price represents a 22%
appreciation over the reference price.
"Closing price" of the common stock on any date of determination means the
closing sale price (or, if no closing price is reported, the last reported sale
price) of the common stock on the New York Stock Exchange on that date or, if
the common stock is not listed for trading on the New York Stock Exchange on any
such date, as reported in the composite transactions for the principal United
States securities exchange on which the common stock is so listed. If the common
stock is not so listed on a United States national or regional securities
exchange, the closing price means the last closing sale price of the common
stock as reported by the Nasdaq National Market, or, if the common stock is not
so reported, the last quoted bid price for the common stock in the
over-the-counter market as reported by the National Quotation Bureau or similar
organization. If the bid price is not available, the closing price means the
market value of the common stock on the date of determination as determined by a
nationally recognized independent investment banking firm retained by us for
this purpose.
A "trading day" means a day on which the common stock
- is not suspended from trading on any national or regional securities
exchange or association or over-the-counter market at the close of
business, and
- has traded at least once on the national or regional securities exchange
or association or over-the-counter market that is the primary market for
the trading of the common stock.
We will not issue any fractional shares of common stock pursuant to the
purchase contracts. In lieu of fractional shares otherwise issuable (calculated
on an aggregate basis) in respect of purchase contracts being settled by a
holder of Corporate Units or Treasury Units, the holder will be entitled to
receive an amount of cash equal to the fraction of a share times the applicable
market value.
On the business day immediately preceding November 16, 2006, unless:
- a holder of Corporate Units or Treasury Units has settled the related
purchase contracts prior to November 16, 2006 through the early delivery
of cash to the purchase contract agent in the manner described under
"-- Early Settlement," or "-- Early Settlement Upon Cash Merger"
- a holder of Corporate Units that include senior notes has settled the
related purchase contracts with separate cash on the fourth business day
immediately preceding November 16, 2006 pursuant to prior notice given in
the manner described under "-- Notice to Settle with Cash," or
- an event described under "-- Termination" has occurred,
then,
- in the case of Corporate Units where the Treasury portfolio has replaced
the senior notes as a component of the Corporate Units, proceeds equal to
the stated amount of $50 per Corporate Unit when paid at maturity, of the
appropriate applicable ownership interest of the Treasury portfolio will
automatically be applied to satisfy in full the holder's obligation to
purchase common stock under the related purchase contracts,
- in the case of Corporate Units where the Treasury portfolio has not
replaced the senior notes as a component of the Corporate Units and there
has been a successful final remarketing of the senior notes, the portion
of the proceeds from the remarketing equal to the principal amount of the
senior notes remarketed will automatically be applied to satisfy in full
the holder's obligation to purchase shares of our common stock under the
related purchase contracts,
- in the case of Corporate Units where the Treasury portfolio has not
replaced the senior notes as a component of the Corporate Units and there
has not been a successful remarketing of the
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senior notes, we will exercise our rights as a secured party to retain
the senior notes pledged as collateral or dispose of them in accordance
with applicable law and, following such action, the Corporate Units
holders' obligations to purchase shares of our common stock under the
related purchase contracts on the purchase contract settlement date will
be satisfied in full, and
- in the case of Treasury Units, the principal amount of the related
Treasury securities, when paid at maturity, will automatically be applied
to satisfy in full the holder's obligation to purchase common stock under
the related purchase contracts.
The common stock will then be issued and delivered to the holder or the
holder's designee, upon presentation and surrender of the certificate evidencing
the Corporate Units or Treasury Units and payment by the holder of any transfer
or similar taxes payable in connection with the issuance of the common stock to
any person other than the holder.
Each holder of Corporate Units or Treasury Units, by acceptance of these
securities, will be deemed to have:
- irrevocably agreed to be bound by the terms and provisions of the related
purchase contracts and the pledge agreement and to have agreed to perform
its obligations thereunder for so long as the holder remains a holder of
the Corporate Units or Treasury Units, and
- duly appointed the purchase contract agent as the holder's
attorney-in-fact to enter into and perform the related purchase contracts
and pledge agreement on behalf of and in the name of the holder.
In addition, each beneficial owner of Corporate Units or Treasury Units, by
acceptance of the beneficial interest therein, will be deemed to have agreed to
treat
- itself as the owner of the related senior notes, applicable ownership
interests in the Treasury portfolio or the Treasury securities, as the
case may be, and
- the senior notes as indebtedness for all United States federal income tax
purposes.
REMARKETING
Pursuant to the remarketing agreement that we will enter into with the
purchase contract agent and the remarketing agent, and subject to the terms of
the remarketing agreement among the remarketing agent, the purchase contract
agent and us, unless a special event redemption has occurred, the senior notes
held by Corporate Unit holders as part of a Corporate Unit will be remarketed on
the third business day immediately preceding August 16, 2006 (the date three
months prior to the purchase contract settlement date), which we refer to as the
initial remarketing date. We currently expect the remarketing agent to be Morgan
Stanley & Co. Incorporated.
The remarketing agent will use its reasonable efforts to obtain a price for
the remarketed senior notes of approximately 100.50% of the purchase price for
the Treasury portfolio described below. To obtain that price, the remarketing
agent may reset the interest rate on the senior notes, as described under
"Description of Notes".
If the remarketing of the senior notes on the initial remarketing date
fails or does not occur because a condition precedent, such as the registration
requirement referred to below, has not been satisfied, the senior notes will
continue to be a component of Corporate Units and the remarketing agent will use
its reasonable efforts to remarket the senior notes on the third business day
immediately preceding September 16, 2006, which we call the second remarketing
date, and on the third business day immediately preceding October 16, 2006,
which we call the third remarketing date, in each case at a price of
approximately 100.50% of the purchase price of the Treasury portfolio.
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Following a successful remarketing of the senior notes on any of these
remarketing dates, the portion of the proceeds from the remarketing equal to the
Treasury portfolio purchase price will be applied to purchase the Treasury
portfolio consisting of:
- U.S. Treasury securities (or principal or interest strips thereof) that
mature on or prior to November 15, 2006 in an aggregate amount equal to
the principal amount of the senior notes included in Corporate Units, and
- U.S. Treasury securities (or principal or interest strips thereof) that
mature on or prior to November 15, 2006 in an aggregate amount equal to
the aggregate interest payment (assuming no reset of the interest rate)
that would have been paid to the holders of Corporate Units on the
purchase contract settlement date on the aggregate principal amount of
the senior notes included in the Corporate Units.
The Treasury portfolio will be substituted for the senior notes as a
component of the Corporate Units and will be pledged to us through the
collateral agent to secure the Corporate Unit holders' obligation under the
purchase contracts. On the purchase contract settlement date, a portion of the
proceeds from the Treasury portfolio equal to the principal amount of the senior
notes included in the Corporate Units at the time of remarketing will
automatically be applied to satisfy the Corporate Unit holders' obligation to
purchase common stock under the purchase contracts and proceeds from the
Treasury portfolio equal to the interest payment (assuming no reset of the
interest rate) that would have been paid to the holders of Corporate Units on
the senior notes included in the Corporate Units at the time of remarketing on
the purchase contract settlement date will be paid to the holders of the
Corporate Units.
The remarketing agent will deduct, as a remarketing fee, an amount not
exceeding 25 basis points (.25%) of the Treasury portfolio purchase price from
any proceeds from the remarketing of the senior notes in excess of the Treasury
portfolio purchase price. The remarketing agent will then remit any remaining
portion of the proceeds for the benefit of the holders of the senior notes
included in the remarketing.
As used in this context, "Treasury portfolio purchase price" means the
lowest aggregate ask-side price quoted by a primary U.S. government securities
dealer to the quotation agent between 9:00 a.m. and 11:00 a.m., New York City
time, on the date of a successful remarketing for the purchase of the Treasury
portfolio described above for settlement the third business day immediately
following such date. "Quotation agent" means any primary U.S. government
securities dealer in New York City selected by us.
If a successful remarketing of the senior notes has not occurred on or
prior to the third remarketing date, the remarketing agent will use its
reasonable efforts to remarket the senior notes on the third business day
immediately preceding the purchase contract settlement date, which we refer to
as the final remarketing date, at a price of approximately 100.50% of the
principal amount of the senior notes remarketed.
If the remarketing of the senior notes on the final remarketing date is
successful, a portion of the proceeds from this remarketing equal to the
aggregate principal amount of the senior notes included in the Corporate Units
at the time of remarketing will automatically be applied to satisfy in full the
Corporate Unit holders' obligations to purchase common stock under the related
purchase contracts on the purchase contract settlement date. The remarketing
agent will deduct, as a remarketing fee, an amount not exceeding 25 basis points
(.25%) of the aggregate principal amount of the remarketed senior notes from any
proceeds from the remarketing in excess of the aggregate principal amount of the
senior notes remarketed. The remarketing agent will then remit any remaining
portion of the proceeds for the benefit of the holders of the senior notes
included in the remarketing.
Remarketing on any remarketing date will be considered successful and no
further attempts will be made if the resulting proceeds (net of any fees and
commissions, if any) are at least 100% of the Treasury portfolio purchase price
in the case of a remarketing prior to the final remarketing date or the
aggregate principal amount of the senior notes in the case of the final
remarketing date.
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Following a successful remarketing prior to the third business day
immediately preceding the purchase contract settlement date, holders of Treasury
Units can recreate a Corporate Unit at any time prior to the second business day
immediately preceding the purchase contract settlement date as described under
"Recreating Corporate Units."
We will cause a notice of any failed remarketing to be published on the
business day immediately following the applicable remarketing date, by
publication in a daily newspaper in the English language of general circulation
in The City of New York, which is expected to be The Wall Street Journal. In
addition, we will request, not later than seven nor more than 15 calendar days
prior to the applicable remarketing date, that the depositary notify its
participants holding senior notes, Corporate Units and Treasury Units of the
remarketing, including, in the case of a failed remarketing on the final
remarketing date, the procedures that must be followed if a senior note holder
wishes to exercise its right to put its senior note to us as described in this
prospectus supplement. If required, we will use commercially reasonable efforts
to ensure that a registration statement with regard to the full amount of the
senior notes to be remarketed will be effective in a form that will enable the
remarketing agent to rely on it in connection with the remarketing process.
If a successful remarketing of the senior notes underlying your Corporate
Units has not occurred on or prior to the final remarketing date, we will
deliver our common stock to you pursuant to the purchase contracts and, unless
you have delivered the purchase price in cash to us before the final remarketing
date, we will exercise our rights as a secured party with respect to the senior
notes that have been pledged to us through the collateral agent to secure your
obligation under the related purchase contracts, and your obligation under these
purchase contracts will be deemed to be satisfied in full. In addition, holders
of senior notes that remain outstanding will have the right to put their senior
notes to us for $50 per senior note, plus accrued and unpaid interest, on
December 31, 2006, which we call the exercise date, by notifying the indenture
trustee on or prior to the fifth business day before the exercise date.
You may elect not to participate in any remarketing and to retain the
senior notes underlying your Corporate Units by (1) creating Treasury Units at
any time on or prior to the second business day prior to any of the remarketing
dates or (2) if the first three remarketing attempts have failed, notifying the
purchase contract agent of your intention to pay cash to satisfy your obligation
under the related purchase contracts on or prior to the fifth business day
before the purchase contract settlement date and delivering the cash payment
required under the purchase contracts to the collateral agent on or prior to the
fourth business day before the purchase contract settlement date.
EARLY SETTLEMENT
Subject to the conditions described below, a holder of Corporate Units or
Treasury Units may settle the related purchase contracts in cash at any time on
or prior to the fifth business day immediately preceding the purchase contract
settlement date by presenting and surrendering the related Corporate Unit or
Treasury Units certificate, if they are in certificated form, at the offices of
the purchase contract agent with the form of "Election to Settle Early" on the
reverse side of such certificate completed and executed as indicated,
accompanied by payment to us in immediately available funds of an amount equal
to
- the stated amount times the number of purchase contracts being settled,
plus
- if the delivery is made with respect to any purchase contract during the
period from the close of business on any record date next preceding any
payment date to the opening of business on such payment date, an amount
equal to the contract adjustment payments payable on the payment date
with respect to the purchase contract.
If the Treasury portfolio has replaced the senior notes as a component of
Corporate Units, holders of the Corporate Units may settle early only in
integral multiples of 80,000 Corporate Units. Holders of Treasury Units may
settle early only in integral multiples of 20 Treasury Units.
So long as the Equity Units are evidenced by one or more global security
certificates deposited with the depositary, procedures for early settlement will
also be governed by standing arrangements between the
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depositary and the purchase contract agent. The early settlement right is also
subject to the condition that, if required under the U.S. federal securities
laws, we have a registration statement under the Securities Act of 1933 in
effect covering the shares of common stock and other securities, if any,
deliverable upon settlement of a purchase contract. We have agreed that, if
required under the U.S. federal securities laws, we will use commercially
reasonable efforts to have a registration statement in effect covering those
shares of common stock and other securities to be delivered in respect of the
purchase contracts being settled and (2) provide a prospectus in connection
therewith, in each case in a form that may be used in connection with the early
settlement right.
Upon early settlement of the purchase contracts related to any Corporate
Units or Treasury Units:
- except as described below in "-- Early Settlement Upon Cash Merger" the
holder will receive 0.8674 newly issued shares of common stock per
Corporate Unit or Treasury Unit, subject to adjustment under the
circumstances described under "-- Anti-Dilution Adjustments," accompanied
by an appropriate prospectus if required by law,
- the senior notes, the applicable ownership interest in the Treasury
portfolio or the Treasury securities, as the case may be, related to the
Corporate Units or Treasury Units will be transferred to the holder free
and clear of our security interest,
- the holder's right to receive future contract adjustment payments will
terminate, and
- no adjustment will be made to or for the holder on account of any amounts
accrued in respect of contract adjustment payments.
If the purchase contract agent receives a Corporate Unit certificate, or
Treasury Unit certificate if they are in certificated form accompanied by the
completed "Election to Settle Early" and required immediately available funds,
from a holder of Corporate Units or Treasury Units by 5:00 p.m., New York City
time, on a business day and all conditions to early settlement have been
satisfied, that day will be considered the settlement date. If the purchase
contract agent receives the above after 5:00 p.m., New York City time, on a
business day or at any time on a day that is not a business day, the next
business day will be considered the settlement date.
Upon early settlement of purchase contracts in the manner described above,
presentation and surrender of the certificate evidencing the related Corporate
Units or Treasury Units if they are in certificated form and payment of any
transfer or similar taxes payable by the holder in connection with the issuance
of the related common stock to any person other than the holder of the Corporate
Units or Treasury Units, we will cause the shares of common stock being
purchased to be issued, and the related senior notes, the applicable ownership
interest in the Treasury portfolio or the Treasury securities, as the case may
be, securing the purchase contracts to be released from the pledge under the
pledge agreement described in "-- Pledged Securities and Pledge Agreement" and
transferred, within three business days following the settlement date, to the
purchasing holder or the holder's designee.
NOTICE TO SETTLE WITH CASH
Unless the Treasury portfolio has replaced the senior notes as a component
of Corporate Units, a holder of Corporate Units may settle the related purchase
contract with separate cash. A holder of a Corporate Unit wishing to settle the
related purchase contract with separate cash must notify the purchase contract
agent by presenting and surrendering the Corporate Unit certificate evidencing
the Corporate Unit at the offices of the purchase contract agent with the form
of "Notice to Settle by Separate Cash" on the reverse side of the certificate
completed and executed as indicated on or prior to 5:00 p.m., New York City
time, on the fifth business day immediately preceding the purchase contract
settlement date and delivering the required cash payment to the collateral agent
on or prior to 5:00 p.m., New York City time, on the fourth business day
immediately preceding the purchase contract settlement date.
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If a holder that has given notice of its intention to settle the related
purchase contract with separate cash fails to deliver the cash to the collateral
agent on the fourth business day immediately preceding the purchase contract
settlement date, such holder's senior notes will be included in the final
remarketing of senior notes occurring on the third business day immediately
preceding the purchase contract settlement date. If such final remarketing is
unsuccessful, we will exercise our rights as a secured party with respect to the
senior notes that have been pledged to us through the collateral agent to secure
the holder's obligation under the purchase contracts, and the holder's
obligation under the purchase contract will be deemed to be satisfied in full.
EARLY SETTLEMENT UPON CASH MERGER
Prior to the purchase contract settlement date, if we are involved in a
merger in which at least 30% of the consideration for our common stock consists
of cash or cash equivalents, which we refer to as a cash merger, then following
the cash merger, each holder of a purchase contract will have the right to
accelerate and settle such contract early at the settlement rate in effect
immediately prior to the closing of the cash merger, provided that at such time,
if so required under the U.S. federal securities laws, there is in effect a
registration statement covering the common stock and other securities, if any,
to be delivered in respect of the purchase contracts being settled. We refer to
this right as the "merger early settlement right."
We will provide each of the holders with a notice of the completion of a
cash merger within five business days thereof. The notice will specify a date,
which shall be 10 days after the date of the notice but no later than five
business days prior to the purchase contract settlement date by which each
holder's merger early settlement right must be exercised. The notice will set
forth, among other things, the applicable settlement rate and the amount of the
cash, securities and other consideration receivable by the holder upon
settlement. To exercise the merger early settlement right, you must deliver to
the purchase contract agent, three business days before the early settlement
date, the certificate evidencing your Corporate Units or Treasury Units if they
are held in certificated form, and payment of the applicable purchase price in
immediately available funds.
If you exercise the merger early settlement right, we will deliver to you
on the early settlement date the kind and amount of securities, cash or other
property that you would have been entitled to receive if you had settled the
purchase contract immediately before the cash merger at the settlement rate in
effect at such time. You will also receive the senior notes, applicable
ownership interests in the Treasury portfolio or Treasury securities underlying
the Corporate Units or Treasury Units, as the case may be. If you do not elect
to exercise your merger early settlement right, your Corporate Units or Treasury
Units will remain outstanding and subject to normal settlement on the settlement
date. We have agreed that, if required under the U.S. federal securities laws,
we will use commercially reasonable efforts to (1) have in effect a registration
statement covering the common stock and other securities, if any, to be
delivered in respect of the purchase contracts being settled and (2) provide a
prospectus in connection therewith, in each case in a form that may be used in
connection with the early settlement upon a cash merger.
If the Treasury portfolio has replaced the senior notes as a component of
Corporate Units, holders of the Corporate Units may exercise the merger early
settlement right only in integral multiples of 80,000 Corporate Units. A holder
of Treasury Units may exercise the merger early settlement right only in
integral multiples of 20 Treasury Units.
CONTRACT ADJUSTMENT PAYMENTS
Contract adjustment payments in respect of Corporate Units and Treasury
Units will be fixed at a rate per year of 1.9% of the stated amount of $50 per
purchase contract. Contract adjustment payments payable for any period will be
computed on the basis of a 360-day year of twelve 30-day months. Contract
adjustment payments will accrue from September 13, 2002 and will be payable
quarterly in arrears on February 16, May 16, August 16 and November 16 of each
year, commencing November 16, 2002. We do not have the right to defer the
payment of these contract adjustment payments.
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Contract adjustment payments will be payable to the holders of purchase
contracts as they appear on the books and records of the purchase contract agent
at the close of business on the relevant record dates, which will be on the
first day of the month in which the relevant payment date falls. These
distributions will be paid through the purchase contract agent, who will hold
amounts received in respect of the contract adjustment payments for the benefit
of the holders of the purchase contracts relating to the Corporate Units.
Subject to any applicable laws and regulations, each such payment will be made
as described under "-- Book-Entry System."
If any date on which contract adjustment payments are to be made on the
purchase contracts related to the Corporate Units or Treasury Units is not a
business day, then payment of the contract adjustment payments payable on that
date will be made on the next succeeding day which is a business day, and no
interest or payment will be paid in respect of the delay. However, if that
business day is in the next succeeding calendar year, that payment will be made
on the immediately preceding business day, in each case with the same force and
effect as if made on that payment date. A business day means any day other than
a Saturday, Sunday or any other day on which banking institutions and trust
companies in the City of New York are permitted or required by any applicable
law to close.
Our obligations with respect to contract adjustment payments will be
subordinated and junior in right of payment to our obligations under any of our
senior indebtedness.
ANTI-DILUTION ADJUSTMENTS
The formula for determining the settlement rate will be subject to
adjustment, without duplication, upon the occurrence of certain events,
including:
(a) the payment of dividends and distributions of shares of common
stock on the outstanding shares of common stock;
(b) the issuance to all holders of outstanding shares of common stock
of rights, warrants or options (other than pursuant to any dividend
reinvestment or share purchase plans) entitling them, for a period of up to
45 days, to subscribe for or purchase shares of common stock at less than
the current market price thereof;
(c) subdivisions, splits and combinations of shares of common stock;
(d) distributions to all holders of outstanding shares of common stock
of evidences of our indebtedness, shares of capital stock, securities, cash
or property (excluding any dividend or distribution covered by clause (a)
or (b) above and any dividend or distribution paid exclusively in cash);
(e) distributions (other than regular quarterly cash distributions)
consisting exclusively of cash to all holders of outstanding shares of
common stock in an aggregate amount that, together with (1) other all-cash
distributions (other than regular quarterly cash distributions) made within
the preceding 12 months and (2) any cash and the fair market value, as of
the expiration of the tender or exchange offer referred to below, of
consideration payable in respect of any tender or exchange offer (other
than consideration payable in respect of any odd-lot tender offer) by us or
any of our subsidiaries for shares of common stock concluded within the
preceding 12 months, exceeds 15% of our aggregate market capitalization
(aggregate market capitalization being the product of the current market
price of shares of common stock multiplied by the number of shares of
common stock then outstanding) on the date of the distribution; and
(f) the successful completion of a tender or exchange offer made by us
or any of our subsidiaries for shares of common stock which involves an
aggregate consideration that, together with (1) any cash and the fair
market value of other consideration payable in respect of any tender or
exchange offer (other than consideration payable in respect of any odd-lot
tender offer) by us or any of our subsidiaries for the common stock
concluded within the preceding 12 months and (2) the aggregate amount of
any all-cash distributions (other than regular quarterly cash
distributions) to all holders of
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shares of common stock within the preceding 12 months, exceeds 15% of our
aggregate market capitalization on the expiration of the tender or exchange
offer.
The "current market price" per share of common stock on any day means the
average of the daily closing prices for the five consecutive trading days
selected by us commencing not more than 30 trading days before, and ending not
later than, the earlier of the day in question and the day before the "ex date"
with respect to the issuance or distribution requiring the computation. For
purposes of this paragraph, the term "ex date," when used with respect to any
issuance or distribution, will mean the first date on which the common stock
trades regular way on the applicable exchange or in the applicable market
without the right to receive the issuance or distribution.
In the case of certain reclassifications, consolidations, mergers, sales or
transfers of assets or other transactions that cause our common stock to be
converted into the right to receive other securities, cash or property, each
purchase contract then outstanding would, without the consent of the holders of
the related Corporate Units or Treasury Units, as the case may be, become a
contract to purchase such other securities, cash and property instead of our
common stock. Upon the occurrence of any such transaction, on the stock purchase
date the settlement rate then in effect will be applied to the value, on the
stock purchase date, of the securities, cash or property a holder would have
received had it held shares covered by the purchase contract when such
transaction occurred.
If at any time we make a distribution of property to our stockholders which
would be taxable to the stockholders as a dividend for United States federal
income tax purposes (i.e., distributions out of our current or accumulated
earnings and profits or distributions of evidences of indebtedness or assets,
but generally not stock dividends or rights to subscribe for capital stock) and,
pursuant to the settlement rate adjustment provisions of the purchase contract
agreement, the settlement rate is increased, this increase may give rise to a
taxable dividend to holders of Corporate Units.
In addition, we may make increases in the settlement rate as our board of
directors deems advisable to avoid or diminish any income tax to holders of our
capital stock resulting from any dividend or distribution of capital stock (or
rights to acquire capital stock) or from any event treated as such for income
tax purposes or for any other reasons.
Adjustments to the settlement rate will be calculated to the nearest
1/10,000th of a share. No adjustment in the settlement rate will be required
unless the adjustment would require an increase or decrease of at least one
percent in the settlement rate. However, any adjustments which are not required
to be made because they would have required an increase or decrease of less than
one percent will be carried forward and taken into account in any subsequent
adjustment.
We will be required, within ten business days following the adjustment to
the settlement rate, to provide written notice to the purchase contract agent of
the occurrence of the adjustment and a statement in reasonable detail setting
forth the method by which the adjustment to the settlement rate was determined
and setting forth the revised settlement rate.
Each adjustment to the settlement rate will result in a corresponding
adjustment to the number of shares of common stock issuable upon early
settlement of a purchase contract. Each adjustment to the settlement rate will
also result in an adjustment to the applicable market value solely to determine
which of the three clauses in the definition of settlement rate will be
applicable on November 16, 2006.
TERMINATION
The purchase contracts, and our rights and obligations and the rights and
obligations of the holders of the Corporate Units and Treasury Units under the
purchase contracts, including the right and obligation to purchase shares of
common stock and the right to receive accrued contract adjustment payments, will
immediately and automatically terminate, without any further action, upon the
termination of the purchase contracts as a result of our bankruptcy, insolvency
or reorganization.
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Upon any termination, the collateral agent will release the related senior
notes, the applicable ownership interest of the Treasury portfolio or the
Treasury securities, as the case may be, held by it to the purchase contract
agent for distribution to the holders, subject, in the case of the applicable
ownership interest in the Treasury portfolio or the Treasury securities, to the
purchase contract agent's disposition of the subject securities for cash, and
the payment of this cash to the holders, to the extent that the holders would
otherwise have been entitled to receive less than $1,000 principal amount or
interest, as the case may be, at maturity of any such security. Upon any
termination, however, the release and distribution may be subject to the
automatic stay under Section 362 of the Bankruptcy Code and claims arising out
of the senior notes, like all other claims in bankruptcy proceedings, will be
subject to the equitable jurisdiction and powers of the bankruptcy court. In the
event that we become the subject of a case under the U.S. Bankruptcy Code, the
delay may occur as a result of the automatic stay under the Bankruptcy Code and
continue until the automatic stay has been lifted. We expect any such delay to
be limited.
If the holder's purchase contract is terminated as a result of our
bankruptcy, insolvency or reorganization, such holder will have no right to
receive any accrued contract adjustment payments.
PLEDGED SECURITIES AND PLEDGE AGREEMENT
Pledged securities will be pledged to us through the collateral agent, for
our benefit, pursuant to the pledge agreement to secure the obligations of
holders of Corporate Units and Treasury Units to purchase shares of common stock
under the related purchase contracts. The rights of holders of Corporate Units
and Treasury Units to the related pledged securities will be subject to our
security interest created by the pledge agreement. The pledge agreement provides
that if we are entitled to exercise our rights as a secured party because the
senior notes were not successfully remarketed by November 16, 2006, we may
retain the pledged securities or dispose of them in accordance with applicable
law in full satisfaction of the secured obligations.
No holder of Corporate Units or Treasury Units will be permitted to
withdraw the pledged securities related to the Corporate Units or Treasury Units
from the pledge arrangement except:
- to substitute Treasury securities for the related senior notes or the
applicable ownership interest in the Treasury portfolio, as the case may
be, as provided for under "Description of the Equity Units -- Creating
Treasury Units,"
- to substitute senior notes or the applicable ownership interest of the
Treasury portfolio, as the case may be, for the related Treasury
securities, as provided for under "Description of the Equity
Units -- Recreating Corporate Units," or
- upon the termination or early settlement of the related purchase
contracts.
Subject to the security interest and the terms of the purchase contract
agreement and the pledge agreement, each holder of Corporate Units, unless the
Treasury portfolio has replaced the senior notes as a component of Corporate
Units, will be entitled through the purchase contract agent and the collateral
agent to all of the proportional rights of the related senior notes, including
voting and redemption rights. Each holder of Treasury Units and each holder of
Corporate Units, if the Treasury portfolio has replaced the senior notes as a
component of Corporate Units, will retain beneficial ownership of the related
Treasury securities or the applicable ownership interest of the Treasury
portfolio, as applicable, pledged in respect of the related purchase contracts.
We will have no interest in the pledged securities other than our security
interest.
Except as described in "Certain Provisions of the Purchase Contracts,
Purchase Contract Agreement and the Pledge Agreement -- General," the collateral
agent will, upon receipt, if any, of payments on the pledged securities,
distribute the payments to the purchase contract agent, which will in turn
distribute those payments, together with contract adjustment payments received
from us, to the persons in whose names the related Corporate Units or Treasury
Units are registered at the close of business on the record date immediately
preceding the date of payment.
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BOOK-ENTRY SYSTEM
The Depository Trust Company, which we refer to along with its successors
in this capacity as the depositary, will act as securities depositary for the
Corporate Units and Treasury Units. The Corporate Units and Treasury Units will
be issued only as fully registered securities registered in the name of Cede &
Co., the depositary's nominee. One or more fully registered global security
certificates, representing the total aggregate number of Corporate Units and
Treasury Units, will be issued and will be deposited with the depositary and
will bear a legend regarding the restrictions on exchanges and registration of
transfer referred to below.
The laws of some jurisdictions may require that some purchasers of
securities take physical delivery of securities in definitive form. These laws
may impair the ability to transfer beneficial interests in the Corporate Units
or the Treasury Units so long as the Corporate Units or the Treasury Units are
represented by global security certificates.
The depositary is a limited-purpose trust company organized under the New
York Banking Law, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code and a "clearing
agency" registered pursuant to the provisions of Section 17A of the Securities
Exchange Act of 1934. The depositary holds securities that its participants
deposit with the depositary. The depositary also facilitates the settlement
among participants of securities transactions, including transfers and pledges,
in deposited securities through electronic computerized book-entry changes in
participants' accounts, thereby eliminating the need for physical movement of
securities certificates. Direct participants include securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations. The depositary is owned by a number of its direct participants
and by the New York Stock Exchange, the American Stock Exchange, Inc., and the
National Association of Securities Dealers, Inc. Access to the depositary's
system is also available to others, including securities brokers and dealers,
banks and trust companies that clear transactions through or maintain a direct
or indirect custodial relationship with a direct participant either directly, or
indirectly. The rules applicable to the depositary and its participants are on
file with the SEC.
In the event that
- the depositary notifies us that it is unwilling or unable to continue as
a depositary for the global security certificates and no successor
depositary has been appointed within 90 days after this notice,
- the depositary at any time ceases to be a clearing agency registered
under the Securities Exchange Act when the depositary is required to be
so registered to act as the depositary and no successor depositary has
been appointed within 90 days after we learn that the depositary has
ceased to be so registered, or
- we, in our sole discretion, determine that the global security
certificates shall be so exchangeable,
certificates for the Corporate Units or Treasury Units will be printed and
delivered in exchange for beneficial interests in the global security
certificates. Any global Corporate Unit or Treasury Unit that is exchangeable
pursuant to the preceding sentence will be exchangeable for Corporate Unit or
Treasury Unit certificates registered in the names directed by the depositary.
We expect that these instructions will be based upon directions received by the
depositary from its participants with respect to ownership of beneficial
interests in the global security certificates.
As long as the depositary or its nominee is the registered owner of the
global security certificates, the depositary or its nominee, as the case may be,
will be considered the sole owner and holder of the global security certificates
and all Corporate Units or Treasury Units represented by these certificates for
all purposes under the Corporate Units or Treasury Units and the purchase
contract agreement. Except in the limited circumstances referred to above,
owners of beneficial interests in global security certificates
- will not be entitled to have such global security certificates or the
Corporate Units or Treasury Units represented by these certificates
registered in their names,
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- will not receive or be entitled to receive physical delivery of Corporate
Unit or Treasury Unit certificates in exchange for beneficial interests
in global security certificates, and
- will not be considered to be owners or holders of the global security
certificates or any Corporate Units or Treasury Units represented by
these certificates for any purpose under the Corporate Units or Treasury
Units or the purchase contract agreement.
All payments on the Corporate Units or Treasury Units represented by the
global security certificates and all transfers and deliveries of related senior
notes, Treasury portfolio, Treasury securities and shares of common stock will
be made to the depositary or its nominee, as the case may be, as the holder of
the securities.
Ownership of beneficial interests in the global security certificates will
be limited to participants or persons that may hold beneficial interests through
institutions that have accounts with the depositary or its nominee. Ownership of
beneficial interests in global security certificates will be shown only on, and
the transfer of those ownership interests will be effected only through, records
maintained by the depositary or its nominee, with respect to participants'
interests, or any participant, with respect to interests of persons held by the
participant on their behalf. Procedures for settlement of purchase contracts on
November 16, 2006 or upon early settlement will be governed by arrangements
among the depositary, participants and persons that may hold beneficial
interests through participants designed to permit settlement without the
physical movement of certificates. Payments, transfers, deliveries, exchanges
and other matters relating to beneficial interests in global security
certificates may be subject to various policies and procedures adopted by the
depositary from time to time. None of us, the purchase contract agent or any
agent of ours, or the purchase contract agent will have any responsibility or
liability for any aspect of the depositary's or any participant's records
relating to, or for payments made on account of, beneficial interests in global
security certificates, or for maintaining, supervising or reviewing any of the
depositary's records or any participant's records relating to these beneficial
ownership interests.
Although the depositary has agreed to the foregoing procedures in order to
facilitate transfer of interests in the global security certificates among
participants, the depositary is under no obligation to perform or continue to
perform these procedures, and these procedures may be discontinued at any time.
We will not have any responsibility for the performance by the depositary or its
direct participants or indirect participants under the rules and procedures
governing the depositary.
The information in this section concerning the depositary and its
book-entry system has been obtained from sources that we believe to be reliable,
but we have not attempted to verify the accuracy of this information.
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CERTAIN PROVISIONS OF THE PURCHASE CONTRACTS, THE PURCHASE CONTRACT
AGREEMENT AND THE PLEDGE AGREEMENT
This summary summarizes some of the other provisions of the purchase
contract agreement and the pledge agreement. This summary should be read
together with the purchase contract agreement and pledge agreement, forms of
which have been or will be filed and incorporated by reference as exhibits to
the registration statement of which this prospectus supplement and the
accompanying prospectus form a part.
GENERAL
Except as described in "Description of the Purchase Contracts -- Book-Entry
System", payments on the Equity Units will be made, purchase contracts (and
documents relating to the Corporate Units, Treasury Units and purchase
contracts) will be settled, and transfers of the Corporate Units and Treasury
Units will be registrable, at the office of the purchase contract agent in the
Borough of Manhattan, The City of New York. In addition, if the Corporate Units
and Treasury Units do not remain in book-entry form, payment on the Equity Units
may be made, at our option, by check mailed to the address of the holder
entitled to payment as shown on the security register or by a wire transfer to
the account designated by the holder by a prior written notice.
Shares of common stock will be delivered on November 16, 2006 (or earlier
upon early settlement), or, if the purchase contracts have terminated, the
related pledged securities will be delivered (potentially after a delay as a
result of the imposition of the automatic stay under the Bankruptcy Code, see
"Description of the Purchase Contracts -- Termination") at the office of the
purchase contract agent upon presentation and surrender of the applicable
certificate.
If you fail to present and surrender the certificate evidencing the
Corporate Units or Treasury Units to the purchase contract agent on or prior to
the purchase contract settlement date, the shares of common stock issuable upon
settlement of the related purchase contract will be registered in the name of
the purchase contract agent. The shares, together with any distributions, will
be held by the purchase contract agent as agent for your benefit until the
certificate is presented and surrendered or you provide satisfactory evidence
that the certificate has been destroyed, lost or stolen, together with any
indemnity that may be required by the purchase contract agent and us.
If the purchase contracts terminate prior to the purchase contract
settlement date, the related pledged securities are transferred to the purchase
contract agent for distribution to the holders, and a holder fails to present
and surrender the certificate evidencing the holder's Corporate Units or
Treasury Units to the purchase contract agent, the related pledged securities
delivered to the purchase contract agent and payments on the pledged securities
will be held by the purchase contract agent as agent for the benefit of the
holder until the applicable certificate is presented or the holder provides the
evidence and indemnity described above.
The purchase contract agent will have no obligation to invest or to pay
interest on any amounts held by the purchase contract agent pending payment to
any holder.
No service charge will be made for any registration of transfer or exchange
of the Corporate Units or Treasury Units, except for any tax or other
governmental charge that may be imposed in connection with a transfer or
exchange.
MODIFICATION
The purchase contract agreement and the pledge agreement will contain
provisions permitting us and the purchase contract agent, and in the case of the
pledge agreement, the collateral agent, to modify the purchase contract
agreement or the pledge agreement without the consent of the holders for any of
the following purposes:
- to evidence the succession of another person to our obligations;
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- to add to the covenants for the benefit of holders or to surrender any of
our rights or powers under those agreements;
- to evidence and provide for the acceptance of appointment of a successor
purchase contract agent or a successor collateral agent or securities
intermediary;
- to make provision with respect to the rights of holders pursuant to
adjustments in the settlement rate due to consolidations, mergers or
other reorganization events;
- to cure any ambiguity, to correct or supplement any provisions that may
be inconsistent; and
- to make any other provisions with respect to such matters or questions,
provided that such action shall not materially adversely affect the
interest of the holders.
The purchase contract agreement and the pledge agreement will contain
provisions permitting us and the purchase contract agent, and in the case of the
pledge agreement, the collateral agent, with the consent of the holders of not
less than a majority of the purchase contracts at the time outstanding to modify
the terms of the purchase contracts, the purchase contract agreement or the
pledge agreement. However, no such modification may, without the consent of the
holder of each outstanding purchase contract affected by the modification,
- change any payment date,
- change the amount or type of pledged securities related to the purchase
contract, impair the right of the holder of any pledged securities to
receive distributions on the pledged securities or otherwise adversely
affect the holder's rights in or to the pledged securities,
- change the place or currency of payment or reduce any contract adjustment
payments,
- impair the right to institute suit for the enforcement of the purchase
contract or payment of any contract adjustment payments,
- reduce the number of shares of common stock purchasable under the
purchase contract, increase the price to purchase shares of common stock
upon settlement of the purchase contract, change the purchase contract
settlement date or the right to early settlement or otherwise adversely
affect the holder's rights under the purchase contract, or
- reduce the above-stated percentage of outstanding purchase contracts the
consent of the holders of which is required for the modification or
amendment of the provisions of the purchase contracts, the purchase
contract agreement or the pledge agreement.
If any amendment or proposal referred to above would adversely affect only
the Corporate Units or the Treasury Units, then only the affected class of
holders will be entitled to vote on the amendment or proposal, and the amendment
or proposal will not be effective except with the consent of the holders of not
less than a majority of the affected class or of all of the holders of the
affected classes, as applicable.
NO CONSENT TO ASSUMPTION
Each holder of Corporate Units or Treasury Units, by acceptance of these
securities, will under the terms of the purchase contract agreement and the
Corporate Units or Treasury Units, as applicable, be deemed expressly to have
withheld any consent to the assumption (i.e., affirmance) of the related
purchase contracts by us or our trustee if we become the subject of a case under
the Bankruptcy Code or other similar state or federal law provision for
reorganization or liquidation.
CONSOLIDATION, MERGER, SALE OR CONVEYANCE
We will covenant in the purchase contract agreement that we will not merge
with and into, consolidate with or convert into any other entity or sell,
assign, transfer, lease or convey all or substantially all of our properties and
assets to any person or entity, unless (1) the successor entity is an entity
organized and existing under the laws of the United States of America or a U.S.
state or the District of
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Columbia and that entity expressly assumes our obligations under the purchase
contracts, the purchase contract agreement, the pledge agreement and the
remarketing agreement and (2) the successor entity is not, immediately after the
merger, consolidation, conversion, sale, assignment, transfer, lease or
conveyance, in default of its payment obligations under the purchase contracts,
the purchase contract agreement, the pledge agreement and the remarketing
agreement or in material default in the performance of any other covenants under
these agreements.
TITLE
We, the purchase contract agent and the collateral agent may treat the
registered owner of any Corporate Units or Treasury Units as the absolute owner
of the Corporate Units or Treasury Units for the purpose of making payment and
settling the related purchase contracts and for all other purposes.
REPLACEMENT OF EQUITY UNIT CERTIFICATES
In the event that physical certificates have been issued, any mutilated
Corporate Unit or Treasury Unit certificate will be replaced by us at the
expense of the holder upon surrender of the certificate to the purchase contract
agent. Corporate Unit or Treasury Unit certificates that become destroyed, lost
or stolen will be replaced by us at the expense of the holder upon delivery to
us and the purchase contract agent of evidence of their destruction, loss or
theft satisfactory to us and the purchase contract agent. In the case of a
destroyed, lost or stolen Corporate Unit or Treasury Unit certificate, an
indemnity satisfactory to the purchase contract agent and us may be required at
the expense of the holder of the Corporate Units or Treasury Units evidenced by
the certificate before a replacement will be issued.
Notwithstanding the foregoing, we will not be obligated to issue any
Corporate Unit or Treasury Unit certificates on or after the business day
immediately preceding the purchase contract settlement date (or after early
settlement) or after the purchase contracts have terminated. The purchase
contract agreement will provide that, in lieu of the delivery of a replacement
Corporate Unit or Treasury Unit certificate following the purchase contract
settlement date, the purchase contract agent, upon delivery of the evidence and
indemnity described above, will deliver the shares of common stock issuable
pursuant to the purchase contracts included in the Corporate Units or Treasury
Units evidenced by the certificate, or, if the purchase contracts have
terminated prior to the purchase contract settlement date, transfer the pledged
securities included in the Corporate Units or Treasury Units evidenced by the
certificate.
GOVERNING LAW
The purchase contract agreement, the pledge agreement and the purchase
contracts will be governed by, and construed in accordance with, the laws of the
State of New York.
INFORMATION CONCERNING THE PURCHASE CONTRACT AGENT
JPMorgan Chase Bank will be the purchase contract agent. The purchase
contract agent will act as the agent for the holders of Corporate Units and
Treasury Units from time to time. The purchase contract agreement will not
obligate the purchase contract agent to exercise any discretionary actions in
connection with a default under the terms of the Corporate Units and Treasury
Units or the purchase contract agreement.
The purchase contract agreement will contain provisions limiting the
liability of the purchase contract agent. The purchase contract agreement will
contain provisions under which the purchase contract agent may resign or be
replaced. This resignation or replacement would be effective upon the acceptance
of appointment by a successor.
JPMorgan Chase Bank maintains commercial banking relationships with us.
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INFORMATION CONCERNING THE COLLATERAL AGENT
JPMorgan Chase Bank will be the collateral agent. The collateral agent will
act solely as our agent and will not assume any obligation or relationship of
agency or trust for or with any of the holders of the Corporate Units or
Treasury Units except for the obligations owed by a pledge of property to the
owner of the property under the pledge agreement and applicable law.
The pledge agreement will contain provisions limiting the liability of the
collateral agent. The pledge agreement will contain provisions under which the
collateral agent may resign or be replaced. This resignation or replacement
would be effective upon the acceptance of appointment by a successor.
Since JPMorgan Chase Bank is serving as both the collateral agent and the
purchase contract agent, if an event of default, except an event of default
occurring as a result of a failed remarketing, occurs under the purchase
contract agreement or the pledge agreement, JPMorgan Chase Bank will resign as
the collateral agent, but remain as the purchase contract agent. We will then
select a new collateral agent in accordance with the terms of the pledge
agreement.
MISCELLANEOUS
The purchase contract agreement will provide that we will pay all fees and
expenses other than underwriters' expenses (including counsel) related to the
offering of the Corporate Units, the retention of the collateral agent and the
enforcement by the purchase contract agent of the rights of the holders of the
Equity Units.
Should you elect to substitute the related pledged securities, create
Treasury Units or recreate Corporate Units, you shall be responsible for any
fees or expenses payable in connection with that substitution, as well as any
commissions, fees or other expenses incurred in acquiring the pledged securities
to be substituted, and we shall not be responsible for any of those fees or
expenses.
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DESCRIPTION OF THE SENIOR NOTES
The following description is a summary of the terms of our senior notes.
The descriptions in this prospectus supplement and the accompanying prospectus
contain a description of certain terms of the senior notes and the indenture but
do not purport to be complete, and reference is hereby made to the indenture and
supplemental indenture No. 1 and supplemental indenture No. 2 which are or will
be filed as exhibits or incorporated by reference to the registration statement
and to the Trust Indenture Act. This summary supplements the description of the
senior debt securities in the accompanying prospectus and, to the extent it is
inconsistent, replaces the description in the accompanying prospectus.
GENERAL
The senior notes will be issued under an indenture dated as of October 20,
1995 between us and JPMorgan Chase Bank (formerly The Chase Manhattan Bank
(National Association)), as indenture trustee, as amended and supplemented by
supplemental indenture No. 1, dated as of December 27, 2000, and supplemental
indenture No. 2, to be dated September 13, 2002, between us and the indenture
trustee (as so amended and supplemented, the "indenture").
The senior notes will be senior debt securities that will be our direct,
unsecured obligations and will rank without preference or priority among
themselves and equally with all of our existing and future unsecured senior
indebtedness. The senior notes initially will be issued in an aggregate
principal amount equal to $300,000,000. If the over-allotment option is
exercised in full by the underwriters an additional $30,000,000 of the senior
notes will be issued.
We are a holding company that derives all our income from our subsidiaries.
Accordingly, our ability to service our debt, including our obligations under
the senior notes, and other obligations are primarily dependent on the earnings
of our respective subsidiaries and the payment of those earnings to us, in the
form of dividends, loans or advances and through repayment of loans or advances
from us. In addition, any payment of dividends, loans or advances by those
subsidiaries could be subject to statutory or contractual restrictions. Our
subsidiaries have no obligation to pay any amounts due on the senior notes.
The senior notes will not be subject to a sinking fund provision and will
not be subject to defeasance. Unless a special event redemption occurs prior to
November 16, 2008, the entire principal amount of the senior notes will mature
and become due and payable, together with any accrued and unpaid interest
thereon, on November 16, 2008.
The indenture trustee will initially be the security registrar and the
paying agent for the senior notes. Senior notes forming a part of the Corporate
Units will be issued in certificated form, will be in denominations of $50 and
integral multiples of $50, without coupons, and may be transferred or exchanged,
without service charge but upon payment of any taxes or other governmental
charges payable in connection with the transfer or exchange, at the office
described below. Payments on senior notes issued as a global security will be
made to the depositary or a successor depositary. Principal and interest with
respect to certificated notes will be payable, the transfer of the senior notes
will be registrable and senior notes will be exchangeable for notes of a like
aggregate principal amount in denominations of $50 and integral multiples of
$50, at the office or agency maintained by us for this purpose in The City of
New York. We have initially designated the corporate trust office of the
indenture trustee as that office. However, at our option, payment of interest
may be made by check mailed to the address of the holder entitled to payment or
by wire transfer to an account appropriately designated by the holder entitled
to payment.
The indenture does not contain provisions that afford holders of the senior
notes protection in the event we are involved in a highly leveraged transaction
or other similar transaction that may adversely affect such holders. The
indenture does not limit our ability to issue or incur other debt or issue
preferred stock.
INTEREST
Each senior note will bear interest initially at the rate of 4.1% per year
from the original issuance date, payable quarterly in arrears on February 16,
May 16, August 16 and November 16 of each year,
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commencing November 16, 2002 to the person in whose name the senior note is
registered at the close of business on the first day of the month in which the
interest payment date falls.
The applicable interest rate on the senior notes will be reset to the reset
rate upon successful remarketing as described above under "Description of the
Purchase Contracts -- Remarketing." The reset rate will become effective on the
reset effective date, which is three business days immediately following a
successful remarketing. If the senior notes are not successfully remarketed, the
interest rate on the senior notes will not be reset.
The amount of interest payable on the senior notes for any period will be
computed (1) for any full quarterly period on the basis of a 360-day year of
twelve 30-day months and (2) for any period shorter than a full quarterly
period, on the basis of a 30-day month and, for any period less than a month, on
the basis of the actual number of days elapsed per 30-day month. In the event
that any date on which interest is payable on the senior notes is not a business
day, then payment of the interest payable on such date will be made on the next
day that is a business day (and without any interest or other payment in respect
of any such delay), except that, if such business day is in the next calendar
year, then such payment will be made on the preceding business day.
MARKET RESET RATE
The reset rate will be equal to the rate that is sufficient to allow a
successful remarketing of the senior notes and will be determined by the
remarketing agent. In the case of a reset prior to the third business day
immediately preceding the purchase contract settlement date, which rate would be
effective on the third business day following the date of such successful
remarketing, the reset rate will be the rate determined by the remarketing agent
as the rate the senior notes should bear in order for the senior notes included
in Corporate Units to have an approximate aggregate market value on the reset
date of 100.50% of the Treasury portfolio purchase price described under
"Description of the Purchase Contracts -- Remarketing." In the case of a reset
on the third business day immediately preceding the purchase contract settlement
date, the reset rate will be the rate determined by the remarketing agent as the
rate the senior notes should bear in order for each senior note to have an
approximate market value of 100.50% of the principal amount of the senior notes.
OPTIONAL REMARKETING
On or prior to the fifth business day immediately preceding any remarketing
date, but no earlier than the payment date immediately preceding such date,
holders of senior notes that are not components of Corporate Units may elect to
have their senior notes remarketed in the same manner and at the same price as
senior notes that are components of Corporate Units by delivering their senior
notes along with a notice of this election to the custodial agent. The custodial
agent will hold the senior notes in an account separate from the collateral
account in which the pledged securities will be held. Holders of senior notes
electing to have their senior notes remarketed will also have the right to
withdraw the election on or prior to the fifth business day immediately
preceding the applicable remarketing date. Holders of Treasury Units that are
also holders of senior notes that are not part of the Corporate Units may also
participate in any remarketing by recreating Corporate Units from their Treasury
Units at any time on or prior to the second business day immediately prior to
any of the remarketing dates.
PUT OPTION UPON A FAILED FINAL REMARKETING
If the senior notes have not been successfully remarketed by the purchase
contract settlement date, the holders of senior notes that remain outstanding
and that are not subject to our security interest will have the right to put
their senior notes to us for $50 per senior note, plus accrued and unpaid
interest, on December 31, 2006, which we call the exercise date, by notifying
the indenture trustee on or prior to the fifth business day before the exercise
date.
EVENTS OF DEFAULT
In addition to the events of default described in the accompanying
prospectus under "Description of the Debt Securities -- Events of Default," it
shall be an event of default under the senior notes if we fail
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on the date payment is due to pay the put price of any senior notes following
the exercise of the put right by any holder of senior notes.
OPTIONAL REDEMPTION--SPECIAL EVENT
If a special event, as defined below, occurs and is continuing, prior to
the earlier of (1) the date of a successful remarketing or (2) the purchase
contract settlement date, we may redeem, at our option on any interest payment
date, the senior notes in whole, but not in part, at a price equal to, for each
senior note, the redemption amount, as defined below, plus accrued and unpaid
interest thereon, which we refer collectively to as the redemption price, to the
date of redemption, which we refer to as the "special event redemption date".
The redemption price payable in respect of all senior notes included in
Corporate Units will be distributed to the collateral agent, which in turn will
apply an amount equal to the redemption amount of such redemption price to
purchase the Treasury portfolio on behalf of the holders of the Corporate Units
and remit the remaining portion (net of fees and expenses, if any), if any, of
such redemption price to the purchase contract agent for payment to the holders
of the Corporate Units. Thereafter, the applicable ownership interest of the
Treasury portfolio will be substituted for the senior notes and will be pledged
to us through the collateral agent to secure the Corporate Unit holders'
obligations to purchase our shares of common stock under the related purchase
contract. Holders of senior notes that are not part of Corporate Units will
directly receive proceeds from the redemption of the senior notes.
"Special event" means either a tax event or an accounting event, each as
defined below.
"Accounting event" means the receipt by the audit committee of our Board of
Directors of a written report in accordance with Statement on Auditing Standards
("SAS") No. 97, "Amendment to SAS No. 50 -- Reports on the Application of
Accounting Principles", from our independent auditors, provided at the request
of management, to the effect that, as a result of a change in accounting rules
after the date of original issuance of the senior notes, we must either (a)
account for the purchase contracts as derivatives under SFAS 133 or (b) account
for the Equity Units using the if-converted method under SFAS 128, and that such
accounting treatment will cease to apply upon redemption of the senior notes.
"Tax event" means the receipt by us of an opinion of counsel, rendered by a
law firm having a recognized national tax practice, to the effect that, as a
result of any amendment to, change in or announced proposed change in the laws
(or any regulations thereunder) of the United States or any political
subdivision or taxing authority thereof or therein, or as a result of any
official administrative decision, pronouncement, judicial decision or action
interpreting or applying such laws or regulations, which amendment or change is
effective or which proposed change, pronouncement, action or decision is
announced on or after the date of issuance of senior notes, there is more than
an insubstantial increase in the risk that interest payable by us on the senior
notes is not, or within 90 days of the date of such opinion, will not be,
deductible by us, in whole or in part, for United States federal income tax
purposes.
"Redemption amount" means, for each senior note, the product of the
principal amount of such senior note and a fraction, the numerator of which is
the Treasury portfolio purchase price, as defined below, and the denominator of
which is the applicable principal amount, as defined below.
"Treasury portfolio purchase price" means the lowest aggregate ask-side
price quoted by a primary U.S. government securities dealer to the quotation
agent between 9:00 a.m. and 11:00 a.m., New York City time, as defined below, on
the third business day immediately preceding the special event redemption date
for the purchase of the Treasury portfolio described below for settlement on the
special event redemption date.
"Applicable principal amount" means the aggregate principal amount of the
senior notes that are part of the Corporate Units on the special event
redemption date.
"Treasury portfolio" means a portfolio of U.S. Treasury securities (or
principal or interest strips thereof) that mature on or prior to November 15,
2006 in an aggregate amount at maturity equal to the applicable principal amount
and with respect to each scheduled interest payment date on the senior notes
that occurs after the special event redemption date, to and including the
purchase contract settlement date, U.S. Treasury securities (or principal or
interest strips thereof) that mature on or prior to the business day
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immediately preceding such scheduled interest payment date in an aggregate
amount at maturity equal to the aggregate interest payment (assuming no reset of
the interest rate) that would be due on the applicable principal amount of the
senior notes on such date.
"Quotation agent" means any primary U.S. government securities dealer
selected by us.
AGREEMENT BY PURCHASERS OF CERTAIN TAX TREATMENT
Each senior note will provide that, by acceptance of the senior note or a
beneficial interest therein, you intend that the senior note constitutes debt
and you agree to treat it as debt for United States federal, state and local tax
purposes.
BOOK-ENTRY SYSTEM
Senior notes which are released from the pledge following substitution or
settlement of the purchase contracts will be issued in the form of one or more
global certificates, which are referred to as global securities, registered in
the name of the depositary or its nominee. Except under the limited
circumstances described below or except upon recreation of Corporate Units,
senior notes represented by the global securities will not be exchangeable for,
and will not otherwise be issuable as, senior notes in certificated form. The
global securities described above may not be transferred except by the
depositary to a nominee of the depositary or by a nominee of the depositary to
the depositary or another nominee of the depositary or to a successor depositary
or its nominee.
The laws of some jurisdictions may require that some purchasers of
securities take physical delivery of the securities in certificated form. These
laws may impair the ability to transfer beneficial interests in such a global
security.
Except as provided below, owners of beneficial interests in such a global
security will not be entitled to receive physical delivery of senior notes in
certificated form and will not be considered the holders (as defined in the
indenture) thereof for any purpose under the indenture, and no global security
representing senior notes shall be exchangeable, except for another global
security of like denomination and tenor to be registered in the name of the
depositary or its nominee or a successor depositary or its nominee. Accordingly,
each beneficial owner must rely on the procedures of the depositary or if such
person is not a participant, on the procedures of the participant through which
such person owns its interest to exercise any rights of a holder under the
indenture.
In the event that
- the depositary notifies us that it is unwilling or unable to continue as
a depositary for the global security certificates and no successor
depositary has been appointed within 90 days after this notice,
- an event of default occurs and is continuing with respect to the senior
notes; or
- we determine in our sole discretion that we will no longer have senior
notes represented by global securities,
certificates for the senior notes will be printed and delivered in exchange for
beneficial interests in the global security certificates. Any global note that
is exchangeable pursuant to the preceding sentence shall be exchangeable for
senior note certificates registered in the names directed by the depositary. We
expect that these instructions will be based upon directions received by the
depositary from its participants with respect to ownership of beneficial
interests in the global security certificates.
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UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a discussion of the material United States federal income
tax consequences of the purchase, ownership and disposition of Equity Units,
senior notes and shares of our common stock acquired under a purchase contract
to U.S. holders who purchase Equity Units in the initial offering at their
original offering price and hold the Equity Units, senior notes and shares of
our common stock as capital assets. For purposes of this discussion, "U.S.
holder" means an owner of an Equity Unit, senior note or share of our common
stock that is (1) an individual citizen or resident of the United States, (2) a
corporation, or other entity taxable as a corporation, created or organized in
or under the laws of the United States or any state thereof or the District of
Columbia or (3) a partnership, estate or trust treated, for United States
federal income tax purposes, as a domestic partnership, estate or trust. This
discussion is based upon the Internal Revenue Code of 1986, as amended (the
"Code"), Treasury regulations (including proposed Treasury regulations) issued
thereunder, Internal Revenue Service rulings and pronouncements and judicial
decisions now in effect, all of which are subject to change, possibly with
retroactive effect.
This discussion does not address all aspects of United States federal
income taxation that may be relevant to U.S. holders in light of their
particular circumstances, such as U.S. holders who are subject to special tax
treatment (for example, (1) banks, regulated investment companies, insurance
companies, dealers in securities or currencies or tax-exempt organizations, (2)
persons holding Equity Units, senior notes or shares of our common stock as part
of a straddle, hedge, conversion transaction or other integrated investment or
(3) persons whose functional currency is not the U.S. dollar), some of which may
be subject to special rules, nor does it address alternative minimum taxes or
state, local or foreign taxes. PROSPECTIVE INVESTORS THAT ARE NOT UNITED STATES
PERSONS (WITHIN THE MEANING OF SECTION 7701(a)(30) OF THE CODE) ARE URGED TO
CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE UNITED STATES FEDERAL INCOME
TAX CONSEQUENCES OF AN INVESTMENT IN EQUITY UNITS, INCLUDING THE POTENTIAL
APPLICATION OF UNITED STATES WITHHOLDING TAXES.
No statutory, administrative or judicial authority directly addresses the
treatment of Equity Units or instruments similar to Equity Units for United
States federal income tax purposes. As a result, no assurance can be given that
the Internal Revenue Service will agree with the tax consequences described
herein. PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS WITH
RESPECT TO THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE PURCHASE,
OWNERSHIP AND DISPOSITION OF EQUITY UNITS, SENIOR NOTES AND SHARES OF OUR COMMON
STOCK ACQUIRED UNDER A PURCHASE CONTRACT IN LIGHT OF THEIR OWN PARTICULAR
CIRCUMSTANCES, AS WELL AS THE EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS.
EQUITY UNITS
Allocation of Purchase Price. The purchase price of each Equity Unit will
be allocated between the senior note and the purchase contract constituting such
unit in proportion to their respective fair market values at the time of
purchase. Such allocation will establish the U.S. holder's initial tax basis in
the senior note and the purchase contract. We have determined that 100% of the
issue price of an Equity Unit is allocable to the senior note and 0% is
allocable to the purchase contract. This position will be binding on each U.S.
holder (but not on the Internal Revenue Service) unless such U.S. holder
explicitly discloses a contrary position on a statement attached to its timely
filed United States federal income tax return for the taxable year in which an
Equity Unit is acquired. Thus, absent such disclosure, a U.S. holder should
allocate the purchase price for an Equity Unit in accordance with the values
reported by us. The remainder of this discussion assumes that this allocation of
the purchase price of an Equity Unit will be respected for United States federal
income tax purposes.
Sale, Exchange or Other Disposition of Equity Units. If a U.S. holder
sells, exchanges or otherwise disposes of an Equity Unit, such U.S. holder will
be treated as having sold, exchanged or disposed of the purchase contract and
the senior note, Treasury security or applicable ownership interest in the
Treasury portfolio, as the case may be, that constitute such unit. Such U.S.
holder generally will recognize gain or loss equal to the difference between the
portion of the proceeds to such U.S. holder allocable to the
S-48
purchase contract and the senior note, Treasury security or applicable ownership
interest in the Treasury portfolio, as the case may be, and such U.S. holder's
respective adjusted tax bases in the purchase contract and the senior note,
Treasury security or applicable ownership interest in the Treasury portfolio. In
the case of the purchase contract, the Treasury security and the applicable
ownership interest in the Treasury portfolio, such gain or loss generally will
be capital gain or loss provided that any proceeds attributable to accrued and
unpaid interest on the Treasury security or the applicable ownership interest in
the Treasury portfolio will be treated as ordinary interest income to the extent
not previously included in income. In the case of Treasury securities with a
term of one year or less, however, such gain will be ordinary income to the
extent any acquisition discount has accrued but not been included in income.
Capital gains of individuals derived in respect of capital assets held for more
than one year are taxed at a maximum rate of 20%. The deductibility of capital
losses is subject to limitations. The rules governing the determination of the
character of gain or loss on the sale, exchange or other disposition of the
senior notes are summarized under "-- Senior Notes -- Sale, Exchange or Other
Disposition of Senior Notes".
If the sale, exchange or other disposition of an Equity Unit by a U.S.
holder occurs when the purchase contract has a negative value, the U.S. holder
should be considered to have received additional consideration for the senior
note, Treasury security or applicable ownership interest in the Treasury
portfolio constituting a part of such unit in an amount equal to such negative
value, and to have paid such amount to be released from its obligation under the
purchase contract. U.S. holders should consult their own tax advisors regarding
a disposition of an Equity Unit at a time when the purchase contract has a
negative value.
SENIOR NOTES
Interest Income and Original Issue Discount. Because of the manner in
which the interest rate on the senior notes is reset, the senior notes will be
classified as contingent payment debt instruments subject to the "noncontingent
bond method" for accruing original issue discount, as set forth in applicable
Treasury regulations. As discussed more fully below, the effects of such method
will be (1) to require each U.S. holder, regardless of its usual method of tax
accounting, to use an accrual method with respect to the senior notes, (2) for
all accrual periods through August 16, 2006, and possibly for accrual periods
thereafter, the accrual of interest income by each U.S. holder in excess of
interest payments actually received and (3) generally to result in ordinary
rather than capital treatment of any gain or loss on the sale, exchange or other
disposition of the senior notes. See "-- Sale, Exchange or Other Disposition of
Senior Notes".
A U.S. holder of senior notes will accrue original issue discount based on
the "comparable yield" of the senior notes. The comparable yield of the senior
notes will generally be the rate at which we would issue a fixed rate debt
instrument with terms and conditions similar to the senior notes. We are
required to provide the comparable yield and, solely for tax purposes, a
projected payment schedule based on the comparable yield, to holders of the
senior notes. We have determined that the comparable yield is 4.70% and the
projected payments for the senior notes, per $50 of principal amount, are $0.36
on November 16, 2002, $0.51 for each subsequent quarter ending on or prior to
August 16, 2006 and $0.74 for each quarter ending after August 16, 2006. We have
also determined that the projected payment for the senior notes, per $50 of
principal amount, at the maturity date is $50.74 (which includes the stated
principal amount of the senior notes as well as the final projected interest
payment).
The amount of original issue discount on a senior note for each accrual
period is determined by multiplying the comparable yield of the senior note
(adjusted for the length of the accrual period) by the senior note's adjusted
issue price at the beginning of the accrual period. Based on the allocation of
the purchase price of each unit described above, the adjusted issue price of
each senior note, per $50 of principal amount, at the beginning of each
subsequent accrual period will be equal to $50, increased by any original issue
discount previously accrued by the U.S. holder on such senior note and decreased
by payments received on such senior note. The amount of original issue discount
so determined will then be allocated on a ratable basis to each day in the
accrual period that the U.S. holder holds the senior note.
S-49
If after August 16, 2006 the remaining amounts of principal and interest
payable on the senior notes differ from the payments set forth on the foregoing
projected payment schedule, negative or positive adjustments reflecting such
difference should be taken into account by a U.S. holder as adjustments to
interest income in a reasonable manner over the period to which they relate.
We expect to use the foregoing comparable yield and projected payment
schedule for purposes of determining our own taxable income and for any required
information reporting.
U.S. holders are generally bound by the comparable yield and projected
payment schedule provided by us unless either is unreasonable. If a U.S. holder
of senior notes does not use this comparable yield and projected payment
schedule to determine interest accruals, such U.S. holder must apply the
foregoing rules using its own comparable yield and projected payment schedule.
In general, this disclosure must be made on a statement attached to the timely
filed United States federal income tax return of the U.S. holder for the taxable
year that includes the date of its acquisition of the Equity Units.
The foregoing comparable yield and projected payment schedule is supplied
by us solely for computing income under the noncontingent bond method for United
States federal income tax purposes, and does not constitute a projection or
representation as to the amounts that holders of senior notes or Corporate Units
will actually receive.
Adjustment to Tax Basis in Senior Notes. A U.S. holder's tax basis in its
senior notes will be increased by the amount of any gross income recognized by
such U.S. holder with respect to such senior notes, including original issue
discount with respect to the senior notes, and decreased by payments received
with respect to such senior notes.
Sale, Exchange or Other Disposition of Senior Notes. Upon the sale,
exchange or other disposition of a senior note (including the remarketing of
such note or a special event redemption), a U.S. holder will recognize gain or
loss in an amount equal to the difference between the amount realized by such
U.S. holder and such U.S. holder's adjusted tax basis in the senior note. Gains
recognized on the sale, exchange or other disposition of a senior note prior to
the date on which the interest rate is reset or, if there is a failed
remarketing, the final remarketing date will be treated as ordinary interest
income. Loss realized on the sale, exchange or other disposition of a senior
note prior to such date will be treated as ordinary loss to the extent of such
U.S. holder's prior net income inclusions on the senior note. Any loss in excess
of such amount will be treated as capital loss. Gain recognized on the sale,
exchange or other disposition of a senior note on or after the date on which the
interest rate is reset or, if there is a failed remarketing, the final
remarketing date will be ordinary interest income to the extent of the excess,
if any, of the total remaining principal and interest payments due on the senior
note over the total remaining payments set forth on the projected payment
schedule for such senior note. Any gain recognized in excess of such amount and
any loss recognized on such a sale, exchange or disposition generally will be
treated as capital gain or loss. Capital gain of individuals derived in respect
of capital assets held for more than one year is taxed at a maximum rate of 20%.
The deductibility of capital losses is subject to limitations.
PURCHASE CONTRACTS
Acquisition of Our Common Stock Under a Purchase Contract. A U.S. holder
of Equity Units generally will not recognize gain or loss on the purchase of our
common stock under a purchase contract, except with respect to any cash paid in
lieu of a fractional share of our common stock. A U.S. holder's aggregate
initial tax basis in the common stock received under a purchase contract
generally should equal (1) the purchase price paid for such common stock, less
(2) the portion of such purchase price and tax basis allocable to the fractional
share. For tax purposes, the holding period for common stock received under a
purchase contract will commence on the day after such common stock is acquired.
Contract Adjustment Payments. There is no direct authority addressing the
treatment of the contract adjustment payments, and such treatment, therefore, is
unclear. Contract adjustment payments may constitute taxable ordinary income to
a U.S. holder when received or accrued. To the extent we are required to file
information returns with respect to contract payments, we intend to report these
payments
S-50
as ordinary taxable income to the holder. Prospective investors should consult
their own tax advisors concerning contract adjustment payments including the
possibility that any contract adjustment payment may be treated as a loan,
purchase price adjustment, rebate or payment analogous to an option premium,
rather than being includible in income on a current basis. The following
discussion assumes that the contract adjustment payments constitute ordinary
income to a U.S. holder on a current basis.
The treatment of contract adjustment payments could affect your adjusted
tax basis in a purchase contract or our common stock received under a purchase
contract or the amount you realize on the sale or disposition of an Equity Unit
or the termination of the purchase contract.
Early Settlement of a Purchase Contract. A U.S. holder of Equity Units
will not recognize gain or loss on the receipt of such U.S. holder's
proportionate share of senior notes or Treasury securities upon early settlement
of a purchase contract and will have the same adjusted tax basis in, and holding
period for, such senior notes or Treasury securities as before such early
settlement.
Termination of a Purchase Contract. If the purchase contracts terminate, a
U.S. holder of units will recognize gain or loss equal to the difference between
the amount realized (if any) upon the termination and such U.S. holder's
adjusted tax basis (if any) in the purchase contracts at the time of such
termination. Any such gain or loss will be capital gain or loss. The
deductibility of capital losses is subject to limitations. A U.S. holder will
not recognize gain or loss on the receipt of its senior notes or Treasury
securities upon termination of the purchase contracts and such U.S. holder will
have the same adjusted tax basis in such senior notes or Treasury securities as
before such termination.
Adjustment to Settlement Rate. A U.S. holder of Equity Units might be
treated as receiving a constructive distribution from us if (1) the settlement
rate is adjusted and as a result of such adjustment such U.S. holder's
proportionate interest in our assets or earnings and profits is increased and
(2) the adjustment is not made pursuant to a bona fide, reasonable anti-dilution
formula. An adjustment in the settlement rate would not be considered made
pursuant to such a formula if the adjustment were made to compensate a U.S.
holder for certain taxable distributions with respect to the common stock. Thus,
under certain circumstances, an increase in the settlement rate might give rise
to a taxable dividend to a U.S. holder of Equity Units even though such U.S.
holder would not receive any cash related thereto.
OWNERSHIP OF COMMON STOCK ACQUIRED UNDER THE PURCHASE CONTRACT
Any dividend on our common stock paid by us out of our current or
accumulated earnings and profits (as determined for United States federal income
tax purposes) will be includible in income by a U.S. holder of common stock when
received. Any such dividend will be eligible for the dividends-received
deduction if received by an otherwise qualifying corporate U.S. holder that
meets the holding period and other requirements for the dividends-received
deduction.
Upon a disposition of our common stock, a U.S. holder will recognize
capital gain or loss in an amount equal to the difference between the amount
realized and such U.S. holder's adjusted tax basis in the common stock. Capital
gains of individuals derived in respect of capital assets held for more than one
year are taxed at a maximum rate of 20%. The deductibility of capital losses is
subject to limitations.
SUBSTITUTION OF TREASURY SECURITIES TO CREATE TREASURY UNITS
A U.S. holder of Corporate Units that delivers Treasury securities to the
collateral agent in substitution for senior notes or the applicable portion of
the Treasury portfolio, should not recognize gain or loss upon the delivery of
such Treasury securities or the release of the senior notes or other pledged
securities to such U.S. holder. Such U.S. holder should continue to take into
account items of income or deduction otherwise includible or deductible,
respectively, by such U.S. holder with respect to such Treasury securities and
senior notes or other pledged securities. Such U.S. holder's adjusted tax basis
in the Treasury securities, the senior notes or other pledged securities and the
purchase contract should not be affected by such delivery and release. U.S.
holders should consult their own tax advisors concerning the
S-51
tax consequences of purchasing, owning and disposing of the Treasury securities
so delivered to the collateral agent.
SUBSTITUTION OF SECURITIES IN EQUITY UNITS
A U.S. holder of Equity Units that delivers senior notes or Treasury
securities to the collateral agent in substitution for pledged Treasury
securities (such pledged Treasury securities being part of the Treasury
portfolio or having previously been substituted by a holder to create Treasury
Units) generally will not recognize gain or loss upon the delivery of such
senior notes or Treasury securities or the release of the pledged Treasury
securities to such U.S. holder. Such U.S. holder should continue to take into
account items of income or deduction otherwise includible or deductible,
respectively, by such U.S. holder with respect to such pledged Treasury
securities and such senior notes or Treasury securities. Such U.S. holder's tax
basis in the Treasury securities, the senior notes, the pledged Treasury
securities and the purchase contract will not be affected by such delivery and
release. U.S. holders should consult their own advisors concerning the tax
consequences of purchasing, owning and disposing of the Treasury securities so
released to them.
TREASURY PORTFOLIO PURCHASED ON REMARKETING OR SPECIAL EVENT REDEMPTION
After the date of a successful remarketing or special event redemption,
your Equity Units will include a beneficial interest in a Treasury portfolio
instead of a senior note. We and, by acquiring an Equity Unit, you agree to
treat yourself as the owner, for U.S. federal tax purposes, of the beneficial
interest in the Treasury portfolio that is a part of the Equity Units owned by
you. A U.S. holder's initial basis in its beneficial interest in the Treasury
portfolio purchased by the collateral agent in connection with a remarketing or
a special event redemption will be equal to the proportional amount paid for its
beneficial interest in the Treasury portfolio.
A holder, whether on the cash or accrual method of accounting, will
generally be required to include original issue discount on its beneficial
interest in the Treasury portfolio in income for United States federal income
tax purposes as it accrues on a constant yield to maturity basis. However, in
the case of any Treasury security that is part of the Treasury portfolio with a
remaining maturity of one year or less as of the date of its acquisition (such
as a Treasury portfolio purchased upon a successful remarketing), if a U.S.
holder is on the cash method of accounting, it will generally not include income
on these Treasury securities until payment is received on them. If a U.S. holder
is on the accrual method of accounting, it will be required to include
acquisition discount in income over the remaining term of these Treasury
securities and will increase its basis in these Treasury securities by the
amount of acquisition discount included in income.
NON-U.S. HOLDERS
If an investor is not a U.S. holder as defined above (a "non-U.S. holder"),
payments received with respect to the senior notes or Treasury securities should
not be subject to U.S. withholding tax, provided that the investor complies with
applicable certification requirements relating to its non-U.S. status
(including, in general, furnishing an Internal Revenue Service Form W-8BEN or a
substitute form).
We will generally withhold tax at a rate of 30% on the contract adjustment
payments made to a non-U.S. holder. If a tax treaty applies, a non-U.S. holder
may be eligible for a reduced rate of withholding. Contract adjustment payments
that are effectively connected with the conduct of a trade or business by a
non-U.S. holder within the United States (and, where a tax treaty applies, are
also attributable to a United States permanent establishment maintained by the
non-U.S. holder) are not subject to the withholding tax, but instead are subject
to United States federal income tax, generally as described above with respect
to U.S. holders. In order to claim an exemption from or reduction in the 30%
withholding tax, a non-U.S. holder should provide a properly executed Internal
Revenue Service Form W-8BEN (or suitable substitute form) claiming a reduction
of or an exemption from withholding under an applicable tax treaty or a properly
executed Internal Revenue Service Form W-8ECI (or a suitable substitute form)
S-52
stating that such payments are not subject to withholding tax because they are
effectively connected with the non-U.S. holder's conduct of a trade or business
in the United States. Non-U.S. holders should consult their tax advisors
regarding the possibility of applying for a refund of any amount withheld.
In general, United States federal withholding tax will not apply to any
gain or income realized by a non-U.S. holder on the sale, exchange or other
disposition of the purchase contracts, senior notes or common stock acquired
under the purchase contracts.
BACKUP WITHHOLDING TAX AND INFORMATION REPORTING
Unless a U.S. holder is an exempt recipient, such as a corporation,
payments under Equity Units, senior notes, Treasury securities or common stock,
the proceeds received with respect to a fractional share of common stock upon
the settlement of a purchase contract, and the proceeds received from sale of
units, senior notes, Treasury securities or common stock may be subject to
information reporting and may also be subject to United States federal backup
withholding tax at the applicable rate if such U.S. holder fails to supply an
accurate taxpayer identification number or otherwise fails to comply with
applicable United States information reporting or certification requirements.
Any amounts so withheld may be allowed as a credit against the U.S. holder's
United States federal income tax liability provided the required information is
furnished to the IRS.
S-53
ERISA CONSIDERATIONS
Section 406 of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") and Section 4975 of the Internal Revenue Code of 1986, as
amended (the "Code"), prohibit pension, profit-sharing or other employee benefit
plans, as well as individual retirement accounts and Keogh plans subject to
Section 4975 of the Code ("Plans"), from engaging in certain transactions
involving "plan assets" with persons who are "parties in interest" under ERISA
or "disqualified persons" under the Code ("Parties in Interest") with respect to
certain Plans. As a result of our business, we may be a Party in Interest with
respect to certain Plans. Where we are a Party in Interest with respect to a
Plan (either directly or by reason of our ownership of our subsidiaries), the
purchase and holding of the Equity Units, Corporate Units and Treasury Units
(and any securities comprising or underlying such securities) by or on behalf of
the Plan may be a prohibited lending transaction under Section 406(a)(1) of
ERISA and Section 4975(c)(1) of the Code, unless exemptive relief were available
under an applicable administrative exemption (as described below) or there was
some other basis on which the transaction was not prohibited.
Accordingly, the Equity Units, Corporate Units and Treasury Units (and any
securities comprising or underlying such securities) may not be purchased or
held by any Plan, any entity whose underlying assets include "plan assets" by
reason of any Plan's investment in the entity (a "Plan Asset Entity") or any
person investing "plan assets" of any Plan, unless such purchaser or holder is
eligible for the exemptive relief available under prohibited Transaction Class
Exemption ("PTCE") 96-23, 95-60, 91-38, 90-1 or 84-14 issued by the U.S.
Department of Labor or there was some other basis on which the purchase and
holding of the Equity Units, Corporate Units and Treasury Units (and any
securities comprising or underlying such securities) by the Plan Asset Entity is
not prohibited. Any purchaser or holder of the Equity Units, Corporate Units and
Treasury Units (and any securities comprising or underlying such securities) or
any interest therein will be deemed to have represented by its purchase and
holding thereof that either (a) it is not a Plan or a Plan Asset Entity and is
not purchasing the Equity Units, Corporate Units and Treasury Units (and any
securities comprising or underlying such securities) on behalf of or with "plan
assets" of any Plan or (b) its purchase and holding of the Equity Units,
Corporate Units and Treasury Units (and any securities comprising or underlying
such securities) is eligible for the exemptive relief available under PTCE
96-23, 95-60, 91-38, 90-1 or 84-14 or there is some basis on which such purchase
and holding is not prohibited.
Employee benefit plans that are governmental plans (as defined in Section
3(32) of ERISA), certain church plans (as defined in Section 3(33) of ERISA) and
foreign plans (as described in Section 4(b)(4) of ERISA) are not subject to
these "prohibited transaction" rules of ERISA or Section 4975 of the Code, but
may be subject to similar rules under other applicable laws or documents.
Due to the complexity of the applicable rules, it is particularly important
that fiduciaries or other persons considering purchasing the Equity Units,
Corporate Units and Treasury Units (and any securities comprising or underlying
such securities) on behalf of or with "plan assets" of any Plan consult with
their counsel regarding the relevant provisions of ERISA and the Code and the
availability of exemptive relief under PTCE 96-23, 95-60, 91-38, 90-1 or 84-14.
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UNDERWRITING
Under the terms and subject to the conditions contained in a underwriting
agreement between us and Banc of America Securities LLC, Morgan Stanley & Co.
Incorporated and Salomon Smith Barney Inc., dated as of the date of this
prospectus supplement, the underwriters named below, for whom Banc of America
Securities LLC, Morgan Stanley & Co. Incorporated and Salomon Smith Barney Inc.,
are acting as representatives, have severally agreed to purchase, and we have
agreed to sell, 6,000,000 Corporate Units at a discount to the price indicated
on the cover of this prospectus supplement.
NUMBER OF
NAME CORPORATE UNITS
---- ---------------
Banc of America Securities LLC.............................. 1,437,600
Morgan Stanley & Co. Incorporated........................... 1,437,600
Salomon Smith Barney Inc. .................................. 1,437,600
A.G. Edwards & Sons, Inc. .................................. 287,400
Edward D. Jones & Co., L.P. ................................ 287,400
Goldman, Sachs & Co. ....................................... 287,400
Merrill Lynch, Pierce, Fenner & Smith Incorporated.......... 287,400
UBS Warburg LLC ............................................ 287,400
ABN AMRO Financial Services Inc. ........................... 31,275
Bny Capital Markets, Inc. .................................. 31,275
Fleet Securities Inc. ...................................... 31,275
Keefe, Bruyette & Woods, Inc. .............................. 31,275
Raymond James & Associates, Inc. ........................... 31,275
Robert W. Baird & Co. Incorporated.......................... 31,275
SunTrust Capital Markets, Inc. ............................. 31,275
U.S. Bancorp Piper Jaffray Inc. ............................ 31,275
---------
Total.................................................. 6,000,000
=========
The underwriting agreement provides that the obligation of the underwriters
to pay for and accept delivery of the Corporate Units offered by this prospectus
supplement is subject to the approval of certain legal matters by their counsel
and to other conditions. The underwriters are obligated to take and pay for all
of the Corporate Units offered by this Prospectus Supplement if any are taken.
However, the underwriters are not required to take or pay for the Corporate
Units covered by the underwriters' option described below.
The underwriters initially propose to offer part of the Corporate Units
directly to the public at the public offering price set forth on the cover page
of this prospectus supplement. The underwriters may also offer the Corporate
Units to securities dealers at a price that represents a concession not in
excess of $0.96 per Corporate Unit. Any underwriter may allow, and dealers may
reallow, a concession not in excess of $0.10 per Corporate Unit to certain other
dealers. After the initial offering of the Corporate Units, the offering price
and other selling terms may from time to time be changed by the underwriters.
We have granted to the underwriters an option, exercisable for 30 days from
the date of the underwriting agreement, to purchase up to an additional 600,000
Corporate Units at the public offering price on the cover page of this
prospectus supplement less underwriting discounts and commissions. The
underwriters may exercise this option solely to cover over-allotments, if any,
made in connection with this offering. If the option is exercised, each
underwriter will become obligated, subject to certain conditions, to purchase
approximately the same percentage of additional Corporate Units as the number
set forth next to the underwriter's name in the preceding table bears to the
total number of Corporate Units offered by the underwriters.
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Prior to this offering, there has been no public market for the Corporate
Units. The Corporate Units have been approved for listing on the New York Stock
Exchange under the symbol "HIG PrA" subject to official notice of issuance. The
underwriters have advised us that they presently intend to make a market in the
Corporate Units prior to the commencement of trading on the New York Stock
Exchange. The underwriters are not obligated, however, to make a market in the
Corporate Units and any such market making may be discontinued at any time
without notice. Accordingly, no assurance can be given as to the liquidity of
any trading markets for the Corporate Units.
Subject to some exceptions, we have agreed with the underwriters not to
offer, sell, contract to sell or otherwise dispose of any securities of The
Hartford which are substantially similar to the common stock, including but not
limited to any securities that are convertible into or exchangeable for, or that
represent the right to receive common stock, but excluding the Equity Units,
during the period from the date of this prospectus supplement continuing through
the date 90 days after the date of this prospectus supplement, except with the
prior written consent of the underwriters.
The following table shows the per unit and total public offering price, the
underwriting discounts and commissions to be paid by us to the underwriters and
the proceeds before expenses to us. The information is presented assuming either
no exercise or full exercise by the underwriters of the over-allotment option.
PER CORPORATE UNIT WITHOUT OPTION WITH OPTION
------------------ -------------- ------------
Public Offering Price................... $50.00 $300,000,000 $330,000,000
Underwriting discount and commissions... $ 1.60 $ 9,600,000 $ 10,560,000
Proceeds, before expenses, to The
Hartford.............................. $48.40 $290,400,000 $319,440,000
In order to facilitate the offering of the Corporate Units, the
underwriters may engage in transactions that stabilize, maintain or otherwise
affect the price of the Corporate Units. Specifically, the underwriters may
over-allot in connection with the offering, creating a short position in the
Corporate Units for their own account. A short sale is covered if the short
position is no greater than the number of Corporate Units available for purchase
by the underwriters under the over-allotment option. The underwriters can close
out a covered short sale by exercising the over-allotment option or purchasing
Corporate Units in the open market. In determining the source of Corporate Units
to close out a covered short sale, the underwriters will consider, among other
things, the open market price of the Corporate Units compared to the price
available under the over-allotment option. The underwriters may also sell
Corporate Units in excess of the over-allotment option, creating a naked short
position. The underwriters must close out any naked short position by purchasing
Corporate Units in the open market. A naked short position is more likely to be
created if the underwriters are concerned that there may be downward pressure on
the price of the Corporate Units in the open market after pricing that could
adversely affect investors who purchase Corporate Units in the offering. As an
additional means of facilitating the offering of Corporate Units, the
underwriters may bid for and purchase Corporate Units in the open market to
stabilize the price of these Corporate Units. Finally, the underwriting
syndicate may reclaim selling concessions allowed to an underwriter or a dealer
for distributing the Corporate Units in the offering, if the syndicate
repurchases previously distributed Corporate Units in transactions to cover
syndicate short positions, in stabilization transactions or otherwise. Any of
these activities may stabilize or maintain the market price of the Corporate
Units above independent market levels or prevent or retard a decline in the
market price of the Corporate Units. The underwriters are not required to engage
in these activities, and may end any of these activities at any time.
Each underwriter has agreed that it will, to the best of its knowledge and
belief, comply with all applicable securities laws and regulations in force in
any jurisdiction in which it purchases, offers, sells or delivers the Corporate
Units or possesses or distributes this prospectus supplement or the accompanying
prospectus and will obtain any required consent, approval or permission for its
purchase, offer, sale or delivery of the Corporate Units under the laws and
regulations in force in any jurisdiction to which it is subject or in which it
makes purchases, offers, sales or deliveries. We have no responsibility for an
underwriter's compliance with applicable securities laws.
S-56
We estimate that our portion of the total expenses of this offering will be
approximately $500,000.
Certain of the underwriters and their affiliates have provided, from time
to time and may provide in the future, investment banking, commercial banking
and other services to us. They have received customary fees and expenses for
these transactions. In addition, certain of the underwriters are participating
in a syndicate of underwriters currently offering our common stock.
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act, and to contribute to payments
the underwriters may be required to make because of any of these liabilities.
VALIDITY OF THE EQUITY UNITS
The validity of the purchase contracts and the underlying common stock will
be passed upon for us by Debevoise & Plimpton, 919 Third Avenue, New York, New
York 10022, and for the underwriters by Davis Polk & Wardwell, 450 Lexington
Avenue, New York, New York 10017. The validity of the senior notes will be
passed upon for us by Debevoise & Plimpton, 919 Third Avenue, New York, New York
10022 and for the Underwriters by Davis Polk & Wardwell, 450 Lexington Avenue,
New York, New York 10017. This statement supersedes the "Legal Opinions" section
in the accompanying prospectus.
EXPERTS
The audited consolidated financial statements and schedules of The Hartford
Financial Services Group, Inc. and subsidiaries incorporated by reference in
this prospectus supplement and the accompanying prospectus and in the
registration statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report with respect thereto, and are
incorporated by reference in this prospectus supplement in reliance upon the
authority of said firm as experts in accounting and auditing in giving said
reports. Reference is made to said report, which includes an explanatory
paragraph with respect to the change in the method of accounting for derivatives
and hedging activities and the change in the method of accounting for
recognition of interest income and impairment on purchased and retained
beneficial interests in securitized financial assets as discussed in Note 1(b)
to the financial statements. This statement supersedes the section entitled
"Experts" in the accompanying prospectus.
SPECIAL NOTE REGARDING OUR FORMER AUDITORS
Our consolidated financial statements as of December 31, 1999, 2000 and
2001 and for each of the three years then ended were audited by Arthur Andersen
LLP. On March 14, 2002, Arthur Andersen LLP was indicted on, and on June 15,
2002 Arthur Andersen LLP was convicted of, federal obstruction of justice
charges arising from the U.S. Government's investigation of Enron Corporation.
On April 18, 2002, we announced that we engaged Deloitte & Touche LLP to replace
Arthur Andersen LLP as our independent auditors.
Arthur Andersen LLP has ceased practicing before the SEC. Although the SEC
has indicated that it will continue to accept financial statements audited by
Arthur Andersen LLP, there is no assurance that the SEC will continue to do so
in the future. The ability of Arthur Andersen LLP to satisfy any claims arising
from its provision of auditing services to us, including claims that could arise
out of Arthur Andersen LLP's audit of our financial statements included in our
periodic reports, prospectuses or registration statements filed with the SEC has
been adversely affected by the events arising out of its conviction and
cessation of practice before the SEC.
When we seek to sell securities in the public capital markets, SEC rules
require us to include or incorporate by reference in any prospectus three years
of audited financial statements. Until our audited financial statements for the
fiscal year ending December 31, 2004 become available in the first quarter of
2005, the SEC's current rules would require us to present audited financial
statements for one or more
S-57
fiscal years audited by Arthur Andersen LLP. Although we obtained the necessary
consent and representations of Arthur Andersen LLP in connection with the filing
of the registration statement of which this prospectus supplement forms a part,
in connection with the filing of any post-effective amendment or subsequent
registration statement we expect that we would not be able to obtain the
necessary consent and representations from Arthur Andersen LLP. The audit
partner and substantially all of the audit team who audited our financial
statements are no longer with Arthur Andersen LLP, and the firm would likely not
agree to issue a consent or make any representations in their absence. The SEC
recently has provided regulatory relief designed to allow companies to dispense
with the requirement to file a consent of Arthur Andersen LLP in certain
circumstances. Although we currently believe we would meet the requirements to
obtain this relief, if the SEC eliminates or modifies this relief or if we
otherwise fail to qualify for it, we may not be able to satisfy the SEC
requirements for a registration statement or for our periodic reports. In
addition, in the event we are required to make any technical modifications,
reclassifications, or restatements with respect to any of our prior financial
statements that were audited by Arthur Andersen LLP, our ability to do so
without obtaining a full re-audit of such financial statements by another
independent accounting firm may be limited unless the SEC grants relief that
would enable such revisions to be made without the need for a full re-audit.
S-58
PROSPECTUS
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
DEBT SECURITIES
JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURES
PREFERRED STOCK
COMMON STOCK
DEPOSITARY SHARES
WARRANTS
STOCK PURCHASE CONTRACTS
STOCK PURCHASE UNITS
HARTFORD CAPITAL IV
HARTFORD CAPITAL V
HARTFORD CAPITAL VI
PREFERRED SECURITIES GUARANTEED
AS DESCRIBED IN THIS PROSPECTUS
AND THE ACCOMPANYING PROSPECTUS SUPPLEMENT
BY THE HARTFORD FINANCIAL SERVICES GROUP, INC.
By this prospectus, we may offer from time to time up to $2,585,566,579 of
any combination of the securities described in this prospectus.
We will provide specific terms of the securities in supplements to this
prospectus. You should read this prospectus and any supplement carefully before
you invest. A supplement may also change or update information contained in this
prospectus.
We will not use this prospectus to confirm sales of any of our securities
unless it is attached to a prospectus supplement.
Unless we state otherwise in a prospectus supplement, we will not list any
of these securities on any securities exchange.
Neither the Securities and Exchange Commission nor any state securities
commission has determined whether this prospectus is truthful or complete. They
have not made, nor will they make, any determination as to whether anyone should
buy these securities. Any representation to the contrary is a criminal offense.
THE DATE OF THIS PROSPECTUS IS AUGUST 15, 2002
TABLE OF CONTENTS
PAGE
----
About This Prospectus....................................... ii
The Hartford Financial Services Group, Inc. ................ 1
The Hartford Capital Trusts................................. 2
Use of Proceeds............................................. 4
Ratio of Earnings to Fixed Charges.......................... 4
Description of the Debt Securities.......................... 5
Description of Junior Subordinated Debentures............... 17
Description of Capital Stock of the Hartford Financial
Services Group, Inc. ..................................... 29
Description of Warrants..................................... 38
Description of Stock Purchase Contracts and Stock Purchase
Units..................................................... 39
Description of Preferred Securities......................... 40
Description of Guarantee.................................... 52
Description of Corresponding Junior Subordinated
Debentures................................................ 54
Relationship Among The Preferred Securities, the
Corresponding Junior Subordinated Debentures and the
Guarantees................................................ 57
Plan of Distribution........................................ 59
Legal Opinions.............................................. 60
Experts..................................................... 60
Where You Can Find More Information......................... 60
Incorporation By Reference.................................. 60
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we filed with the
Securities and Exchange Commission utilizing a "shelf" registration process.
Under this shelf process, we may sell the securities described in the prospectus
from time to time. This prospectus provides you with a general description of
the securities we may offer. We may also add, update or change information
contained in this prospectus through a supplement to this prospectus. Any
statement that we make in this prospectus will be modified or superseded by any
inconsistent statement made by us in a prospectus supplement. You should read
both this prospectus and any prospectus supplement together with additional
information described under the heading "Where You Can Find More Information."
ii
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
We are a diversified insurance and financial services holding company. We
are among the largest providers of investment products, individual life, group
life and disability insurance products, and property and casualty insurance
products in the United States. Hartford Fire Insurance Company, or Hartford
Fire, founded in 1810, is the oldest of our subsidiaries. Our companies write
insurance and reinsurance in the United States and internationally. At March 31,
2002, our total assets were $184.9 billion and our total stockholders' equity
was $9.0 billion.
We were formed in December 1985 as a wholly-owned subsidiary of ITT
Corporation. On December 19, 1995, all our outstanding shares were distributed
to ITT Corporation's stockholders and we became an independent company. On May
2, 1997, we changed our name from ITT Hartford Group, Inc. to our current name,
The Hartford Financial Services Group, Inc.
As a holding company that is separate and distinct from our insurance
subsidiaries, we have no significant business operations of our own. Therefore,
we rely on the dividends from our insurance company subsidiaries, which are
primarily domiciled in Connecticut, as the principal source of cash flow to meet
our obligations. These obligations include payments on our debt securities and
the payment of dividends on our capital stock, including preferred stock. The
Connecticut insurance holding company laws limit the payment of dividends by
Connecticut-domiciled insurers. Under these laws, the insurance subsidiaries may
only make their dividend payments out of earned surplus. In addition, these laws
require notice to and approval by the state insurance commissioner for the
declaration or payment by those subsidiaries of any dividend if the dividend and
other dividends or distributions made within the preceding twelve months exceeds
the greater of:
- 10% of the insurer's policyholder surplus as of December 31 of the
preceding year, and
- net income, or net gain from operations if the subsidiary is a life
insurance company, for the previous calendar year, in each case
determined under statutory insurance accounting principles.
The insurance holding company laws of the other jurisdictions in which our
insurance subsidiaries are incorporated generally contain similar, and in some
instances more restrictive, limitations on the payment of dividends. Our
insurance subsidiaries are permitted to pay us up to a maximum of approximately
$577 million in dividends in 2002 without prior approval.
Our rights to participate in any distribution of assets of any of our
subsidiaries for example, upon their liquidation or reorganization, and the
ability of holders of the securities to benefit indirectly from a distribution,
are subject to the prior claims of creditors of the applicable subsidiary,
except to the extent that we may be a creditor of that subsidiary. Claims on
these subsidiaries by persons other than us include, as of March 31, 2002,
claims by policyholders for benefits payable amounting to $45.5 billion, claims
by separate account holders of $117.7 billion, and other liabilities including
claims of trade creditors, claims from guaranty associations and claims from
holders of debt obligations amounting to $12.7 billion.
Our principal executive offices are located at Hartford Plaza, Hartford,
Connecticut 06115, and our telephone number is (860) 547-5000.
1
THE HARTFORD CAPITAL TRUSTS
We created each trust as a statutory Delaware business trust pursuant to a
trust agreement. We will enter into an amended and restated trust agreement for
each trust, which will state the terms and conditions for the trust to issue and
sell its preferred securities and common securities. We will amend and restate
each trust agreement in its entirety substantially in the form filed as an
exhibit to the Registration Statement which includes this prospectus. Each trust
agreement will be qualified as an indenture under the Trust Indenture Act of
1939, as amended, which we refer to in this prospectus as the "Trust Indenture
Act."
Each trust exists for the exclusive purposes of:
- issuing and selling to the public preferred securities, representing
undivided beneficial interests in the assets of the trust,
- issuing and selling to us common securities, representing undivided
beneficial interests in the assets of the trust,
- using the proceeds from the sale of the preferred securities and common
securities to acquire a corresponding series of junior subordinated
deferrable interest debentures, which we refer to in this prospectus as
the "corresponding junior subordinated debentures,"
- distributing the cash payments it receives from the corresponding junior
subordinated debentures it owns to you and the other holders of preferred
securities and us, as the holder of common securities, and
- engaging in the other activities that are necessary or incidental to
these purposes.
Accordingly, the corresponding junior subordinated debentures will be the
sole assets of the trust, and payments under the corresponding junior
subordinated debentures and the related expense agreement will be the sole
revenue of the trust.
We will own all of the common securities of each trust. The common
securities of a trust will rank equally with and payments will be made pro rata
with the preferred securities of the trust, except that if an event of default
under a trust agreement then exists, our rights as holder of the common
securities to payment of distributions and payments upon liquidation or
redemption will be subordinated to your rights as a holder of the preferred
securities of the trust. See "Description of Preferred Securities --
Subordination of Common Securities."
We will acquire common securities in an aggregate liquidation amount equal
to not less than 3% of the total capital of each trust. The preferred securities
will represent the remaining approximately 97% of each trust's total
capitalization.
Unless we state otherwise in a prospectus supplement, each trust has a term
of approximately 45 years. A trust may also terminate earlier. The trustees of
each trust will conduct its business and affairs. As holder of the common
securities we will appoint the trustees. Initially, the trustees will be:
- Wilmington Trust Company, which will act as property trustee and as
Delaware trustee, and
- Two of our employees or officers or those of our affiliates, who will act
as administrative trustees.
Wilmington Trust Company, as property trustee, will act as sole indenture
trustee under each trust agreement for purposes of compliance with the
provisions of the Trust Indenture Act. Wilmington Trust Company will also act as
trustee under the guarantee and the junior subordinated indenture pursuant to
which we will issue the junior subordinated debentures. See "Description of
Junior Subordinated Debentures" and "Description of Guarantee."
2
The holder of the common securities of a trust, or the holders of a
majority in liquidation preference of the preferred securities if an event of
default under the trust agreement for the trust has occurred and is continuing,
will be entitled to appoint, remove or replace the property trustee and/or the
Delaware trustee of the trust. You will not have the right to vote to appoint,
remove or replace the administrative trustees. Only we, as the holder of the
common securities, will have these voting rights. The duties and obligations of
the trustees are governed by the applicable trust agreement. We will pay all
fees and expenses related to the trusts and the offering of the preferred
securities and will pay, directly or indirectly, all ongoing costs, expenses and
liabilities of the trusts.
The principal executive office of each trust is Hartford Plaza, Hartford,
Connecticut 06115, Attention: Secretary, and its telephone number is (860)
547-5000.
3
USE OF PROCEEDS
Unless we state otherwise in a prospectus supplement, we intend to use the
proceeds from the sale of the securities offered by this prospectus, including
the corresponding junior subordinated debentures issued to the trusts in
connection with their investment of all the proceeds from the sale of preferred
securities, for general corporate purposes, including working capital, capital
expenditures, investments in loans to subsidiaries, acquisitions and refinancing
of debt, including outstanding commercial paper and other short-term
indebtedness. We will include a more detailed description of the use of proceeds
of any specific offering of securities in the prospectus supplement relating to
the offering.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth our ratio of consolidated earnings to fixed
charges for the years and the periods indicated:
THREE
MONTHS
ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
----------- --------------------------------
2002 2001 2001 2000 1999 1998 1997
---- ---- ---- ---- ---- ---- ----
Ratio of Consolidated Earnings to Fixed
Charges(1)........................................ 5.4 4.8 2.0 5.5 5.4 6.5 7.5
Ratio of Consolidated Earnings to Fixed Charges,
including Interest Credited to
Contractholders(2)................................ 1.9 1.9 1.2 2.0 1.8 1.8 2.2
---------------
(1) Excluding the impact of the terrorist attack on September 11, 2001 of $678
million, the consolidated earnings to fixed charges ratio was 3.8 for the
year ended December 31, 2001. Excluding the equity gain on the Hartford
Life, Inc. initial public offering of $368 million, the consolidated
earnings to fixed charges ratio was 6.1 for the year ended December 31,
1997.
(2) Excluding the impact of the terrorist attack on September 11, 2001 of $678
million, the consolidated earnings to fixed charges ratio, including
interest credited to contractholders, was 1.6 for the year ended December
31, 2001. Excluding the equity gain on the Hartford Life, Inc. initial
public offering of $368 million, the consolidated earnings to fixed charges
ratio, including interest credited to contractholders, was 1.9 for the year
ended December 31, 1997.
For purposes of computing the ratio of consolidated earnings to fixed
charges, "earnings" consists of income from operations before federal income
taxes and fixed charges. "Fixed charges" consists of interest expense,
capitalized interest, amortization of debt expense and an imputed interest
component for rental expense. "Fixed charges, including interest credited to
contractholders" also includes all interest paid or credited to the holders of
our policies, annuities and investment contracts.
4
DESCRIPTION OF THE DEBT SECURITIES
We may offer unsecured senior debt securities or subordinated debt
securities. We refer to the senior debt securities and the subordinated debt
securities together in this prospectus as the "debt securities". The senior debt
securities will rank equally with all of our other unsecured, unsubordinated
obligations. The subordinated debt securities will be subordinate and junior in
right of payment to all of our senior debt.
We will issue the senior debt securities in one or more series under an
indenture, which we refer to as the "senior indenture", dated as of October 20,
1995, between us and The Chase Manhattan Bank, as trustee. We will issue
subordinated debt securities in one or more series under an indenture, which we
refer to as the "subordinated indenture", between us and the trustee to be named
in the prospectus supplement relating to the offering of subordinated debt
securities.
The following description of the terms of the indentures is a summary. It
summarizes only those portions of the indentures which we believe will be most
important to your decision to invest in our debt securities. You should keep in
mind, however, that it is the indentures, and not this summary, which defines
your rights as a debtholder. There may be other provisions in the indentures
which are also important to you. You should read the indentures for a full
description of the terms of the debt. The senior indenture and the subordinated
indenture are filed as exhibits to the Registration Statement that includes this
prospectus. See "Where You Can Find More Information" for information on how to
obtain copies of the senior indenture and the subordinated indenture.
THE DEBT SECURITIES ARE UNSECURED OBLIGATIONS
Our debt securities will be unsecured obligations. Our senior debt
securities will be unsecured and will rank equally with all of our other
unsecured and unsubordinated obligations. As a non-operating holding company
most of our operating assets and the assets of our consolidated subsidiaries are
owned by our subsidiaries. We rely primarily on dividends from these
subsidiaries to meet our obligations for payment of principal and interest on
our outstanding debt obligations and corporate expenses. Accordingly, the debt
securities will be effectively subordinated to all existing and future
liabilities of our subsidiaries, and you should rely only on our assets for
payments on the debt securities. The payment of dividends by our insurance
subsidiaries, including Hartford Fire, is limited under the insurance holding
company laws in the jurisdictions where those subsidiaries are domiciled. See
"The Hartford Financial Services Group, Inc."
Unless we state otherwise in the applicable prospectus supplement, the
indentures do not limit us from incurring or issuing other secured or unsecured
debt under either of the indentures or any other indenture that we may have
entered into or enter into in the future. See "-- Subordination under the
Subordinated Indenture" and the prospectus supplement relating to any offering
of subordinated debt securities.
TERMS OF THE DEBT SECURITIES
We may issue the debt securities in one or more series through an indenture
that supplements the senior indenture or the subordinated indenture or through a
resolution of our board of directors or an authorized committee of our board of
directors.
You should refer to the applicable prospectus supplement for the specific
terms of the debt securities. These terms may include the following:
- title of the debt securities,
- any limit upon the aggregate principal amount,
- maturity date(s) or the method of determining the maturity date(s),
- interest rate(s),
- dates on which interest will be payable and circumstances in which
interest may be deferred, if any,
5
- dates from which interest will accrue and the method of determining dates
from which interest will accrue,
- place or places where we may pay principal, premium, if any, and interest
and where you may present the debt securities for registration or
transfer or exchange,
- place or places where notices and demands relating to the debt securities
and the indentures may be made,
- redemption or early payment provisions,
- sinking fund or similar provisions,
- authorized denominations if other than denominations of $1,000,
- currency, currencies, or currency units, if other than in U.S. dollars in
which the principal of, premium, if any, and interest on the debt
securities is payable, or in which the debt securities are denominated,
- any additions, modifications or deletions, in the event of default or
covenants of The Hartford Financial Services Group, Inc. specified in the
indenture relating to the debt securities,
- if other than the principal amount of the debt securities, the portion of
the principal amount of the debt securities that is payable upon
declaration of acceleration of maturity,
- any additions or changes to the indenture necessary to permit or
facilitate issuing the series in bearer form, registrable or not
registrable as to principal, and with or without interest coupons,
- any index or indices used to determine the amount of payments of
principal of and premium, if any, on the debt securities and the method
of determining these amounts,
- whether a temporary global security will be issued and the terms upon
which these temporary debt securities may be exchanged for definitive
debt securities,
- whether the debt securities will be issued in whole or in part in the
form of one or more global securities,
- identity of the depositary for global securities,
- appointment of any paying agent(s),
- the terms and conditions of any obligation or right we would have or any
option you would have to convert or exchange the debt securities into
other securities or cash,
- in the case of the subordinated indenture, any provisions regarding
subordination, and
- additional terms not inconsistent with the provisions of the indentures.
Debt securities may also be issued under the indentures upon the exercise
of the warrants. See "Description of Warrants."
SPECIAL PAYMENT TERMS OF THE DEBT SECURITIES
We may issue one or more series of debt securities at a substantial
discount below their stated principal amount. These may bear no interest or
interest at a rate which at the time of issuance is below market rates. We will
describe United States federal tax consequences and special considerations
relating to any series in the applicable prospectus supplement.
The purchase price of any of the debt securities may be payable in one or
more foreign currencies or currency units. The debt securities may be
denominated in one or more foreign currencies or currency units, or the
principal of, premium, if any, or interest on any debt securities may be payable
in one or more foreign currencies or currency units. We will describe the
restrictions, elections, federal income tax
6
considerations, specific terms and other information relating to the debt
securities and the foreign currency units in the applicable prospectus
supplement.
If we use any index to determine the amount of payments of principal, of
premium, if any, or interest on any series of debt securities, we will also
describe the special federal income tax, accounting and other considerations
applicable to the debt securities in the applicable prospectus supplement.
DENOMINATIONS, REGISTRATION AND TRANSFER
We expect to issue most debt securities in fully registered form without
coupons and in denominations of $1,000 and any integral multiple of $1,000.
Except as we may describe in the applicable prospectus supplement, debt
securities of any series will be exchangeable for other debt securities of the
same issue and series, of any authorized denominations, of a like aggregate
principal amount and bearing the same interest rate.
You may present debt securities for exchange as described above, or for
registration of transfer, at the office of the securities registrar or at the
office of any transfer agent we designate for that purpose. You will not incur a
service charge but you must pay any taxes and other governmental charges as
described in the indenture. We will appoint the trustees as securities registrar
under the indentures. We may at any time rescind the designation of any transfer
agent that we initially designate or approve a change in the location through
which the transfer agent acts. We will specify the transfer agent in the
applicable prospectus supplement. We may at any time designate additional
transfer agents.
GLOBAL DEBT SECURITIES
We may issue all or any part of a series of debt securities in the form of
one or more global securities. We will identify the depository holding the
global debt securities in the applicable prospectus supplement. We will issue
global securities in registered form and in either temporary or definitive form.
Unless it is exchanged for the individual debt securities, a global security may
not be transferred except:
- by the depositary to its nominee,
- by a nominee of the depositary to the depositary or another nominee, or
- by the depositary or any nominee to a successor of the depositary, or a
nominee of the successor.
We will describe the specific terms of the depositary arrangement in the
applicable prospectus supplement. We expect that the following provisions will
generally apply to these depositary arrangements.
BENEFICIAL INTERESTS IN A GLOBAL SECURITY
If we issue a global security, the depositary for the global security or
its nominee will credit on its book-entry registration and transfer system the
principal amounts of the individual debt securities represented by the global
security to the accounts of persons that have accounts with it. We refer to
those persons as "participants" in this prospectus. The accounts will be
designated by the dealers, underwriters or agents for the debt securities, or by
us if the debt securities are offered and sold directly by us. Ownership of
beneficial interests in a global security will be limited to participants or
persons who may hold interests through participants. Ownership and transfers of
beneficial interests in the global security will be shown on, and transactions
can be effected only through, records maintained by the applicable depositary or
its nominee, for interests of participants, and the records of participants, for
interests of persons who hold through participants. The laws of some states
require that you take physical delivery of securities in definitive form. These
limits and laws may impair your ability to transfer beneficial interests in a
global security.
7
So long as the depositary or its nominee is the registered owner of a
global security, the depositary or nominee will be considered the sole owner or
holder of the debt securities represented by the global security for all
purposes under the indenture. Except as provided below, you:
- will not be entitled to have any of the individual debt securities
represented by the global security registered in your name,
- will not receive or be entitled to receive physical delivery of any debt
securities in definitive form, and
- will not be considered the owner or holder of the debt securities under
the indenture.
PAYMENTS OF PRINCIPAL, PREMIUM AND INTEREST
We will make principal, premium and interest payments on global securities
to the depositary that is the registered holder of the global security or its
nominee. The depositary for the global securities will be solely responsible and
liable for all payments made on account of your beneficial ownership interests
in the global security and for maintaining, supervising and reviewing any
records relating to your beneficial ownership interests.
We expect that the depositary or its nominee, upon receipt of any
principal, premium or interest payment immediately will credit participants'
accounts with amounts in proportion to their respective beneficial interests in
the principal amount of the global security as shown on the records of the
depositary or its nominee. We also expect that payments by participants to you,
as an owner of a beneficial interest in the global security held through those
participants, will be governed by standing instructions and customary practices,
as it is now the case with securities held for the accounts of customers in
bearer form or registered in "street name." These payments will be the
responsibility of those participants.
ISSUANCE OF INDIVIDUAL DEBT SECURITIES
Unless we state otherwise in the applicable prospectus supplement, if a
depositary for a series of debt securities is at any time unwilling, unable or
ineligible to continue as depositary and we do not appoint a successor
depositary within 90 days, we will issue individual debt securities in exchange
for the global security. In addition, we may at any time and in our sole
discretion, subject to any limitations described in the prospectus supplement
relating to the debt securities, determine not to have any debt securities
represented by one or more global securities. If that occurs, we will issue
individual debt securities in exchange for the global security.
Further, we may specify that you may, on terms acceptable to us, the
trustee and the depositary, receive individual debt securities in exchange for
your beneficial interest in a global security, subject to any limitations
described in the prospectus supplement relating to the debt securities. In that
instance, you will be entitled to physical delivery of individual debt
securities equal in principal amount to that beneficial interest and to have the
debt securities registered in your name. Unless we otherwise specify, we will
issue those individual debt securities in denominations of $1,000 and integral
multiples of $1,000.
PAYMENT AND PAYING AGENTS
Unless we state otherwise in an applicable prospectus supplement, we will
pay principal of, premium, if any, and interest on your debt securities at the
office of the trustee for your debt securities in the City of New York or at the
office of any paying agent that we may designate. In addition, we may pay
interest, except in the case of global debt securities, by check mailed to the
address of the person entitled to the payment that appears in the securities
register.
Unless we state otherwise in an applicable prospectus supplement, we will
pay any interest on debt securities to the registered owner of the debt security
at the close of business on the record date for the interest, except in the case
of defaulted interest. We may at any time designate additional paying agents or
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rescind the designation of any paying agent. We must maintain a paying agent in
each place of payment for the debt securities.
Any moneys deposited with the trustee or any paying agent, or then held by
us in trust, for the payment of the principal of, premium, if any, and interest
on any debt security that remain unclaimed for two years after the principal,
premium or interest has become due and payable will, at our request, be repaid
to us. After repayment to us, you are entitled to seek payment only from us as a
general unsecured creditor.
REDEMPTION
Unless we state otherwise in an applicable prospectus supplement, debt
securities will not be subject to any sinking fund and will not be redeemable
prior to their stated maturity except as described below.
We may, at our option, redeem any series of debt securities on any interest
payment date in whole or in part. We may redeem debt securities in denominations
larger than $1,000 but only in integral multiples of $1,000.
REDEMPTION PRICE
Except as we may otherwise specify in the applicable prospectus supplement,
the redemption price for any debt security which we redeem will equal any
accrued and unpaid interest to the redemption date, plus the greater of:
- the principal amount, and
- an amount equal to:
- for debt securities bearing interest at a fixed rate, the discounted
remaining fixed amount payments, calculated as described below, or
- for debt securities bearing interest determined by reference to a
floating rate, the discounted swap equivalent payments, calculated
as described below, to determine any redemption premium based upon
the value of interest payable on an equivalent fixed rate debt
security.
The discounted remaining fixed amount payments will equal the sum of the
current values of the amounts of interest and principal that would have been
payable by us on each interest payment date after the redemption date and at
stated maturity of the final payment of principal. This calculation will take
into account any required sinking fund payments, but will otherwise assume that
we have not redeemed the debt security prior to the stated maturity.
The current value of any amount is the present value of that amount on the
redemption date after discounting that amount on a semiannual basis, from the
originally scheduled date for payment. We will use the treasury rate to
calculate this present value.
The treasury rate is a per annum rate, determined on the redemption date to
be the per annum rate equal to the semiannual bond equivalent yield to maturity
for United States Treasury securities maturing at the stated maturity of the
final payment of principal of the debt securities redeemed. We will determine
this rate by reference to the weekly average yield to maturity for United States
Treasury securities maturing on that stated maturity, if reported in the most
recent Statistical Release H.15(519) of the Board of Governors of the Federal
Reserve. If no such securities mature at the stated maturity, we will determine
the rate by interpolation between the most recent weekly average yields to
maturity for two series of United States Treasury securities, (1) one maturing
as close as possible to, but earlier than, the stated maturity and (2) the other
maturing as close as possible to, but later than, the stated maturity, in each
case as published in the most recent Statistical Release H.15(519) of the Board
of Governors of the Federal Reserve.
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The discounted swap equivalent payments will equal the sum of:
- the current value of the amount of principal that would have been payable
by us at the stated maturity of the final payment of the principal of the
debt securities redeemed. This calculation will take into account any
required sinking fund payments, but will otherwise assume that we had not
redeemed the debt security prior to the stated maturity, and
- the sum of the current values of the fixed rate payments that leading
interest rate swap dealers would require to be paid by an assumed fixed
rate payer having the same credit standing as ours against floating rate
payments to be made by these leading dealers equal to the interest
payments on the debt securities being redeemed, taking into account any
required sinking fund payments but otherwise assuming we had not redeemed
the debt securities prior to the stated maturity, under a standard
interest rate swap agreement having a notional principal amount equal to
the principal amount of the debt securities, a termination date set at
the stated maturity of the debt security and payment dates for both fixed
and floating rate payers set at each interest payment date of the debt
securities. The amount of the fixed rate payments will be based on
quotations received by the trustee, or an agent appointed for that
purpose, from four leading interest rate swap dealers or, if quotations
from four leading interest rate swap dealers are not obtainable, three
leading interest rate swap dealers.
NOTICE OF REDEMPTION
We will mail notice of any redemption of your debt securities at least 30
days but not more than 60 days before the redemption date to you at your
registered address. Unless we default in payment of the redemption price, on and
after the redemption date interest will cease to accrue on the debt securities
or the portions called for redemption.
CONSOLIDATION, MERGER AND SALE OF ASSETS
We will not consolidate with or merge into any other corporation or convey,
transfer or lease our properties and assets substantially as an entirety to any
person, and no person may consolidate with or merge into us or convey, transfer
or lease to us its properties and assets substantially as an entirety, unless:
- if we consolidate with or merge into another corporation or convey or
transfer our properties and assets substantially as an entirety to any
person, the successor corporation is organized under the laws of the
United States of America or any state or the District of Columbia, and
the successor corporation expressly assumes our obligations relating to
the debt securities,
- immediately after giving effect to the consolidation, merger, conveyance
or transfer, there exists no event of default, and no event which, after
notice or lapse of time or both, would become an event of default, and
- other conditions described in the indenture are met.
The general provisions of the indenture do not protect you against
transactions, such as a highly leveraged transaction, that may adversely affect
you.
LIMITATIONS UPON LIENS
The indentures provide that neither we nor our subsidiaries may issue,
assume or guarantee any indebtedness for money borrowed if the indebtedness is
secured by a lien upon any of our principal property, any restricted
subsidiaries, or on any shares of stock of any restricted subsidiary, whether
the principal property or shares of stock are now owned or later acquired.
GENERAL EXCEPTIONS
The indentures permit us to incur secured debt if we provide that the debt
securities will be secured equally and ratably with or in priority to the new
secured indebtedness. In this event, we may also provide
10
that any of our other indebtedness, including indebtedness guaranteed by us or
the restricted subsidiary, will be secured equally with or in priority to the
new secured indebtedness. Further, the restriction on incurring secured
indebtedness will not apply to:
- liens on property or shares of stock of any corporation existing at the
time the corporation becomes a restricted subsidiary,
- liens on property existing at the time it is acquired, or liens on
property which secure the payment of the purchase price of the property,
or liens on property which secure indebtedness incurred or guaranteed for
the purpose of financing the purchase price of the property or the
construction of that property, including improvements to existing
property, which indebtedness is incurred or guaranteed within 180 days
after the latest of the acquisition or completion of construction or
commencement of operation of the property,
- liens securing indebtedness owing by any restricted subsidiary to us or a
wholly owned restricted subsidiary,
- liens on the property of a corporation existing at the time the
corporation is merged into or consolidated with us or a restricted
subsidiary or at the time of a purchase, lease or other acquisition of
the properties of a corporation or other person as an entirety by us or a
restricted subsidiary,
- liens on our property or the property of a restricted subsidiary in favor
of the United States of America or any state, agency, instrumentality or
political subdivision of the United States of America, or in favor of any
other country, or any political subdivision of that country, to secure
any indebtedness incurred or guaranteed for the purpose of financing all
or any part of the purchase price or the cost of construction of the
property subject to those liens within 180 days after the latest of the
acquisition, completion of construction or commencement of operation of
that property, and
- any extension, renewal or replacement of any lien referred to in the five
preceding clauses.
EXCEPTIONS FOR SPECIFIED AMOUNT OF INDEBTEDNESS
We and one or more restricted subsidiaries may, without securing the debt
securities, issue, assume or guarantee secured indebtedness which would
otherwise be subject to the above restrictions, provided that after doing so the
aggregate amount of this indebtedness does not exceed 10% of consolidated net
tangible assets. In computing the aggregate amount of indebtedness outstanding
for purposes of the previous sentence, indebtedness issued, assumed or
guaranteed pursuant to the above clauses is not included.
When we use the term "consolidated net tangible assets", we mean the total
amount of assets, less applicable reserves and other properly deductible items,
after deducting:
- all current liabilities, excluding any liabilities which are by their
terms extendible or renewable at the option of the obligor to a time more
than 12 months after the time as of which the amount is being computed,
and
- all segregated goodwill, trade names, trademarks, patents, unamortized
debt discount and expense and other like intangibles, all as set forth on
the most recent balance sheet of The Hartford Financial Services Group,
Inc. and its consolidated subsidiaries and prepared in accordance with
generally accepted accounting principles. Our subsidiaries include any
corporation where more than 50% of its voting stock is owned or
controlled by us or by another subsidiary.
When we use the term "principal property", we mean all land, buildings,
machinery and equipment, and leasehold interests and improvements relating to
these items, which would be reflected on our consolidated balance sheet prepared
in accordance with generally accepted accounting principles, excluding all
tangible property located outside the United States of America and excluding any
tangible property
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which, in the opinion of our board of directors set forth in a board resolution,
is not material to us and our consolidated subsidiaries taken as a whole.
When we use the term "restricted subsidiary", we mean any subsidiary which
is incorporated under the laws of any state of the United States or of the
District of Columbia, and which is a regulated insurance company principally
engaged in one or more of the property, casualty and life insurance businesses.
However, no subsidiary is a restricted subsidiary:
- if the total assets of that subsidiary are less than 10% of our total
assets and the total assets of our consolidated subsidiaries, including
that subsidiary, in each case as set forth on the most recent fiscal
year-end balance sheets of the subsidiary and us and our consolidated
subsidiaries, respectively, and computed in accordance with generally
accepted accounting principles, or
- if in the judgment of our board of directors, as evidenced by a board
resolution, the subsidiary is not material to the financial condition of
us and our subsidiaries taken as a whole.
As of the date of this prospectus, the following subsidiaries meet the
definition of restricted subsidiaries: Hartford Fire, Hartford Life Insurance
Company, Hartford Life and Accident Insurance Company and Hartford Life and
Annuity Insurance Company.
MODIFICATION AND WAIVER
MODIFICATION
We and the trustee may modify and amend each indenture with the consent of
the holders of a majority in aggregate principal amount of the series of debt
securities affected. However, no modification or amendment may, without the
consent of the holder of each outstanding debt security affected:
- change the stated maturity of the principal of, or any installment of
interest on, any outstanding debt security,
- reduce the principal amount of, or the rate of interest on or any premium
payable upon the redemption of, or the amount of principal of an original
issue discount security that would be due and payable upon a declaration
of acceleration of the maturity of, any outstanding debt security,
- change the place of payment, or the coin or currency in which any
outstanding debt security or the interest is payable,
- impair your right to institute suit for the enforcement of any payment on
or relating to any outstanding debt security after the stated maturity,
or
- change the amendment provisions of the indenture requiring the consent of
the affected holders for waiver of compliance with the indenture or
waiver of past defaults.
WAIVER
The holders of a majority in principal amount of the outstanding debt
securities of a series may, on behalf of the holders of all debt securities of
that series, waive compliance by us with certain restrictive covenants of the
indenture which relate to that series.
The holders of not less than a majority in principal amount of the
outstanding debt securities of a series may, on behalf of the holders of that
series, generally waive any past default under the indenture relating to that
series of debt securities. However, a default in the payment of the principal
of, or any interest on, any debt security of that series or relating to a
provision which under the indenture cannot be modified or amended without the
consent of the holder of each outstanding debt security of that series affected
cannot be so waived.
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EVENTS OF DEFAULT
Under the terms of each indenture, each of the following constitutes an
event of default for a series of debt securities:
- default for 30 days in the payment of any interest when due,
- default in the payment of principal, or premium, if any, at maturity,
- default in the performance of any other covenant in the indenture for 60
days after written notice,
- our bankruptcy, insolvency or reorganization,
- acceleration or default in the payment of indebtedness for borrowed money
in excess of $25,000,000, which has not been rescinded or annulled within
30 day after notice, or
- any other event of default described in the applicable board resolution
or supplemental indenture under which the series of debt securities is
issued.
We are required to furnish the trustee annually with a statement as to the
fulfillment of our obligations under the indenture. Each indenture provides that
the trustee may withhold notice to you of any default, except in respect of the
payment of principal or interest on the debt securities, if it considers it in
the interests of the holders of the debt securities to do so.
EFFECT OF AN EVENT OF DEFAULT
If an event of default exists, the trustee or the holders of not less than
25% in principal amount of a series of debt securities may declare the principal
amount, or, if the debt securities are original issue discount securities, the
portion of the principal amount as may be specified in the terms of that series,
of the debt securities of that series to be due and payable immediately, by a
notice in writing to us, and to the trustee if given by holders. Upon that
declaration the principal will become immediately due and payable. However, at
any time after a declaration of acceleration has been made, but before a
judgment or decree for payment of the money due has been obtained, the holders
of a majority in principal amount of outstanding debt securities may, subject to
conditions specified in the indenture, rescind and annul that declaration.
Subject to the provisions of the indentures relating to the duties of the
trustee, if an event of default then exists, the trustee will be under no
obligation to exercise any of its rights or powers under the indenture at your
request, order or direction, unless you have offered to the trustee reasonable
security or indemnity. Subject to the provisions for the security or
indemnification of the trustee, the holders of a majority in principal amount of
a series of outstanding debt securities have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
trustee, or exercising any trust or power conferred on the trustee in connection
with the debt securities of that series.
LEGAL PROCEEDINGS AND ENFORCEMENT OF RIGHT TO PAYMENT
You will not have any right to institute any proceeding in connection with
the indenture or for any remedy under the indenture, unless you have previously
given to the trustee written notice of a continuing event of default with
respect to debt securities of that series. In addition, the holders of at least
25% in principal amount of the outstanding debt securities must have made
written request, and offered reasonable indemnity, to the trustee to institute
that proceeding as trustee, and, within 60 days following the receipt of that
notice, the trustee must not have received from the holders of a majority in
principal amount of the outstanding debt securities of that series a direction
inconsistent with that request, and must have failed to institute the
proceeding. However, you will have an absolute right to receive payment of the
principal of, premium, if any, and interest on that debt security on or after
the due dates expressed in the debt security and to institute a suit for the
enforcement of that payment.
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SATISFACTION AND DISCHARGE
Each indenture provides that when, among other things, all debt securities
not previously delivered to the trustee for cancellation:
- have become due and payable, or
- will become due and payable at their stated maturity within one year,
and we deposit or cause to be deposited with the trustee, in trust, an amount in
the currency or currencies in which the debt securities are payable sufficient
to pay and discharge the entire indebtedness on the debt securities not
previously delivered to the trustee for cancellation, for the principal, and
premium, if any, and interest to the date of the deposit or to the stated
maturity, as the case may be, then the indenture will cease to be of further
effect, and we will be deemed to have satisfied and discharged the indenture.
However, we will continue to be obligated to pay all other sums due under the
indenture and to provide the officers' certificates and opinions of counsel
described in the indenture.
DEFEASANCE
Unless we state otherwise in the applicable prospectus supplement, each
indenture provides that we will be deemed to have paid and discharged the entire
indebtedness on all the debt securities of a series at any time prior to their
stated maturity or redemption when:
- we have irrevocably deposited or caused to be deposited with the trustee,
in trust, either:
- sufficient funds to pay and discharge the entire indebtedness on the
debt securities for the principal, premium, if any, and interest to
the stated maturity or any redemption date, or
- the amount of U.S. government securities as will, in the written
opinion of independent public accountants delivered to the trustee,
together with predetermined and certain income to accrue, without
consideration of any reinvestment, be sufficient to pay and
discharge when due the entire indebtedness on the debt securities
for principal, premium, if any, and interest to the stated maturity
or any redemption date; and
- we have paid or caused to be paid all other sums payable on the debt
securities; and
- we have delivered to the trustee an officer's certificate and an opinion
of counsel to the effect that:
- we have received from, or there has been published by, the Internal
Revenue Service a ruling, or
- since the date of execution of the applicable indenture, there has
been a change in the applicable federal income tax law,
in either case to the effect that the deposit and related defeasance would not
cause you to recognize income, gain or loss for federal income tax purposes; and
- we have delivered to the trustee an opinion of counsel that neither we
nor the trust held by the trustee will immediately after the deposit just
described be an "investment company" or a company "controlled" by an
"investment company" within the meaning of the Investment Company Act of
1940; and
- we have delivered to the trustee the other officer's certificates and
opinions of counsel as may be required by the indenture, each stating
that all conditions precedent relating to the satisfaction and discharge
of the entire indebtedness on all debt securities have been complied
with.
The subordinated indenture will not be discharged as described above if we
have defaulted in the payment of principal of, premium, if any, or interest on
any senior debt and that default is continuing or another event of default on
the senior debt then exists and has resulted in the senior debt becoming or
being declared due and payable prior to the date it would have become due and
payable.
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CONVERSION OR EXCHANGE
We may convert or exchange the debt securities into common stock or other
securities. If so, we will describe the specific terms on which the debt
securities may be converted or exchanged in the applicable prospectus
supplement. The conversion or exchange may be mandatory, at your option, or at
our option. The applicable prospectus supplement will describe the manner in
which the shares of common stock or other securities you would receive would be
converted or exchanged.
SUBORDINATION UNDER THE SUBORDINATED INDENTURE
In the subordinated indenture, we have agreed that any subordinated debt
securities are subordinate and junior in right of payment to all senior debt to
the extent provided in the subordinated indenture.
Upon any payment or distribution of assets to creditors upon any
liquidation, dissolution, winding up, reorganization, assignment for the benefit
of creditors, marshaling of assets or any bankruptcy, insolvency, debt
restructuring or similar proceedings in connection with our insolvency or
bankruptcy, the holders of senior debt will first be entitled to receive payment
in full of principal of, premium, if any, and interest on the senior debt before
the holders of subordinated debt securities will be entitled to receive or
retain any payment of the principal of, premium, if any, or interest on the
subordinated debt securities.
If the maturity of any subordinated debt securities is accelerated, the
holders of all senior debt outstanding at the time of the acceleration will
first be entitled to receive payment in full of all amounts due, including any
amounts due upon acceleration, before you will be entitled to receive any
payment of the principal of, premium, if any, or interest on the subordinated
debt securities.
We will not make any payments of principal of, premium, if any, or interest
on the subordinated debt securities if:
- a default in any payment on senior debt then exists,
- an event of default on any senior debt resulting in the acceleration of
its maturity then exists, or
- any judicial proceeding is pending in connection with default.
When we use the term "debt" we mean, with respect to any person, whether
recourse is to all or a portion of the assets of that person and whether or not
contingent:
- every obligation of that person for money borrowed,
- every obligation of that person evidenced by bonds, debentures, notes or
other similar instruments, including obligations incurred in connection
with the acquisition of property, assets or businesses,
- every reimbursement obligation of that person with respect to letters of
credit, bankers' acceptances or similar facilities issued for the account
of that person,
- every obligation of that person issued or assumed as the deferred
purchase price of property or services, but excluding trade accounts
payable or accrued liabilities arising in the ordinary course of
business,
- every capital lease obligation of that person, and
- every obligation of the type referred to in the prior five clauses of
another person and all dividends of another person the payment of which
that person has guaranteed or is responsible or liable for, directly or
indirectly, including as obligor.
When we use the term "senior debt" we mean the principal of, premium, if
any, and interest on debt, whether incurred on, prior to, or after the date of
the subordinated indenture, unless the instrument creating or evidencing that
debt or pursuant to which that debt is outstanding states that those obligations
are not superior in right of payment to the subordinated debt securities or to
other debt which ranks equally with, or junior to, the subordinated debt
securities. Interest on this senior debt includes interest accruing on or after
the filing of any petition in bankruptcy or for reorganization relating to The
Hartford
15
Financial Services Group, Inc., whether or not the claim for post-petition
interest is allowed in that proceeding.
However, senior debt will not include:
- any debt of The Hartford Financial Services Group, Inc. which when
incurred and without regard to any election under Section 1111(b) of the
Bankruptcy Code, was without recourse to The Hartford Financial Services
Group, Inc.,
- any debt of The Hartford Financial Services Group, Inc. to any of its
subsidiaries,
- debt to any employee of The Hartford Financial Services Group, Inc.,
- any liability for taxes, and
- indebtedness or monetary obligations to trade creditors or assumed by The
Hartford Financial Services Group, Inc. or any of its subsidiaries in the
ordinary course of business in connection with the obtaining of materials
or services.
We are a non-operating holding company, and most of our assets are owned by
our subsidiaries. Accordingly, the debt securities will be effectively
subordinated to all our existing and future liabilities, including liabilities
under contracts of insurance and annuities written by our insurance
subsidiaries. You should rely only on our assets for payments of interest and
principal and premium, if any. The payment of dividends by our insurance company
subsidiaries, including Hartford Fire, is limited under the insurance holding
company laws in the jurisdictions where those subsidiaries are domiciled. See
"The Hartford Financial Services Group, Inc."
The subordinated indenture does not limit the amount of additional senior
debt that we may incur. We expect from time to time to incur additional senior
debt.
The subordinated indenture provides that we may change the subordination
provisions relating to any particular issue of subordinated debt securities
prior to issuance. We will describe any change in the prospectus supplement
relating to the subordinated debt securities.
GOVERNING LAW
The indentures and the debt securities will be governed by and construed in
accordance with the laws of the State of New York.
CONCERNING THE TRUSTEES
Each of the trustees acts as depositary for funds of, makes loans to, and
performs other services for, us and our subsidiaries in the normal course of
business.
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DESCRIPTION OF JUNIOR SUBORDINATED DEBENTURES
We will issue the junior subordinated debentures in one or more series
under a junior subordinated indenture, as supplemented from time to time,
between us and Wilmington Trust Company, as debenture trustee.
The following description of the terms of the junior subordinated
debentures is a summary. It summarizes only those terms of the junior
subordinated debentures which we believe will be most important to your decision
to invest in our junior subordinated debentures. You should keep in mind,
however, that it is the junior subordinated indenture, and not this summary,
which defines your rights as a holder of our junior subordinated debentures.
There may be other provisions in the junior subordinated indenture which are
also important to you. You should read the junior subordinated indenture for a
full description of the terms of the junior subordinated debentures. The junior
subordinated indenture is filed as an exhibit to the Registration Agreement that
includes this prospectus. See "Where You Can Find More Information" for
information on how to obtain a copy of the junior subordinated indenture.
RANKING OF THE JUNIOR SUBORDINATED DEBENTURES
Each series of junior subordinated debentures will rank equally with all
other series of junior subordinated debentures, and will be unsecured and
subordinate and junior in right of payment, as described in the junior
subordinated indenture, to all of our senior debt. See "-- Subordination."
As a non-operating holding company, most of our operating assets and the
assets of our consolidated subsidiaries are owned by our subsidiaries. We rely
primarily on dividends from our subsidiaries to meet our obligations for payment
of principal and interest on our outstanding debt obligations and corporate
expenses. Accordingly, the junior subordinated debentures will be effectively
subordinated to all existing and future liabilities of our subsidiaries. You
should rely only on our assets for payments on the junior subordinated
debentures. The payment of dividends by our insurance company subsidiaries,
including Hartford Fire, is limited under the insurance holding company laws in
which those subsidiaries are domiciled. See "The Hartford Financial Services
Group, Inc."
Unless we state otherwise in the applicable prospectus supplement, the
junior subordinated indenture does not limit us from incurring or issuing other
secured or unsecured debt under the junior subordinated indenture or any other
indenture that we may have entered into or enter into in the future. See
"-- Subordination" and the prospectus supplement relating to any offering of
securities.
TERMS OF THE JUNIOR SUBORDINATED DEBENTURES
We may issue the junior subordinated debentures in one or more series
through an indenture that supplements the junior subordinated indenture or
through a resolution of our board of directors or an authorized committee of our
board of directors.
You should refer to the applicable prospectus supplement for the specific
terms of the junior subordinated debentures. These may include:
- the title and any limit upon the aggregate principal amount,
- the date(s) on which the principal is payable or the method of
determining those date(s),
- the interest rate(s) or the method of determining these interest rate(s),
- the date(s) on which interest will be payable or the method of
determining these date(s),
- the circumstances in which interest may be deferred, if any,
- the regular record date or the method of determining this date,
- the place or places where we may pay principal, premium, if any, and
interest,
- conversion or exchange provisions, if any,
17
- the redemption or early payment provisions,
- the authorized denominations,
- the currency, currencies or currency units in which we may pay the
purchase price for, the principal of, premium, if any, and interest on
the junior subordinated debentures,
- additions to or changes in the events of default or any changes in any of
our covenants specified in the junior subordinated indenture,
- any index or indices used to determine the amount of payments of
principal and premium, if any, or the method of determining these
amounts,
- whether a temporary global security will be issued and the terms upon
which you may exchange a temporary global security for definitive junior
subordinated debt securities,
- whether we will issue the junior subordinated debt securities in whole or
in part in the form of one or more global securities,
- the terms and conditions of any obligation or right we would have to
convert or exchange the junior subordinated debentures into preferred
securities or other securities, and
- additional terms not inconsistent with the provisions of the junior
subordinated indenture.
SPECIAL PAYMENT TERMS OF THE JUNIOR SUBORDINATED DEBENTURES
We may issue junior subordinated debentures at a substantial discount below
their stated principal amount, bearing no interest or interest at a rate which
at the time of issuance is below market rates. We will describe United States
Federal income tax consequences and special considerations relating to any
junior subordinated debentures in the applicable prospectus supplement.
The purchase price of any of the junior subordinated debentures may be
payable in one or more foreign currencies or currency units. The junior
subordinated debentures may be denominated in one or more foreign currencies or
currency units, or the principal of, premium, if any, or interest on any junior
subordinated debentures may be payable in one or more foreign currencies or
currency units. We will describe the restrictions, elections, federal income tax
considerations, specific terms and other information relating to the junior
subordinated debentures and the foreign currency units in the applicable
prospectus supplement.
If we use any index to determine the amount of payments of principal of,
premium, if any, or interest on any series of junior subordinated debentures, we
will also describe special federal income tax, accounting and other
considerations relating to the junior subordinated debentures in the applicable
prospectus supplement.
DENOMINATIONS, REGISTRATION AND TRANSFER
Unless we state otherwise in the applicable prospectus supplement, we will
issue the junior subordinated debentures only in registered form without coupons
in denominations of $25 and any integral multiple of $25. Junior subordinated
debentures of any series will be exchangeable for other junior subordinated
debentures of the same issue and series, of any authorized denominations, of a
like aggregate principal amount, of the same original issue date and stated
maturity and bearing the same interest rate.
You may present junior subordinated debentures for exchange as described
above, or for registration of transfer, at the office of the securities
registrar or at the office of any transfer agent we designate for that purpose.
You will not incur a service charge but you must pay any taxes and other
governmental charges as described in the indenture. We will appoint the trustees
as securities registrars under the indentures. We may at any time rescind the
designation of any transfer agent that we initially designate or approve a
change in the location through which the transfer agent acts. We must maintain a
transfer agent
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in each place of payment. We will specify the transfer agent in the applicable
prospectus supplement. We may at any time designate additional transfer agents.
If we redeem any junior subordinated debentures, neither we nor the
debenture trustee will be required to:
- issue, register the transfer of, or exchange junior subordinated
debentures during a period beginning at the opening of business 15 days
before the day of selection for redemption of the junior subordinated
debentures and ending at the close of business on the day of mailing of
the relevant notice of redemption, or
- transfer or exchange any junior subordinated debentures selected for
redemption, except for any portion not redeemed of any junior
subordinated debenture that is being redeemed in part.
GLOBAL JUNIOR SUBORDINATED DEBENTURES
We may issue a series of junior subordinated debentures in the form of one
or more global junior subordinated debentures. We will identify the depositary
holding the global junior subordinated debentures in the applicable prospectus
supplement. We will issue global junior subordinated debentures only in fully
registered form and in either temporary or permanent form. Unless it is
exchanged for an individual junior subordinated debenture, a global junior
subordinated debenture may not be transferred except:
- by the depositary to its nominee,
- by a nominee of the depositary to the depositary or another nominee, or
- by the depositary or any nominee to a successor depositary, or any
nominee of the successor.
We will describe the specific terms of the depositary arrangement in the
applicable prospectus supplement. We expect that the following provisions will
generally apply to these depositary arrangements.
BENEFICIAL INTERESTS IN A GLOBAL JUNIOR SUBORDINATED DEBENTURE
If we issue a global junior subordinated debenture, the depositary for the
global junior subordinated debenture or its nominee will credit on its
book-entry registration and transfer system the principal amounts of the
individual junior subordinated debentures represented by the global junior
subordinated debenture to the accounts of persons that have accounts with it. We
refer to those persons as "participants" in this prospectus. The accounts will
be designated by the dealers, underwriters or agents for the junior subordinated
debentures, or by us if the junior subordinated debentures are offered and sold
directly by us. Ownership of beneficial interests in a global junior
subordinated debenture will be limited to participants or persons that may hold
interests through participants. Ownership and transfers of beneficial interests
in the global junior subordinated debenture will be shown on, and effected only
through, records maintained by the applicable depositary or its nominee, for
interests of participants, and the records of participants, for interests of
persons who hold through participants. The laws of some states require that you
take physical delivery of securities in definitive form. These limits and laws
may impair your ability to transfer beneficial interests in a global junior
subordinated debenture.
So long as the depositary or its nominee is the registered owner of the
global junior subordinated debenture, the depositary or the nominee will be
considered the sole owner or holder of the junior subordinated debentures
represented by the global junior subordinated debenture for all purposes under
the junior subordinated indenture. Except as provided below, you:
- will not be entitled to have any of the individual junior subordinated
debentures represented by the global junior subordinated debenture
registered in your name,
- will not receive or be entitled to receive physical delivery of any
junior subordinated debentures in definitive form, and
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- will not be considered the owner or holder of the junior subordinated
debenture under the junior subordinated indenture.
PAYMENTS OF PRINCIPAL, PREMIUM AND INTEREST
We will make principal, premium and interest payments on global junior
subordinated debentures to the depositary that is the registered holder of the
global junior subordinated debenture or its nominee. The depositary for the
junior subordinated debentures will be solely responsible and liable for all
payments made on account of your beneficial ownership interests in the global
junior subordinated debenture and for maintaining, supervising and reviewing any
records relating to your beneficial ownership interests.
We expect that the depositary or its nominee, upon receipt of principal,
premium or interest payments, immediately will credit participants' accounts
with amounts in proportion to their respective beneficial interests in the
principal amount of the global junior subordinated debenture as shown on the
records of the depositary or its nominee. We also expect that payments by
participants to you, as an owner of a beneficial interest in the global junior
subordinated debenture held through those participants, will be governed by
standing instructions and customary practices, as is now the case with
securities held for the accounts of customers in bearer form or registered in
"street name." These payments will be the responsibility of those participants.
ISSUANCE OF INDIVIDUAL JUNIOR SUBORDINATED DEBENTURES
Unless we state otherwise in the applicable prospectus supplement, if a
depositary for a series of junior subordinated debentures is at any time
unwilling, unable or ineligible to continue as depositary and we do not appoint
a successor depositary within 90 days, we will issue individual junior
subordinated debentures in exchange for the global junior subordinated
debenture. In addition, we may at any time and in our sole discretion, subject
to any limitations described in the prospectus supplement relating to the junior
subordinated debentures, determine not to have any junior subordinated
debentures represented by one or more global junior subordinated debentures. If
that occurs, we will issue individual junior subordinated debentures in exchange
for the global junior subordinated debenture.
Further, we may specify that you may, on terms acceptable to us, the
debenture trustee and the depositary for the global junior subordinated
debenture, receive individual junior subordinated debentures in exchange for
your beneficial interest in a global junior subordinated debenture, subject to
any limitations described in the prospectus supplement relating to the junior
subordinated debentures. In that instance, you will be entitled to physical
delivery of individual junior subordinated debentures equal in principal amount
to that beneficial interest and to have the junior subordinated debentures
registered in your name. Unless we otherwise specify, those individual junior
subordinated debentures will be issued in denominations of $25 and integral
multiples of $25.
PAYMENT AND PAYING AGENTS
Unless we state otherwise in the applicable prospectus supplement, we will
pay principal of, premium, if any, and interest on your junior subordinated
debentures at the office of the debenture trustee in the City of New York or at
the office of any paying agent that we may designate. In addition, we may pay
interest:
- except in the case of global junior subordinated debentures, by check
mailed to the address of the person entitled to the payment that appears
in the securities register, or
- by transfer to an account maintained by the person entitled to the
payment as specified in the securities register.
Unless we state otherwise in the applicable prospectus supplement, we will
pay any interest on junior subordinated debentures to the registered owner of
the junior subordinated debenture at the close of business on the regular record
date for the interest, except in the case of defaulted interest. We may at any
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time designate additional paying agents or rescind the designation of any paying
agent. We must maintain a paying agent in each place of payment for the junior
subordinated debentures.
Any moneys deposited with the debenture trustee or any paying agent, or
then held by us in trust, for the payment of the principal of, premium, if any,
and interest on any junior subordinated debenture that remain unclaimed for two
years after the principal, premium or interest has become due and payable will,
at our request, be repaid to us. After repayment to us, you are entitled to seek
payment only from us as a general unsecured creditor.
REDEMPTION
Unless we state otherwise in the applicable prospectus supplement, junior
subordinated debentures will not be subject to any sinking fund.
We may, at our option, redeem any series of junior subordinated debentures
on any interest payment date in whole or in part. We may redeem junior
subordinated debentures in denominations larger than $25 but only in integral
multiples of $25.
REDEMPTION PRICE
Except as we may otherwise specify in the applicable prospectus supplement,
the redemption price for any junior subordinated debenture redeemed will equal
any accrued and unpaid interest to the redemption date, plus the greater of:
- the principal amount, and
- an amount equal to:
- for junior subordinated debentures bearing interest at a fixed rate,
the discounted remaining fixed amount payments, calculated as
described below, or
- for junior subordinated debentures bearing interest determined by
reference to a floating rate, the discounted swap equivalent
payments, calculated as described below, to determine any redemption
premium based upon the value of interest payable on an equivalent
fixed rate junior subordinated debenture.
The discounted remaining fixed amount payments will equal the sum of the
current values of the amounts of interest and principal that would have been
payable by us on each interest payment date after the redemption date and at
stated maturity of the final payment of principal. This calculation will take
into account any required sinking fund payments, but will otherwise assume that
we have not redeemed the junior subordinated debenture prior to the stated
maturity.
The current value of any amount is the present value of that amount on the
redemption date after discounting that amount on a monthly, quarterly or
semiannual basis, whichever corresponds to the interest payment date periods of
the related series of junior subordinated debentures, from the originally
scheduled date for payment. We will use the treasury rate to calculate this
present value.
The treasury rate is a per annum rate, expressed as a decimal and, in the
case of United States Treasury bills, converted to a per annum yield, determined
on the redemption date to be the per annum rate equal to the semiannual bond
equivalent yield to maturity, adjusted to reflect monthly or quarterly
compounding in the case of junior subordinated debentures having monthly or
quarterly interest payment dates for United States Treasury securities maturing
at the stated maturity of the final payment of principal of the junior
subordinated debentures redeemed. We will determine this rate by reference to
the weekly average yield to maturity for United States Treasury securities
maturing on that stated maturity if reported in the most recent Statistical
Release H.15(519) of the Board of Governors of the Federal Reserve. If no such
securities mature at the stated maturity, we will determine the rate by
interpolation between the most recent weekly average yields to maturity for two
series of United States Treasury securities, (1) one maturing as close as
possible to, but earlier than, the stated maturity and (2) the other
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maturing as close as possible to, but later than, the stated maturity, in each
case as published in the most recent Statistical Release H.15(519) of the Board
of Governors of the Federal Reserve.
The discounted swap equivalent payments will equal the sum of:
- the current value of the amount of principal that would have been payable
by us pursuant to the terms of the junior subordinated debenture at the
stated maturity of the final payment of the principal of the junior
subordinated debentures. This calculation will take into account any
required sinking fund payments but will otherwise assume that we had not
redeemed the junior subordinated debenture prior to the stated maturity,
and
- the sum of the current values of the fixed rate payments that leading
interest rate swap dealers would require to be paid by an assumed fixed
rate payer having the same credit standing as ours against floating rate
payments to be made by these leading dealers equal to the interest
payments on the junior subordinated debentures being redeemed, taking
into account any required sinking fund payment, but otherwise assuming we
had not redeemed the junior subordinated debenture prior to the stated
maturity, under a standard interest rate swap agreement having a notional
principal amount equal to the principal amount of the junior subordinated
debentures, a termination date set at the stated maturity of the junior
subordinated debentures and payment dates for both fixed and floating
rate payers set at each interest payment date of the junior subordinated
debentures. The amount of the fixed rate payments will be based on
quotations received by the trustee, or an agent appointed for that
purpose, from four leading interest rate swap dealers or, if quotations
from four leading interest rate swap dealers are not obtainable, three
leading interest rate swap dealers.
DEBENTURE TAX EVENT REDEMPTION
Unless we state otherwise in the applicable prospectus supplement, if a
debenture tax event relating to a series of junior subordinated debentures then
exists, we may, at our option, redeem the series of junior subordinated
debentures in whole, but not in part, on any interest payment date within 90
days of the debenture tax event occurring. The redemption price will equal the
principal amount of the junior subordinated debentures then outstanding plus
accrued and unpaid interest to the date fixed for redemption.
A "debenture tax event" occurs when we receive an opinion of counsel
experienced in these matters to the effect that, as a result of any amendment
to, or change, including any announced prospective change in, the laws or
regulations of the United States or any political subdivision or taxing
authority affecting taxation, or as a result of any official administrative
pronouncement or judicial decision interpreting or applying those laws or
regulations, which amendment or change is effective or pronouncement or decision
is announced on or after the date we issue the applicable series of junior
subordinated debentures, there is more than an insubstantial risk that interest
payable by us on the series of junior subordinated debentures is not, or within
90 days of that date, will not be, deductible, in whole or in part, for United
States federal income tax purposes.
NOTICE OF REDEMPTION
We will mail notice of any redemption of your junior subordinated
debentures at least 30 days but not more than 60 days before the redemption date
to you at your registered address. Unless we default in payment of the
redemption price, on and after the redemption date interest will cease to accrue
on the junior subordinated debentures or the portions called for redemption.
OPTION TO EXTEND INTEREST PAYMENT DATE
If provided in the applicable prospectus supplement, we will have the right
during the term of any series of junior subordinated debentures to extend the
interest payment period for a specified number of interest payment periods,
subject to the terms, conditions and covenants specified in the prospectus
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supplement. However, we may not extend these interest payments beyond the
maturity of the junior subordinated debentures. We will describe the federal
income tax consequences and special considerations relating to any junior
subordinated debentures in the applicable prospectus supplement.
If we exercise this right, during the extension period we and our
subsidiaries may not:
- declare or pay any dividends or distributions on, or redeem, purchase,
acquire or make a liquidation payment on, any of our capital stock, or
- make any payment of principal, premium, if any, or interest on or repay,
repurchase or redeem any debt securities that rank equally with or junior
in interest to the junior subordinated debentures or make any related
guarantee payments,
other than:
- dividends or distributions on our common stock,
- redemptions or purchases of any rights pursuant to our rights plan, or
any successor to our rights plan, and the declaration of a dividend of
these rights in the future, and
- payments under any guarantee.
MODIFICATION OF INDENTURE
We and the debenture trustee may, without the consent of the holders of
junior subordinated debentures, amend, waive or supplement the junior
subordinated indenture for specified purposes, including, among other things,
curing ambiguities, defects or inconsistencies. However, no action may
materially adversely affect the interests of holders of any series of junior
subordinated debentures or, in the case of corresponding junior subordinated
debentures, the holders of the corresponding series of preferred securities so
long as they remain outstanding. We may also amend the junior subordinated
indenture to maintain the qualification of the indenture under the Trust
Indenture Act.
We and the debenture trustee may, with the consent of the holders of not
less than a majority in principal amount of the series of junior subordinated
debentures affected, modify the junior subordinated indenture in a manner
affecting the rights of the holders of junior subordinated debentures. However,
no modification may, without the consent of the holder of each outstanding
junior subordinated debenture affected:
- change the stated maturity of the junior subordinated debentures,
- reduce the principal amount of the junior subordinated debentures,
- reduce the rate or extend the time of payment of interest on the junior
subordinated debentures, or
- reduce the percentage of principal amount of the junior subordinated
debentures, the holders of which are required to consent to the
modification of the junior subordinated indenture.
In the case of corresponding junior subordinated debentures, so long as any
of the corresponding series of preferred securities remain outstanding:
- no such modification may be made that adversely affects the holders of
the preferred securities,
- no termination of the junior subordinated indenture may occur, and
- no waiver of any debenture event of default or compliance with any
covenant under the junior subordinated indenture may be effective,
without the prior consent of the holders of at least a majority of the aggregate
liquidation preference of the preferred securities unless the principal of the
corresponding junior subordinated debentures and all accrued and unpaid interest
on the corresponding junior subordinated debentures have been paid in full and
other conditions are satisfied.
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In addition, we and the debenture trustee may execute, without your
consent, any supplemental indenture for the purpose of creating any new series
of junior subordinated debentures.
DEBENTURE EVENTS OF DEFAULT
Under the terms of the junior subordinated indenture, each of the following
constitutes a debenture event of default for a series of junior subordinated
debentures:
- failure for 30 days to pay any interest on the series of junior
subordinated debentures when due, subject to the deferral of any due date
in the case of an extension period,
- failure to pay any principal or premium, if any, on the series of junior
subordinated debentures when due, including at maturity, upon redemption
or by declaration,
- failure to observe or perform in any material respect specified other
covenants contained in the indenture for 90 days after written notice
from the debenture trustee or the holders of at least 25% in principal
amount of the relevant series of outstanding junior subordinated
debentures,
- our bankruptcy, insolvency or reorganization, or
- any other event of default described in the applicable board resolution
or supplemental indenture under which the series of debt securities is
issued.
EFFECT OF EVENT OF DEFAULT
The holders of a majority in outstanding principal amount of the series of
junior subordinated debentures have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the debenture
trustee. The debenture trustee or the holders of not less than 25% in aggregate
outstanding principal amount of the series of junior subordinated debentures may
declare the principal due and payable immediately upon a debenture event of
default. In the case of corresponding junior subordinated debentures, if the
debenture trustee or the holders of the corresponding junior subordinated
debentures fail to make this declaration, the holders of at least 25% in
aggregate liquidation preference of the corresponding series of preferred
securities will have that right.
WAIVER OF EVENT OF DEFAULT
The holders of a majority in aggregate outstanding principal amount of the
series of junior subordinated debentures may annul the declaration and waive the
default if:
- the default is other than our non-payment of the principal of the junior
subordinated debentures which has become due solely by such acceleration,
- the default has been cured, and
- we have deposited with the debenture trustee a sum sufficient to pay all
matured installments of interest and principal due other than by
acceleration.
The holders of a majority in outstanding principal amount of the junior
subordinated debentures affected by the default may, on behalf of the holders of
all the junior subordinated debentures, waive any past default, except:
- a default in the payment of principal or interest, unless the default has
been cured and we have deposited with the debenture trustee a sum
sufficient to pay all matured installments of interest and principal due
other than by acceleration, or
- a default relating to a covenant or provision which under the junior
subordinated indenture cannot be modified or amended without the consent
of the holder of each outstanding junior subordinated debenture.
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We are required under the junior subordinated indenture to file annually
with the junior subordinated indenture trustee a certificate of compliance.
If a debenture event of default then exists as to a series of corresponding
junior subordinated debentures, the property trustee will have the right to
declare the principal of and the interest on the corresponding junior
subordinated debentures, and any other amounts payable under the indenture, to
be due and payable and to enforce its other rights as a creditor in connection
with the corresponding junior subordinated debentures.
DIRECT ACTIONS BY PREFERRED SECURITYHOLDERS
If a debenture event of default is attributable to our failure to pay
interest or principal on the corresponding junior subordinated debentures on the
date the interest or principal is payable, you, as a holder of preferred
securities, may institute a legal proceeding directly against us, which we refer
to in this prospectus as a "direct action," for enforcement of payment to you of
the principal of or interest on the corresponding junior subordinated debentures
having a principal amount equal to the aggregate liquidation amount of your
related preferred securities.
We may not amend the junior subordinated indenture to remove the right to
bring a direct action without the prior written consent of the holders of all of
the preferred securities. If the right to bring a direct action is removed, the
applicable issue may become subject to the reporting obligations under the
Securities Exchange Act of 1934. We have the right under the junior subordinated
indenture to set-off any payment made to you as a holder of preferred securities
by us in connection with a direct action. You will not be able to exercise
directly any other remedy available to holders of the corresponding junior
subordinated debentures.
You will not be able to exercise directly any remedies other than those
described in the preceding paragraph available to holders of the junior
subordinated debentures unless there has been an event of default under the
trust agreement.
CONSOLIDATION, MERGER, SALE OF ASSETS AND OTHER TRANSACTIONS
We will not consolidate with or merge into any other corporation or convey,
transfer or lease our properties and assets substantially as an entirety to any
person, and no person will consolidate with or merge into us or convey, transfer
or lease its properties and assets substantially as an entirety to us, unless:
- if we consolidate with or merge into another corporation or convey or
transfer our properties and assets substantially as an entirety to any
person, the successor corporation is organized under the laws of the
United States or any state or the District of Columbia, and the successor
corporation expressly assumes our obligations relating to the junior
subordinated debentures,
- immediately after giving effect to the consolidation, merger, conveyance
or transfer, there exists no debenture event of default, and no event
which, after notice or lapse of time or both, would become a debenture
event of default,
- in the case of corresponding junior subordinated debentures, the
transaction is permitted under the related trust agreement or guarantee
and does not give rise to any breach or violation of the related trust
agreement or guarantee, and
- other conditions described in the junior subordinated indenture are met.
The general provisions of the junior subordinated indenture do not protect
you against transactions, such as a highly leveraged transaction, that may
adversely affect you.
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SATISFACTION AND DISCHARGE
The junior subordinated indenture provides that when, among other things,
all junior subordinated debentures not previously delivered to the debenture
trustee for cancellation:
- have become due and payable, or
- will become due and payable at their stated maturity within one year,
and we deposit or cause to be deposited with the debenture trustee, in trust, an
amount in the currency or currencies in which the junior subordinated debentures
are payable sufficient to pay and discharge the entire indebtedness on the
junior subordinated debentures not previously delivered to the debenture trustee
for cancellation, for the principal, premium, if any, and interest on the date
of the deposit or to the stated maturity, as the case may be, then the junior
subordinated indenture will cease to be of further effect and we will be deemed
to have satisfied and discharged the indenture. However, we will continue to be
obligated to pay all other sums due under the junior subordinated indenture and
to provide the officers' certificates and opinions of counsel described in the
junior subordinated indenture.
CONVERSION OR EXCHANGE
We may convert or exchange the junior subordinated debentures into
preferred securities or other securities. If so, we will describe the specific
terms on which junior subordinated debentures may be converted or exchanged in
the applicable prospectus supplement. The conversion or exchange may be
mandatory, at your option or at our option. The applicable prospectus supplement
will state the manner in which the preferred securities you would receive would
be converted or exchanged.
SUBORDINATION
In the junior subordinated indenture, we have agreed that any junior
subordinated debentures will be subordinate and junior in right of payment to
all senior debt to the extent provided in the junior subordinated indenture.
Upon any payment or distribution of assets to creditors upon any
liquidation, dissolution, winding up, reorganization, assignment for the benefit
of creditors, marshaling of assets or any bankruptcy, insolvency, debt
restructuring or similar proceedings in connection with our insolvency or
bankruptcy, the holders of senior debt will first be entitled to receive payment
in full of principal of, premium, if any, and interest on the senior debt before
the holders of junior subordinated debentures or, in the case of corresponding
junior subordinated debentures, the property trustee on behalf of the holders,
will be entitled to receive or retain any payment of the principal, premium, if
any, or interest on the junior subordinated debentures.
If the maturity of any junior subordinated debentures is accelerated, the
holders of all senior debt outstanding at the time of the acceleration will
first be entitled to receive payment in full of all amounts due, including any
amounts due upon acceleration, before you will be entitled to receive any
payment of the principal of, premium, if any, or interest on the junior
subordinated debentures.
We will not make any payments of principal of, premium, if any, or interest
on the junior subordinated debentures if:
- a default in any payment on senior debt then exists,
- an event of default on any senior debt resulting in the acceleration of
its maturity then exists, or
- any judicial proceeding is pending in connection with a default.
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When we use the term "debt", we mean, with respect to any person, whether
recourse is to all or a portion of the assets of that person and whether or not
contingent:
- every obligation of that person for money borrowed,
- every obligation of that person evidenced by bonds, debentures, notes or
other similar instruments, including obligations incurred in connection
with the acquisition of property, assets or businesses,
- every reimbursement obligation of that person with respect to letters of
credit, bankers' acceptances or similar facilities issued for the account
of the person,
- every obligation of that person issued or assumed as the deferred
purchase price of property or services, but excluding trade accounts
payable or accrued liabilities arising in the ordinary course of
business,
- every capital lease obligation of that person, and
- every obligation of the type referred to in the prior five clauses of
another person and all dividends of another person the payment of which
the person has guaranteed or is responsible or liable for, directly or
indirectly, including as obligor.
When we use the term "senior debt" we mean the principal, premium, if any,
and interest on debt, whether incurred on, prior to or after the date of the
junior subordinated indenture, unless the instrument creating or evidencing that
debt or pursuant to which that debt is outstanding states that those obligations
are not superior in right of payment to the junior subordinated debentures or to
other debt which ranks equally with, or junior to, the junior subordinated
debentures. Interest on this senior debt includes interest accruing on or after
the filing of any petition in bankruptcy or for reorganization relating to The
Hartford Financial Services Group, Inc., whether or not the claim for
post-petition interest is allowed in that proceeding.
However, senior debt will not include:
- any debt of The Hartford Financial Services Group, Inc. which when
incurred and without regard to any election under Section 1111(b) of the
Bankruptcy code, was without recourse to The Hartford Financial Services
Group, Inc.,
- any debt of The Hartford Financial Services Group, Inc. to any of its
subsidiaries,
- debt to any employee of The Hartford Financial Services Group, Inc.,
- any liability for taxes,
- indebtedness or monetary obligations to trade creditors or assumed by The
Hartford Financial Services Group, Inc. or any of its subsidiaries in the
ordinary course of business in connection with the obtaining of materials
or services, and
- any other junior subordinated debentures issued pursuant to the Junior
Subordinated Indenture, dated as of February 28, 1996 and the Junior
Subordinated Indenture, dated as of October 30, 1996.
We are a non-operating holding company, and most of our assets are owned by
our subsidiaries. Accordingly, the junior subordinated debentures will be
effectively subordinated to all existing and future liabilities of our
subsidiaries, including liabilities under contracts of insurance and annuities
written by our insurance subsidiaries. You should rely only on our assets for
payments of interest and principal and premium, if any. The payment of dividends
by our insurance company subsidiaries, including Hartford Fire, is limited under
the insurance holding company laws in the jurisdictions where those subsidiaries
are domiciled. See "The Hartford Financial Services Group, Inc."
The junior subordinated indenture does not limit the amount of additional
senior debt that we may incur. We expect from time to time to incur additional
senior debt.
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The indenture provides that we may change the subordination provisions
relating to any particular issue of junior subordinated debentures prior to
issuance. We will describe any change in the prospectus supplement relating to
the junior subordinated debentures.
GOVERNING LAW
The junior subordinated indenture and the junior subordinated debentures
will be governed by and construed in accordance with the laws of the State of
New York.
INFORMATION CONCERNING THE DEBENTURE TRUSTEE
The debenture trustee will have all the duties and responsibilities of an
indenture trustee specified in the Trust Indenture Act. Subject to those
provisions, the debenture trustee is not required to exercise any of its powers
under the junior subordinated indenture at your request, unless you offer
reasonable indemnity against the costs, expenses and liabilities which the
trustee might incur. The debenture trustee is not required to expend or risk its
own funds or incur personal financial liability in performing its duties if the
debenture trustee reasonably believes that it is not reasonably assured of
repayment or adequate indemnity.
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DESCRIPTION OF CAPITAL STOCK OF
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
AUTHORIZED AND OUTSTANDING CAPITAL STOCK
Our Amended and Restated Certificate of Incorporation, as amended effective
May 1, 2002, provides that our authorized capital stock is 800,000,000 shares.
These shares consist of:
- 50,000,000 shares of preferred stock, par value $.01 per share, of which
300,000 shares were designated as Series A Participating Cumulative
Preferred Stock; and
- 750,000,000 shares of common stock, par value $.01 per share.
As of April 30, 2002, we had 247,428,540 outstanding shares of common
stock. Holders of common stock have received a right entitling them, when the
right becomes exercisable, to purchase shares of Series A Participating
Cumulative Preferred Stock. See "-- Rights Agreement." No shares of preferred
stock are currently outstanding.
No holders of any class of our capital stock are entitled to preemptive
rights.
In general, the classes of authorized capital stock are afforded
preferences in relation to dividends and liquidation rights in the order listed
above. Our board of directors is empowered, without approval of our
stockholders, to cause the preferred stock to be issued in one or more series,
with the numbers of shares of each series and the rights, preferences and
limitations of each series to be determined by it. The specific matters that may
be determined by our board of directors include the dividend rights, voting
rights, redemption rights, liquidation preferences, if any, conversion and
exchange rights, retirement and sinking fund provisions and other rights,
qualifications, limitations and restrictions of any wholly unissued series of
preferred stock, or of the entire class of preferred stock if none of the shares
have been issued, the number of shares constituting that series and the terms
and conditions of the issue of the shares.
The following description of our capital stock is a summary. It summarizes
only those aspects of our capital stock which we believe will be most important
to your decision to invest in our capital stock. You should keep in mind,
however, that it is our Amended and Restated Certificate of Incorporation and
our Amended and Restated By-laws, and not this summary, which defines your
rights as a securityholder. There may be other provisions in these documents
which are also important to you. You should read these documents for a full
description of the terms of our capital stock. Our Amended and Restated
Certificate of Incorporation and our Amended and Restated By-Laws are
incorporated by reference as exhibits to the Registration Statement that
includes this prospectus. See "Where You Can Find More Information" for
information on how to obtain copies of these documents.
COMMON STOCK
Subject to any preferential rights of any preferred stock created by our
board of directors, as a holder of our common stock you are entitled to
dividends as our board of directors may declare from time to time out of funds
that we can legally use to pay dividends. The holders of common stock possess
exclusive voting rights, except to the extent our board of directors specifies
voting power for any preferred stock that is issued.
As a holder of our common stock, you are entitled to one vote for each
share of common stock and do not have any right to cumulate votes in the
election of directors. In the event of our liquidation, dissolution or
winding-up, you will be entitled to receive on a proportionate basis any assets
remaining after provision for payment of creditors and after payment of any
liquidation preferences to holders of preferred stock. Our common stock is
listed on the New York Stock Exchange under the symbol "HIG".
The transfer agent and registrar for our common stock is The Bank of New
York.
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PREFERRED STOCK
We will describe the particular terms of any series of preferred stock in
the prospectus supplement relating to the offering.
We will fix or designate the rights, preferences, privileges and
restrictions, including dividend rights, voting rights, terms of redemption,
retirement and sinking fund provisions and liquidation preferences, if any, of a
series of preferred stock through a certificate of designation adopted by our
board of directors or a duly authorized committee of our board of directors. We
will describe the terms, if any, on which shares of any series of preferred
stock are convertible or exchangeable into common stock in the prospectus
supplement relating to the offering. The conversion or exchange may be
mandatory, at your option or at our option. The applicable prospectus supplement
will state the manner in which the shares of common stock that you will receive
as a holder of preferred stock would be converted or exchanged.
On October 10, 1995, our board of directors declared a dividend of rights
to holders of record of our common stock outstanding as of the close of business
on December 19, 1995, with respect to common stock issued after that date until
the distribution date, and, in certain circumstances, with respect to common
stock issued after the distribution date. When those rights become exercisable,
holders of the rights will be entitled to purchase shares of Series A
Participating Cumulative Preferred Stock. See "-- Rights Agreement."
DEPOSITARY SHARES
GENERAL TERMS
We may elect to offer depositary shares representing receipts for
fractional interests in preferred stock, rather than full shares of preferred
stock. In this case, we will issue receipts for depositary shares, each of which
will represent a fraction of a share of a particular series of preferred stock.
We will deposit the shares of any series of preferred stock represented by
depositary shares under a deposit agreement between us and a depositary which we
will name in a prospectus supplement. Subject to the terms of the deposit
agreement, as an owner of a depositary share you will be entitled, in proportion
to the applicable fraction of a share of preferred stock represented by the
depositary share, to all the rights and preferences of the preferred stock
represented by the depositary share, including dividend, voting, redemption,
subscription and liquidation rights.
The following description of the terms of the deposit agreement is a
summary. It summarizes only those terms of the deposit agreement which we
believe will be most important to your decision to invest in our depositary
shares. You should keep in mind, however, that it is the deposit agreement, and
not this summary, which defines your rights as a holder of depositary shares.
There may be other provisions in the deposit agreement which are also important
to you. You should read the deposit agreement for a full description of the
terms of the depositary shares. The form of the deposit agreement is filed as an
exhibit to the Registration Statement that includes this prospectus. See "Where
You Can Find More Information" for information on how to obtain a copy of the
deposit agreement.
DIVIDENDS AND OTHER DISTRIBUTIONS
The depositary will distribute all cash dividends or other cash
distributions received on the preferred stock to you in proportion to the number
of depositary shares that you own.
In the event of a distribution other than in cash, the depositary will
distribute property received by it to you in an equitable manner, unless the
depositary determines that it is not feasible to make a distribution. In that
case the depositary may sell the property and distribute the net proceeds from
the sale to you.
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REDEMPTION OF DEPOSITARY SHARES
If we redeem a series of preferred stock represented by depositary shares,
the depositary will redeem your depositary shares from the proceeds received by
the depositary resulting from the redemption. The redemption price per
depositary share will be equal to the applicable fraction of the redemption
price per share payable in relation to the series of preferred stock. Whenever
we redeem shares of preferred stock held by the depositary, the depositary will
redeem as of the same redemption date the number of depositary shares
representing the shares of preferred stock redeemed. If fewer than all the
depositary shares are to be redeemed, the depositary shares to be redeemed will
be selected by lot, proportionately or by any other equitable method as the
depositary may determine.
VOTING THE PREFERRED STOCK
Upon receipt of notice of any meeting at which you are entitled to vote,
the depositary will mail to you the information contained in that notice of
meeting. Each record holder of the depositary shares on the record date will be
entitled to instruct the depositary how to vote the amount of the preferred
stock represented by that holder's depositary shares. The record date for the
depositary shares will be the same date as the record date for the preferred
stock. The depositary will endeavor, to the extent practicable, to vote the
amount of the preferred stock represented by the depositary shares in accordance
with those instructions. We will agree to take all reasonable action which the
depositary may deem necessary to enable the depositary to do so. The depositary
will abstain from voting shares of the preferred stock if it does not receive
specific instructions from you.
AMENDMENT AND TERMINATION OF THE DEPOSIT AGREEMENT
We and the depositary may amend the form of depositary receipt evidencing
the depositary shares and any provision of the deposit agreement at any time.
However, any amendment which materially and adversely alters the rights of the
holders of the depositary shares will not be effective unless the amendment has
been approved by the holders of at least a majority of the depositary shares
then outstanding.
The deposit agreement will terminate if:
- all outstanding depositary shares have been redeemed, or
- there has been a final distribution in respect of the preferred stock,
including in connection with our liquidation, dissolution or winding up
and the distribution has been distributed to you.
RESIGNATION AND REMOVAL OF DEPOSITARY
The depositary may resign at any time by delivering to us notice of its
election to do so. We also may, at any time, remove the depositary. Any
resignation or removal will take effect upon the appointment of a successor
depositary and its acceptance of such appointment. We must appoint the successor
depositary within 60 days after delivery of the notice of resignation or
removal. The successor depositary must be a bank or trust company having its
principal office in the United States and having a combined capital and surplus
of at least $50,000,000.
CHARGES OF DEPOSITARY
We will pay all transfer and other taxes and governmental charges arising
solely from the existence of the depositary arrangements. We will pay charges of
the depositary in connection with the initial deposit of the preferred stock and
issuance of depositary receipts, all withdrawals of shares of preferred stock by
you and any redemption of the preferred stock. You will pay other transfer and
other taxes and governmental charges, as well as the other charges that are
expressly provided in the deposit agreement to be for your account.
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MISCELLANEOUS
The depositary will forward all reports and communications from us which
are delivered to the depositary and which we are required or otherwise determine
to furnish to holders of preferred stock.
Neither we nor the depositary will be liable under the deposit agreement to
you other than for the depositary's gross negligence, willful misconduct or bad
faith. Neither we nor the depositary will be obligated to prosecute or defend
any legal proceedings relating to any depositary shares or preferred stock
unless satisfactory indemnity is furnished. We and the depositary may rely upon
written advice of counsel or accountants, or upon information provided by
persons presenting preferred stock for deposit, you or other persons believed to
be competent and on documents we and the depositary believe to be genuine.
PROVISIONS OF OUR AMENDED AND RESTATED CERTIFICATE OF INCORPORATION AND AMENDED
AND RESTATED BY-LAWS THAT MAY DELAY OR MAKE MORE DIFFICULT UNSOLICITED
ACQUISITIONS OR CHANGES OF OUR CONTROL
Some provisions of our Amended and Restated Certificate of Incorporation
and Amended and Restated By-laws may delay or make more difficult unsolicited
acquisitions or changes of our control. We believe that these provisions will
enable us to develop our business in a manner that will foster long-term growth
without disruption caused by the threat of a takeover not thought by our board
of directors to be in our best interest and the best interests of our
shareholders.
Those provisions could have the effect of discouraging third parties from
making proposals involving an unsolicited acquisition or change of control of
our company, although the proposals, if made, might be considered desirable by a
majority of our shareholders. Those provisions may also have the effect of
making it more difficult for third parties to cause the replacement of our
current management without the concurrence of our board of directors.
These provisions include:
- the availability of capital stock for issuance from time to time at the
discretion of our board of directors (see "-- Authorized and Outstanding
Capital Stock" and "-- Preferred Stock"),
- prohibitions against shareholders calling a special meeting of
shareholders or acting by written consent instead of a meeting,
- requirements for advance notice for raising business or making
nominations at shareholders' meetings, and
- the ability of our board of directors to increase the size of the board
and to appoint directors to fill newly created directorships.
NO SHAREHOLDER ACTION BY WRITTEN CONSENT; SPECIAL MEETINGS
Our Amended and Restated Certificate of Incorporation and Amended and
Restated By-laws provide that shareholder action can be taken only at an annual
or special meeting and cannot be taken by written consent instead of a meeting.
Our Amended and Restated Certificate of Incorporation and Amended and Restated
By-laws also provide that special meetings of shareholders can be called only by
the chairman of our board of directors or by a vote of the majority of the
entire board of directors. Furthermore, our Amended and Restated By-laws provide
that only such business as is specified in the notice of any special meeting of
shareholders may come before the meeting.
ADVANCE NOTICE FOR RAISING BUSINESS OR MAKING NOMINATIONS AT MEETINGS
Our By-laws establish an advance notice procedure for shareholder proposals
to be brought before an annual meeting of shareholders and for nominations by
shareholders of candidates for election as directors at an annual or special
meeting at which directors are to be elected. The only business that may be
conducted at an annual meeting of shareholders is business that has been brought
before the meeting by, or at the direction of, the board of directors, or by a
shareholder who has given to the secretary of the
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company timely written notice, in proper form, of the shareholder's intention to
bring that business before the meeting. The chairman of the meeting will have
the authority to make these determinations. Only persons who are nominated by,
or at the direction of, the board of directors, or who are nominated by a
shareholder who has given timely written notice, in proper form, to the
secretary prior to a meeting at which directors are to be elected will be
eligible for election as directors.
To be timely, notice of business to be brought before an annual meeting or
nominations of candidates for election as directors at an annual meeting must be
received by the company's secretary not later than 90 days prior to the
anniversary date for the immediately preceding annual meeting, or not more than
10 days after the first public disclosure of the originally scheduled date of
the annual meeting, whichever is earlier.
Similarly, notice of nominations to be brought before a special meeting of
shareholders for the election of directors must be delivered to the secretary no
later than the close of business on the seventh day following the day on which
notice of the date of the special meeting of shareholders is given.
The notice of any nomination for election as a director is required to
state:
- the name and address of the shareholder who intends to make the
nomination and of the person or persons to be nominated,
- a representation that the shareholder is a holder of record of stock
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,
- a description of all arrangements or understandings relating to the
nomination between the shareholder and each nominee and any other person
or persons, naming those persons, all other information regarding each
nominee proposed by the shareholder that would have been required to be
included in a proxy statement filed under the proxy rules of the
Securities and Exchange Commission had each nominee been nominated, or
intended to be nominated, by our board of directors, and
- the consent of each nominee to serve as a director if so elected.
NUMBER OF DIRECTORS; FILLING OF VACANCIES
Our Amended and Restated By-laws provide that newly created directorships
resulting from any increase in the authorized number of directors, or any
vacancy, may be filled by a vote of a majority of directors then in office,
subject to the requirement in the Amended and Restated By-laws that the majority
of directors holding office immediately after the election must be "independent
directors," as defined in the Amended and Restated By-laws. Accordingly, our
board of directors may be able to prevent any shareholder from obtaining
majority representation on the board of directors by increasing the size of the
board and filling the newly created directorships with its own nominees.
RIGHTS AGREEMENT
THE HARTFORD FINANCIAL SERVICES GROUP, INC. RIGHTS
On October 10, 1995, our board of directors declared a dividend of one
right for each share of common stock outstanding as of the close of business on
December 19, 1995, with respect to common stock issued after that date until the
distribution date, and, in certain circumstances, with respect to common stock
issued after the distribution date.
On May 21, 1998, our board of directors declared a two-for-one stock split
effected in the form of a 100% stock dividend distributed on July 15, 1998 to
stockholders of record as of June 24, 1998. Before our board of directors
declared the two-for-one stock split, the rights entitled the registered holder
to purchase from us, when it became exercisable, one one-thousandth (1/1000th)
of a share of Series A Participating Cumulative Preferred Stock, at a price of
$220 for each right, subject to adjustment in specific
33
circumstances. As a result of the stock split, the terms of the rights were
adjusted so that the holder of a right may purchase from us, when it becomes
exercisable, one-two thousandth (1/2000th) of a share of Series A Participating
Cumulative Preferred Stock, at a price of $110 for each right, subject to
adjustment in specific circumstances.
Each right is subject to redemption at a price of $.005 per share. The
terms of the rights are described in the rights agreement, dated as of November
1, 1995, between us and The Bank of New York, as rights agent. The rights will
not be exercisable until the distribution date and will expire on November 1,
2005, unless earlier redeemed by us as described below. Until a right is
exercised, the holder of the right will not as a result of holding that right
have rights as a shareholder of our company including the right to vote or to
receive dividends with respect to the rights or the Series A Participating
Cumulative Preferred Stock relating to the right.
The following description of the terms of the rights is a summary. It
summarizes only those terms of the rights which we believe will be most
important to your decision to invest in our common stock. You should keep in
mind, however, that it is the rights agreement, and not this summary, which
defines your rights as a holder of our rights. There may be other provisions in
the rights agreement which are also important to you. You should read the rights
agreement for a full description of the terms of the rights. The rights
agreement is filed as an exhibit to the Registration Agreement that includes
this prospectus. See "Where You Can Find More Information" for information on
how to obtain a copy of the rights agreement.
DISTRIBUTION DATE
Under the rights agreement, the distribution date is the earlier of:
- the time that we learn that a person or group, including any affiliate or
associate of the person or group, has acquired, or has obtained the right
to acquire, beneficial ownership of more than 15% of the outstanding
shares of our common stock (we refer to that person or group as an
"acquiring person"), unless provisions preventing accidental triggering
of the distribution of the rights apply, and
- the close of business on the date, if any, that may be designated by our
board of directors following the commencement of, or first public
disclosure of an intent to commence, a tender or exchange offer for more
than 15% or more of the outstanding shares of our common stock.
A person or group, or any affiliate or associate of the person or group,
however, that inadvertently acquires more than 15% of the outstanding shares of
our common stock will not be deemed to be an acquiring person provided that
person or group reduces its percentage of beneficial ownership to less than 15%
of the outstanding shares of our common stock by the close of business on the
fifth business day after notice from us that that person's or group's ownership
interest exceeds 15% of the outstanding shares of our common stock. That person
or group will be deemed to be an acquiring person at the end of that five
business day period absent such reduction.
EVIDENCE OF RIGHTS
Until the distribution date, the rights will be evidenced by the
certificates for common stock rather than separate right certificates.
Therefore, from the issuance date until the distribution date, you will be able
to transfer the rights only with the common stock and each transfer of common
stock will also transfer the associated rights. As soon as practicable following
the distribution date, we will mail separate certificates evidencing the rights
to holders of record of the common stock as of the close of business on the
distribution date, and to each initial record holder of common stock originally
issued after the distribution date. These separate certificates alone will then
evidence the rights.
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ADJUSTMENTS
The number of Series A Participating Cumulative Preferred Stock or other
securities that we will issue upon exercise of the rights, the purchase price,
the redemption price and the number of rights associated with each share of
common stock are all subject to adjustment from time to time if there is any
change in the common stock or the Series A Participating Cumulative Preferred
Stock. An adjustment may be made as a result of stock dividends, stock splits,
recapitalizations, mergers, consolidations, combinations or exchanges of
securities, split-ups, split-offs, spin-offs, liquidations, other similar
changes in capitalization or any distribution or issuance of cash, assets,
evidences of indebtedness or subscription rights, options or warrants to holders
of common stock or Series A Participating Cumulative Preferred Stock.
We may, but we are not required to, issue fractions of rights or distribute
right certificates which evidence fractional rights. Instead of issuing
fractional rights, we may make a cash payment based on the market price of those
rights. In addition, we may, but we are not required to, issue fractions of
shares upon the exercise of the rights or distribute certificates which evidence
fractional Series A Participating Cumulative Preferred Stock. Instead of
fractional Series A Participating Cumulative Preferred Stock, we may utilize a
depositary arrangement as provided by the terms of the Series A Participating
Cumulative Preferred Stock and, for fractions other than one-two thousandth
(1/2000th) of a Series A Participating Cumulative Preferred Stock or integral
multiples, may make a cash payment based on the market price of those shares.
TRIGGERING EVENT AND EFFECT OF TRIGGERING EVENT
Any time there is an acquiring person, the rights will entitle you,
provided you are not the acquiring person, to purchase, for the purchase price
of the rights, that number of one-two thousandth (1/2000th) of a Series A
Participating Cumulative Preferred Stock equivalent to the number of shares of
common stock which at the time of that event would have a market value of twice
the purchase price.
If we are acquired in a merger or other business combination by an
acquiring person or an affiliate or associate of an acquiring person that is a
publicly traded corporation, or 50% or more of our assets or assets representing
50% or more of our revenues or cash flow are sold, leased, exchanged or
otherwise transferred in one or more transactions to an acquiring person or an
affiliate or associate of an acquiring person that is not a publicly traded
corporation, each right will entitle you, subject to the next paragraph, to
purchase, for the purchase price of the right, that number of common shares of
that corporation which at the time of the transaction would have a market value
of twice the purchase price. If we are acquired in a merger or other business
combination by an acquiring person or an affiliate or associate of an acquiring
person that is not a publicly traded entity or 50% or more of our assets or
assets representing 50% or more of our revenues or cash flow are sold, leased,
exchanged or otherwise transferred in one or more transactions to an acquiring
person or an affiliate or associate of an acquiring person that is not a
publicly traded entity, each right will entitle you, subject to the next
paragraph, to purchase, for the purchase price of the right, at your option:
- that number of shares of the surviving corporation which at the time of
the transaction would have a book value of twice the purchase price,
- that number of shares of that entity which at the time of the transaction
would have a book value of twice the purchase price, or
- if that entity has an affiliate which has publicly traded common shares,
that number of common shares of that affiliate which at the time of the
transaction would have market value of twice the purchase price.
Any rights that are at any time beneficially owned by an acquiring person,
or any affiliate or associate of an acquiring person, will be null and void and
nontransferable. Any holder of that right, including any purported transferee or
subsequent holder, will be unable to exercise or transfer the right.
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REDEMPTION
At any time prior to the earlier of:
- the time a person or group becomes an acquiring person, and
- November 1, 2005,
our board of directors may redeem the rights in whole, but not in part, at a
price, which we refer to in this prospectus as the "redemption price," in cash
or common stock or other securities deemed by our board of directors to be at
least equivalent in value, to $.005 per right. This amount is subject to
adjustment as provided in the rights agreement. Immediately upon the action of
our board of directors ordering the redemption of the rights, and without any
further action and without any notice, your right to exercise the rights will
terminate and your only right as a holder of rights will be to receive the
redemption price. Within 10 business days after the action of our board of
directors ordering the redemption of the rights, we will give notice of the
redemption to the holders of the then outstanding rights by mail. We will state
the method by which we will pay the redemption price in the notice of
redemption.
In addition, at any time after there is an acquiring person, our board of
directors may elect to exchange each right, other than rights that have become
null and void and nontransferable as described above, for a consideration per
right consisting of one-half of the securities that would be issuable at that
time upon exercise of one right.
AMENDMENT
At any time prior to the distribution date, we may, without your approval,
supplement or amend any provision of the rights agreement, including, without
limitation, the distribution date, the definition of acquiring person, the time
during which the rights may be redeemed or the terms of the Series A
Participating Cumulative Preferred Stock. However, we will not supplement or
amend the rights agreement to reduce the redemption price or provide for an
earlier expiration date. After the distribution date and subject to applicable
law, we may amend the rights agreement without your approval:
- to cure any ambiguity or to correct or supplement any provision contained
in the rights agreement which may be defective or inconsistent with any
other provision of the rights agreement, or
- to make any other provision which we may deem necessary or desirable and
which will not adversely affect the interests of the holders of right
certificates.
Any supplement or amendment adopted during any period after any person or
group has become an acquiring person but prior to the distribution date will be
null and void unless that supplement or amendment could have been adopted under
the prior sentence after the distribution date.
EFFECT OF THE RIGHTS AGREEMENT
The rights agreement is designed to protect you in the event of unsolicited
offers to acquire us and other coercive takeover tactics which, in the opinion
of our board of directors, could impair our ability to represent your interests.
The provisions of the rights agreement may render an unsolicited takeover more
difficult or less likely to occur or might prevent such a takeover, even though
that takeover may offer you the opportunity to sell your stock at a price above
the prevailing market rate and may be favored by a majority of our shareholders.
RESTRICTIONS ON OWNERSHIP UNDER INSURANCE LAWS
Although our Amended and Restated Certificate of Incorporation and Amended
and Restated By-laws do not contain any provision restricting ownership as a
result of the application of various state insurance laws, these laws will be a
significant deterrent to any person interested in acquiring control of our
company. The insurance holding company laws of each of the jurisdictions in
which our insurance subsidiaries are incorporated or commercially domiciled, as
well as state corporation laws, govern any
36
acquisition of control of our insurance subsidiaries or of our company. In
general, these laws provide that no person or entity may directly or indirectly
acquire control of an insurance company unless that person or entity has
received the prior approval of the insurance regulatory authorities. An
acquisition of control would be presumed in the case of any person or entity who
purchases 10% or more of our outstanding common stock, or 5% or more, in the
case of the Florida insurance holding company laws, unless the applicable
insurance regulatory authorities determine otherwise.
DELAWARE GENERAL CORPORATION LAW
The terms of Section 203 of the Delaware General Corporation Law apply to
us since we are a Delaware corporation. Under Section 203, with some exceptions,
a Delaware corporation may not engage in a broad range of business combinations,
such as mergers, consolidations and sales of assets, with an "interested
stockholder," for a period of three years from the date that person became an
interested stockholder unless:
- the transaction that results in a person becoming an interested
stockholder or the business combination is approved by the board of
directors of the corporation before the person becomes an interested
stockholder,
- upon consummation of the transaction which results in the shareholder
becoming an interested stockholder, the interested stockholder owns 85%
or more of the voting stock of the corporation outstanding at the time
the transaction commenced, excluding shares owned by persons who are
directors and also officers and shares owned by employee stock plans, or
- on or after the date the person becomes an interested stockholder, the
business combination is approved by the corporation's board of directors
and by holders of at least two-thirds of the corporation's outstanding
voting stock, excluding shares owned by the interested stockholder, at a
meeting of shareholders.
Under Section 203, an "interested stockholder" is defined as any person,
other than the corporation and any direct or indirect majority-owned subsidiary,
that is:
- the owner of 15% or more of the outstanding voting stock of the
corporation, or
- an affiliate or associate of the corporation and was the owner of 15% or
more of the outstanding voting stock of the corporation at any time
within the three-year period immediately prior to the date on which it is
sought to be determined whether the person is an interested stockholder.
Section 203 does not apply to a corporation that so provides in an
amendment to its certificate of incorporation or by-laws passed by a majority of
its outstanding shares at any time. This stockholder action does not become
effective for 12 months following its adoption and would not apply to persons
who were already interested stockholders at the time of the amendment. Our
Amended and Restated Certificate of Incorporation does not exclude us from the
restrictions imposed under Section 203.
Section 203 makes it more difficult for a person who would be an interested
stockholder to effect business combinations with a corporation for a three-year
period, although the shareholders may elect to exclude a corporation from the
restrictions imposed. The provisions of Section 203 may encourage companies
interested in acquiring us to negotiate in advance with our board of directors,
because the stockholder approval requirement would be avoided if a majority of
the directors then in office approve either the business combination or the
transaction which results in the stockholder becoming an interested stockholder.
These provisions also may have the effect of preventing changes in our
management. It is further possible that these provisions could make it more
difficult to accomplish transactions that stockholders may otherwise deem to be
in their best interest.
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DESCRIPTION OF WARRANTS
We may issue warrants, including warrants to purchase debt securities,
preferred stock, common stock or other of our securities. We may issue warrants
independently or together with any other securities, and they may be attached to
or separate from those securities. We will issue the other warrants under
warrant agreements between us and a bank or trust company, as warrant agent,
that we will describe in the prospectus supplement relating to the warrants that
we offer.
The following description of the terms of the warrants is a summary. It
summarizes only those terms of the warrants and the warrant agreement which we
believe will be most important to your decision to invest in our warrants. You
should keep in mind, however, that it is the warrant agreement and the warrant
certificate relating to the warrants, and not this summary, which defines your
rights as a warrantholder. There may be other provisions in the warrant
agreement and the warrant certificate relating to the warrants which are also
important to you. You should read these documents for a full description of the
terms of the warrants. Forms of these documents are filed as exhibits to the
Registration Agreement that includes this prospectus. See "Where You Can Find
More Information" for information on how to obtain copies of these documents.
DEBT WARRANTS
We will describe in the applicable prospectus supplement the terms of
warrants to purchase debt securities that we may offer, the warrant agreement
relating to the debt warrants and the warrant certificates representing the debt
warrants. These terms will include the following:
- the title of the debt warrants,
- the debt securities for which the debt warrants are exercisable,
- the aggregate number of the debt warrants,
- the principal amount of debt securities that you may purchase upon
exercise of each debt warrant, and the price or prices at which we will
issue the debt warrants,
- the procedures and conditions relating to the exercise of the debt
warrants,
- the designation and terms of any related debt securities issued with the
debt warrants, and the number of debt warrants issued with each debt
security,
- the date, if any, from which you may separately transfer the debt
warrants and the related securities,
- the date on which your right to exercise the debt warrants commences, and
the date on which your right expires,
- the maximum or minimum number of the debt warrants which you may exercise
at any time,
- if applicable, a discussion of material United States federal income tax
considerations,
- any other terms of the debt warrants and terms, procedures and
limitations relating to your exercise of the debt warrants, and
- the terms of the securities you may purchase upon exercise of the debt
warrants.
You may exchange debt warrant certificates for new debt warrant
certificates of different denominations and may exercise debt warrants at the
corporate trust office of the warrant agent or any other office that we indicate
in the applicable prospectus supplement. Prior to exercise, you will not have
any of the rights of holders of the debt securities purchasable upon that
exercise and will not be entitled to payments of principal, premium, if any, or
interest on the debt securities purchasable upon the exercise.
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OTHER WARRANTS
We may issue other warrants. We will describe in the applicable prospectus
supplement the following terms of those warrants:
- the title of the warrant,
- the securities, which may include preferred stock or common stock, for
which you may exercise the warrants,
- the price or prices at which we will issue the warrants,
- if applicable, the designation and terms of the preferred stock or common
stock issued with the warrants, the designation and terms of the
preferred stock or common stock issued with the warrants, and the number
of warrants issued with each share of preferred stock or common stock,
- if applicable, the date from which you may separately transfer the
warrants and the related preferred stock or common stock,
- if applicable, a discussion of material United States federal income tax
considerations, and
- any other terms of the warrants, including terms, procedures and
limitations relating to your exchange and exercise of the warrants.
We will also describe in the applicable prospectus supplement the amount of
securities called for by the warrants, any amount of warrants outstanding, and
any provisions for a change in the exercise price or the expiration date of the
warrants and the kind, frequency and timing of any notice to be given. Prior to
the exercise of your warrants, you will not have any of the rights of holders of
the preferred stock or common stock purchasable upon that exercise and will not
be entitled to dividend payments, if any, or voting rights of the preferred
stock or common stock purchasable upon the exercise.
EXERCISE OF WARRANTS
We will describe in the prospectus supplement relating to the warrants the
principal amount or the number of our securities that you may purchase for cash
upon exercise of a warrant, and the exercise price. You may exercise a warrant
as described in the prospectus supplement relating to the warrants at any time
up to the close of business on the expiration date stated in the prospectus
supplement. Unexercised warrants will become void after the close of business on
the expiration date, or any later expiration date that we determine.
We will forward the securities purchasable upon the exercise as soon as
practicable after receipt of payment and the properly completed and executed
warrant certificate at the corporate trust office of the warrant agent or other
office stated in the applicable prospectus supplement. If you exercise less than
all of the warrants represented by the warrant certificate, we will issue you a
new warrant certificate for the remaining warrants.
DESCRIPTION OF STOCK PURCHASE CONTRACTS AND STOCK PURCHASE UNITS
We may issue stock purchase contracts, including contracts obligating you
to purchase from us, and for us to sell to you, a specific number of shares of
common stock or preferred stock at a future date or dates. The price per share
of preferred stock or common stock may be fixed at the time the stock purchase
contracts are issued or may be determined by reference to a specific formula
described in the stock purchase contracts. We may issue the stock purchase
contract separately or as a part of units consisting of a stock purchase
contract and debt securities, trust preferred securities or debt obligations of
third parties, including U.S. Treasury securities, securing your obligations to
purchase the preferred stock or the common stock under the purchase contracts.
The stock purchase contracts may require us to make periodic payments to you or
vice versa and the payments may be unsecured or prefunded on some basis. The
stock purchase contracts may require you to secure your obligations in a
specified manner. We will
39
describe in the applicable prospectus supplement the terms of any stock purchase
contracts or stock purchase units.
DESCRIPTION OF PREFERRED SECURITIES
The trustees of each trust will issue preferred securities and common
securities of the trust. The preferred securities will represent preferred
undivided beneficial interests in the assets of the related trust. As a holder
of trust preferred securities, you will generally be entitled to a preference
with respect to distributions and amounts payable on redemption or liquidation
over the common securities of the trust, as well as other benefits as described
in the corresponding trust agreement. Each of the trusts is a legally separate
entity and the assets of one are not available to satisfy the obligations of any
of the others.
The following description of the terms of the form of trust agreement is a
summary. It summarizes only those portions of the form of trust agreement which
we believe will be most important to your decision to invest in the preferred
securities. You should keep in mind, however, that it is the trust agreement,
and not this summary, which defines your rights as a holder. There may be other
provisions in the trust agreement which are also important to you. You should
read the form of trust agreement itself for a full description of the terms of
the preferred securities. The form of trust agreement is filed as an exhibit to
the Registration Statement. See "Where You Can Find More Information" for
information on how to obtain a copy of the trust agreement.
RANKING OF PREFERRED SECURITIES
The preferred securities of a trust will rank equally, and we will make
payments proportionately, with the common securities of the trust except as
described under "-- Subordination of Common Securities." The preferred
securities of each trust represent preferred undivided beneficial interests in
the assets of the trust. The property trustee will hold legal title to the
corresponding junior subordinated debentures in trust for the benefit of the
holders of the related preferred securities and common securities.
Each guarantee agreement that we execute for your benefit, as a holder of
preferred securities of a trust, will be a guarantee on a subordinated basis
with respect to the related preferred securities. However, our guarantee will
not guarantee payment of distributions or amounts payable on redemption or
liquidation of the preferred securities when the related trust does not have
funds on hand available to make such payments. See "Description of Guarantee."
DISTRIBUTIONS ON THE PREFERRED SECURITIES
The trust will pay the distributions on the preferred securities and common
securities at a rate specified in the prospectus supplement.
The amount of distributions the trust must pay for any period will be
computed on the basis of a 360-day year of twelve 30-day months unless we
otherwise specify in the applicable prospectus supplement. Distributions that
are in arrears may bear interest at the rate per annum specified in the
applicable prospectus supplement. The term "distributions" as we use it in this
prospectus includes any additional amounts provided in the corresponding trust
agreement.
Distributions on the preferred securities will be cumulative, will accrue
from the date of original issuance and will be payable on the dates specified in
the applicable prospectus supplement. If any date on which distributions are
payable on the preferred securities is not a business day, the trust will
instead make the payment on the next succeeding day that is a business day, and
without any interest or other payment on account of the delay. However, if that
business day is in the next succeeding calendar year, the trust will make the
payment on the immediately preceding business day. In each case payment will be
made with the same force and effect as if made on the date the payment was
originally due. When we use the term "business day" in this prospectus, we mean
any day other than a Saturday or a Sunday, or a day on which banking
institutions in the City of New York are authorized or required by law or
executive order to
40
remain closed or a day on which the corporate trust office of the property
trustee or the debenture trustee is closed for business.
If provided in the applicable prospectus supplement, we have the right
under the junior subordinated indenture, the contract that provides the terms
for the corresponding junior subordinated debentures, to extend the interest
payment period for a specified number of periods. However, we may not extend
these interest payments beyond the maturity of the junior subordinated
debentures. As a consequence of any extension, distributions on the
corresponding preferred securities would be deferred by the trust during the
extension period. These distributions would continue to accumulate additional
distributions at the rate per annum set form in the prospectus supplement.
If we exercise this right, during the extension period we and our
subsidiaries may not:
- declare or pay any dividends or distributions on, or redeem, purchase,
acquire or make a liquidation payment on, any of our capital stock, or
- make any payment of principal, premium, if any, or interest on or repay,
repurchase or redeem any debt securities that rank equally with or junior
in interest to the corresponding junior subordinated debentures or make
any related guarantee payments,
other than:
- dividends or distributions on our common stock,
- redemptions or purchases of any rights pursuant to our rights plan, or
any successor to our rights plan, and the declaration of a dividend of
these rights in the future, and
- payments under any guarantee.
We anticipate that the revenue of each trust available for distribution to
you, as a holder of preferred securities, will be limited to payments under the
corresponding junior subordinated debentures in which the trust will invest the
proceeds from the issuance and sale of its preferred securities and its common
securities. See "Description of Corresponding Junior Subordinated Debentures."
If we do not make interest payments on the corresponding junior
subordinated debentures, the property trustee will not have funds available to
pay distributions on the corresponding preferred securities. The payment of
distributions, if and to the extent the trust has funds legally available for
the payment of these distributions is guaranteed by us on a limited basis as set
forth under "Description of Guarantee."
The trust will pay distributions on the preferred securities to you
provided you are entered in the register of the trust on the relevant record
dates. As long as the preferred securities remain in book-entry form, the record
date will be one business day prior to the relevant distribution date. If any
preferred securities are not in book-entry form, the record date for the
preferred securities will be the date 15 days prior to the relevant distribution
date.
REDEMPTION
REDEMPTION ON A REPAYMENT OR REDEMPTION OF THE CORRESPONDING JUNIOR
SUBORDINATED DEBENTURES
Upon the repayment or redemption, in whole or in part, of any corresponding
junior subordinated debentures, the property trustee must apply the proceeds
from that repayment or redemption to redeem a like amount of the corresponding
preferred securities. This redemption must be made upon not less than 30 nor
more than 60 days notice to you. The redemption price will be equal to the
aggregate liquidation preference of the preferred securities, plus accumulated
and unpaid distributions on the preferred securities to the date of redemption
and the related amount of any premium paid by us upon the concurrent redemption
of the corresponding junior subordinated debentures. See "Description of
Corresponding Junior Subordinated Debentures -- Optional Redemption."
If less than all of any series of corresponding junior subordinated
debentures are repaid or redeemed, then the proceeds from the repayment or
redemption will be allocated to redeem a proportionate amount
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of each of the preferred securities and the common securities. The amount of
premium, if any, paid by us upon the redemption of all or any part of any series
of any corresponding junior subordinated debentures repaid or redeemed will be
allocated proportionately to the redemption of the preferred securities and the
common securities.
We must repay the principal of the corresponding junior subordinated
debentures when they are due. In addition, we will have the right to redeem any
series of corresponding junior subordinated debentures:
- in whole or in part, subject to the conditions we describe under
"Description of Corresponding Junior Subordinated Debentures -- Optional
Redemption," or
- at any time, in whole, but not in part, upon the occurrence of a tax
event or an investment company event, each as defined below, and subject
to the further conditions we describe under "Description of Corresponding
Junior Subordinated Debentures -- Optional Redemption," or
- as we may otherwise specify in the applicable prospectus supplement.
REDEMPTION OR DISTRIBUTION UPON THE OCCURRENCE OF A TAX EVENT OR AN
INVESTMENT COMPANY EVENT
If an event occurs that constitutes a tax event or an investment company
event we will have the right to:
- redeem the corresponding junior subordinated debentures in whole, but not
in part, and cause a mandatory redemption of the preferred securities and
common securities in whole, but not in part, within 90 days following the
occurrence of the tax event or an investment company event, or
- terminate the related trust and cause the corresponding junior
subordinated debentures to be distributed to the holders of the preferred
securities and common securities in liquidation of the trust.
If provided in the applicable prospectus supplement, we will have the right
to extend or shorten the maturity of any series of corresponding junior
subordinated debentures at the time that we exercise our right to elect to
terminate the related trust and cause the corresponding junior subordinated
debentures to be distributed to the holders of the preferred securities and
common securities in liquidation of the trust.
When we use the term "additional sums" in this prospectus we mean the
additional amounts that may be necessary in order that the amount of
distributions then due and payable by a trust on its outstanding preferred
securities and common securities will not be reduced as a result of any
additional taxes, duties and other governmental charges to which the trust has
become subject as a result of a tax event.
When we use the term "tax event" we mean the receipt by the trust of an
opinion of counsel experienced in those matters to the effect that, as a result
of any amendment to, or change, including any announced prospective change, in,
the laws of the United States or any political subdivision or taxing authority
affecting taxation, or as a result of any official administrative pronouncement
or judicial decision interpreting or applying those laws or regulations, which
amendment or change is effective or pronouncement or decision is announced on or
after the trust issues the preferred securities, there is more than an
insubstantial risk that:
- the trust is, or will be within 90 days of the date of the opinion,
subject to United States federal income tax with respect to income
received or accrued on the corresponding series of corresponding junior
subordinated debentures,
- interest payable by us on the series of corresponding junior subordinated
debentures is not, or within 90 days of the date of the opinion, will not
be, deductible, in whole or in part, for United States federal income tax
purposes, or
- the trust is, or will be within 90 days of the date of the opinion,
subject to more than a de minimis amount of other taxes, duties or other
governmental charges.
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When we use the term "investment company event" we mean the occurrence of a
change in law or regulation or a change in interpretation or application of law
or regulation by any legislative body, court, governmental agency or regulatory
authority to the effect that the applicable trust is or will be considered an
investment company that is required to be registered under the Investment
Company Act of 1940, which change becomes effective on or after the date of
original issuance of the series of preferred securities issued by the trust.
When we use the term "like amount", we mean:
- with respect to a redemption of any series of preferred securities,
preferred securities having a liquidation amount equal to that portion of
the principal amount of corresponding junior subordinated debentures to
be contemporaneously redeemed, the proceeds of which will be used to pay
the redemption price of the preferred securities, and
- with respect to a distribution of corresponding junior subordinated
debentures to you, as a holder of preferred securities in connection with
a dissolution or liquidation of the related trust, corresponding junior
subordinated debentures having a principal amount equal to the
liquidation amount of your preferred securities.
When we use the term "liquidation amount", we mean the stated amount of $25
per preferred security and common security.
After the liquidation date fixed for any distribution of corresponding
junior subordinated debentures for any series of preferred securities:
- the series of preferred securities will no longer be deemed to be
outstanding,
- The Depositary Trust Company, which we refer to in this prospectus as
"DTC," or its nominee, as the record holder of the series of preferred
securities, will receive a registered global certificate or certificates
representing the corresponding junior subordinated debentures to be
delivered upon that distribution, and
- any certificates representing the series of preferred securities not held
by DTC or its nominee will be deemed to represent the corresponding
junior subordinated debentures having a principal amount equal to the
stated liquidation preference of the series of preferred securities, and
bearing accrued and unpaid interest in an amount equal to the accrued and
unpaid distributions on the series of preferred securities until you
present the certificates to the administrative trustees or their agent
for transfer or reissuance.
We can make no assurance as to what the market prices will be for the
preferred securities or the corresponding junior subordinated debentures that
may be distributed to you in exchange for your preferred securities if a
dissolution and liquidation of a trust were to occur. Accordingly, the preferred
securities that you purchase, or the corresponding junior subordinated
debentures that you receive on dissolution and liquidation of a trust, may trade
at a discount to the price that you paid to purchase the preferred securities.
VOLUNTARY DISTRIBUTION OF JUNIOR SUBORDINATED DEBENTURES
If we so provide in the applicable prospectus supplement, we may elect, at
any time, to terminate the trust and cause the corresponding junior subordinated
debentures to be distributed to you, as a holder of the preferred securities,
and us, as the holder of the common securities, in liquidation of the trust.
REDEMPTION PROCEDURES
The trust will redeem the preferred securities on each redemption date at
the redemption price with the applicable proceeds from the contemporaneous
redemption of the corresponding junior subordinated debentures. The trust will
make redemptions of the preferred securities and pay the redemption price only
43
to the extent that it has funds available for the payment of the redemption
price. See also "-- Subordination of Common Securities."
If a trust gives notice to you of redemption of your preferred securities,
then by 12:00 noon, New York City time, on the redemption date, to the extent
funds are available, the property trustee will irrevocably deposit with DTC
funds sufficient to pay the applicable redemption price and will give DTC
irrevocable instructions and authority to pay the redemption price to you. See
"-- Book-Entry Issuance."
If the preferred securities are no longer in book-entry form, the trust, to
the extent funds are available, will irrevocably deposit with the paying agent
for the preferred securities funds sufficient to pay the applicable redemption
price to you and will give the paying agent irrevocable instructions and
authority to pay the redemption price to you upon surrender of your
certificates.
The trust will pay any distributions payable on or prior to the redemption
date for any preferred securities called for redemption to you on the relevant
record dates for the distribution. If the trust has given notice of redemption
and has deposited the required funds, then upon the date of the deposit, all
your rights will cease, except your right to receive the redemption price,
without interest on that redemption price, and your preferred securities will
cease to be outstanding. If any date fixed for redemption of preferred
securities is not a business day, then the trust will pay the redemption price
on the next succeeding day which is a business day, and without any interest or
other payment on account of the delay. However, if the business day falls in the
next calendar year, the trust will make the payment on the immediately preceding
business day. If payment of the redemption price is improperly withheld or
refused and not paid either by the trust or by us pursuant to the guarantee as
described under "Description of Guarantee", distributions on the preferred
securities will continue to accrue at the then applicable rate, from the
redemption date originally established by the trust for the preferred securities
to the date the redemption price is actually paid. In this case the actual
payment date will be the date fixed for redemption for purposes of calculating
the redemption price.
Subject to applicable law, including United States federal securities law,
we or our subsidiaries may at any time purchase outstanding preferred securities
by tender, in the open market or by private agreement.
The trust will make payment of the redemption price on the preferred
securities and any distribution of corresponding junior subordinated debentures
to the applicable record holders as they appear on the register for the
preferred securities on the relevant record date. This date will generally be
one business day prior to the relevant redemption date or liquidation date.
However, if any preferred securities are not in book-entry form, the relevant
record date for the preferred securities will be the date 15 days prior to the
redemption date or liquidation date.
If less than all of the preferred securities and common securities issued
by a trust are to be redeemed on a redemption date, then the aggregate
liquidation amount of the preferred securities and common securities to be
redeemed will be allocated proportionately among the preferred securities and
the common securities. The property trustee will select the particular preferred
securities to be redeemed on a proportionate basis not more than 60 days prior
to the redemption date from the outstanding preferred securities not previously
called for redemption, by any method that the property trustee deems fair and
appropriate. This method may provide for the selection for redemption of
portions, equal to $25 or an integral multiple of $25, of the liquidation amount
of preferred securities. The property trustee will promptly notify the trust
registrar in writing of the preferred securities selected for redemption and, in
the case of any preferred securities selected for partial redemption, the
liquidation amount of the preferred securities to be redeemed.
SUBORDINATION OF COMMON SECURITIES
The trust will make payment of distributions, any additional amounts and
the redemption price on the preferred securities and common securities
proportionately based on the liquidation amount of the preferred securities and
common securities. However, if on any distribution date or redemption date a
debenture event of default exists, the trust will not make any payment on the
common securities unless
44
payment in full in cash of all accumulated and unpaid distributions, any
additional amounts and the full amount of the redemption price on all of the
outstanding preferred securities of the trust, has been made or provided for.
The property trustee will apply all available funds first to the payment in full
in cash of all distributions on the preferred securities then due and payable.
If any event of default resulting from a debenture event of default exists,
we as holder of the common securities of the trust will be deemed to have waived
any right to act with respect to the event of default under the trust agreement
until the effect of all those events of default with respect to the preferred
securities have been cured, waived or otherwise eliminated. Until any events of
default under the trust agreement with respect to the preferred securities have
been so cured, waived or otherwise eliminated, the property trustee will act
solely on your behalf, as a holder of the preferred securities, and not on our
behalf as holder of the common securities, and only you acting with the other
holders will have the right to direct the property trustee to act on your
behalf.
LIQUIDATION DISTRIBUTION UPON TERMINATION
Each trust will automatically terminate upon expiration of its term or the
redemption of all of the preferred securities of the trust. In addition, we will
terminate the trust on the first to occur of:
- our bankruptcy, dissolution or liquidation,
- the distribution of a like amount of corresponding junior subordinated
debentures to the holders of its preferred securities and common
securities, and
- the entry of an order for the dissolution of the trust by a court of
competent jurisdiction.
If an early termination occurs as described in the clauses above, the
trustees will liquidate the trust as expeditiously as the trustees determine to
be possible by distributing, after satisfaction of liabilities to creditors of
the trust as provided by applicable law, to the holders of the preferred
securities and common securities a like amount of corresponding junior
subordinated debentures. If the property trustee determines that this
distribution is not practical, you will be entitled to receive out of the assets
of the trust available for distribution, after satisfaction of liabilities to
creditors of the trust as provided by applicable law, an amount equal to the
aggregate of the liquidation amount plus accrued and unpaid distributions to the
date of payment. We refer to this liquidation amount in this prospectus as the
"liquidation distribution." If the trust can make the liquidation distribution
only in part because it has insufficient assets available to pay the full
aggregate liquidation distribution, then it will pay the amounts on a
proportionate basis. We, as the holder of the common securities, will be
entitled to receive distributions upon any liquidation proportionately with you,
and the other holders of the preferred securities, except that if an event
exists that constitutes a debenture event of default, the preferred securities
will have a priority over the common securities. A supplemental indenture may
provide that if an early termination occurs as described in the third clause
above, the corresponding junior subordinated debentures may be subject to
optional redemption in whole, but not in part.
EVENTS OF DEFAULT; NOTICE
Under the terms of the form of trust agreement, each of the following
constitutes an event of default for a series of preferred securities:
- the occurrence of a debenture event of default under the junior
subordinated indenture (see "Description of Junior Subordinated
Debentures -- Debenture Events of Default"),
- default by the property trustee in the payment of any distribution when
it becomes due and payable, and continuation of that default for a period
of 30 days,
- default by the property trustee in the payment of any redemption price of
the preferred securities or common securities when it becomes due and
payable,
45
- default in the performance, or breach, in any material respect, of any
covenant or warranty of the trustees in the trust agreement, other than a
covenant or warranty a default in the performance of which or the breach
of which is dealt with in the second and third clauses above, and
continuation of the default or breach for a period of 60 days after there
has been given to the defaulting trustee or trustees by the holders of at
least 10% in aggregate liquidation amount of the outstanding preferred
securities, a written notice specifying the default or breach and
requiring it to be remedied and stating that the notice is a notice of
default under such trust agreement, or
- the bankruptcy or insolvency of the property trustee and our failure to
appoint a successor property trustee within 60 days of that event.
Within five business days after the occurrence of any event of default
actually known to the property trustee, the property trustee will transmit
notice of the event of default to you, the administrative trustees and us, as
depositor, unless the event of default has been cured or waived. We, as
depositor, and the administrative trustees are required to file annually with
the property trustee a certificate as to whether or not we are and they are in
compliance with all the conditions and covenants applicable to them and to us
under the trust agreement.
If a debenture event of default then exists, the preferred securities will
have a preference over the common securities upon termination of the trust. See
"-- Liquidation Distribution Upon Termination."
The existence of an event of default does not entitle you to accelerate the
maturity.
REMOVAL OF TRUSTEES
Unless a debenture event of default then exists, the holder of the common
securities may remove any trustee. If a debenture event of default then exists
the holders of a majority in liquidation amount of the outstanding preferred
securities may remove the property trustee and the Delaware trustee. In no event
will you have the right to vote to appoint, remove or replace the administrative
trustees. These voting rights are vested exclusively in us as the holder of the
common securities. No resignation or removal of a trustee and no appointment of
a successor trustee will be effective until the acceptance of appointment by the
successor trustee in accordance with the provisions of the trust agreement.
CO-TRUSTEES AND SEPARATE PROPERTY TRUSTEE
Unless an event of default then exists, for the purpose of meeting the
legal requirements of the Trust Indenture Act or of any jurisdiction in which
any part of the trust property may be located, we, as the holder of the common
securities, and the administrative trustees will have power to appoint one or
more persons either to act as a co-trustee, jointly with the property trustee,
of all or any part of the trust property, or to act as separate trustee. These
persons will have the powers provided in the instrument of appointment, and we
may vest in that person or persons any property, title, right or power deemed
necessary or desirable, subject to the provisions of the trust agreement. If a
debenture event of default exists, the property trustee alone will have power to
make that appointment.
MERGER OR CONSOLIDATION OF TRUSTEES
Any corporation into which the property trustee, the Delaware trustee or
any administrative trustee that is not a natural person may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which the trustee is a party, or
any corporation succeeding to all or substantially all the corporate trust
business of the trustee, will be the successor of such trustee under the trust
agreements, provided that the corporation is otherwise qualified and eligible.
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MERGERS, CONSOLIDATIONS, AMALGAMATIONS OR REPLACEMENTS OF THE TRUSTS
A trust may not merge with or into, consolidate, amalgamate, or be replaced
by, or convey, transfer or lease its properties and assets substantially as an
entirety to any corporation or other body, except as described below.
A trust may, at our request, with the consent of the administrative
trustees and without your consent, merge with or into, consolidate, amalgamate,
or be replaced by or convey, transfer or lease its properties and assets
substantially as an entirety to a trust organized under the laws of any state.
However, the following conditions must be satisfied:
- the successor entity must either:
- expressly assume all of the obligations of the trust relating to the
preferred securities, or
- substitute for the preferred securities other securities having
substantially the same terms and the same ranking as the preferred
securities,
- we must expressly appoint a trustee of the successor entity possessing
the same powers and duties as the property trustee as the holder of the
corresponding junior subordinated debentures,
- the successor securities must be listed, or any successor securities must
be listed upon notification of issuance, on any national securities
exchange or other organization on which the preferred securities are then
listed,
- the merger, consolidation, amalgamation, replacement, conveyance,
transfer or lease must not cause the preferred securities, including any
successor securities, to be downgraded by any nationally recognized
statistical rating organization,
- the merger, consolidation, amalgamation, replacement, conveyance,
transfer or lease must not adversely affect the rights, preferences and
privileges of holders of the preferred securities, including any
successor securities, in any material respect,
- the successor entity must have a purpose identical to that of the trust,
- prior to the merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease we must have received an opinion from
independent counsel to the trust experienced in such matters to the
effect that:
- the merger, consolidation, amalgamation, replacement conveyance,
transfer or lease does not adversely affect the rights, preferences
and privileges of holders of the preferred securities, including any
successor securities, in any material respect, and
- following the merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease neither the trust nor the successor
entity will be required to register as an investment company under the
Investment Company Act, and
- we or any permitted successor or assignee must own all of the common
securities of the successor entity and guarantee the obligations of such
successor entity under the successor securities at least to the extent
provided by the guarantee.
However, a trust must not, except with the consent of holders of 100% in
liquidation amount of the preferred securities, consolidate, amalgamate, merge
with or into, or be replaced by or convey, transfer or lease its properties and
assets substantially as an entirety to any other entity or permit any other
entity to consolidate, amalgamate, merge with or into, or replace it if it would
cause the trust or the successor entity to be classified as other than a grantor
trust for federal income tax purposes.
VOTING RIGHTS; AMENDMENT OF TRUST AGREEMENT
Except as provided below and under "Description of Guarantee -- Amendments
and Assignment" and as otherwise required by law and the applicable trust
agreement, you will have no voting rights.
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We and the trustees may amend a trust agreement without your consent:
- to cure any ambiguity, correct or supplement any provisions in the trust
agreement which may be inconsistent with any other provision, or to make
any other provisions with respect to matters or questions arising under
the trust agreement, which are not inconsistent with the other provisions
of the trust agreement, or
- to modify, eliminate or add to any provisions of the trust agreement to
the extent necessary to ensure that the trust will be classified for
federal income tax purposes as a grantor trust at all times that any
preferred securities and common securities are outstanding, or to ensure
that the trust will not be required to register as an investment company
under the Investment Company Act.
However, in the case of the first clause above, the action may not
adversely affect in any material respect the interests of the holders of the
preferred securities or our interests, as the holder of the common securities.
Any amendments of the trust agreement will become effective when notice is given
to you and us.
We and the trustees may also amend a trust agreement with:
- the consent of holders representing not less than a majority, based upon
liquidation amounts, of the outstanding preferred securities and common
securities, and
- receipt by the trustees of an opinion of counsel to the effect that the
amendment or the exercise of any power granted to the trustees under the
amendment will not affect the status of the trust as a grantor trust for
federal income tax purposes or its exemption from the status of an
"investment company" under the Investment Company Act.
Without both your and our consent a trust agreement may not be amended to:
- change the amount or timing of any distribution on the preferred
securities and common securities or otherwise adversely affect the amount
of any distribution of the preferred securities and common securities as
of a specified date, or
- restrict your or our right to institute suit for the enforcement of any
payment on or after that date.
So long as any corresponding junior subordinated debentures are held by the
property trustee, the trustees may not:
- direct the time, method and place of conducting any proceeding for any
remedy available to the debenture trustee, or for executing any trust or
power conferred on the property trustee with respect to the corresponding
junior subordinated debentures,
- waive any past default that is waiveable under specified sections of the
junior subordinated indenture,
- exercise any right to rescind or annul a declaration that the principal
of all the junior subordinated debentures is due and payable, or
- consent to any amendment, modification or termination of the junior
subordinated indenture or the corresponding junior subordinated
debentures, where that consent is required,
without, in each case, obtaining the prior approval of the holders of a majority
in aggregate liquidation amount of all outstanding preferred securities.
However, where a consent under the junior subordinated indenture would require
the consent of each holder of corresponding junior subordinated debentures
affected by the consent, no consent may be given by the property trustee without
the prior consent of each holder of the corresponding preferred securities.
The trustees may not revoke any action previously authorized or approved by
a vote of the preferred securities except by subsequent vote of the holders of
the preferred securities. The property trustee will notify you of any notice of
default with respect to the corresponding junior subordinated debentures. In
addition to obtaining the approval of the holders of the preferred securities
prior to taking any of these
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actions, the trustees must obtain an opinion of counsel experienced in these
matters to the effect that the trust will not be classified as a corporation or
partnership for United States federal income tax purposes on account of the
action.
Any required approval of holders of preferred securities may be given at a
meeting of holders of preferred securities convened for that purpose or through
a written consent. The property trustee will cause a notice of any meeting at
which you are entitled to vote, or of any matter upon which action by written
consent is to be taken, to be given to each holder of record of preferred
securities in the manner set forth in the trust agreement.
Your vote or consent is not required for a trust to redeem and cancel the
preferred securities under the applicable trust agreement.
Any preferred securities that are owned by us, the trustees or any of our
affiliates or any affiliate of the trustees, will, for purposes of a vote or
consent, be treated as if they were not outstanding.
GLOBAL PREFERRED SECURITIES
We may issue a series of preferred securities in the form of one or more
global preferred securities. We will identify the depositary which will hold the
global preferred security in the applicable prospectus supplement. Unless we
otherwise indicate in the applicable prospectus supplement, the depositary will
be DTC. We will issue global preferred securities only in fully registered form
and in either temporary or permanent form. Unless it is exchanged for individual
preferred securities, a global preferred security may not be transferred except:
- by the depositary to its nominee,
- by a nominee of the depositary to the depositary or another nominee, or
- by the depositary or any nominee to a successor depositary, or any
nominee of the successor.
We will describe the specific terms of the depositary arrangement in the
applicable prospectus supplement. We expect that the following provisions will
generally apply to these depositary arrangements.
BENEFICIAL INTERESTS IN A GLOBAL PREFERRED SECURITY
If we issue a global preferred security, the depositary for the global
preferred security or its nominee will credit on its book-entry registration and
transfer system the aggregate liquidation amounts of the individual preferred
securities represented by the global preferred securities to the accounts of
participants. The accounts will be designated by the dealers, underwriters or
agents for the preferred securities, or by us if the preferred securities are
offered and sold directly by us. Ownership of beneficial interests in a global
preferred security will be limited to participants or persons that may hold
interests through participants. Ownership and transfers of beneficial interests
in the global preferred security will be shown on, and effected only through,
records maintained by the applicable depositary or its nominee, for interests of
participants, and the records of participants, for interests of persons who hold
through participants. The laws of some states require that you take physical
delivery of the securities in definitive form. These limits and laws may impair
your ability to transfer beneficial interests in a global preferred security.
So long as the depositary or its nominee is the registered owner of the
global preferred security, the depositary or nominee will be considered the sole
owner or holder of the preferred securities represented by the global preferred
security for all purposes under the trust agreement. Except as provided below,
you:
- will not be entitled to have any of the individual preferred securities
represented by the global preferred security registered in your name,
- will not receive or be entitled to receive physical delivery of any
preferred securities in definitive form, and
- will not be considered the owner or holder of the preferred security
under the trust agreement.
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PAYMENTS OF DISTRIBUTIONS
We will pay distributions on global preferred securities to the depositary
that is the registered holder of the global security, or its nominee. The
depositary for the preferred securities will be solely responsible and liable
for all payments made on account of your beneficial ownership interests in the
global preferred security and for maintaining, supervising and reviewing any
records relating to your beneficial ownership interests.
We expect that the depositary or its nominee, upon receipt of any payment
of liquidation amount, premium or distributions, immediately will credit
participants' accounts with amounts in proportion to their respective beneficial
interests in the aggregate liquidation amount of the global preferred security
as shown on the records of the depositary or its nominee. We also expect that
payments by participants to owners of beneficial interests in the global
preferred security held through those participants will be governed by standing
instructions and customary practices, as is now the case with securities held
for the accounts of customers in bearer form or registered in "street name."
These payments will be the responsibility of those participants.
ISSUANCE OF INDIVIDUAL PREFERRED SECURITIES
Unless we state otherwise in the applicable prospectus supplement, if a
depositary for a series of preferred securities is at any time unwilling, unable
or ineligible to continue as a depositary and we do not appoint a successor
depositary within 90 days, we will issue individual preferred securities in
exchange for the global preferred security. In addition, we may at any time and
in our sole discretion, subject to any limitations described in the prospectus
supplement relating to the preferred securities, determine not to have any
preferred securities represented by one or more global preferred securities. If
that occurs, we will issue individual preferred securities in exchange for the
global preferred security.
Further, we may specify that you may, on terms acceptable to us, the
property trustee and the depositary for the global preferred security, receive
individual preferred securities in exchange for your beneficial interests in a
global preferred security, subject to any limitations described in the
prospectus supplement relating to the preferred securities. In that instance,
you will be entitled to physical delivery of individual preferred securities
equal in liquidation amount to that beneficial interest and to have the
preferred securities registered in its name. Unless we otherwise specify, those
individual preferred securities will be issued in denominations of $25 and
integral multiples of $25.
PAYMENT AND PAYING AGENCY
The trust will make payments on the preferred securities to DTC, which will
credit the relevant accounts at DTC on the applicable distribution dates.
However, if any preferred securities are not held by DTC, the trust will make
the payments by check mailed to the address of the holder entitled to the
payment as shown on the register. Unless we state otherwise in the applicable
prospectus supplement, the paying agent will initially be the property trustee,
together with any co-paying agent chosen by the property trustee and acceptable
to the administrative trustees and us. The paying agent may resign as paying
agent upon 30 days' written notice to the property trustees and us. If the
property trustee ceases to be the paying agent, the administrative trustees will
appoint a successor to act as paying agent. The successor must be a bank or
trust company acceptable to the administrative trustees and us.
REGISTRAR AND TRANSFER AGENT
Unless we state otherwise in the applicable prospectus supplement, the
property trustee will act as registrar and transfer agent for the preferred
securities.
The trust will register transfers of preferred securities without charge,
but upon your payment of any tax or other governmental charges that may be
imposed in connection with any transfer or exchange. The trust will not be
required to register the transfer of its preferred securities after the
preferred securities have been called for redemption.
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INFORMATION CONCERNING THE PROPERTY TRUSTEE
The property trustee, unless an event of default then exists, will be
required to perform only those duties that are specifically set forth in the
applicable trust agreement. After an event of default, the property trustee must
exercise the same degree of care and skill as a prudent person would exercise or
use in the conduct of his or her own affairs. However, the property trustee is
under no obligation to exercise any of the powers vested in it by the trust
agreement at your request unless you offer reasonable indemnity against the
costs, expenses and liabilities that it might incur. If no event of default then
exists and the property trustee is required to decide between alternative causes
of action, construe ambiguous provisions in a trust agreement or is unsure of
the application of any provision of a trust agreement, and the matter is not one
on which holders are entitled under the trust agreement to vote, then the
property trustee will take such action as is directed by us. If it is not so
directed, the property trustee will take such action as it deems advisable and
in the best interests of the holders of the preferred securities and the holder
of the common securities and will have no liability except for its own bad
faith, negligence or willful misconduct.
MISCELLANEOUS
The trust agreements authorize and direct the administrative trustees to
operate the related trusts in such a way that the trust will not be deemed to be
an investment company required to be registered under the Investment Company Act
or taxed as a corporation for federal income tax purposes and so that the
corresponding junior subordinated debentures will be treated as our indebtedness
for United States federal income tax purposes. We and the administrative
trustees are authorized to take any action, not inconsistent with applicable
law, the certificate of trust of the trust or the trust agreement, that we and
the administrative trustees determine in our discretion to be necessary or
desirable for these purposes, as long as the action does not materially
adversely affect the interests of the holders of the preferred securities.
You have no preemptive or similar rights as a holder of preferred
securities. No trust may borrow money or issue debt or mortgage or pledge any of
its assets.
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DESCRIPTION OF GUARANTEE
At the same time as the issuance by a trust of its preferred securities, we
will execute and deliver a guarantee for your benefit, as a holder of the
preferred securities. The Wilmington Trust Company will act as indenture trustee
under the guarantee for the purposes of compliance with the Trust Indenture Act.
The guarantee will be qualified as an indenture under the Trust Indenture Act.
The following description of the terms of the guarantee is a summary. It
summarizes only those portions of the guarantee which we believe will be most
important to your decision to invest in the preferred securities. You should
keep in mind, however, that it is the guarantee, and not this summary, which
defines your rights. There may be other provisions in the guarantee which are
also important to you. You should read the guarantee itself for a full
description of its terms. The guarantee is filed as an exhibit to the
Registration Statement that includes this prospectus. See "Where You Can Find
More Information" for information on how to obtain a copy of the guarantee. When
we refer in this summary to preferred securities, we mean the preferred
securities issued by a trust to which the guarantee relates.
GENERAL TERMS OF THE GUARANTEE
We will irrevocably agree to pay in full on a subordinated basis, to the
extent described below, the guarantee payments, as defined below, to you, as and
when due, regardless of any defense, right of set-off or counterclaim that the
trust may have or assert other than the defense of payment.
The following payments, which we refer to in this prospectus as the
"guarantee payments," to the extent not paid by or on behalf of the related
trust, will be subject to the guarantee:
- any accumulated and unpaid distributions required to be paid to you on
the related preferred securities, to the extent that the trust has funds
available for the payments,
- the redemption price for any preferred securities called for redemption,
to the extent that the trust has funds available for the payments, or
- upon a voluntary or involuntary dissolution, winding up or liquidation of
the trust, unless the corresponding junior subordinated debentures are
distributed to you, the lesser of:
- the liquidation distribution, and
- the amount of assets of the trust remaining available for distribution
to you.
Our obligation to make a guarantee payment may be satisfied by us directly
paying to you the required amounts or by causing the trust to pay the amounts to
you.
The guarantee will be an irrevocable guarantee on a subordinated basis of
the related trust obligations under the preferred securities, but will apply
only to the extent that the related trust has funds sufficient to make the
payments. It is not a guarantee of collection.
If we do not make interest payments on the corresponding junior
subordinated debentures held by the trust, we expect that the trust will not pay
distributions on the preferred securities and will not have funds legally
available for those payments. The guarantee will rank subordinate and junior in
right of payment to all senior debt. See "-- Status of Guarantee."
As a non-operating holding company, most of our operating assets and the
assets of our consolidated subsidiaries are owned by our subsidiaries. We rely
primarily on dividends from our subsidiaries to meet our obligations for payment
of principal and interest on our outstanding debt obligations and corporate
expenses. Accordingly, our obligations under the guarantee will be effectively
subordinated to all existing and future liabilities of our subsidiaries. You
should rely only on our assets for payments we owe. The payment of dividends by
our insurance company subsidiaries, including Hartford Fire, is limited under
the insurance holding company laws in which those subsidiaries are domiciled.
See "The Hartford Financial Services Group, Inc."
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Unless we state otherwise in the applicable prospectus supplement, the
guarantee does not limit the amount of secured or unsecured debt that we may
incur. We expect from time to time to incur additional senior debt.
We have, through the guarantee, the trust agreement, the junior
subordinated debentures, the junior subordinated indenture and the expense
agreement, taken together, fully, irrevocably and unconditionally guaranteed all
of the obligations of the trust under the preferred securities. No single
document standing alone or operating in conjunction with fewer than all of the
other documents constitutes the guarantee. It is only the combined operation of
these documents that has the effect of providing a full, irrevocable and
unconditional guarantee of the obligations of the trust under the preferred
securities. See "Relationship Among the Preferred Securities, the Corresponding
Junior Subordinated Debentures and the Guarantees."
STATUS OF THE GUARANTEE
The guarantee will constitute an unsecured obligation of The Hartford
Financial Services Group, Inc. and will rank subordinate and junior in right of
payment to all its senior debt.
Unless we state otherwise in the applicable prospectus supplement, the
guarantee of a series of preferred securities will rank equally with the
guarantees relating to all other series of preferred securities that we may
issue. The guarantee will constitute a guarantee of payment and not of
collection, which means that the guaranteed party may institute a legal
proceeding directly against us to enforce its rights under the guarantee without
first instituting a legal proceeding against any other person or entity. The
property trustee of the related trust will hold the guarantee for your benefit.
The guarantee will not be discharged except by payment of the guarantee payments
in full to the extent not paid by the trust or upon distribution of the
corresponding junior subordinated debentures to you.
AMENDMENTS AND ASSIGNMENT
We may not amend the guarantee without the prior approval of the holders of
not less than a majority of the aggregate liquidation amount of outstanding
preferred securities, except for any changes which do not materially adversely
affect the rights of the holders of the preferred securities, in which case no
vote will be required. The manner of obtaining any approval will be as set forth
under "Description of the Preferred Securities -- Voting Rights; Amendment of
Trust Agreement."
All guarantees and agreements contained in the guarantee will bind our
successors, assigns, receivers, trustees and representatives and will inure to
the benefit of the holders of the related preferred securities then outstanding.
EVENTS OF DEFAULT
An event of default under the guarantee will occur when we fail to perform
any of our payment or other obligations under the guarantee. The holders of not
less than a majority in aggregate liquidation amount of the related preferred
securities have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the guarantee trustee under the guarantee
or to direct the exercise of any trust or power conferred upon the guarantee
trustee under the guarantee.
You may institute a legal proceeding directly against us to enforce your
rights under the guarantee without first instituting a legal proceeding against
the trust, the guarantee trustee or any other person or entity.
We, as guarantor, are required to file annually with the guarantee trustee
a certificate as to whether or not we are in compliance with all the conditions
and covenants applicable to us under the guarantee.
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The guarantee trustee, unless a default by us in the performance of the
guarantee then exists, is required to perform only those duties that are
specifically set forth in the guarantee. After a default under
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the guarantee, the guarantee trustee must exercise the same degree of care and
skill as a prudent person would exercise or use in the conduct of his or her own
affairs. However, the guarantee trustee is under no obligation to exercise any
of the powers vested in it by the guarantee at your request unless you offer
reasonable indemnity against the costs, expenses and liabilities that it might
incur.
TERMINATION OF THE GUARANTEE
The guarantee will terminate and be of no further force and effect:
- upon full payment of the redemption price of the related preferred
securities,
- upon full payment of the amounts payable upon liquidation of the related
trust, or
- upon distribution of corresponding junior subordinated debentures to the
holders of the preferred securities.
The guarantee will continue to be effective or will be reinstated if at any time
you must restore payment of any sums paid under the preferred securities or the
guarantee.
GOVERNING LAW
The guarantee will be governed by and construed in accordance with the laws
of the State of New York.
THE EXPENSE AGREEMENT
Under an expense agreement entered into by us, we will irrevocably and
unconditionally guarantee to each person or entity to whom a trust becomes
indebted or liable, the full payment of any costs, expenses or liabilities of
the trust, other than obligations of the trust to pay to you the amounts due to
you under the terms of the preferred securities.
DESCRIPTION OF CORRESPONDING JUNIOR SUBORDINATED DEBENTURES
The corresponding junior subordinated debentures are to be issued in one or
more series of junior subordinated debentures under the junior subordinated
indenture with terms corresponding to the terms of the related preferred
securities. See "Description of Junior Subordinated Debentures."
The following description of the terms of the corresponding junior
subordinated debentures and the junior subordinated indenture is a summary. It
summarizes only those portions of the junior subordinated indenture which we
believe will be most important to your decision to invest in the preferred
securities. You should keep in mind, however, that it is the junior subordinated
indenture, and not this summary, which defines your rights. There may be other
provisions in the junior subordinated indenture which are also important to you.
You should read the form of the junior subordinated indenture itself for a full
description of its terms. The junior subordinated indenture is filed as an
exhibit to the Registration Statement that includes this prospectus. See "Where
You Can Find More Information" for information on how to obtain a copy of the
junior subordinated indenture.
GENERAL TERMS OF THE CORRESPONDING JUNIOR SUBORDINATED DEBENTURES
At the same time a trust issues preferred securities, the trust will invest
the proceeds from the sale and the consideration paid by us for the common
securities in a series of corresponding junior subordinated debentures issued by
us to the trust. Each series of corresponding junior subordinated debentures
will be in the principal amount equal to the aggregate stated liquidation amount
of the related preferred securities plus our investment in the common securities
and, unless we state otherwise in the applicable prospectus supplement, will
rank equally with all other series of corresponding junior subordinated
debentures. The corresponding junior subordinated debentures will be unsecured
and subordinate and junior in right of payment to the extent and in the manner
set forth in the junior subordinated indenture to all our senior
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debt. See "Description of Junior Subordinated Debentures -- Subordination" and
the prospectus supplement relating to any offering of related preferred
securities.
OPTIONAL REDEMPTION
Unless we state otherwise in the applicable prospectus supplement, we may,
at our option, redeem the corresponding junior subordinated debentures on any
interest payment date, in whole or in part. Unless we state otherwise in the
applicable prospectus supplement, the redemption price for any corresponding
junior subordinated debentures will be equal to any accrued and unpaid interest
to the date fixed for redemption, plus the greater of:
- the principal amount of the debentures, and
- an amount equal to the discounted remaining fixed amount payments. See
"Description of Junior Subordinated Debentures -- Redemption."
If a tax event or an investment company event exists, we may, at our
option, redeem the corresponding junior subordinated debentures on any interest
payment date falling within 90 days of the occurrence of the tax event or
investment company event, in whole but not in part, subject to the provisions of
the junior subordinated indenture. The redemption price for any corresponding
junior subordinated debentures will be equal to 100% of the principal amount of
the corresponding junior subordinated debentures then outstanding plus accrued
and unpaid interest to the date fixed for redemption.
For so long as the applicable trust is the holder of all the outstanding
series of corresponding junior subordinated debentures, the trust will use the
proceeds of any redemption to redeem the corresponding preferred securities. We
may not redeem a series of corresponding junior subordinated debentures in part
unless all accrued and unpaid interest has been paid in full on all outstanding
corresponding junior subordinated debentures of the series for all interest
periods terminating on or prior to the redemption date.
COVENANTS OF THE HARTFORD FINANCIAL SERVICES GROUP, INC.
We will covenant in the junior subordinated indenture for each series of
corresponding junior subordinated debentures that we will pay additional sums to
the trust, if:
- the trust that has issued the corresponding series of preferred
securities and common securities is the holder of all of the
corresponding junior subordinated debentures,
- a tax event exists, and
- we have not redeemed the corresponding junior subordinated debentures or
terminated the trust.
We will also covenant, for each series of corresponding junior subordinated
debentures, that we and our subsidiaries will not:
- declare or pay any dividends or distributions on, or redeem, purchase,
acquire, or make a liquidation payment on any of our capital stock, or
- make any payment of principal of, interest or premium, if any, on or
repay or repurchase or redeem any debt securities, including other
corresponding junior subordinated debentures, that rank equally with or
junior in interest to the corresponding junior subordinated debentures or
make any related guarantee payments,
other than:
- dividends or distributions on our common stock,
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- redemptions or purchases of any rights pursuant to our rights plan, or
any successor to our rights plan, and the declaration of a dividend of
these rights in the future, and
- payments under any guarantee of preferred securities,
if at that time:
- there has occurred any event of which we have actual knowledge that with
the giving of notice or the lapse of time, or both, would constitute an
"event of default" under the junior subordinated indenture for that
series of corresponding junior subordinated debentures which we have not
taken reasonable steps to cure,
- we are in default on our payment of any obligations under the related
guarantee, or
- we have given notice of our selection of an extension period as provided
in the junior subordinated indenture for that series of corresponding
junior subordinated debentures and have not rescinded that notice, or the
extension period, or any extension, is continuing.
We will also covenant, for each series of corresponding junior subordinated
debentures:
- to maintain, by ourselves or our permitted successors, directly or
indirectly 100% ownership of the common securities of the trust to which
corresponding junior subordinated debentures have been issued,
- not to voluntarily terminate, wind-up or liquidate any trust, except in
connection with a distribution of corresponding junior subordinated
debentures to you in liquidation of the trust, or in connection with
mergers, consolidations or amalgamations permitted by the related trust
agreement, and
- to use our reasonable efforts, consistent with the terms and provisions
of the related trust agreement, to cause the trust to remain a business
trust and not to be classified as an association taxable as a corporation
for United States federal income tax purposes.
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RELATIONSHIP AMONG THE PREFERRED SECURITIES, THE CORRESPONDING JUNIOR
SUBORDINATED DEBENTURES AND THE GUARANTEES
As long as payments of interest and other payments are made when due on
each series of corresponding junior subordinated debentures, these payments will
be sufficient to cover distributions and other payments due on the related
preferred securities, primarily because:
- the aggregate principal amount of each series of corresponding junior
subordinated debentures will be equal to the sum of the aggregate stated
liquidation amount of the corresponding preferred securities and
corresponding common securities,
- the interest rate and interest and other payment dates on each series of
corresponding junior subordinated debentures will match the distribution
rate and distribution and other payment dates for the corresponding
preferred securities,
- we will pay for all and any costs, expenses and liabilities of the trust
except the obligations of the trust to holders of its preferred
securities under the preferred securities, and
- each trust agreement further provides that the trust will not engage in
any activity that is not consistent with the limited purposes of the
trust.
We will irrevocably guarantee payments of distributions and other amounts
due on the preferred securities, to the extent the trust has funds available for
the payment of such distributions, to the extent set forth under "Description of
Guarantee."
Taken together, our obligations under each series of junior subordinated
debentures, the junior subordinated indenture, the related trust agreement, the
related expense agreement and the related guarantee provide a full, irrevocable
and unconditional guarantee of payments of distributions and other amounts due
on the related series of preferred securities. No single document standing alone
or operating in conjunction with fewer than all of the other documents
constitutes the guarantee. It is only the combined operation of these documents
that has the effect of providing a full, irrevocable and unconditional guarantee
of the obligations of the trust under the preferred securities. If and to the
extent that we do not make payments on any series of corresponding junior
subordinated debentures, the trust will not pay distributions or other amounts
due on its preferred securities.
Notwithstanding anything to the contrary in the junior subordinated
indenture, we have the right to set-off any payment we are otherwise required to
make under the indenture with and to the extent we have made or are making a
payment under the related guarantee.
You may institute a legal proceeding directly against us to enforce your
rights under the related guarantee without first instituting a legal proceeding
against the guarantee trustee, the related trust or any other person or entity.
The preferred securities of each trust evidence your rights to the benefits
of the trust. Each trust exists for the sole purpose of issuing its preferred
securities and common securities, investing the proceeds from the sale of such
securities in corresponding junior subordinated debentures and related purposes.
A principal difference between your rights as a holder of a preferred
security and the rights of a holder of a corresponding junior subordinated
debenture is that a holder of a corresponding junior subordinated debenture will
accrue, and, subject to the permissible extension of the interest period, is
entitled to receive, interest on the principal amount of corresponding junior
subordinated debentures held, while you are only entitled to receive
distributions if and to the extent the trust has funds available for the payment
of those distributions.
Upon any voluntary or involuntary termination, winding-up or liquidation of
any trust involving the liquidation of the corresponding junior subordinated
debentures, you will be entitled to receive, out of assets held by the trust,
the liquidation distribution in cash. See "Description of Preferred
Securities -- Liquidation Distribution Upon Termination."
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Upon any voluntary or involuntary liquidation or bankruptcy of The Hartford
Financial Services Group, Inc., the property trustee, as holder of the
corresponding junior subordinated debentures, would be a subordinated creditor.
In this case, the property trustee would be subordinated in right of payment to
all senior debt, but entitled to receive payment in full of principal and
interest, before any of our stockholders receive payments or distributions.
Since we are the guarantor under each guarantee and have agreed to pay for all
costs, expenses and liabilities of each trust, your position as a holder of the
preferred securities and the position of a holder of the corresponding junior
subordinated debentures relative to other creditors and to our stockholders in
the event of liquidation or bankruptcy of our company would be substantially the
same.
A default or event of default under any senior debt would not constitute a
default or event of default under the junior subordinated indenture. However, in
the event of payment defaults under, or acceleration of, senior debt, the
subordination provisions of the junior subordinated indenture provide that we
may not make payments on the corresponding junior subordinated debentures until
the senior debt has been paid in full or any payment default under the senior
debt has been cured or waived. Our failure to make required payments on any
series of corresponding junior subordinated debentures would constitute an event
of default under the junior subordinated indenture.
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PLAN OF DISTRIBUTION
We may sell the securities offered by this prospectus through agents,
underwriters, dealers or directly to purchasers.
Agents who we designate may solicit offers to purchase the securities.
- We will name any agent involved in offering or selling securities, and
any commissions that we will pay to the agent, in our prospectus
supplement.
- Unless we indicate otherwise in our prospectus supplement, our agents
will act on a best efforts basis for the period of their appointment.
- Our agents may be deemed to be underwriters under the Securities Act of
1933 of any of the securities that they offer or sell.
We may use an underwriter or underwriters in the offer or sale of our
securities.
- If we use an underwriter or underwriters, we will execute an underwriting
agreement with the underwriter or underwriters at the time that we reach
an agreement for the sale of the securities.
- We will include the names of the specific managing underwriter or
underwriters, as well as any other underwriters, and the terms of the
transactions, including the compensation the underwriters and dealers
will receive, in our prospectus supplement.
- The underwriters will use our prospectus supplement to sell the
securities.
We may use a dealer to sell the securities.
- If we use a dealer, we, as principal, will sell the securities to the
dealer.
- The dealer will then sell the securities to the public at varying prices
that the dealer will determine at the time it sells our securities.
- We will include the name of the dealer and the terms of our transactions
with the dealer in our prospectus supplement.
We may solicit directly offers to purchase the securities, and we may
directly sell the securities to institutional or other investors. We will
describe the terms of our direct sales in our prospectus supplement.
We may indemnify agents, underwriters, and dealers against certain
liabilities, including liabilities under the Securities Act. Our agents,
underwriters, and dealers, or their affiliates, may be customers of, engage in
transactions with or perform services for us, in the ordinary course of
business.
We may authorize our agents and underwriters to solicit offers by certain
institutions to purchase the securities at the public offering price under
delayed delivery contracts.
- If we use delayed delivery contracts, we will disclose that we are using
them in the prospectus supplement and will tell you when we will demand
payment and delivery of the securities under the delayed delivery
contracts.
- These delayed delivery contracts will be subject only to the conditions
that we describe in the prospectus supplement.
- We will describe in our prospectus supplement the commission that
underwriters and agents soliciting purchases of the securities under
delayed contracts will be entitled to receive.
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LEGAL OPINIONS
Unless we state otherwise in the applicable prospectus supplement the
validity of any securities offered by this prospectus will be passed upon for us
by Katherine Vines Trumbull, our Vice President and Corporate Secretary, and for
the trusts by Richards, Layton & Finger, special Delaware counsel to the trusts
and for any underwriters or agents by counsel that we will name in the
applicable prospectus supplement.
EXPERTS
The audited consolidated financial statements and schedules of The Hartford
Financial Services Group, Inc. and subsidiaries incorporated by reference in
this prospectus and in the Registration Statement have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their report with
respect thereto, and are incorporated by reference herein and in the
Registration Statement in reliance upon the authority of said firm as experts in
accounting and auditing in giving said report. Reference is made to said report,
which includes an explanatory paragraph with respect to the change in the method
of accounting for derivatives and hedging activities and the change in the
method of accounting for recognition of interest income and impairment on
purchased and retained beneficial interests in securitized financial assets as
discussed in Note 1(b) to the financial statements.
WHERE YOU CAN FIND MORE INFORMATION
This prospectus is part of a Registration Statement that we filed with the
Securities and Exchange Commission. The Registration Statement, including the
attached exhibits, contains additional relevant information about us. The rules
and regulations of the Securities and Exchange Commission allow us to omit some
of the information about The Hartford Financial Services Group, Inc. In
addition, we file reports, proxy statements and other information with the
Securities and Exchange Commission. This information may be inspected and copied
at the public reference facilities maintained by the Securities and Exchange
Commission at:
- Room 1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C.
20549; or
- Suite 1400, Northwestern Atrium Center, 14th Floor, 500 West Madison
Street, Chicago, Illinois 60611.
COPIES OF THIS MATERIAL CAN BE OBTAINED AT PRESCRIBED RATES FROM THE PUBLIC
REFERENCE SECTION OF THE SECURITIES AND EXCHANGE COMMISSION AT ROOM 1024, 450
FIFTH STREET, N.W., JUDICIARY PLAZA, WASHINGTON, D.C. 20549. THE MATERIAL MAY
ALSO BE ACCESSED ELECTRONICALLY BY MEANS OF THE SECURITIES AND EXCHANGE
COMMISSION'S HOME PAGE ON THE INTERNET AT HTTP://WWW.SEC.GOV.
Our common stock is listed on the New York Stock Exchange, Inc. You can
also inspect reports and other information concerning us at the office of the
New York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005.
INCORPORATION BY REFERENCE
The rules of the Securities and Exchange Commission allow us to incorporate
by reference information into this prospectus. The information incorporated by
reference is considered to be a part of this prospectus, and information that we
file later with the Securities and Exchange Commission will automatically update
and supercede this information. This prospectus incorporates by reference the
documents listed below.
- Our Annual Report on Form 10-K for the year ended December 31, 2001,
- Our Quarterly Report on Form 10-Q for the quarter ended March 31, 2002,
60
- Our Current Report on Form 8-K filed on March 20, 2002; our Current
Report on Form 8-K filed on March 26, 2002 (as amended by the Form 8-K/A
(Amendment No. 1), filed on March 29, 2002 and Form 8-K/A (Amendment No.
2), filed on May 17, 2002); our Current Report on Form 8-K filed on April
16, 2002; and our Current Report on Form 8-K filed on April 23, 2002,
- Description of our common stock and the rights associated with our common
stock contained in our registration statement on Form 8-A, dated
September 18, 1995 (as amended by the Form 8-A/A filed on November 15,
1995), and
- all documents filed by us pursuant to Sections 13(a), 13(c), 14 and 15(d)
of the Exchange Act after the date of this prospectus.
We will provide without charge to each person, including any beneficial
owner, to whom a copy of this prospectus is delivered, upon written or oral
request of such person, a copy of any or all of the documents referred to above
which have been or may be incorporated by reference in this prospectus. You
should direct requests for those documents to The Hartford Financial Services
Group, Inc., Hartford Plaza, Hartford, Connecticut 06115, Attention: Katherine
Vines Trumbull, Secretary (Telephone: 860-547-5000).
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No person has been authorized to give any information or to make any
representations, other than those contained or incorporated by reference in this
prospectus and, if given or made, such information or representation must not be
relied upon as having been authorized by The Hartford Financial Services Group,
Inc., or any underwriter, agent or dealer. Neither the delivery of this
prospectus nor any sale made hereunder shall under any circumstances create any
implication that there has been no change in the affairs of The Hartford
Financial Services Group, Inc. since the date hereof or that the information
contained or incorporated by reference herein is correct as of any time
subsequent to the date of such information. This prospectus does not constitute
an offer to sell or a solicitation of an offer to buy any securities by anyone
in any jurisdiction in which such offer or solicitation is not authorized or in
which the person making such offer or solicitation is not qualified to do so or
to any person to whom it is unlawful to make such offer or solicitation.
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6,000,000 EQUITY UNITS
(INITIALLY CONSISTING OF 6,000,000 CORPORATE UNITS)
[THE HARTFORD LOGO]
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
6% EQUITY UNITS
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PROSPECTUS SUPPLEMENT
SEPTEMBER 9, 2002
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Joint Book-running Managers
BANC OF AMERICA SECURITIES LLC MORGAN STANLEY SALOMON SMITH BARNEY
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A.G. EDWARDS & SONS, INC.
EDWARD D. JONES & CO., L.P.
GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
UBS WARBURG
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