The Hartford 2008 Annual Report Download - page 315

Table of Contents
Investment by Allianz SE in The Hartford
In order to strengthen its capital and liquidity position, the Company on October 17, 2008 closed on a $2.5 billion
investment by Allianz SE (“Allianz”). Allianz purchased $1.75 billion of the Company’s 10% Fixed-to-Floating Rate Junior
Subordinated Debentures due 2068, and $750 of the Company’s Series D Non-Voting Contingent Convertible Preferred
Stock (the “Convertible Preferred”) initially convertible into 24,193,548 shares of the Company’s common stock (the
“Common Stock”), upon receipt of applicable approvals, at an issue price of $31.00 per share of Common Stock. Allianz
additionally received warrants to purchase an aggregate of $1.75 billion of the Company’s Series B and Series C Convertible
Preferred at an initial exercise price of $25.32 per share. Conversion of the Convertible Preferred referred to above into
Common Stock is subject to receipt of certain governmental and regulatory approvals and, in the case of the Series C
Convertible Preferred, to the approval of the Company’s stockholders in accordance with the rules of the New York Stock
Exchange. For further detail about the Allianz investment in The Hartford, see Note 21 of Notes to the Consolidated
Financial Statements.
The Company has also agreed that, for the one-year period following October 17, 2008, it will pay certain amounts to
Allianz if the Company effects or agrees to effect any transaction (or series of transactions) pursuant to which any person or
group (within the meaning of the U.S. federal securities laws) is issued common stock or certain equity-related instruments
constituting more than 5% of the Company’s fully-diluted common stock outstanding at the time for an effective price per
share (determined as provided in the Investment Agreement) of less than $25.32. Amounts so payable depend on the
effective price for the applicable transaction (or the weighted average price for a series of transactions) and range from $50
if the effective price per share is between $25.31 and $23.00, $150 if the effective price per share is between $22.99 and
$20.00, $200 if the effective price per share is between $19.99 and $15.00 and $300 if the effective price per share is $14.99
or less.
In addition to the receipt of specified regulatory approvals, the conversion into 34,308,872 shares of common stock of the
Series C Preferred Stock underlying certain of the Warrants is subject to the approval of the Company’s stockholders in
accordance with applicable regulations of the New York Stock Exchange. Under the Investment Agreement, the Company is
obligated to pay Allianz $75 if such stockholder approval is not obtained at the first stockholder meeting to consider such
approval, and $50 if such stockholder approval is not obtained at a second such meeting. Because the conversion of the
Series C Preferred Stock is subject to stockholder approval and the related payment provision represents a form of net cash
settlement outside the Company’s control, the Warrants to purchase the Series C Preferred Stock and the stockholder
approval payment were recorded as a derivative liability at a relative fair value of $273 at issuance. As of December 31,
2008, the Warrants to purchase the Series C Preferred Stock had a fair value of $163. The Company recognized a gain of
$110, after-tax, for the year ended December 31, 2008, representing the change in fair value of the Warrants to purchase the
Series C Preferred Stock.
Debt
The following discussion describes the Company’s debt financing activities for 2008. For additional information regarding
debt including Allianz’s investment in The Hartford, see Notes 14 and 21 of Notes to Consolidated Financial Statements.
Senior Notes
On November 16, 2008, The Hartford repaid its $330, 5.663% senior notes at maturity.
On November 1, 2008, The Hartford repaid its $200, 6.375% senior notes at maturity.
On August 16, 2008, The Hartford repaid its $425, 5.55% senior notes at maturity.
On May 12, 2008, The Hartford issued $500 of 6.0% senior notes due January 15, 2019. The issuance was made pursuant to
the Company’s shelf registration statement (Registration No. 333-142044).
On March 4, 2008, The Hartford issued $500 of 6.3% senior notes due March 15, 2018. The issuance was made pursuant to
the Company’s shelf registration statement (Registration No. 333-142044).
HFSG used the majority of the proceeds from the total $1 billion in issuances of senior notes to repay its $425 5.55% notes
at maturity on August 16, 2008, to repay its $200 6.375% notes at maturity on November 1, 2008 and $330 5.663% notes at
maturity on November 16, 2008.
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Source: HARTFORD FINANCIAL S, 10-K, February 12, 2009