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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 9, 2000
REGISTRATION NO. 333-91517
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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METLIFE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
DELAWARE 6719 13-4075851
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
ONE MADISON AVENUE
NEW YORK, NEW YORK 10010-3690
(212) 578-2211
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
GARY A. BELLER, ESQ.
SENIOR EXECUTIVE VICE-PRESIDENT AND GENERAL COUNSEL
METLIFE, INC.
ONE MADISON AVENUE
NEW YORK, NY 10010-3690
(212) 578-2211
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
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WITH COPIES TO:
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<S> <C>
WOLCOTT B. DUNHAM, JR., ESQ. PHYLLIS G. KORFF, ESQ.
JAMES C. SCOVILLE, ESQ. SUSAN J. SUTHERLAND, ESQ.
DEBEVOISE & PLIMPTON SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
875 THIRD AVENUE FOUR TIMES SQUARE
NEW YORK, NEW YORK 10022 NEW YORK, NEW YORK 10036
(212) 909-6000 (212) 735-3000
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
number for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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EXPLANATORY NOTE
This Registration Statement contains two forms of Prospectus: (i) one to be
used in connection with an offering in the United States and Canada (the "U.S.
Prospectus") and (ii) the other to be used in a concurrent offering outside the
United States and Canada (the "International Prospectus"). The two prospectuses
are identical in all material respects except for the front cover pages. The
form of U.S. Prospectus is included herein and is followed by the alternate
cover page to be used in the International Prospectus. The alternate cover page
for the International Prospectus included herein is labeled "Alternate Page for
International Prospectus." Final forms of each Prospectus will be filed with the
Securities and Exchange Commission under Rule 424(b).
<PAGE> 3
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN
OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
[MetLife SNOOPY LOGO]
SUBJECT TO COMPLETION. DATED MARCH 9, 2000.
179,000,000 SHARES
[METLIFE LOGO]
COMMON STOCK
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This is an initial public offering of shares of common stock of MetLife,
Inc. The offering is being made in connection with the reorganization of
Metropolitan Life Insurance Company from a mutual life insurance company to a
stock life insurance company in a process known as a demutualization.
152,150,000 shares of common stock are initially being offered in the
United States and Canada by the U.S. underwriters and 26,850,000 shares are
initially being concurrently offered outside the United States and Canada by the
international underwriters. The offering price and underwriting discount for
both offerings are identical.
In addition to these shares, in connection with the demutualization we will
issue 493,476,118 shares of our common stock to a trust for the benefit of
policyholders of Metropolitan Life Insurance Company. In addition, we expect to
issue concurrently with this offering up to 73,000,000 shares of our common
stock to Banco Santander Central Hispano, S.A. and Credit Suisse Group or their
respective affiliates in private placements at a price per share equal to the
initial public offering price.
Prior to this offering, there has been no public market for our common
stock. We anticipate that the initial public offering price per share will be
between $13.00 and $15.00. Our common stock has been approved for listing on the
New York Stock Exchange under the symbol "MET", subject to official notice of
issuance.
Concurrently with this offering, we and a trust we own are offering
20,000,000 % equity security units for an aggregate offering of $1 billion,
plus up to an additional $150 million if the underwriters' options to purchase
additional units are exercised in full, by means of a separate prospectus. Each
unit consists of (a) a contract to purchase shares of our common stock and (b) a
% capital security of MetLife Capital Trust I, a Delaware business trust
wholly-owned by us.
INVESTING IN THE COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING
ON PAGE 18.
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<CAPTION>
PER SHARE TOTAL
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Initial public offering price............................... $ $
Underwriting discount....................................... $ $
Proceeds, before expenses, to MetLife, Inc. ................ $ $
</TABLE>
To the extent that the underwriters sell more than 179,000,000 shares of
common stock, the underwriters have the option to purchase up to an additional
26,850,000 shares from us at the initial public offering price less the
underwriting discount.
Delivery of the shares of common stock will be made on or about
, 2000.
None of the Securities and Exchange Commission, any state securities
commission, the New York Superintendent of Insurance or any other regulatory
body has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
Joint Bookrunners
CREDIT SUISSE FIRST BOSTON GOLDMAN, SACHS & CO.
BANC OF AMERICA SECURITIES LLC
DONALDSON, LUFKIN AND JENRETTE
LEHMAN BROTHERS
MERRILL LYNCH & CO.
MORGAN STANLEY DEAN WITTER
SALOMON SMITH BARNEY
CONNING & COMPANY FOX-PITT, KELTON J.P. MORGAN & CO.
SANTANDER INVESTMENT UTENDAHL CAPITAL PARTNERS, L.P. WARBURG DILLON READ LLC
Prospectus dated , 2000.
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TABLE OF CONTENTS
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PAGE
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Prospectus Summary.......................................... 3
Risk Factors................................................ 18
Use of Proceeds............................................. 32
Dividend Policy............................................. 33
Capitalization.............................................. 34
Selected Financial Information.............................. 35
Pro Forma Consolidated Financial Information................ 42
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 50
The Demutualization......................................... 87
Business.................................................... 100
Management.................................................. 177
Ownership of Common Stock................................... 193
Common Stock Eligible for Future Sale....................... 195
Description of the Equity Security Units.................... 196
Description of Capital Stock................................ 199
Underwriting................................................ 206
Validity of Common Stock.................................... 211
Experts..................................................... 211
Additional Information...................................... 211
Glossary.................................................... G-1
Index to Financial Statements............................... F-1
Opinion of Consulting Actuary............................... A-1
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Some statements contained in this prospectus, including those containing
the words "believes", "expects", "intends", "estimates", "assumes" and
"anticipates", are forward looking. Actual results may differ materially from
those suggested by the forward looking statements for various reasons, including
those discussed under "Risk Factors".
You should rely only on the information contained or referred to in this
document. We have not authorized anyone to provide you with information that is
different. This document may only be used where it is legal to sell these
securities. The information in this document may only be accurate as of the date
of this document.
DEALER PROSPECTUS DELIVERY OBLIGATION
Until , 2000 (25 days after the commencement of the offering), all
dealers that effect transactions in these securities, whether or not
participating in this offering, may be required to deliver a prospectus. This is
in addition to the dealer's obligation to deliver a prospectus when acting as an
underwriter and with respect to unsold allotments or subscriptions.
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PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
As a result, it does not contain all of the information that you should consider
before investing in our common stock. You should read the entire prospectus
carefully, including the "Risk Factors" section and the consolidated financial
statements and the notes to those statements. Unless otherwise stated or the
context otherwise requires, references in this prospectus to "we", "our", "us"
or "MetLife" refer to MetLife, Inc., together with Metropolitan Life Insurance
Company, and their respective direct and indirect subsidiaries. All financial
information contained in this prospectus, unless otherwise indicated, has been
derived from the consolidated financial statements of Metropolitan Life
Insurance Company and its subsidiaries and is presented in conformity with
generally accepted accounting principles ("GAAP"). The Glossary beginning on
page G-1 of this prospectus includes definitions of certain insurance terms.
Each term defined in the Glossary is printed in boldface the first time it
appears in this prospectus. Information regarding the number of shares of
MetLife, Inc. common stock to be outstanding after the initial public offering,
the planned private placements and the concurrent offering of equity security
units does not include shares of common stock issuable upon the settlement of
the purchase contracts that are a part of the units.
We are a leading provider of insurance and financial services to a broad
spectrum of individual and institutional customers. We currently provide
individual insurance, ANNUITIES and investment products to approximately nine
million households, or one of every eleven households in the U.S. We also
provide group insurance and retirement and savings products and services to
approximately 64,000 corporations and other institutions, including 86 of the
FORTUNE 100 largest companies. Our institutional clients have approximately 33
million employees and members.
We are a leader in each of our major U.S. businesses. We are:
- the largest life insurer, with approximately $1.7 trillion of life
insurance IN FORCE at December 31, 1999;
- the largest individual life insurer, with $11.5 billion in individual
life insurance and annuity PREMIUMS and deposits in 1999;
- the largest group life insurer, with $5.3 billion of premiums in 1999;
- a leading group non-medical health insurer, including the second largest
group disability insurer, the second largest commercial dental insurer
and the largest group long-term care insurer;
- a leading issuer of individual variable life insurance and variable
annuities; and
- a leading asset manager, with $373.6 billion of total assets under
management at December 31, 1999.
We believe that our unparalleled franchises and brand names uniquely
position us to be the preeminent provider of insurance and financial services in
the U.S. businesses in which we compete.
We are one of the largest and best capitalized insurance and financial
services companies in the U.S. Our revenues for 1999 were $25.4 billion and our
net income was $617 million. We had total consolidated assets of $225.2 billion
and equity of $13.7 billion at December 31, 1999.
We are organized into five major business segments: Individual Business,
Institutional Business, Asset Management, Auto & Home and International.
INDIVIDUAL BUSINESS. Individual Business offers a wide variety of
protection and asset accumulation products for individuals, including life
insurance and annuities. Individual Business also distributes products
provided by our other business segments, including mutual funds and auto
and homeowners insurance. Reflecting overall trends in the insurance
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industry, sales of our traditional life insurance products have declined in
recent years, while FIRST-YEAR PREMIUMS AND DEPOSITS from variable life
insurance products have grown at a compound annual rate of 33.1% for the
five years ended 1999 and represented 67.4% of our total life insurance
sales for Individual Business in 1999. Our principal distribution channels
are the MetLife career agency and the New England Financial general agency
distribution systems and, after our recent acquisition of GenAmerica
Corporation, GenAmerica's independent general agency system. We also have
dedicated sales forces that market to non-profit organizations and banks
and their customers. In total, we had approximately 11,000 active sales
representatives in 1999. In addition to these distribution channels, we are
increasing the distribution of our products through independent insurance
agents and registered representatives. We believe our ability to
effectively manage these multiple distribution channels represents a
significant competitive advantage. Individual Business had $11.1 billion of
revenues, or 43.5% of our total revenues, and $565 million of operating
income in 1999.
INSTITUTIONAL BUSINESS. Institutional Business offers a broad range
of group insurance and retirement and savings products and services. Our
group insurance products and services include group life insurance and
non-medical health insurance such as short- and long-term disability,
long-term care and dental insurance, as well as other related products and
services. Our group insurance premiums, fees and other income, which
totaled $5.9 billion in 1999, have grown at a compound annual rate of 10.0%
for the three years ended 1999. Our retirement and savings products and
services include administrative services sold to sponsors of 401(k) and
other defined contribution plans, guaranteed interest products and separate
account products. We distribute our Institutional Business products through
a sales force of approximately 300 MetLife employees that is organized by
both customer size and product. In total, we have approximately 64,000
institutional customers, including 86 of the FORTUNE 100 largest companies.
Institutional Business had $10.4 billion of revenues, or 40.8% of our total
revenues, and $585 million of operating income in 1999.
ASSET MANAGEMENT. Through our wholly-owned subsidiary, State Street
Research & Management Company, and our controlling interest in Nvest
Companies, L.P. and its affiliates, Asset Management provides a broad
variety of asset management products and services primarily to third-party
institutions and individuals. Our Asset Management segment managed $189.8
billion of our total assets under management at December 31, 1999,
including $54.9 billion of assets in mutual funds and in SEPARATE ACCOUNTS
supporting individual variable life and annuity products. For the five
years ended 1999, this segment's assets under management grew at a compound
annual rate of 14.2%. We distribute our asset management products through
several distribution channels, including State Street Research's and
Nvest's dedicated sales forces, and also through our Individual Business
and Institutional Business distribution channels. Asset Management had $0.9
billion of revenues, or 3.5% of our total revenues, and $51 million of
operating income in 1999.
AUTO & HOME. Auto & Home offers auto insurance, homeowners insurance
and other personal property and casualty insurance products. We sell these
products directly to employees through employer-sponsored programs, as well
as through a variety of retail distribution channels. These channels
include the MetLife career agency system, approximately 6,000 independent
agents and brokers, which includes those of The St. Paul Companies acquired
in 1999, and approximately 385 Auto & Home specialists. We are the leading
provider of personal auto and homeowners insurance through
employer-sponsored programs in the U.S. Net premiums earned from products
sold through employer-sponsored programs have grown at a 14.3% compound
annual rate for the five years ended 1999. On September 30, 1999, our Auto
& Home segment acquired the standard personal lines property and casualty
insurance operations of The St. Paul Companies, which had in-force premiums
of approximately $1.1 billion, substantially increasing the size of this
segment's business, making us the eleventh largest personal property and
casualty insurer in the U.S.
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based on 1998 net premiums written. See "Business -- Auto & Home". Auto &
Home had $1.9 billion of revenues, or 7.4% of our total revenues, and $54
million of operating income in 1999.
INTERNATIONAL. We have international insurance operations in ten
countries, with a focus on the Asia/Pacific region, Latin America and
selected European countries. Our International segment offers life
insurance, accident and health insurance, annuities and retirement and
savings products and services to both individuals and groups, and auto and
homeowners coverage to individuals. Assets of our International segment, as
adjusted for the recent divestitures of a substantial portion of our U.K.
and Canadian operations, have grown at a compound annual rate of 21.4% for
the five years ended 1999. International had $0.8 billion of revenues, or
3.1% of our total revenues, and $18 million of operating income in 1999.
On January 6, 2000, we acquired GenAmerica Corporation for $1.2 billion in
cash. GenAmerica is a leading provider of life insurance, life reinsurance and
other financial services to affluent individuals, businesses, insurers and
financial institutions. GenAmerica's products and services include individual
life insurance and annuities, life reinsurance, institutional asset management,
group life and health insurance and administration, pension benefits
administration and software products and technology services for the life
insurance industry. GenAmerica distributes its products through approximately
625 agents in its independent general agency system and approximately 1,575
active independent insurance agents and brokers.
GenAmerica is a holding company which owns General American Life Insurance
Company. GenAmerica's subsidiaries also include Reinsurance Group of America,
Inc., one of the largest life reinsurers in the United States, and Conning
Corporation, a manager of investments for General American Life and other
insurance company and pension clients. Upon completion of the acquisition of
GenAmerica, we owned approximately 58% and 61% of the outstanding common stock
of Reinsurance Group of America (also known as RGA) and Conning, respectively.
Both RGA and Conning are publicly-traded. On March 9, 2000, we announced that we
had agreed to acquire all of the outstanding shares of Conning common stock not
already owned by us for $12.50 per share in cash, or approximately $65 million.
The Conning acquisition is subject to customary terms and conditions, including
regulatory approvals.
Subsequent to January 6, 2000, the date on which we acquired GenAmerica,
GenAmerica's businesses will be incorporated into our business segments as
applicable, except for RGA, which will be separately designated as our
Reinsurance segment.
STRATEGY
As we become a public company, we are committed to providing superior
stockholder value through the following growth strategies:
- - INCREASING OUR REVENUES AND ASSETS UNDER MANAGEMENT BY:
Building on widely recognized brand names. We believe that the
MetLife name is one of the most well-known brand names in the U.S. and one
of our most valuable assets. We have also been successful in utilizing
additional brand names, such as New England Financial, Security First Group
and State Street Research, for specific market segments. We believe our
recent acquisition of GenAmerica and RGA further strengthens our brand
portfolio.
Capitalizing on large customer base. We intend to enhance our
relationships with our existing individual customers by offering a broad
array of products, improving the training of our agents and developing
direct marketing programs in partnership with our agency sales force and
increasing sales to our institutional customers by expanding the offering
of voluntary, or employee-paid, products.
Expanding multiple distribution channels. We believe that our
development and successful management of multiple distribution channels
represent a significant competitive
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advantage. We intend to both grow our core distribution channels and to
continue to build complementary distribution channels for sales of our
products.
Continuing to introduce innovative and competitive products. We
intend to be at the forefront of the insurance and financial services
industries in offering innovative and competitive products to our
customers. Recent initiatives include new or revised products covering a
substantial portion of our individual product offerings and new voluntary
institutional products.
Increasing focus on asset accumulation products. We intend to expand
our assets under management in both our insurance operations and our Asset
Management segment by increasing our focus on sales of asset accumulation
products, such as variable life and annuity products, mutual funds and
401(k) products.
Focusing international operations on growing markets. We have
established insurance operations in selected international markets that are
experiencing significant growth in demand for insurance products and where
we believe we can gain significant market share.
- - GROWING OUR EARNINGS AND OPERATING RETURN ON EQUITY BY:
Reducing operating expenses. We are committed to improving
profitability by reducing operating expenses through employee reductions,
increased integration of operations and enhanced use of technology.
Strengthening performance-oriented culture. We have implemented a
number of initiatives to significantly enhance the performance of our
employees, including establishing a new compensation program, selectively
hiring experienced new employees, expanding our training efforts and
implementing a new performance measurement and review program.
Continuing to optimize returns from investment portfolio. The return
on our invested assets has contributed significantly to our earnings
growth. We believe that the expertise of our investment department will
enable us to continue to optimize the operating returns on our invested
assets in the future.
Enhancing capital efficiency of our operations. We seek to maximize
our operating return on equity by enhancing the capital efficiency of our
operations. We have recently implemented a new internal capital allocation
system and, consistent with a more disciplined approach to capital
allocation, have divested operations that did not meet targeted rates of
return or growth.
THE DEMUTUALIZATION
We are conducting the offerings in connection with the reorganization of
Metropolitan Life Insurance Company from a mutual life insurance company to a
stock life insurance company in a process commonly known as a demutualization.
On the date the plan of reorganization becomes effective, which will be the date
of the closing of the initial public offering, the private placements and the
offering of the units described below, Metropolitan Life Insurance Company will
become a wholly-owned subsidiary of MetLife, Inc. In the demutualization, in
exchange for their membership interests, policyholders who are eligible to
receive consideration under the plan of reorganization will be entitled to
receive consideration in the form of shares of our common stock or, in some
cases, cash or an adjustment to their policy values, referred to as "policy
credits".
The shares of our common stock allocated to policyholders who do not
receive cash or policy credits under the plan will be held through the MetLife
Policyholder Trust on behalf of these policyholders. We are establishing the
trust to help us efficiently manage the administration of accounts and the costs
associated with the approximately nine million eligible policyholders that we
estimate will become beneficiaries of the trust. Subject to certain limitations,
trust beneficiaries will be permitted, after specified periods, to instruct the
trustee to withdraw their allocated shares of our common stock from the trust
for sale or to purchase additional shares
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commission-free through a purchase and sale program established and administered
by a program agent. Trust beneficiaries allocated more than 25,000 shares of our
common stock may be limited in their ability to sell shares under the purchase
and sale program for the first 300 days after the plan effective date. Beginning
on the first anniversary of the closing of the initial public offering, trust
beneficiaries may also withdraw all, but not less than all, their allocated
shares of our common stock held in the trust in order to hold or sell such
shares of our common stock on their own.
We will account for the demutualization using the historical carrying
values of our assets and liabilities.
The board of directors of Metropolitan Life Insurance Company adopted the
plan of reorganization on September 28, 1999, and subsequently adopted
amendments to the plan. As required by law, the plan was approved by more than
two-thirds of the eligible policyholders who voted in voting completed on
February 7, 2000. Under the New York Insurance Law, in order for the
demutualization to become effective, it must also be approved by the New York
Superintendent after a public hearing. The New York Superintendent held a public
hearing on the plan on January 24, 2000. At the public hearing, some
policyholders and others raised objections to certain aspects of the plan. In
addition, a civil complaint challenging the fairness of the plan and the
adequacy and accuracy of the disclosures to policyholders regarding the plan has
been filed in the New York Supreme Court for Kings County on behalf of an
alleged class consisting of the policyholders of Metropolitan Life Insurance
Company who should have membership benefits in Metropolitan Life Insurance
Company and were and are eligible to receive notice, vote and receive
consideration in the demutualization. See "Risk Factors -- A challenge to the
New York Superintendent of Insurance's approval may adversely affect the terms
of the demutualization and the market price of our common stock".
PRIVATE PLACEMENTS
Banco Santander Central Hispano, S.A. and Credit Suisse Group have agreed
in principle that they or their respective affiliates will purchase from us in
the aggregate not less than 14,900,000 shares nor more than 73,000,000 shares of
our common stock in private placements that will close concurrently with the
initial public offering and the offering of equity security units described
below. We will determine at the time of the pricing of the initial public
offering whether to sell any shares to these purchasers in excess of the minimum
amount. Any shares in excess of the minimum amount that we determine not to sell
to these investors may increase the number of shares available for sale to the
general public under this prospectus. The maximum number of shares that each
investor, individually, and the investors, in the aggregate, could be obligated
to purchase in the private placements represents approximately 4.9% and 9.8%,
respectively, of the total number of shares of our common stock to be
outstanding upon consummation of the initial public offering and the private
placements. We expect each of these purchasers to enter into an agreement with
us that provides that any shares purchased by it will be restricted from sale or
transfer for a period of one year after the initial public offering, except for
sales to affiliates or pursuant to a tender or exchange offer recommended by our
board of directors. In addition, we expect each purchaser to agree that it will
not, without our consent, increase its ownership of voting securities beyond
4.9% of the outstanding shares, seek to obtain board representation, solicit
proxies in opposition to management or take certain other actions for five
years. Although these investors will receive common stock which has not been
registered under the Securities Act, they will also receive registration rights
with respect to such stock, which rights are not exercisable until one year
after the closing of the initial public offering. Pursuant to these registration
rights, the purchasers will be able to have their shares of common stock
registered for resale under the Securities Act at various times in the future.
In addition, the purchasers will be able to participate, subject to specified
limitations, in registrations effected by us for our own account or others. The
private placements are subject to the negotiation of definitive documentation.
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OFFERING OF EQUITY SECURITY UNITS
Concurrently with this offering, we and a trust we own are offering
20,000,000 equity security units for an aggregate offering of $1,000 million,
plus up to an additional $150 million if the underwriters' options to purchase
additional units are exercised in full, by means of a separate prospectus. Each
unit initially consists of (a) a contract to purchase shares of our common stock
and (b) a % capital security of MetLife Capital Trust I, a Delaware
business trust wholly-owned by us.
The purchase contract underlying a unit obligates holders to purchase, and
us to sell, for $50, on , 2003, a number of newly issued shares
of our common stock equal to a settlement rate based on the average trading
price of the common stock at that time.
The capital securities represent undivided beneficial ownership interests
in the assets of the trust, consisting solely of debentures issued by us to the
trust. The debentures will have an interest rate and principal amount that are
the same as the distribution rate and stated liquidation amount of the capital
securities.
The capital securities will initially be held as components of the units
and be pledged to secure the holders' obligations under the related purchase
contracts. The holders will initially receive from each unit distributions on
the capital securities at the rate of % of $50 per year, paid quarterly,
subject to the deferral provisions described under "Description of the Equity
Security Units", below. During any period in which payments are deferred, in
general we cannot declare or pay any dividend or distribution on our capital
stock or take specified other actions. The distribution rate will be reset, and
the capital securities remarketed, as described under "Description of the Equity
Security Units".
MetLife, Inc. will, on a senior and unsecured basis, irrevocably guarantee
payments on the capital securities to the extent of available trust funds.
The financial statements of MetLife Capital Trust I will be consolidated in
our consolidated financial statements, with the capital securities shown on our
consolidated balance sheets under the caption "Company-obligated mandatorily
redeemable securities of subsidiary trust holding solely debentures of Parent".
The notes to our consolidated financial statements will disclose that the sole
asset of the trust will be the debentures issued by MetLife, Inc. to the trust.
Distributions on the capital securities will be reported as a charge to minority
interest in our consolidated statements of income, whether paid or accrued.
Before the issuance of shares of our common stock upon settlement of the
purchase contracts, the units 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 earnings per share for
any period is deemed to be increased by the excess, if any, of the number of our
shares issuable 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 that period, using the proceeds receivable upon settlement. Consequently,
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 $ per
share.
The closings of the initial public offering, the private placements and the
offering of the equity security units are each conditioned on the concurrent
closings of the others.
-------------------------
Our principal executive offices are located at One Madison Avenue, New
York, New York 10010-3690. Our telephone number is (212) 578-2211.
8
<PAGE> 11
THE OFFERING
Common stock offered.......... 179,000,000 shares, assuming an initial public
offering price of $14.00 per share, which is
the midpoint of the range stated on the cover
page of this prospectus.
Shares to be outstanding after
the offering.................. 745,476,118 shares, assuming an initial public
offering price of $14.00 per share, which is
the midpoint of the range stated on the cover
page of this prospectus.
New York Stock Exchange
symbol...................... MET
Use of proceeds............... We estimate that we will receive net proceeds
from the initial public offering of $2,381
million, or $2,738 million if the underwriters'
options to purchase additional shares as
described under "Underwriting" are exercised in
full, assuming an initial public offering price
of $14.00 per share, which is the midpoint of
the range stated on the cover page of this
prospectus.
As required by the plan of reorganization, we
will use the net proceeds from the initial
public offering, together with an estimated
$1,022 million of proceeds from the planned
private placements and an estimated $960
million of net proceeds, or $1,104 million if
the underwriters' options to purchase
additional units are exercised in full, from
the offering of equity security units, as
follows:
- an estimated $397 million to reimburse
Metropolitan Life Insurance Company for the
crediting of policy credits to certain
policyholders in the demutualization;
- an estimated $2,494 million to reimburse
Metropolitan Life Insurance Company for the
payment of cash to certain policyholders in
the demutualization;
- an estimated $315 million to reimburse
Metropolitan Life Insurance Company for cash
payments to be made by its Canadian branch to
certain holders of policies included in its
Canadian business sold to Clarica Life
Insurance Company in 1998;
- an estimated $361 million to reimburse
Metropolitan Life Insurance Company for the
payment of the fees and expenses incurred in
connection with the demutualization; and
- up to $340 million (unless the New York
Superintendent of Insurance approves a larger
amount) to be retained by MetLife, Inc. and
used for working capital, payment of
dividends and other general corporate
purposes, including payments on the
debentures issued by MetLife, Inc. to MetLife
Capital Trust I in connection with the
offering
9
<PAGE> 12
of the units, and to pay the fees and expenses of the trustee and custodian of
the MetLife Policyholder Trust.
We will contribute any remaining proceeds to
Metropolitan Life Insurance Company for its
general corporate purposes and to repay up to
$450 million of short-term debt that
Metropolitan Life Insurance Company incurred in
connection with the acquisition of GenAmerica
Corporation. In connection with the
contribution of the net proceeds from the
initial public offering, the private placements
and the offering of equity security units to
Metropolitan Life Insurance Company as
described above, Metropolitan Life Insurance
Company expects to issue to MetLife, Inc. its
$1 billion % mandatorily convertible
capital note due 2005 having the principal
terms described under "Management's Discussion
and Analysis of Financial Condition and Results
of Operations -- Liquidity and Capital
Resources -- MetLife, Inc."
The plan of reorganization requires that the
aggregate net proceeds from the offerings and
the private placements be at least equal to
specified amounts. See "The
Demutualization -- Summary of the Plan of
Reorganization". If the actual proceeds raised
in the initial public offering, the private
placements or the offering of equity security
units are different from the amounts estimated
in this prospectus, we will be required to
change the sizes of the other transactions,
subject to limits set forth in the plan. The
amount of proceeds from the offerings and the
private placements and the final terms of the
units will depend on market conditions and on
our capital needs at the time of issuance.
Dividend policy............... Our board of directors intends to declare an
annual dividend on our common stock of $0.20
per share. For more information on dividends
and potential limitations on our ability to pay
dividends, see "Dividend Policy".
Risk factors.................. For a discussion of certain risks you should
consider before investing in our securities,
see "Risk Factors".
10
<PAGE> 13
SUMMARY FINANCIAL INFORMATION
The following table sets forth summary consolidated financial information
for MetLife. We have derived the consolidated financial information for the
years ended December 31, 1999, 1998 and 1997 and at December 31, 1999 and 1998
from our audited consolidated financial statements included elsewhere in this
prospectus. We have derived the consolidated financial information for the years
ended December 31, 1996 and 1995 and at December 31, 1997, 1996 and 1995 from
our audited consolidated financial statements not included elsewhere in this
prospectus. We have prepared the following consolidated statements of income and
consolidated balance sheet data, other than the statutory data, in conformity
with generally accepted accounting principles. We have derived the statutory
data from Metropolitan Life Insurance Company's ANNUAL STATEMENTS filed with
insurance regulatory authorities and we have prepared the statutory data in
accordance with STATUTORY ACCOUNTING PRACTICES. You should read the following
information in conjunction with the information and consolidated financial
statements appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF INCOME DATA
Revenues:
Premiums(1)................................................. $12,088 $11,503 $11,278 $11,345 $11,178
Universal life and investment-type product policy fees...... 1,438 1,360 1,418 1,243 1,177
Net investment income(1)(2)(3).............................. 9,816 10,228 9,491 8,978 8,837
Other revenues(1)........................................... 2,154 1,994 1,491 1,246 834
Net realized investment gains (losses)(4)................... (70) 2,021 787 231 (157)
------- ------- ------- ------- -------
25,426 27,106 24,465 23,043 21,869
Total expenses(1)(3)(5)..................................... 23,991 25,019 22,794 21,637 21,125
------- ------- ------- ------- -------
Income before provision for income taxes, discontinued
operations and extraordinary item......................... 1,435 2,087 1,671 1,406 744
Provision for income taxes(6)............................... 593 740 468 482 407
------- ------- ------- ------- -------
Income before discontinued operations and extraordinary
item...................................................... 842 1,347 1,203 924 337
(Loss) gain from discontinued operations(7)................. -- -- -- (71) 362
------- ------- ------- ------- -------
Income before extraordinary item............................ 842 1,347 1,203 853 699
Extraordinary item -- demutualization expense, net of income
tax of $35 and $2, respectively........................... 225 4 -- -- --
------- ------- ------- ------- -------
Net income.................................................. $ 617 $ 1,343 $ 1,203 $ 853 $ 699
======= ======= ======= ======= =======
</TABLE>
11
<PAGE> 14
<TABLE>
<CAPTION>
AT OR FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
General account assets(3)................................. $160,291 $157,278 $154,444 $145,877 $144,277
Separate account assets................................... 64,941 58,068 48,338 43,399 38,861
-------- -------- -------- -------- --------
Total assets.............................................. $225,232 $215,346 $202,782 $189,276 $183,138
Policyholder liabilities(8)............................... $124,955 $124,203 $127,358 $122,895 $122,220
Long-term debt............................................ $ 2,514 $ 2,903 $ 2,884 $ 1,946 $ 2,345
Retained earnings......................................... $ 14,100 $ 13,483 $ 12,140 $ 10,937 $ 10,084
Accumulated other comprehensive income (loss)............. (410) 1,384 1,867 1,046 1,670
-------- -------- -------- -------- --------
Total equity.............................................. $ 13,690 $ 14,867 $ 14,007 $ 11,983 $ 11,754
OTHER DATA
Operating income(4)(9).................................... $ 990 $ 23 $ 617 $ 818 $ 504
Adjusted operating income(4)(10).......................... $ 1,307 $ 1,226 $ 807 $ 921 $ 613
Operating return on equity(11)............................ 7.2% 0.2% 5.3% 7.8% 5.2%
Adjusted operating return on equity(12)................... 9.5% 9.6% 7.0% 8.8% 6.3%
Return on equity(13)...................................... 4.5% 10.5% 10.4% 8.1% 7.2%
Operating cash flows...................................... $ 3,865 $ 842 $ 2,872 $ 3,688 $ 4,823
Total assets under management(14)......................... $373,646 $360,703 $338,731 $297,570 $288,000
STATUTORY DATA(15)
Premiums and deposits..................................... $ 24,643 $ 22,722 $ 20,569 $ 20,611 $ 21,651
Net income (loss)......................................... $ 790 $ 875 $ 589 $ 460 $ (672)
Policyholder surplus...................................... $ 7,630 $ 7,388 $ 7,378 $ 7,151 $ 6,785
Asset valuation reserve................................... $ 3,109 $ 3,323 $ 3,814 $ 2,635 $ 2,038
</TABLE>
- ---------------
(1) Includes the following combined financial statement data of MetLife Capital
Holdings, Inc., which we sold in 1998, and our Canadian operations and U.K.
insurance operations, substantially all of which we sold in 1998 and 1997,
respectively:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
1998 1997 1996 1995
---- ---- ---- ----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Revenues:
Premiums.................................................. $204 $ 463 $ 456 $ 439
Net investment income..................................... 495 914 877 637
Other revenues............................................ 33 225 164 192
---- ------ ------ ------
$732 $1,602 $1,497 $1,268
==== ====== ====== ======
Expenses:
Policyholder benefits and claims.......................... $240 $ 495 $ 459 $ 492
Other expenses............................................ 418 861 606 831
---- ------ ------ ------
$658 $1,356 $1,065 $1,323
==== ====== ====== ======
</TABLE>
As a result of these sales, we recorded net realized investment gains of
$520 million and $139 million for the years ended December 31, 1998 and
1997, respectively.
In July 1998, Metropolitan Life Insurance Company sold a substantial
portion of its Canadian operations to Clarica Life Insurance Company. As
part of that sale, we transferred a large block of policies in effect with
Metropolitan Life Insurance Company in Canada to Clarica Life, and the
holders of the transferred Canadian policies became policyholders of
Clarica Life. Those transferred policyholders are no longer policyholders
of Metropolitan Life Insurance Company and, therefore, are not entitled to
compensation under the plan of reorganization. However, as a result of a
commitment made in connection
12
<PAGE> 15
with obtaining Canadian regulatory approval of that sale, if Metropolitan
Life Insurance Company demutualizes, its Canadian branch will make cash
payments to those who are, or are deemed to be, holders of these
transferred Canadian policies. The payments, which will be recorded in
other expenses in the same period as the effective date of the plan, will
be determined in a manner that is consistent with the treatment of, and
fair and equitable to, eligible policyholders of Metropolitan Life
Insurance Company. The aggregate amount of the payment is dependent upon
the initial public offering price of common stock to be issued at the
effective date of the plan. Assuming an initial public offering price of
$14.00 per share, which is the midpoint of the range stated on the cover
page of this prospectus, and based on actuarial calculations we have made
regarding these payments, we estimate that the aggregate payments will be
$315 million.
(2) During 1997, we changed to the retrospective interest method of accounting
for investment income on structured notes in accordance with Emerging
Issues Task Force Consensus 96-12, Recognition of Interest Income and
Balance Sheet Classification of Structured Notes. As a result, net
investment income increased by $175 million. The cumulative effect of this
accounting change on prior years' income was immaterial.
(3) In 1998, we adopted the provisions of Statement of Financial Accounting
Standards 125, Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities, with respect to our securities lending
program. Adoption of the provisions had the effect of increasing assets and
liabilities by $3,769 million at December 31, 1998 and increasing revenues
and expenses by $266 million for the year ended December 31, 1998.
(4) Realized investment gains and losses are presented net of related
policyholder amounts. The amounts netted against realized investment gains
and losses are the following:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------
1999 1998 1997 1996 1995
----- ------ ------ ------ -----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Gross realized investment gains (losses).................... $(137) $2,629 $1,018 $ 458 $ 73
----- ------ ------ ------ -----
Less amounts allocable to:
Future policy benefit loss recognition.................... -- (272) (126) (203) (152)
Deferred policy acquisition costs......................... 46 (240) (70) (4) (78)
Participating pension contracts........................... 21 (96) (35) (20) --
----- ------ ------ ------ -----
Total..................................................... 67 (608) (231) (227) (230)
----- ------ ------ ------ -----
Net realized investment gains (losses)...................... $ (70) $2,021 $ 787 $ 231 $(157)
===== ====== ====== ====== =====
</TABLE>
Realized investment gains (losses) have been reduced by (1) deferred
policy acquisition amortization to the extent that such amortization
results from realized investment gains and losses, (2) additions to future
policy benefits resulting from the need to establish additional
liabilities due to the recognition of investment gains, and (3) additions
to participating contractholder accounts when amounts equal to such
investment gains and losses are credited to the contractholders' accounts.
This presentation may not be comparable to presentations made by other
insurers. This presentation affected operating income and adjusted
operating income. See note 9 below.
(5) Total expenses exclude $(67) million, $608 million, $231 million, $227
million and $230 million for the years ended December 31, 1999, 1998, 1997,
1996 and 1995, respectively, of deferred policy acquisition costs, future
policy benefit loss recognition and credits to participating pension
contracts that have been charged against realized investment gains and
losses as these amounts are directly related to the realized investment
gains and losses. This presentation may not be comparable to presentations
made by other insurers.
(6) Includes $125 million, $18 million, $(40) million, $38 million and $67
million for surplus tax paid (received) by Metropolitan Life Insurance
Company for the years ended December 31, 1999, 1998, 1997, 1996 and 1995,
respectively. As a stock life insurance company,
13
<PAGE> 16
we will no longer be subject to the surplus tax after the effective date of
the demutualization. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations".
(7) The gain (loss) from discontinued operations was primarily attributable to
the disposition of our group medical insurance business.
(8) Policyholder liabilities include future policy benefits, policyholder
account balances, other policyholder funds and policyholder dividends.
(9) The following provides a reconciliation of net income to operating income:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------
1999 1998 1997 1996 1995
------ ------- ------- ----- -----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Net income.................................................. $ 617 $ 1,343 $ 1,203 $ 853 $ 699
------ ------- ------- ----- -----
Adjustments to reconcile net income to operating income:
Gross realized investment (gains) losses.................. 137 (2,629) (1,018) (458) (73)
Income tax on gross realized investment gains and
losses.................................................. (92) 883 312 173 26
------ ------- ------- ----- -----
Realized investment (gains) losses, net of income tax... 45 (1,746) (706) (285) (47)
------ ------- ------- ----- -----
Amounts allocated to investment gains and losses (see note
4)...................................................... (67) 608 231 227 230
Income tax on amounts allocated to investment gains and
losses.................................................. 45 (204) (71) (86) (83)
------ ------- ------- ----- -----
Amounts allocated to investment gains and losses, net of
income tax (benefit) expense.......................... (22) 404 160 141 147
------ ------- ------- ----- -----
Loss (gain) from discontinued operations.................. -- -- -- 71 (362)
------ ------- ------- ----- -----
Surplus tax............................................... 125 18 (40) 38 67
------ ------- ------- ----- -----
Extraordinary item -- demutualization expense, net of
income tax of $35 and $2, respectively.................. 225 4 -- -- --
------ ------- ------- ----- -----
Operating income............................................ $ 990 $ 23 $ 617 $ 818 $ 504
====== ======= ======= ===== =====
</TABLE>
We believe the supplemental operating information presented above allows
for a more complete analysis of results of operations. We have excluded
realized investment gains and losses due to their volatility between
periods and because such data are often excluded when evaluating the
overall financial performance of insurers. You should not consider
operating income as a substitute for any GAAP measure of performance. Our
method of calculating operating income may be different from the method
used by other companies and therefore comparability may be limited.
(10) The following provides a reconciliation of operating income to adjusted
operating income:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------
1999 1998 1997 1996 1995
------ ------- ------- ----- -----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Operating income............................................ $ 990 $ 23 $ 617 $ 818 $ 504
Adjustment for charges for sales practices claims and for
personal injuries caused by exposure to
asbestos-containing products, net of income tax........... 317 1,203 190 103 109
------ ------- ------- ----- -----
Adjusted operating income................................... $1,307 $ 1,226 $ 807 $ 921 $ 613
====== ======= ======= ===== =====
</TABLE>
The charge for the year ended December 31, 1999 was principally related to
the settlement of a multidistrict litigation proceeding involving alleged
improper sales practices, accruals for sales practices claims not covered
by the settlement and other legal costs. The amount reported for the year
ended December 31, 1998 includes charges for sales practices claims and
claims for personal injuries caused by exposure to asbestos or
asbestos-containing products. See Note 9 of Notes to Consolidated
Financial Statements. We believe that
14
<PAGE> 17
supplemental adjusted operating income data provide information useful in
measuring operating trends by excluding the unusual amounts of expenses
associated with sales practices and asbestos-related claims. These
expenses are not related to our ongoing operations. Adjusted operating
income should not be considered as a substitute for any GAAP measure of
performance.
(11) Operating return on equity is defined as operating income divided by
average total equity, excluding accumulated other comprehensive income
(loss). We believe the operating return on equity information presented
supplementally allows for a more complete analysis of results of
operations. Accumulated other comprehensive income (loss) has been excluded
due to its volatility between periods and because such data are often
excluded when evaluating the overall financial performance of insurers.
Operating return on equity should not be considered as a substitute for any
GAAP measure of performance or liquidity. Our method of calculation of
operating return on equity may be different from the calculation used by
other companies and, therefore, comparability may be limited. Operating
return on equity is only presented for annual periods.
(12) Adjusted operating return on equity is defined as adjusted operating income
divided by average total equity, excluding accumulated other comprehensive
income (loss). We believe that supplemental adjusted operating return on
equity data provide information useful in measuring operating trends by
excluding the unusual amounts of expenses associated with sales practices
and asbestos-related claims. Adjusted operating return on equity should not
be considered as a substitute for any GAAP measure of performance. Adjusted
operating return on equity is only presented for annual periods.
(13) Return on equity is defined as net income divided by average total equity,
excluding accumulated other comprehensive income (loss).
(14) Includes MetLife's general account and separate account assets and assets
managed on behalf of third parties.
(15) Metropolitan Life Insurance Company statutory data only.
15
<PAGE> 18
SUMMARY PRO FORMA FINANCIAL INFORMATION
The following summary pro forma financial information is derived from the
pro forma financial information and the notes thereto included elsewhere in this
prospectus. This information gives effect to the demutualization, the
establishment of the closed block, the planned concurrent private placements of
73,000,000 shares at $14.00 per share, which is the midpoint of the range stated
on the cover page of this prospectus, the concurrent offering of 20,000,000
equity security units at $50.00 per unit and the sale of 179,000,000 shares of
common stock in the initial public offering at $14.00 per share, which is the
midpoint of the range stated on the cover page of this prospectus, as if they
each had occurred at December 31, 1999 for purposes of the consolidated balance
sheet information and at January 1, 1999 for purposes of the consolidated
statement of income information for the year ended December 31, 1999. This
information has been prepared based on the terms of the plan of reorganization
and the assumptions described in "Pro Forma Consolidated Financial Information".
This information assumes, among other things, (a) a total of 699,974,077 shares
of common stock is allocated to eligible policyholders under the plan of
reorganization and (b) the underwriters' options to purchase additional shares
of common stock and units in the offerings are not exercised. We have based the
pro forma information on available information and on assumptions management
believes are reasonable and that reflect the effects of these transactions. We
have provided this information for informational purposes only. The number of
shares and units actually sold in the offerings and the private placements and
their respective prices may vary from the amounts assumed. The plan of
reorganization requires that the aggregate net proceeds from the offerings and
the private placements be at least equal to specified amounts. See "The
Demutualization -- Summary of the Plan of Reorganization". If the actual
proceeds raised in the initial public offering, the private placements or the
offering of equity security units are different from the amounts estimated in
this prospectus, we will be required to change the sizes of the other
transactions, subject to the limit in the plan that the proceeds of the units
offering may not exceed one-third of the combined proceeds of that offering, the
offering of MetLife, Inc.'s common stock pursuant to this prospectus and the
private placements. The amount of proceeds from the offerings and the private
placements and the final terms of the units will depend on market conditions and
our capital needs at the time of issuance. This information does not necessarily
indicate our consolidated financial position or results of operations had the
demutualization, the establishment of the closed block, the offering of equity
security units, the initial public offering and the private placements been
consummated on the dates assumed. It also does not project or forecast our
consolidated financial position or results of operations for any future date or
period.
The data set forth below give effect to gross proceeds of $2,506 million
from the issuance of common stock in the initial public offering less an assumed
underwriting discount and estimated initial public offering expenses aggregating
$125 million, or net proceeds from the initial public offering of $2,381
million, assuming an initial public offering price of $14.00 per share. The data
also gives effect to proceeds of $1,022 million from the private placements
assuming a purchase of 73,000,000 shares at an initial public offering price of
$14.00 per share and gross proceeds of $1,000 million from the issuance of the
units, less an assumed underwriting discount and offering expenses aggregating
$40 million, or net proceeds from the offering of $960 million.
Under the plan of reorganization, policyholders eligible to receive
consideration in the demutualization will receive interests in the MetLife
Policyholder Trust, cash or policy credits. The trust will hold the shares of
common stock allocated under the plan to those eligible policyholders receiving
trust interests. The information in the table below assumes that an estimated
$397 million of the net proceeds will be used to reimburse Metropolitan Life
Insurance Company for policy credits made in lieu of 28,331,484 allocated
shares, an estimated $2,494 million of the net proceeds will be used to
reimburse Metropolitan Life Insurance Company for cash payments made in lieu of
178,166,475 allocated shares and an estimated $315 million will
16
<PAGE> 19
be used to reimburse Metropolitan Life Insurance Company for cash payments to be
made by its Canadian branch to certain holders of policies included in its
Canadian business sold to Clarica Life Insurance Company in 1998. We will
account for the payments to the transferred Canadian policyholders in other
expenses in the same period as the effective date of the plan. The consideration
an eligible policyholder receives under the plan of reorganization will be based
on the number of shares of common stock allocated to the eligible policyholder
pursuant to the terms of the plan. For those policyholders receiving policy
credits or for those non-electing eligible policyholders who must receive cash
in the demutualization, we will translate the share allocations into dollar
amounts based on the initial public offering price per share. The pro forma
information reflects $397 million of policy credits and $164 million of cash
payments that will be distributed to non-electing eligible policyholders that
must receive cash in the demutualization, assuming an initial public offering
price of $14.00 per share. The pro forma information also reflects elections to
receive cash made by eligible policyholders holding approximately 23.8% of the
total number of shares allocated to eligible policyholders, representing
estimated cash payments of $2,330 million, assuming an initial public offering
price of $14.00 per share. See "The Demutualization -- Payment of Consideration
to Eligible Policyholders". The pro forma consolidated statement of income also
reflects the elimination of the surplus tax on earnings and the inclusion of the
minority interest related to the units and is presented before the extraordinary
item for demutualization expense. The pro forma consolidated statement of income
does not give effect to any pro forma earnings resulting from the use of the net
proceeds from the offerings and the private placements or the charge related to
the payments to be made to certain transferred Canadian policyholders described
above.
<TABLE>
<S> <C>
Share Data:
Shares allocated to eligible policyholders................ 699,974,077
Less shares allocated to eligible policyholders who
receive cash or policy credits......................... 206,497,959
-----------
Shares issued to the MetLife Policyholder Trust........... 493,476,118
Shares issued in the initial public offering.............. 179,000,000
Shares issued in the private placements................... 73,000,000
-----------
Total shares of common stock outstanding.......... 745,476,118
===========
Percentage Ownership:
MetLife Policyholder Trust................................ 66.2%
Purchasers in the initial public offering................. 24.0%
Purchasers in the private placements...................... 9.8%
</TABLE>
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS,
EXCEPT PER SHARE
AMOUNTS)
<S> <C>
For the year ended December 31, 1999
Pro forma income before extraordinary item............ $ 912
Pro forma income before extraordinary item per
share -- basic and diluted......................... $ 1.22
Pro forma equity...................................... $13,768
Pro forma book value per share -- basic............... $ 18.47
Pro forma tangible book value per share -- basic(1)... $ 17.65
</TABLE>
- ---------------
(1) Excludes goodwill.
17
<PAGE> 20
RISK FACTORS
CHANGES IN INTEREST RATES MAY SIGNIFICANTLY AFFECT OUR PROFITABILITY
In periods of increasing interest rates, policy loans and surrenders and
withdrawals may tend to increase as policyholders seek investments with higher
perceived returns. This process may result in cash outflows requiring that we
sell invested assets at a time when the prices of those assets are adversely
affected by the increase in market interest rates, which may result in realized
investment losses. Conversely, during periods of declining interest rates, life
insurance and annuity products may be relatively more attractive investments,
resulting in increased premium payments on products with flexible premium
features, repayment of policy loans and increased PERSISTENCY during a period
when our new investments carry lower returns. In addition, borrowers may prepay
or redeem mortgages and bonds in our investment portfolio as they seek to borrow
at lower market rates, and we might have to reinvest those funds in lower
interest-bearing investments. Accordingly, during periods of declining interest
rates, a decrease in the spread between interest and dividend rates to
policyholders and returns on our investment portfolio may adversely affect our
profitability. Additionally, customers for whom we provide asset management
services may terminate their relationship with us or reduce the amount of their
assets under management with us in response to changes in interest rates.
DECLINE IN SECURITIES MARKETS MAY ADVERSELY AFFECT OUR ASSET MANAGEMENT BUSINESS
AND SALES OF OUR INVESTMENT PRODUCTS
Fluctuations in the securities markets may affect our asset management
business, as well as sales of our mutual funds, variable life insurance and
variable annuity products. Favorable performance by the U.S. securities markets
over the last five years has attracted a substantial increase in the investments
in these markets and has benefited our asset management business and increased
our assets under management. A decline in the securities markets, failure of the
securities markets to sustain their recent levels of growth, or short-term
volatility in the securities markets could result in investors withdrawing from
the markets or decreasing their rate of investment, either of which could
adversely affect our asset management business and sales of our investment
products. In addition, because the revenues of our asset management business
are, to a large extent, based on the value of assets under management, a decline
in the value of these assets would adversely affect our revenues.
COMPETITIVE FACTORS MAY ADVERSELY AFFECT OUR MARKET SHARE
We believe that competition in our business segments is based on service,
product features, price, commission structure, financial strength, claims paying
ability ratings and name recognition. We compete with a large number of other
insurers, as well as non-insurance financial services companies, such as banks,
broker-dealers and asset managers, for individual customers, employer and other
group customers and agents and other distributors of insurance and investment
products. Some of these companies offer a broader array of products, have more
competitive pricing or, with respect to other insurers, have higher claims
paying ability ratings. Some may also have greater financial resources with
which to compete. National banks, with their pre-existing customer bases for
financial services products, may increasingly compete with insurers, as a result
of court cases that permit national banks to sell annuity products of life
insurers in some circumstances and recently-enacted legislation removing
restrictions on bank affiliations with insurers. This legislation, the
Gramm-Leach-Bliley Act of 1999, permits mergers that combine commercial banks,
insurers and securities firms under one holding company. Until passage of the
Gramm-Leach-Bliley Act, the Glass-Steagall Act of 1933, as amended, had limited
the ability of banks to engage in securities-related businesses, and the Bank
Holding Company Act of 1956, as amended, had restricted banks from being
affiliated with insurers. With the passage of the Gramm-Leach-Bliley Act, among
other things, bank holding companies may acquire insurers, and insurance holding
companies may acquire banks. The ability of banks to affiliate with insurers may
materially adversely affect all of our product lines by substantially
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<PAGE> 21
increasing the number, size and financial strength of potential competitors.
Additionally, proposed health care reforms could cause medical health insurance
providers to enter some of the non-medical health insurance markets in which we
do business, thereby increasing competition.
Many of our insurance products, particularly those offered by our
Institutional Business segment, are UNDERWRITTEN yearly, and, accordingly, group
purchasers may be able to obtain more favorable terms from competitors rather
than renewing coverage with us. The effect of competition may, as a result,
adversely affect the persistency of these and other products, as well as our
ability to sell products in the future.
The investment management and securities brokerage businesses have
relatively few barriers to entry and continually attract new entrants. Many of
these competitors offer a broader array of investment products and services and
are better known as sellers of annuities and other investment products.
WE MAY BE UNABLE TO ATTRACT AND RETAIN SALES REPRESENTATIVES FOR OUR PRODUCTS
We must attract and retain productive sales representatives to sell our
insurance, annuities and investment products. Strong competition exists among
insurers for sales representatives with demonstrated ability. We compete with
other insurers for sales representatives primarily on the basis of our financial
position, support services and compensation and product features. From 1994 to
1998, the number of agents in the MetLife career agency system declined, from
9,521 to 6,853. We believe that this decline was principally the result of the
adverse impact of sales practices litigation brought against us beginning in the
early 1990s, the establishment of more stringent company-wide criteria for
recruiting and retaining agents and a consolidation of sales offices and changes
in compensation practices for our sales force during this period. We have
undertaken several initiatives to grow our career agency force in the future. At
December 31, 1999, the number of agents in the MetLife career agency system was
6,866. We cannot provide assurance that these initiatives will succeed in
attracting and retaining new agents. Sales of individual insurance, annuities
and investment products and our business, results of operations and financial
condition could be materially adversely affected if we are unsuccessful in
attracting and retaining agents.
DIFFERENCES BETWEEN ACTUAL CLAIMS EXPERIENCE AND UNDERWRITING AND RESERVING
ASSUMPTIONS MAY REQUIRE US TO INCREASE LIABILITIES
Our earnings significantly depend upon the extent to which our actual
claims experience is consistent with the assumptions used in setting the prices
for our products and establishing the liabilities for our obligations for future
policy benefits and claims. To the extent that actual claims experience is less
favorable than our underlying assumptions used in establishing such liabilities,
we could be required to increase our liabilities. Such an increase could have a
material adverse effect on our business, results of operations and financial
condition.
Due to the nature of the underlying risks and the high degree of
uncertainty associated with the determination of the liabilities for unpaid
policy benefits and claims, we cannot determine precisely the amounts which we
will ultimately pay to settle these liabilities. Such amounts may vary from the
estimated amounts, particularly when those payments may not occur until well
into the future. We evaluate our liabilities periodically, based on changes in
the assumptions used to establish the liabilities, as well as our actual policy
benefits and claims experience. We charge or credit changes in our liabilities
to expenses in the period the liabilities are established or re-estimated. If
the liabilities originally established for future policy benefits prove
inadequate, we must increase our liabilities, which may have a material adverse
effect on our business, results of operations and financial condition.
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<PAGE> 22
CATASTROPHES MAY ADVERSELY IMPACT LIABILITIES FOR PROPERTY AND CASUALTY
POLICYHOLDER CLAIMS AND REINSURANCE AVAILABILITY
Our Auto & Home segment has experienced, and will likely in the future
experience, CATASTROPHE losses that may have an adverse impact on the business,
results of operations and financial condition of this segment. Catastrophes can
be caused by various events, including hurricanes, windstorms, earthquakes,
hail, tornados, explosions, severe winter weather (including snow, freezing
water, ice storms and blizzards) and fires. Due to their nature, we cannot
predict the incidence and severity of catastrophes. Historically, substantially
all of our catastrophe-related claims have related to homeowners coverages.
However, catastrophes may also affect other Auto & Home coverages. For us, areas
of major hurricane exposure include coastal sections of the northeastern U.S.
(including Long Island and the Connecticut, Rhode Island and Massachusetts
shorelines) and Florida. We also have some earthquake exposure, primarily along
the New Madrid fault line in the central U.S. Losses incurred by us from
catastrophes, net of REINSURANCE but before taxes, were $29.3 million, $56.7
million, $18.0 million, $69.0 million and $38.1 million in 1999, 1998, 1997,
1996 and 1995, respectively.
Consistent with industry practices, we establish liabilities for claims
arising from a catastrophe only after assessing the exposure and damages arising
from the event. We cannot be certain that the liabilities we have established
will be adequate to cover actual claims. Furthermore, we cannot assure that the
reinsurance we purchased will be adequate to protect us against material
catastrophe losses or that such reinsurance will continue to be available to us
in the future at commercially reasonable rates. States have from time to time
passed legislation that has the effect of limiting the ability of insurers to
manage risk, such as legislation restricting an insurer's ability to withdraw
from catastrophe-prone areas. While we attempt to limit our exposure to
acceptable levels, subject to restrictions imposed by insurance regulatory
authorities, a catastrophic event or multiple catastrophic events might have a
material adverse effect on our business, results of operations and financial
condition.
A DOWNGRADE IN OUR RATINGS MAY INCREASE POLICY SURRENDERS AND WITHDRAWALS,
ADVERSELY AFFECT RELATIONSHIPS WITH DISTRIBUTORS AND NEGATIVELY IMPACT NEW SALES
Claims paying ability and financial strength ratings are a factor in
establishing the competitive position of insurers. A rating downgrade (or the
potential for such a downgrade) of Metropolitan Life Insurance Company or any of
its insurance subsidiaries could, among other things, materially increase the
number of policy surrenders and withdrawals by policyholders of CASH VALUES from
their policies, adversely affect relationships with broker-dealers, banks,
agents, wholesalers and other distributors of Metropolitan Life Insurance
Company's and its subsidiaries' products and services, negatively impact new
sales, adversely affect its ability to compete and thereby have a material
adverse effect on our business, results of operations and financial condition.
The current claims paying ability and financial strength ratings of Metropolitan
Life Insurance Company are listed in the table below:
<TABLE>
<CAPTION>
RATING AGENCY RATING RATING STRUCTURE
<S> <C> <C>
Standard & Poor's Ratings Services AA Second highest of nine ratings
("Very Strong") categories and mid-range within the
category based on modifiers (e.g., AA+,
AA and AA- are "Very Strong")
Moody's Investors Service, Inc. Aa2 Second highest of nine ratings
("Excellent") categories and mid-range within the
category based on modifiers (e.g., Aa1,
Aa2 and Aa3 are "Excellent")
</TABLE>
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<PAGE> 23
<TABLE>
<CAPTION>
RATING AGENCY RATING RATING STRUCTURE
<S> <C> <C>
A.M. Best Company, Inc. A+ Highest of nine ratings categories and
("Superior") second highest within the category
based on modifiers (e.g., A++ and A+
are "Superior" while A and A- are
"Excellent")
Duff & Phelps Credit Rating Co. AA+ Second highest of eight ratings
("Very High") categories and highest within the
category based on modifiers (e.g., AA+,
AA and AA- are "Very High")
</TABLE>
The foregoing ratings reflect each rating agency's opinion of Metropolitan
Life Insurance Company's financial strength, operating performance and ability
to meet its obligations to policyholders and are not evaluations directed toward
the protection of holders of our common stock or the units.
CHANGES IN STATE AND FEDERAL REGULATION MAY AFFECT OUR PROFITABILITY
Our insurance business is subject to comprehensive state regulation and
supervision throughout the U.S. The primary purpose of such regulation is to
protect policyholders, not stockholders. The laws of the various states
establish insurance departments with broad powers with respect to such things as
licensing companies to transact business, licensing agents, admitting statutory
assets, mandating certain insurance benefits, regulating premium rates,
approving policy forms, regulating unfair trade and claims practices,
establishing statutory reserve requirements and solvency standards, fixing
maximum interest rates on life insurance policy loans and minimum rates for
accumulation of surrender values, restricting certain transactions between
affiliates and regulating the types, amounts and statutory valuation of
investments.
State insurance regulators and the NATIONAL ASSOCIATION OF INSURANCE
COMMISSIONERS ("NAIC") continually reexamine existing laws and regulations, and
may impose changes in the future that materially adversely affect our business,
results of operations and financial condition.
The U.S. federal government does not directly regulate the insurance
business. However, federal legislation and administrative policies in certain
areas can significantly and adversely affect the insurance industry generally
and MetLife in particular. These areas include employee benefit plan regulation,
financial services regulation and federal taxation and securities laws.
Additionally, interpretation of existing laws may change and the passage from
time to time of new legislation may adversely affect our claims exposure on our
policies.
Metropolitan Life Insurance Company, some of its subsidiaries and certain
policies and contracts offered by them are subject to various levels of
regulation under the federal securities laws administered by the Securities and
Exchange Commission. These laws and regulations are primarily intended to
protect investors in the securities markets, and generally grant supervisory
agencies broad administrative powers, including the power to limit or restrict
the conduct of business for failure to comply with such laws and regulations. We
may also be subject to similar laws and regulations in the states and foreign
countries in which we provide investment advisory services, offer products or
conduct other securities-related activities.
We cannot predict the impact of future state or federal laws or regulations
on our business. Future laws and regulations, or the interpretation thereof, may
materially adversely affect our business, results of operations and financial
condition.
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<PAGE> 24
DEMUTUALIZATION RISKS
OUR BOARD OF DIRECTORS WILL CONTROL THE OUTCOME OF STOCKHOLDER VOTES ON MANY
MATTERS DUE TO THE VOTING PROVISIONS OF THE METLIFE POLICYHOLDER TRUST
Under the plan of reorganization, we will establish the MetLife
Policyholder Trust to hold the shares of MetLife, Inc. common stock allocated to
eligible policyholders not receiving cash or policy credits under the plan. An
estimated 493,476,118 shares of our common stock, or 66.2% of the total number
of shares expected to be outstanding based upon an estimated initial public
offering price of $14.00 per share, which is the midpoint of the range stated on
the cover page of this prospectus, will be issued to the trust on the effective
date of the plan, to be held on behalf of approximately nine million eligible
policyholders. Because of the number of shares held by the trust and the voting
provisions of the trust, the trust may affect the outcome of matters brought to
a stockholder vote.
Except on votes regarding certain fundamental corporate actions described
below, the trustee will vote all of the shares of common stock held in the trust
in accordance with the recommendations given by our board of directors to our
stockholders or, if the board gives no such recommendation, as directed by the
board. As a result of the voting provisions of the trust, the board of directors
will effectively be able to control votes on all matters submitted to a vote of
stockholders, excluding those fundamental corporate actions, so long as the
trust holds a substantial number of shares of common stock.
If the vote relates to fundamental corporate actions specified in the
trust, the trustee will solicit instructions from the trust beneficiaries and
vote all shares held in the trust in proportion to the instructions it receives.
These actions include:
- an election or removal of directors in which a stockholder has properly
nominated one or more candidates in opposition to a nominee or nominees
of our board of directors or a vote on a stockholder's proposal to oppose
a board nominee for director, remove a director for cause or fill a
vacancy caused by the removal of a director by stockholders, subject to
certain conditions;
- a merger or consolidation, a sale, lease or exchange of all or
substantially all of the assets, or a recapitalization or dissolution, of
MetLife, Inc., in each case requiring a vote of our stockholders under
applicable Delaware law;
- any transaction that would result in an exchange or conversion of shares
of common stock held by the trust for cash, securities or other property;
- issuances of our common stock during the first year after the effective
date of the plan at a price materially less than the then prevailing
market price of our common stock, if a vote of our stockholders is
required to approve the issuance under Delaware law, other than issuances
in an underwritten public offering or pursuant to an employee benefit
plan;
- for the first year after the effective date of the plan, any matter that
requires a supermajority vote of our outstanding stock entitled to vote
thereon under Delaware law or our certificate of incorporation or
by-laws, and any amendment to our certificate of incorporation or by-laws
that is submitted for approval to our stockholders; and
- any proposal requiring our board of directors to amend or redeem the
rights under our stockholder rights plan, other than a proposal with
respect to which we have received advice of nationally-recognized legal
counsel to the effect that the proposal is not a proper subject for
stockholder action under Delaware law.
If a vote concerns any of these fundamental corporate actions, the trustee will
vote all of the shares of common stock held by the trust in proportion to the
instructions it receives, which will give disproportionate weight to the
instructions actually given by trust beneficiaries.
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<PAGE> 25
WE MAY NEED TO FUND DEFICIENCIES IN OUR CLOSED BLOCK; ASSETS ALLOCATED TO THE
CLOSED BLOCK BENEFIT ONLY THE HOLDERS OF CLOSED BLOCK POLICIES
The plan of reorganization requires that Metropolitan Life Insurance
Company establish and operate an accounting mechanism, known as a closed block,
to ensure that the reasonable dividend expectations of policyholders who own
certain individual insurance policies of Metropolitan Life Insurance Company are
met. We will allocate assets to the closed block in an amount that will produce
cash flows which, together with anticipated revenue from the policies included
in the closed block, are reasonably expected to be sufficient to support
obligations and liabilities relating to these policies, including, but not
limited to, provisions for the payment of claims and certain expenses and taxes,
and to provide for the continuation of the policyholder DIVIDEND SCALES in
effect for 1999, if the experience underlying such scales continues, and for
appropriate adjustments in such scales if the experience changes. We cannot
assure that the closed block assets, the cash flows generated by the closed
block assets and the anticipated revenue from the policies included in the
closed block will be sufficient to provide for the benefits guaranteed under
these policies. If they are not sufficient, we must fund the shortfall. Even if
they are sufficient, we may choose, for competitive reasons, to support
policyholder dividend payments with our general account funds. See "The
Demutualization" for a description of the closed block.
The closed block assets, the cash flows generated by the closed block
assets and the anticipated revenue from the policies in the closed block will
benefit only the holders of those policies. In addition, to the extent that
these amounts are greater than the amounts estimated at the time we fund the
closed block, dividends payable in respect of the policies included in the
closed block may be greater than they would be in the absence of a closed block.
Any excess earnings will be available for distribution over time to closed block
policyholders but will not be available to our stockholders.
A CHALLENGE TO THE NEW YORK SUPERINTENDENT OF INSURANCE'S APPROVAL MAY
ADVERSELY AFFECT THE TERMS OF THE DEMUTUALIZATION AND THE MARKET PRICE OF OUR
COMMON STOCK AND THE EQUITY SECURITY UNITS
After a public hearing, which was held on January 24, 2000, the New York
Superintendent of Insurance will determine whether the plan of reorganization
meets the standards of applicable New York law, including, among other things,
whether the plan is fair and equitable to the policyholders of Metropolitan Life
Insurance Company. We do not expect that the New York Superintendent's order
approving the plan will address the fairness of the plan to purchasers of common
stock in the initial public offering or purchasers of equity security units in
the offering of units.
Section 7312 of the New York Insurance Law provides that any lawsuit
challenging the validity of or arising out of acts taken or proposed to be taken
under the demutualization statute in connection with the demutualization must be
commenced within one year after a copy of the plan of reorganization, with the
New York Superintendent's approval endorsed thereon, is filed in the office of
the New York Superintendent or six months from the effective date of the plan of
reorganization, whichever is later, or if the plan is withdrawn, within six
months of such withdrawal. Although Section 326 of the New York Insurance Law
provides that orders of the New York Superintendent are subject to judicial
review in a proceeding under Article 78 of New York's Civil Practice Law and
Rules, the law is not clear whether a lawsuit challenging an order of the New
York Superintendent under Section 7312 would have to be commenced within four
months after the order became final and binding, as is generally the case for an
Article 78 proceeding, or within the time period specified in Section 7312,
whichever is later.
A successful challenge to the order of the New York Superintendent of
Insurance could result in monetary damages, a modification of the plan of
reorganization or the New York Superintendent's approval of the plan being set
aside. In order to challenge successfully the New
23
<PAGE> 26
York Superintendent's approval of the plan, a challenging party would have to
sustain the burden of showing that approval was arbitrary and capricious, an
abuse of discretion, made in violation of lawful procedures, affected by an
error of law or not supported by substantial evidence. In addition, Section 7312
provides that an insurer may require a challenging party to give security for
the insurer's reasonable expenses, including attorneys' fees, which may be
incurred or for which the insurer may become liable, to which security the
insurer will have recourse in such amount as the court shall determine upon the
termination of the action.
The New York Superintendent held a public hearing on the plan on January
24, 2000. At the public hearing, some policyholders and others raised objections
to certain aspects of the plan. These objections alleged, among other things,
that the plan was not fair and equitable to policyholders of Metropolitan Life
Insurance Company. In addition, a civil complaint challenging the fairness of
the plan and the adequacy and accuracy of the disclosures to policyholders
regarding the plan has been filed in New York Supreme Court for Kings County on
behalf of an alleged class consisting of the policyholders of Metropolitan Life
Insurance Company who should have membership benefits in Metropolitan Life
Insurance Company and were and are eligible to receive notice, vote and receive
consideration in the demutualization. The complaint seeks to enjoin or rescind
the plan and seeks other relief. The defendants named in the complaint are
Metropolitan Life Insurance Company, the individual members of its board of
directors and MetLife, Inc. We believe that the allegations made in the
complaint are wholly without merit, and intend to vigorously contest the
complaint.
We are not aware of any other lawsuits challenging the plan or the approval
thereof, although there can be no assurance that additional lawsuits will not be
commenced. A successful challenge would likely result in substantial uncertainty
relating to the terms and effectiveness of the plan of reorganization, and a
substantial period of time might be required to reach a final determination. A
successful challenge would be materially adverse to purchasers of common stock
in the initial public offering and equity security units in the offering of
units and would have a material adverse effect on our business, results of
operations and financial condition.
LITIGATION AND REGULATORY INVESTIGATIONS MAY ADVERSELY AFFECT OUR BUSINESS,
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
We face significant risks of litigation and regulatory investigations and
actions in connection with our activities as an insurer, employer, investment
advisor, investor and taxpayer. These types of lawsuits and regulatory actions
may be difficult to assess or quantify, may seek recovery of very large and/or
indeterminate amounts, including punitive and treble damages, and their
existence and magnitude may remain unknown for substantial periods of time. A
substantial legal liability or a significant regulatory action against us could
have a material adverse effect on our business, results of operations and
financial condition.
Metropolitan Life Insurance Company and its affiliates are currently
defendants in approximately 500 lawsuits raising allegations of improper
marketing and sales of individual life insurance policies or annuities. These
lawsuits are generally referred to as "sales practices claims."
On December 28, 1999, after a fairness hearing, the United States District
Court for the Western District of Pennsylvania approved a class action
settlement resolving a multidistrict litigation proceeding involving alleged
sales practices claims. The settlement class includes most of the owners of
permanent life insurance policies and annuity contracts or certificates issued
pursuant to individual sales in the United States by Metropolitan Life Insurance
Company, Metropolitan Insurance and Annuity Company or Metropolitan Tower Life
Insurance Company between January 1, 1982 and December 31, 1997. This class
includes owners of approximately six million in-force or terminated insurance
policies and approximately one million in-force or terminated annuity contracts
or certificates.
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<PAGE> 27
In addition to dismissing the consolidated class actions, the District
Court's order also bars sales practices claims by class members for sales by the
defendant insurers during the class period, effectively resolving all pending
class actions against these insurers. The defendants are in the process of
having these claims dismissed.
Under the terms of the order, only those class members who excluded
themselves from the settlement may continue an existing, or start a new, sales
practices lawsuit against Metropolitan Life Insurance Company, Metropolitan
Insurance and Annuity Company or Metropolitan Tower Life Insurance Company for
sales that occurred during the class period. Approximately 20,000 class members
elected to exclude themselves from the settlement. Over 400 of the approximately
500 lawsuits noted above are brought by individuals who elected to exclude
themselves from the settlement.
We expect that the total cost to us of the settlement will be approximately
$957 million. This amount is equal to the amount of the increase in liabilities
for the death benefits and policy adjustments and the present value of expected
cash payments to be provided to included class members, as well as attorneys'
fees and expenses and estimated other administrative costs, but does not include
the cost of litigation with policyholders who are excluded from the settlement.
We believe that the cost to us of the settlement will be substantially covered
by available reinsurance and the provisions made in our consolidated financial
statements, and thus will not have a material adverse effect on our business,
results of operations or financial position. We have not yet made a claim under
those reinsurance agreements and, although there is a risk that the carriers
will refuse coverage for all or part of the claim, we believe this is very
unlikely to occur. We believe we have made adequate provision in our
consolidated financial statements for all probable losses for sales practices
claims, including litigation costs involving policyholders who are excluded from
the settlement.
Metropolitan Life Insurance Company is also a defendant in numerous
lawsuits seeking compensatory and punitive damages for personal injuries
allegedly caused by exposure to asbestos or asbestos-containing products.
Additional litigation relating to these matters may be commenced in the future.
While it is not feasible to predict or determine the ultimate outcome of
all pending investigations and legal proceedings or to provide reasonable ranges
of potential losses, it is the opinion of our management that their outcomes,
after consideration of available insurance and reinsurance and the provisions
made in our consolidated financial statements, are not likely to have a material
adverse effect on our consolidated financial condition. However, given the large
and/or indeterminate amounts sought in certain of these matters and the inherent
unpredictability of litigation, it is possible that an adverse outcome in
certain matters could, from time to time, have a material adverse effect on our
operating results or cash flows in particular quarterly or annual periods. See
"Business -- Legal Proceedings" and Note 9 of Notes to Consolidated Financial
Statements for a discussion of the material legal matters in which we are
currently involved.
INVESTMENT PORTFOLIO RISKS
DEFAULTS ON OUR FIXED MATURITY PORTFOLIO MAY ADVERSELY AFFECT OUR
PROFITABILITY
We are subject to the risk that the issuers of the fixed maturity
securities we own may default on principal and interest payments due thereon,
particularly if a major economic downturn occurs. At December 31, 1999, fixed
maturities that we classify as either "Problem" or "Potential Problem" totaled
0.5% of our fixed maturity investments. In recent years we have increased the
percentage of our investments in non-investment grade fixed maturity securities.
At December 31, 1999, such securities constituted 9.0% of our total fixed
maturities. Our fixed maturity securities of $97.0 billion represented 69.9% of
our total cash and invested assets at December 31, 1999. An increase in defaults
on these securities could have a material adverse effect on our business,
results of operations and financial condition.
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<PAGE> 28
DEFAULTS ON OUR MORTGAGE LOANS MAY ADVERSELY AFFECT OUR PROFITABILITY
Our mortgage loans face default risk. At December 31, 1999, our mortgage
loans of $19.7 billion represented 14.2% of our total cash and invested assets.
At December 31, 1999, loans that were either delinquent or in process of
foreclosure totaled 0.2% of our mortgage loan investments, compared with the
industry average of 0.3%, as reported by the American Council of Life Insurance
at December 31, 1999. The performance of our mortgage loan investments, however,
may fluctuate in the future. In addition, substantially all of our mortgage
loans have balloon payment maturities. An increase in the default rate of our
mortgage loans could have a material adverse effect on our business, results of
operations and financial condition.
SOME OF OUR INVESTMENTS ARE RELATIVELY ILLIQUID
Our investments in private placement fixed maturities, mortgage loans,
equity real estate, including real estate joint ventures and other limited
partnership interests are relatively illiquid. If we require significant amounts
of cash on short notice in excess of our normal cash requirements, we may have
difficulty selling these investments at attractive prices, in a timely manner,
or both.
DERIVATIVES MAY NOT BE HONORED BY COUNTERPARTIES
We use derivative instruments to hedge market risk. Our derivative strategy
employs a variety of instruments including financial futures, foreign exchange
forwards, foreign currency swaps, interest rate swaps, interest rate caps and
options. A failure by a counterparty to honor the terms of its derivatives
contracts with us could have a material adverse effect on our business, results
of operations and financial condition.
DIVIDENDS AND PAYMENTS ON OUR INDEBTEDNESS MAY BE AFFECTED BY LIMITATIONS
IMPOSED ON METROPOLITAN LIFE INSURANCE COMPANY AND OUR OTHER SUBSIDIARIES
After the effective date of the plan, MetLife, Inc. will be an insurance
holding company. The assets of MetLife, Inc. will consist primarily of all of
the outstanding shares of common stock of Metropolitan Life Insurance Company.
Our ongoing ability to pay dividends to our stockholders and meet our
obligations, including paying operating expenses, making payments on the
debentures issued to MetLife Capital Trust I and any other debt service,
primarily depends upon the receipt of dividends from Metropolitan Life Insurance
Company and the interest received from Metropolitan Life Insurance Company under
its $1 billion mandatorily convertible capital note due 2005 issued to MetLife,
Inc. Any inability of Metropolitan Life Insurance Company to pay dividends or
interest on the capital note to us in the future in an amount sufficient for us
to pay dividends to our stockholders and meet our other obligations could have a
material adverse effect on our business, results of operations and financial
condition.
The payment of dividends by Metropolitan Life Insurance Company is
regulated under state insurance law. Under the New York Insurance Law,
Metropolitan Life Insurance Company may pay a stockholder dividend to MetLife,
Inc. only if it files notice of its intention to declare such a dividend and the
amount thereof with the New York Superintendent of Insurance, and the New York
Superintendent does not disapprove the dividend. Under the New York Insurance
Law, the New York Superintendent has broad discretion in determining whether the
financial condition of a stock life insurer would support the payment of
dividends to stockholders. The New York Insurance Department has established
informal guidelines for the New York Superintendent's determinations that focus
on, among other things, an insurer's overall financial condition and
profitability under statutory accounting practices. We cannot assure that
Metropolitan Life Insurance Company will have statutory earnings to support the
payment of dividends to MetLife, Inc. in an amount sufficient to fund our cash
requirements and pay cash dividends or that the New York Superintendent will not
disapprove any dividends that Metropolitan Life Insurance Company may seek to
pay. Our other insurance subsidiaries are also subject to restrictions on the
payment of dividends. In addition, from time to time, the NAIC and various state
insurance
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<PAGE> 29
regulators have considered, and may in the future consider and adopt, proposals
to further restrict the making of dividend payments by an insurer without
regulatory approval. Such proposals, if enacted, could further restrict the
ability of Metropolitan Life Insurance Company and its subsidiaries to pay
dividends.
In connection with the contribution of the net proceeds from the initial
public offering, the private placements and the offering of equity security
units to Metropolitan Life Insurance Company as described above, Metropolitan
Life Insurance Company expects to issue to MetLife, Inc. its $1 billion %
mandatorily convertible capital note due 2005 having the same interest and
interest payment terms (including reset and deferral provisions) as set forth in
the debentures of MetLife, Inc. issued to the MetLife Capital Trust I. The
principal amount of the capital note is mandatorily convertible into common
stock of Metropolitan Life Insurance Company upon maturity or acceleration of
the capital note and without any further action by MetLife, Inc. or Metropolitan
Life Insurance Company. As required by the New York Insurance Law, the terms of
the capital note must be approved by the New York Superintendent of Insurance as
not adverse to the interests of Metropolitan Life Insurance Company's
policyholders. In addition, the capital note will provide that Metropolitan Life
Insurance Company may not make any payment of the interest on or the principal
of the capital note so long as specified payment restrictions exist and have not
been waived by the New York Superintendent. Payment restrictions would exist if
the level of Metropolitan Life Insurance Company's statutory total adjusted
capital falls below certain thresholds relative to the level of its statutory
risk-based capital or the amount of its outstanding capital notes, surplus notes
or similar obligations. As of the date hereof, Metropolitan Life Insurance
Company's statutory total adjusted capital significantly exceeds these
limitations. If the New York Superintendent does not approve the issuance of the
capital note, or the payment of interest is prevented by application of the
payment restrictions described above, the interest on the capital note will not
be available as a source of liquidity for MetLife, Inc.
FAILURE TO ACHIEVE YEAR 2000 COMPLIANCE MAY ADVERSELY IMPACT SYSTEMS OPERATIONS
We have modified or replaced portions of our information technology and
non-information technology systems to address Year 2000 compliance issues. As of
the date of this prospectus, we are not aware of any material Year 2000-related
problems experienced by these systems. We have not been informed by any other
companies, governmental agencies or entities on which we rely that any such
persons experienced any material Year 2000-related problems. However, we cannot
guarantee that we or the other companies, governmental agencies or other
entities on which we rely will not experience any Year 2000-related problems in
the future. If such problems do occur, we cannot assure you that they will not
have any material adverse effect on our business, results of operations and
financial condition. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Year 2000 Readiness".
CHANGES IN FEDERAL INCOME TAXATION COULD ADVERSELY IMPACT SALES OF OUR
INSURANCE, ANNUITIES AND INVESTMENT PRODUCTS
Current federal income tax laws generally permit the tax-deferred
accumulation of earnings on the premiums paid by the holders of annuities and
life insurance products. Taxes, if any, are payable on the accumulated
tax-deferred earnings when earnings are actually paid. Congress has, from time
to time, considered possible legislation that would eliminate the deferral of
taxation on the accretion of value within certain annuities and life insurance
products. The 1994 U.S. Supreme Court ruling in NationsBank of North Carolina v.
Variable Annuity Life Insurance Company that annuities are not insurance for
purposes of the National Bank Act may cause Congress to consider legislation
that would eliminate tax deferral at least for certain annuities. Enactment of
other possible legislation, including a simplified "flat tax" income structure
with an exemption from taxation for investment income, could also adversely
affect purchases of life insurance. We cannot foresee whether Congress will
enact legislation or, whether such
27
<PAGE> 30
legislation, if enacted, will contain provisions with possible adverse effects
on our life insurance and annuity products.
In 1998, the federal income tax rate on capital gains was reduced.
Consequently, some of our annuities and investment products that feature tax
deferral of earnings appear relatively less attractive in comparison with
alternative accumulation products that feature long-term capital gains
treatment, particularly if the tax rates on ordinary income that are ultimately
applied to such tax-deferred earnings substantially exceed the reduced rate on
long-term capital gains.
SALES OF SHARES MAY ADVERSELY AFFECT THE MARKET PRICE OF OUR COMMON STOCK
The MetLife Policyholder Trust will hold an estimated 493,476,118 shares of
MetLife, Inc. common stock on behalf of approximately nine million eligible
policyholders, and their permitted assigns, who we estimate will become
beneficiaries of the trust. The trust agreement provides that a beneficiary may
sell the beneficiary's allocated shares of our common stock through the purchase
and sale program that we have established. Sales may be made at any time after
the later of (1) termination of any stabilization arrangements and trading
restrictions in connection with the initial public offering or (2) the closing
of all underwriters' over-allotment options that have been exercised and the
expiration of all unexercised options in connection with the initial public
offering. Generally, sales will be processed on the first or second trading day
after sale instructions are received. However, for the first 300 days after the
plan effective date, if sales on the open market on behalf of trust
beneficiaries holding more than 25,000 trust interests exceed the lesser of (i)
1/20th of 1% of the number of shares of common stock outstanding and (ii) 25% of
the average daily trading volume for the 20 trading days (or such shorter
period, if fewer than 20 trading days have elapsed since the plan effective
date) preceding the trade, sales of such excess shares for those beneficiaries
may be deferred to the next trading day (which will then be subject to the same
volume limitations on that day) or sold by a nationally-recognized brokerage
firm that will sell the shares as agent at market clearing prices or as
principal in a block trade. We expect that these sales may begin within
approximately 30 days after the plan effective date. In addition, subject to
certain limitations, a trust beneficiary may withdraw his or her allocated
shares beginning one year after the effective date of the plan. Counsel has
advised us that those beneficiaries who are not "affiliates" of MetLife, Inc.
within the meaning of Rule 144 under the Securities Act may resell their shares
in the purchase and sale program or otherwise without registration under the
Securities Act and without compliance with the time, volume, manner of sale and
other limitations set forth in Rule 144. Substantially all of the shares
allocated in the demutualization will be allocated to non-affiliates of MetLife,
Inc. Accordingly, most trust beneficiaries may freely transfer such shares,
without limitations, through the purchase and sale program. In addition to the
shares issued in the demutualization, the shares of our common stock issued in
the initial public offering and the shares issued upon settlement of the equity
security units will be freely transferable without restriction in the public
market, except to the extent that those shares are acquired by affiliates of
MetLife, Inc. and are therefore subject to restrictions under Rule 144.
Banco Santander Central Hispano, S.A. and Credit Suisse Group have agreed
in principle that they or their respective affiliates will purchase from us in
the aggregate not less than 14,900,000 shares nor more than 73,000,000 shares of
our common stock in private placements that will close concurrently with the
initial public offering and the offering of equity security units described
below. We will determine at the time of the pricing of the initial public
offering whether to sell any shares to these purchasers in excess of the minimum
amount. Any shares in excess of the minimum amount that we determine not to sell
to these investors may increase the number of shares available for sale to the
general public under this prospectus. The maximum number of shares that each
investor, individually, and the investors, in the aggregate, could be obligated
to purchase in the private placements represents approximately 4.9% and 9.8%,
respectively, of the total number of shares of our common stock to be
outstanding upon consummation of the initial public offering and the private
placements. We expect each of these purchasers to enter into an
28
<PAGE> 31
agreement with us that provides that any shares purchased by it will be
restricted from sale or transfer for a period of one year after the initial
public offering, except for sales to affiliates or pursuant to a tender or
exchange offer recommended by our board of directors. In addition, we expect
each purchaser to agree that it will not, without our consent, increase its
ownership of voting securities above 4.9% of the outstanding shares, seek to
obtain board representation, solicit proxies in opposition to management or take
certain other actions for five years. Although these investors will receive
common stock which has not been registered under the Securities Act, they will
also receive registration rights with respect to such stock, which rights are
not exercisable until one year after the closing of the initial public offering.
Pursuant to these registration rights, the purchasers will be able to have their
shares of common stock registered for resale under the Securities Act at various
times in the future. In addition, the purchasers will be able to participate,
subject to specified limitations, in registrations effected by us for our own
account or others. The private placements are subject to the negotiation of
definitive documentation.
Sales of substantial amounts of our common stock, or the perception that
such sales could occur, could adversely affect prevailing market prices for our
common stock.
THE INITIAL PUBLIC OFFERING PRICE OF OUR COMMON STOCK MAY NOT BE INDICATIVE OF
THE MARKET PRICE OF OUR STOCK AFTER THE OFFERING
The initial public offering price of our common stock will be determined by
negotiations among MetLife, Inc., Metropolitan Life Insurance Company and the
representatives of the underwriters. In addition, the final terms of the initial
public offering, including the initial public offering price, will be subject to
the approval of the New York Superintendent of Insurance. The initial public
offering price of our common stock will be based on numerous factors and may not
be indicative of the market price for our common stock after the initial public
offering. Factors such as variations in actual or anticipated operating results,
changes in or failure to meet earnings estimates of securities analysts, market
conditions in the financial services and insurance industries, regulatory
actions and general economic and stock market conditions, among others, may have
a significant effect on the market price of our common stock. Accordingly, the
market price of our common stock may decline below the initial public offering
price.
STATE LAWS AND OUR CERTIFICATE OF INCORPORATION AND BY-LAWS MAY DELAY, DETER OR
PREVENT TAKEOVERS AND BUSINESS COMBINATIONS THAT STOCKHOLDERS MIGHT CONSIDER IN
THEIR BEST INTERESTS
State laws and our certificate of incorporation and by-laws may delay,
deter or prevent a takeover attempt that stockholders might consider in their
best interests. For instance, they may prevent stockholders from receiving the
benefit from any premium over the market price of our common stock offered by a
bidder in a takeover context. Even in the absence of a takeover attempt, the
existence of these provisions may adversely affect the prevailing market price
of our common stock if they are viewed as discouraging takeover attempts in the
future.
The insurance laws and regulations of New York, the jurisdiction in which
our principal insurance subsidiary, Metropolitan Life Insurance Company, is
organized, may delay or impede a business combination involving us. Under the
New York Insurance Law, for a period of five years following the effective date
of the demutualization, no person may acquire beneficial ownership of 5% or more
of the outstanding shares of our common stock without the prior approval of the
New York Superintendent of Insurance. In addition, the New York Insurance Law
prohibits any person from acquiring control of us and thus indirect control of
Metropolitan Life Insurance Company, without the prior approval of the New York
Superintendent. That law presumes that control exists where any person, directly
or indirectly, owns, controls, holds the power to vote or holds proxies
representing 10% or more of our outstanding voting stock, unless the New York
Superintendent, upon application, determines otherwise. Even persons who do not
acquire beneficial ownership of more than 10% of the outstanding shares of our
common stock may be
29
<PAGE> 32
deemed to have acquired such control, if the New York Superintendent determines
that such persons, directly or indirectly, exercise a controlling influence over
our management or our policies. Therefore, any person seeking to acquire a
controlling interest in us would face regulatory obstacles which may delay,
deter or prevent an acquisition that stockholders might consider in their best
interests.
In addition, Section 203 of the Delaware General Corporation Law may affect
the ability of an "interested stockholder" to engage in certain business
combinations, including mergers, consolidations or acquisitions of additional
shares, for a period of three years following the time that the stockholder
becomes an "interested stockholder". An "interested stockholder" is defined to
include persons owning directly or indirectly 15% or more of the outstanding
voting stock of a corporation.
The stockholder rights plan adopted by our board of directors may also have
antitakeover effects. The stockholder rights plan is designed to protect our
stockholders in the event of unsolicited offers to acquire MetLife, Inc. and
other coercive takeover tactics which, in the opinion of our board of directors,
could impair its ability to represent stockholder interests. The provisions of
the stockholder rights plan may render an unsolicited takeover more difficult or
less likely to occur or might prevent such a takeover, even though such takeover
may offer our stockholders the opportunity to sell their stock at a price above
the prevailing market price and may be favored by a majority of our
stockholders.
RISKS RELATING TO THE ACQUISITION OF GENAMERICA
WE MAY BE EXPOSED TO ADDITIONAL LITIGATION
General American Life is a defendant in three putative class action
lawsuits involving sales practices claims. These lawsuits would not be covered
either by our recent class action settlement pertaining to sales practices
claims or by our excess of loss reinsurance agreements covering some of our
sales practices claims. We are not indemnified under the stock purchase
agreement relating to our acquisition of GenAmerica for any losses relating to
such claims against GenAmerica. While it is not feasible to predict or determine
the ultimate outcome of these matters, we believe that their outcomes will not
have a material adverse effect on our business or financial condition, although
it is possible that an adverse outcome in certain matters could, from time to
time, have a material adverse effect on our operating results or cash flows in
any particular period.
We or General American Life may also become subject to claims brought by
policyholders of General American Life or shareholders of its publicly held
subsidiaries in connection with events leading up to the execution of the stock
purchase agreement, as well as the acquisition itself. Some transactions leading
up to the acquisition and the acquisition itself might be susceptible to
challenge if any of the entities involved is placed in liquidation or
bankruptcy. No claims arising out of these events have yet been made. However,
we cannot assure that claims will not be made in the future. We are indemnified
under the terms of the stock purchase agreement for some of those matters. We
have a first priority perfected security interest in the purchase price proceeds
under the stock purchase agreement to cover losses that we incur for which
General American Mutual Holding Company has indemnified us under the stock
purchase agreement. Such indemnified losses include breaches of representations
and warranties, legal proceedings brought within three years after the date of
closing, alleged breaches of General American Life's funding agreements and
GUARANTEED INTEREST CONTRACTS ("GICS") and the acceleration of payments under
certain compensation arrangements and benefit plans. However, we cannot assure
that the purchase price proceeds which may be available for indemnified losses
will adequately protect us from liabilities if any claims are brought.
30
<PAGE> 33
WE MAY BE UNABLE TO RESTORE THE ONGOING BUSINESS OF GENAMERICA IN A TIMELY
MANNER
After General American Life was placed under the supervision of the
Missouri Department of Insurance, sales of new insurance policies and annuity
contracts by GenAmerica declined significantly and surrender levels for existing
policyholders and annuity owners increased. Although we intend to quickly
integrate GenAmerica into our existing operations following the acquisition, we
cannot guarantee that we will be able to do so or that sales by GenAmerica of
new insurance policies and annuity contracts and surrender rates for existing
policies and contracts will return to pre-supervision levels. GenAmerica
incurred a net loss in 1999, principally due to losses from the sale of invested
assets to meet funding agreement and other policy obligations and the write-down
of other assets to their current market value. There can be no assurance that
future profitability of GenAmerica will not be adversely affected.
31
<PAGE> 34
USE OF PROCEEDS
Our net proceeds from the initial public offering are estimated to be
$2,381 million, or $2,738 million if the underwriters' options to purchase
additional shares of common stock as described under "Underwriting" are
exercised in full, assuming an initial public offering price of $14.00 per
share, which is the midpoint of the range stated on the cover page of this
prospectus, and after deducting an assumed underwriting discount and estimated
offering expenses payable by us. Our proceeds from the planned private
placements are estimated to be $1,022 million, assuming the purchase of
73,000,000 shares at an initial public offering price of $14.00 per share, which
is the midpoint of the range stated on the cover page of this prospectus. Our
net proceeds from the offering of equity security units (net of the purchase
price of the common securities by MetLife, Inc.) are estimated to be $960
million, or $1,104 million if the underwriters' options to purchase additional
units are exercised in full, after deducting an assumed underwriting discount
and estimated offering expenses payable by us.
As required by the plan of reorganization, we will use the net proceeds
from the offerings as follows:
- an estimated $397 million to reimburse Metropolitan Life Insurance
Company for the crediting of policy credits to certain policyholders in
the demutualization;
- an estimated $2,494 million to reimburse Metropolitan Life Insurance
Company for the payment of cash to certain policyholders in the
demutualization;
- an estimated $315 million to reimburse Metropolitan Life Insurance
Company for cash payments to be made by its Canadian branch to certain
holders of policies included in its Canadian business sold to Clarica
Life Insurance Company in 1998;
- an estimated $361 million to reimburse Metropolitan Life Insurance
Company for the payment of the fees and expenses incurred in connection
with the demutualization; and
- MetLife, Inc. will retain up to $340 million (unless the New York
Superintendent of Insurance approves a larger amount) for working
capital, payment of dividends and other general corporate purposes,
including payments on the debentures issued by MetLife, Inc. to MetLife
Capital Trust I in connection with the offering of the units, and to pay
the fees and expenses of the trustee and custodian of the MetLife
Policyholder Trust.
We will contribute any remaining proceeds to Metropolitan Life Insurance
Company for its general corporate purposes and to repay up to $450 million of
short-term debt that Metropolitan Life Insurance Company incurred in connection
with the acquisition of GenAmerica Corporation. In connection with the
contribution of the net proceeds from the initial public offering, the private
placements and the offering of equity security units to Metropolitan Life
Insurance Company as described above, Metropolitan Life Insurance Company
expects to issue to MetLife, Inc. its $1 billion % mandatorily convertible
capital note due 2005 having the principal terms described under "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources -- MetLife, Inc."
The plan of reorganization requires that the aggregate net proceeds from
the offerings and the private placements be at least equal to specified amounts.
See "The Demutualization -- Summary of the Plan of Reorganization". If the
actual proceeds raised in the initial public offering, the private placements or
the offering of equity security units are different than the amount estimated in
this prospectus, we will be required to change the sizes of the other
transactions, subject to the limit in the plan that the proceeds of the units
offering may not exceed one-third of the combined proceeds of that offering and
the offering of MetLife, Inc.'s common stock pursuant to this prospectus and the
private placements. The amount of proceeds from the offerings and the private
placements and the final terms of the units will depend on market conditions and
our capital needs at the time of issuance.
We will not receive any proceeds from the issuance of our common stock to
the MetLife Policyholder Trust in exchange for policyholders' membership
interests.
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<PAGE> 35
DIVIDEND POLICY
Our board of directors intends to declare an annual dividend on our common
stock of $0.20 per share. The declaration and payment of dividends is subject to
the discretion of our board of directors, and will depend on our financial
condition, results of operations, cash requirements, future prospects,
regulatory restrictions on the payment of dividends by Metropolitan Life
Insurance Company and our other insurance subsidiaries and other factors deemed
relevant by the board. There is no requirement or assurance that we will declare
and pay any dividends. In addition, the indenture governing the terms of our
debentures issued to MetLife Capital Trust I in connection with the offering of
units prohibits the payment of dividends on our common stock during a deferral
of interest payments on the debentures or an event of default under the
indenture or the related guarantee. For a discussion of our cash sources and
needs, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources -- MetLife, Inc."
Following the effective date of the plan, we will be an insurance holding
company. Our assets will consist primarily of all of the outstanding shares of
common stock of Metropolitan Life Insurance Company. Our ongoing ability to pay
dividends to our stockholders and to meet our obligations, including paying our
operating expenses, making payments on the debentures issued to MetLife Capital
Trust I and any other debt service, depends primarily upon the receipt of
dividends from Metropolitan Life Insurance Company and the interest received
from Metropolitan Life Insurance Company under its $1 billion mandatorily
convertible capital note due 2005 issued to MetLife, Inc. The payment of
dividends by Metropolitan Life Insurance Company is regulated under the New York
Insurance Law. See "Risk Factors -- Dividends and payments on our indebtedness
may be affected by limitations imposed on Metropolitan Life Insurance Company"
and "Business -- Regulation -- Insurance regulation -- Holding company
regulation".
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<PAGE> 36
CAPITALIZATION
The information in the following table is derived from and should be read
in conjunction with the Consolidated Financial Statements and the related Notes
and with the Pro Forma Consolidated Financial Information and Notes thereto
included elsewhere in this prospectus. The table presents our consolidated
capitalization at December 31, 1999 and after giving effect to (1) the
demutualization as if it had occurred at December 31, 1999, (2) the initial
public offering of 179,000,000 shares of our common stock, (3) the planned
private placements of 73,000,000 shares of common stock, (4) the offering of
20,000,000 equity security units in the offering to be conducted concurrently
with the initial public offering and (5) the application of the proceeds from
the initial public offering of our common stock, the private placements and the
offering of equity security units as described in "Use of Proceeds".
The data set forth below assumes that the underwriters' options to purchase
additional shares of common stock and units in the offerings are not exercised.
See "The Demutualization -- Payment of Consideration to Eligible Policyholders".
<TABLE>
<CAPTION>
AT DECEMBER 31, 1999
------------------------------------------------------------------
THE INITIAL THE
THE PUBLIC PRIVATE THE UNIT PRO
HISTORICAL DEMUTUALIZATION OFFERING PLACEMENTS OFFERING FORMA
---------- --------------- ----------- ---------- -------- -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
DEBT:
Short-term debt.......................... $ 4,208 $ -- $ -- $ -- $ -- $ 4,208
------- -------- ------ ------ ---- -------
Long-term debt
Surplus notes and other................ 1,666 -- -- -- -- 1,666
Investment-related debt................ 369 -- -- -- -- 369
Non-insurance subsidiary debt.......... 479 -- -- -- -- 479
------- -------- ------ ------ ---- -------
Total long-term debt............ 2,514 -- -- -- -- 2,514
------- -------- ------ ------ ---- -------
COMPANY-OBLIGATED MANDATORILY REDEEMABLE
SECURITIES OF SUBSIDIARY TRUST HOLDING
SOLELY DEBENTURES OF PARENT............ -- -- -- -- 947 947
------- -------- ------ ------ ---- -------
EQUITY:
Preferred stock, par value $.01 per
share, 200,000,000 shares authorized;
none issued............................ -- -- -- -- -- --
Series A Junior Participating Preferred
Stock.................................. -- -- -- -- -- --
Common stock, par value $.01 per share;
3,000,000,000 shares authorized; pro
forma 493,476,118 shares for the
demutualization, 179,000,000 shares for
the initial public offering and
73,000,000 shares for the private
placements; total pro forma 745,476,118
shares issued and outstanding.......... -- 5 2 1 -- 8
Additional paid-in capital............... -- 10,757 2,379 1,021 13 14,170
Retained earnings........................ 14,100 (14,100) -- -- -- --
Accumulated other comprehensive loss..... (410) -- -- -- -- (410)
------- -------- ------ ------ ---- -------
Total equity.................... 13,690 (3,338) 2,381 1,022 13 13,768
------- -------- ------ ------ ---- -------
TOTAL CAPITALIZATION............ $16,204 $ (3,338) $2,381 $1,022 $960 $17,229
======= ======== ====== ====== ==== =======
</TABLE>
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<PAGE> 37
SELECTED FINANCIAL INFORMATION
The following table sets forth selected consolidated financial information
for MetLife. The consolidated financial information for the years ended December
31, 1999, 1998 and 1997 and at December 31, 1999 and 1998 has been derived from
our audited consolidated financial statements included elsewhere in this
prospectus. The consolidated financial information for the years ended December
31, 1996 and 1995 and at December 31, 1997, 1996 and 1995 has been derived from
our audited consolidated financial statements not included elsewhere in this
prospectus. The following consolidated statements of income and consolidated
balance sheet data, other than the statutory data, have been prepared in
conformity with generally accepted accounting principles. The statutory data
have been derived from Metropolitan Life Insurance Company's Annual Statements
filed with insurance regulatory authorities and have been prepared in accordance
with statutory accounting practices. The following information should be read in
conjunction with and is qualified in its entirety by the information and
consolidated financial statements appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------------------
1999 1998 1997 1996 1995
------- ---- ---- ---- ----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF INCOME DATA
Revenues:
Premiums(1)............................................... $12,088 $ 11,503 $ 11,278 $ 11,345 $ 11,178
Universal life and investment-type product policy fees.... 1,438 1,360 1,418 1,243 1,177
Net investment income(1)(2)(3)............................ 9,816 10,228 9,491 8,978 8,837
Other revenues(1)......................................... 2,154 1,994 1,491 1,246 834
Net realized investment gains (losses)(4)................. (70) 2,021 787 231 (157)
------- -------- -------- -------- --------
25,426 27,106 24,465 23,043 21,869
------- -------- -------- -------- --------
Expenses:
Policyholder benefits and claims(1)(5).................... 13,105 12,638 12,403 12,432 12,043
Interest credited to policyholder account balances........ 2,441 2,711 2,878 2,868 3,143
Policyholder dividends.................................... 1,690 1,651 1,742 1,728 1,786
Other expenses(1)(3)(6)................................... 6,755 8,019 5,771 4,609 4,153
------- -------- -------- -------- --------
23,991 25,019 22,794 21,637 21,125
------- -------- -------- -------- --------
Income before provision for income taxes, discontinued
operations and extraordinary item......................... 1,435 2,087 1,671 1,406 744
Provision for income taxes(7)............................... 593 740 468 482 407
------- -------- -------- -------- --------
Income before discontinued operations and extraordinary
item...................................................... 842 1,347 1,203 924 337
(Loss) gain from discontinued operations(8)................. -- -- -- (71) 362
------- -------- -------- -------- --------
Income before extraordinary item............................ 842 1,347 1,203 853 699
Extraordinary item -- demutualization expense, net of income
tax of $35 and $2, respectively........................... 225 4 -- -- --
------- -------- -------- -------- --------
Net income.................................................. $ 617 $ 1,343 $ 1,203 $ 853 $ 699
======= ======== ======== ======== ========
</TABLE>
35
<PAGE> 38
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
General account assets(3)............................... $160,291 $157,278 $154,444 $145,877 $144,277
Separate account assets................................. 64,941 58,068 48,338 43,399 38,861
-------- -------- -------- -------- --------
Total assets............................................ $225,232 $215,346 $202,782 $189,276 $183,138
======== ======== ======== ======== ========
Liabilities:
Life and health policyholder liabilities(9)........... $122,637 $122,726 $125,849 $121,333 $120,782
Property and casualty policyholder liabilities(9)..... 2,318 1,477 1,509 1,562 1,438
Short-term debt....................................... 4,208 3,585 4,587 3,311 3,235
Long-term debt........................................ 2,514 2,903 2,884 1,946 2,345
Separate account liabilities.......................... 64,941 58,068 48,338 43,399 38,861
Other liabilities(3).................................. 14,924 11,720 5,608 5,742 4,723
-------- -------- -------- -------- --------
Total liabilities....................................... 211,542 200,479 188,775 177,293 171,384
-------- -------- -------- -------- --------
Retained earnings....................................... 14,100 13,483 12,140 10,937 10,084
Accumulated other comprehensive income (loss)........... (410) 1,384 1,867 1,046 1,670
-------- -------- -------- -------- --------
Total equity............................................ 13,690 14,867 14,007 11,983 11,754
-------- -------- -------- -------- --------
Total liabilities and equity............................ $225,232 $215,346 $202,782 $189,276 $183,138
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
AT OR FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
OTHER DATA
Operating income(4)(10)................................. $ 990 $ 23 $ 617 $ 818 $ 504
Adjusted operating income(4)(11)........................ $ 1,307 $ 1,226 $ 807 $ 921 $ 613
Operating return on equity(12).......................... 7.2% 0.2% 5.3% 7.8% 5.2%
Adjusted operating return on equity(13)................. 9.5% 9.6% 7.0% 8.8% 6.3%
Return on equity(14).................................... 4.5% 10.5% 10.4% 8.1% 7.2%
Operating cash flows.................................... $ 3,865 $ 842 $ 2,872 $ 3,688 $ 4,823
Total assets under management(15)....................... $373,646 $360,703 $338,731 $297,570 $288,000
STATUTORY DATA(16)
Premiums and deposits................................... $ 24,643 $ 22,722 $ 20,569 $ 20,611 $ 21,651
Net income (loss)....................................... $ 790 $ 875 $ 589 $ 460 $ (672)
Policyholder surplus.................................... $ 7,630 $ 7,388 $ 7,378 $ 7,151 $ 6,785
Asset valuation reserve................................. $ 3,109 $ 3,323 $ 3,814 $ 2,635 $ 2,038
</TABLE>
<TABLE>
<CAPTION>
AT OR FOR THE YEARS ENDED
DECEMBER 31,
------------------------------
1999 1998 1997
---- ---- ----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
OPERATING DATA(21)
INDIVIDUAL BUSINESS
Total revenues.......................................... $ 11,067 $ 11,753 $ 10,630
Operating income(10).................................... $ 565 $ 631 $ 325
Net income.............................................. $ 555 $ 1,069 $ 599
Total assets............................................ $109,401 $103,614 $ 95,323
Policyholder liabilities(9)............................. $ 72,956 $ 71,571 $ 70,686
Separate account liabilities............................ $ 28,828 $ 23,013 $ 17,345
INSTITUTIONAL BUSINESS
Total revenues.......................................... $ 10,380 $ 10,651 $ 9,271
Operating income(10).................................... $ 585 $ 482 $ 310
Net income.............................................. $ 567 $ 846 $ 339
Total assets............................................ $ 88,127 $ 88,741 $ 83,473
Policyholder liabilities(9)............................. $ 47,781 $ 49,406 $ 49,547
Separate account liabilities............................ $ 35,236 $ 35,029 $ 30,473
AUTO & HOME
Total revenues.......................................... $ 1,876 $ 1,642 $ 1,459
Operating income(10).................................... $ 54 $ 81 $ 69
Net income.............................................. $ 56 $ 161 $ 74
Total assets............................................ $ 4,443 $ 2,763 $ 2,542
Combined ratio.......................................... 103.7% 100.8% 99.9%
</TABLE>
36
<PAGE> 39
<TABLE>
<CAPTION>
AT OR FOR THE YEARS ENDED
DECEMBER 31,
------------------------------
1999 1998 1997
---- ---- ----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
ASSET MANAGEMENT
Total revenues.......................................... $ 883 $ 892 $ 760
Operating income(10).................................... $ 51 $ 46 $ 45
Net income.............................................. $ 51 $ 49 $ 45
Assets under management(17)............................. $189,800 $191,000 $175,100
INTERNATIONAL OPERATIONS
Total revenues(18)...................................... $ 790 $ 1,179 $ 1,745
Operating income (loss)................................. $ 18 $ (35) $ 6
Net income.............................................. $ 21 $ 56 $ 126
Total assets............................................ $ 4,381 $ 3,432 $ 7,412
Separate account liabilities............................ $ 877 $ 26 $ 520
CORPORATE(19)
Total revenues(20)...................................... $ 623 $ 1,472 $ 1,045
Total expenses.......................................... $ 1,031 $ 2,591 $ 966
Net income (loss)....................................... $ (583) $ (695) $ 163
</TABLE>
- ---------------
(1) Includes the following combined financial statement data of MetLife Capital
Holdings, Inc., which was sold in 1998, and our Canadian operations and
U.K. insurance operations, substantially all of which were sold in 1998 and
1997, respectively:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
1998 1997 1996 1995
---- ---- ---- ----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Revenues:
Premiums.................................................... $204 $ 463 $ 456 $ 439
Net Investment Income....................................... 495 914 877 637
Other revenues.............................................. 33 225 164 192
---- ------ ------ ------
$732 $1,602 $1,497 $1,268
==== ====== ====== ======
Expenses:
Policyholder benefits and claims............................ $240 $ 495 $ 459 $ 492
Other expenses.............................................. 418 861 606 831
---- ------ ------ ------
$658 $1,356 $1,065 $1,323
==== ====== ====== ======
</TABLE>
As a result of these sales, we recorded net realized investment gains of
$520 million and $139 million for the years ended December 31, 1998 and
1997, respectively.
In July 1998, Metropolitan Life Insurance Company sold a substantial
portion of its Canadian operations to Clarica Life Insurance Company. As
part of that sale, a large block of policies in effect with Metropolitan
Life Insurance Company in Canada were transferred to Clarica Life, and the
holders of the transferred Canadian policies became policyholders of
Clarica Life. Those transferred policyholders are no longer policyholders
of Metropolitan Life Insurance Company and, therefore, are not entitled to
compensation under the plan of reorganization. However, as a result of a
commitment made in connection with obtaining Canadian regulatory approval
of that sale, if Metropolitan Life Insurance Company demutualizes, its
Canadian branch will make cash payments to those who are, or are deemed to
be, holders of these transferred Canadian policies. The payments, which
will be recorded in other expenses in the same period as the effective
date of the plan, will be determined in a manner that is consistent with
the treatment of, and fair and equitable to, eligible policyholders of
Metropolitan Life Insurance Company. The aggregate amount of the payment
is dependent upon the initial public offering price of common stock to be
issued at the effective date of the plan. Assuming an initial public
offering price of $14.00 per share, which is the midpoint of the range
stated on the cover page of this prospectus, and based on actuarial
calculations we have made regarding these payments, we estimate that the
aggregate payments will be $315 million.
37
<PAGE> 40
(2) During 1997, we changed to the retrospective interest method of accounting
for investment income on structured notes in accordance with Emerging
Issues Task Force Consensus 96-12, Recognition of Interest Income and
Balance Sheet Classification of Structured Notes. As a result, net
investment income increased by $175 million. The cumulative effect of this
accounting change on prior years' income was immaterial.
(3) In 1998, we adopted the provisions of Statement of Financial Accounting
Standards 125, Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities, with respect to our securities lending
program. Adoption of the provisions had the effect of increasing assets and
liabilities by $3,769 million at December 31, 1998, and increasing revenues
and expenses by $266 million for the year ended December 31, 1998.
(4) Realized investment gains and losses are presented net of related
policyholder amounts. The amounts netted against realized investment gains
and losses are the following:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Gross realized investment gains (losses).................... $(137) $2,629 $1,018 $ 458 $ 73
----- ------ ------ ----- -----
Less amounts allocable to:
Future policy benefit loss recognition.................... -- (272) (126) (203) (152)
Deferred policy acquisition costs......................... 46 (240) (70) (4) (78)
Participating pension contracts........................... 21 (96) (35) (20) --
----- ------ ------ ----- -----
Total..................................................... 67 (608) (231) (227) (230)
----- ------ ------ ----- -----
Net realized investment gains (losses)...................... $ (70) $2,021 $ 787 $ 231 $(157)
===== ====== ====== ===== =====
</TABLE>
Realized investment gains (losses) have been reduced by (1) deferred
policy acquisition amortization to the extent that such amortization
results from realized investment gains and losses, (2) additions to future
policy benefits resulting from the need to establish additional
liabilities due to the recognition of investment gains, and (3) additions
to participating contractholder accounts when amounts equal to such
investment gains and losses are credited to the contractholders' accounts.
This presentation may not be comparable to presentations made by other
insurers. This presentation affected operating income and adjusted
operating income. See note 10 below.
(5) Policyholder benefits and claims exclude $(21) million, $368 million, $161
million, $223 million and $152 million for the years ended December 31,
1999, 1998, 1997, 1996 and 1995, respectively, of future policy benefit
loss recognition and credits to participating pension contracts that have
been charged against net realized investment gains and losses as such
amounts are directly related to such gains and losses. This presentation
may not be comparable to presentations made by other insurers.
(6) Other expenses exclude $(46) million, $240 million, $70 million, $4 million
and $78 million for the years ended December 31, 1999, 1998, 1997, 1996 and
1995, respectively, of amortization of deferred policy acquisition costs
that have been charged against net realized investment gains and losses as
such amounts are directly related to such gains and losses. This
presentation may not be comparable to presentations made by other insurers.
(7) Includes $125 million, $18 million, $(40) million, $38 million and $67
million for surplus tax paid (received) by Metropolitan Life Insurance
Company for the years ended December 31, 1999, 1998, 1997, 1996 and 1995,
respectively. As a stock life insurance company, we will no longer be
subject to the surplus tax after the effective date of the demutualization.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations".
(8) The gain (loss) from discontinued operations was primarily attributable to
the disposition of our group medical insurance business.
(9) Policyholder liabilities include future policy benefits, policyholder
account balances, other policyholder funds and policyholder dividends.
38
<PAGE> 41
(10) The following provides a reconciliation of net income to operating income
on a consolidated basis:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------
1999 1998 1997 1996 1995
---- ------- ------- ----- -----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Net income.................................................. $617 $ 1,343 $ 1,203 $ 853 $ 699
---- ------- ------- ----- -----
Adjustments to reconcile net income to operating income:
Gross realized investment (gains) losses.................. 137 (2,629) (1,018) (458) (73)
Income tax on gross realized investment gains and
losses.................................................. (92) 883 312 173 26
---- ------- ------- ----- -----
Realized investment (gains) losses, net of income tax... 45 (1,746) (706) (285) (47)
---- ------- ------- ----- -----
Amounts allocated to investment gains and losses (see note
4)...................................................... (67) 608 231 227 230
Income tax on amounts allocated to investment gains and
losses.................................................. 45 (204) (71) (86) (83)
---- ------- ------- ----- -----
Amount allocated to investment gains and losses, net of
income tax............................................ (22) 404 160 141 147
---- ------- ------- ----- -----
Loss (gain) from discontinued operations.................. -- -- -- 71 (362)
---- ------- ------- ----- -----
Surplus tax............................................... 125 18 (40) 38 67
---- ------- ------- ----- -----
Extraordinary item -- demutualization expense, net of
income tax of $35 and $2, respectively.................. 225 4 -- -- --
---- ------- ------- ----- -----
Operating income............................................ $990 $ 23 $ 617 $ 818 $ 504
==== ======= ======= ===== =====
</TABLE>
The following provides a reconciliation of net income to operating income
for our Individual Business segment:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-----------------------
1999 1998 1997
---- ---- ----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Net income.................................................. $555 $1,069 $ 599
---- ------ -----
Adjustments to reconcile net income to operating income:
Gross realized investment (gains) losses.................. 60 (914) (433)
Income tax on gross realized investment gains and
losses.................................................. (14) 306 100
---- ------ -----
Realized investment (gains) losses, net of income tax... 46 (608) (333)
---- ------ -----
Amounts allocated to investment gains and losses (see note
4)........................................................ (46) 255 77
Income tax on amounts allocated to investment gains and
losses.................................................... 10 (85) (18)
---- ------ -----
Amount allocated to investment gains and losses, net of
income tax.............................................. (36) 170 59
---- ------ -----
Operating income............................................ $565 $ 631 $ 325
==== ====== =====
</TABLE>
The following provides a reconciliation of net income to operating income
for our Institutional Business segment:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
----------------------
1999 1998 1997
---- ---- ----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Net income.................................................. $567 $ 846 $ 339
---- ----- -----
Adjustments to reconcile net income to operating income:
Gross realized investment (gains) losses.................. 53 (943) (181)
Income tax on gross realized investment gains and
losses.................................................. (22) 324 64
---- ----- -----
Realized investment (gains) losses, net of income tax... 31 (619) (117)
---- ----- -----
Amounts allocated to investment gains and losses (see note
4)...................................................... (22) 386 136
Income tax on amounts allocated to investment gains and
losses.................................................. 9 (131) (48)
---- ----- -----
Amount allocated to investment gains and losses, net of
income tax............................................ (13) 255 88
---- ----- -----
Operating income............................................ $585 $ 482 $ 310
==== ===== =====
</TABLE>
39
<PAGE> 42
The following provides a reconciliation of net income to operating income
for our Auto & Home segment:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
---------------------
1999 1998 1997
---- ---- ----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Net income.................................................. $56 $ 161 $74
--- ----- ---
Adjustments to reconcile net income to operating income:
Gross realized investment gains........................... (2) (122) (9)
Income tax on gross realized investment gains............. -- 42 4
--- ----- ---
Realized investment gains, net of income tax............ (2) (80) (5)
--- ----- ---
Operating income............................................ $54 $ 81 $69
=== ===== ===
</TABLE>
The following provides a reconciliation of net income to operating income
(loss) for our International segment:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
----------------------
1999 1998 1997
---- ---- ----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Net income.................................................. $21 $ 56 $ 126
--- ----- -----
Adjustments to reconcile net income to operating income
(loss):
Gross realized investments gains.......................... (1) (117) (160)
Income tax on gross realized investment gains............. (2) 26 24
--- ----- -----
Realized investment gains, net of income tax............ (3) (91) (136)
--- ----- -----
Amounts allocated to investment gains (see note 4)........ -- -- 18
Income tax on amounts allocated to investment gains....... -- -- (2)
--- ----- -----
Amount allocated to investment gains, net of income
tax................................................... -- -- 16
--- ----- -----
Operating income (loss)..................................... $18 $ (35) $ 6
=== ===== =====
</TABLE>
We believe the supplemental operating information presented above allows for
a more complete analysis of results of operations. Realized investment gains
and losses have been excluded due to their volatility between periods and
because such data are often excluded when evaluating the overall financial
performance of insurers. Operating income should not be considered as a
substitute for any GAAP measure of performance. Our method of calculating
operating income may be different from the method used by other companies
and therefore comparability may be limited.
(11) The following provides a reconciliation of operating income to adjusted
operating income:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------
1999 1998 1997 1996 1995
------ ------ ---- ---- ----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Operating income............................................ $ 990 $ 23 $617 $818 $504
Adjustment for charges for sales practices claims and for
personal injury claims caused by exposure to asbestos or
asbestos-containing products, net of income tax........... 317 1,203 190 103 109
------ ------ ---- ---- ----
Adjusted operating income................................... $1,307 $1,226 $807 $921 $613
====== ====== ==== ==== ====
</TABLE>
The charge for the year ended December 31, 1999 was principally related to
the settlement of a multidistrict litigation proceeding involving alleged
improper sales practices, accruals for sales practices claims not covered by
the settlement and other legal costs. The amount reported for the year ended
December 31, 1998 includes charges for sales practices claims and claims for
personal injuries caused by exposure to asbestos or asbestos-containing
products. See Note 9 of Notes to Consolidated Financial Statements. We
believe that supplemental adjusted operating income data provide information
useful in measuring operating trends by excluding the unusual amounts of
expenses associated with sales
40
<PAGE> 43
practices and asbestos-related claims. These expenses are not related to our
ongoing operations. Adjusted operating income should not be considered as a
substitute for any GAAP measure of performance.
(12) Operating return on equity is defined as operating income divided by
average total equity excluding accumulated other comprehensive income
(loss). We believe the operating return on equity information presented
supplementally allows for a more complete analysis of results of
operations. Accumulated other comprehensive income (loss) has been excluded
due to its volatility between periods and because such data are often
excluded when evaluating the overall financial performance of insurers.
Operating return on equity should not be considered as a substitute for any
GAAP measure of performance. Our method of calculation of operating return
on equity may be different from the calculation used by other companies
and, therefore, comparability may be limited. Operating return on equity is
only presented for annual periods.
(13) Adjusted operating return on equity is defined as adjusted operating income
divided by average total equity, excluding accumulated other comprehensive
income (loss). We believe that supplemental adjusted operating return on
equity data provide information useful in measuring operating trends by
excluding the unusual amounts of expenses associated with sales practices
and asbestos-related claims. Adjusted operating return on equity should not
be considered as a substitute for any GAAP measure of performance. Adjusted
operating return on equity is only presented for annual periods.
(14) Return on equity is defined as net income divided by average total equity,
excluding accumulated other comprehensive income (loss).
(15) Includes MetLife's general account and separate account assets and assets
managed on behalf of third parties.
(16) Metropolitan Life Insurance Company statutory data only.
(17) Includes $0.2 billion, $4.2 billion and $5.6 billion of MetLife's general
account assets managed by our Asset Management segment at December 31,
1999, 1998 and 1997, respectively, as well as assets managed on behalf of
third parties.
(18) Includes our Canadian operations and U.K. insurance operations,
substantially all of which were sold in 1998 and 1997, respectively. Total
revenues for these entities were $469 million, $1,060 million, $1,001
million and $998 million for the years ended December 31, 1998, 1997, 1996
and 1995, respectively.
(19) We maintain a Corporate segment through which we report items that are not
directly allocable to any of our business segments, including unallocated
capital, revenues and expenses.
(20) Includes MetLife Capital Holdings, Inc., which was sold in 1998. Total
revenues for this entity were $263 million, $542 million, $496 million and
$270 million for the years ended December 31, 1998, 1997, 1996 and 1995,
respectively.
(21) Segment data does not include consolidation and elimination entries related
to intersegment amounts. See Note 15 of Notes to Consolidated Financial
Statements.
41
<PAGE> 44
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The pro forma consolidated financial information presented below gives
effect to:
- the demutualization, including the issuance of an estimated 493,476,118
shares of our common stock to the MetLife Policyholder Trust in
connection therewith;
- the establishment of the closed block;
- the sale of 179,000,000 shares of our common stock in the initial public
offering at $14.00 per share, which is the midpoint of the range stated
on the cover page of this prospectus;
- the planned concurrent private placements of 73,000,000 shares of common
stock in the aggregate at $14.00 per share, which is the midpoint of the
range stated on the cover page of this prospectus; and
- the concurrent offering of 20,000,000 equity security units at $50.00 per
unit;
as if they each had occurred at December 31, 1999, for the purposes of the pro
forma consolidated balance sheet, and at January 1, 1999 for the purposes of the
pro forma consolidated statement of income for the year ended December 31, 1999.
The pro forma financial information excludes the effects of various
acquisitions, including the acquisition of GenAmerica Corporation, and
dispositions because they are not significant. This pro forma information is
presented to depict only the effects of the demutualization, the establishment
of the closed block, the offering of the units, the private placements and the
initial public offering. Metropolitan Life Insurance Company incurred $900
million of short-term debt in connection with the acquisition of GenAmerica
Corporation. We intend to repay up to $450 million of this short-term debt with
proceeds from the offerings and the private placements in excess of those
amounts required under the plan of reorganization.
The pro forma information reflects gross and estimated net proceeds from
the initial public offering of $2,506 million and $2,381 million, respectively,
assuming an initial public offering price per share of $14.00 and the use of
proceeds set forth elsewhere in this prospectus. The data also gives effect to
proceeds of $1,022 million from the private placements and gross proceeds of
$1,000 million from the issuance of the units, less an assumed underwriting
discount and offering expenses aggregating $40 million, or net proceeds from the
offering of $960 million. We expect to use an estimated $397 million of the
aggregate net proceeds of these offerings and the private placements to
reimburse Metropolitan Life Insurance Company for policy credits made to certain
policyholders in lieu of 28,331,484 allocated shares of our common stock, an
estimated $2,494 million of the aggregate net proceeds to reimburse Metropolitan
Life Insurance Company for cash payments made to certain policyholders in lieu
of 178,166,475 allocated shares of our common stock and an estimated $315
million to reimburse Metropolitan Life Insurance Company for cash payments to be
made by its Canadian branch to certain holders of policies included in its
Canadian business sold to Clarica Life Insurance Company in 1998. We will
account for the payments to the transferred Canadian policyholders in other
expenses in the same period as the effective date of the plan. The consideration
an eligible policyholder receives under the plan of reorganization will be based
on the number of shares of our common stock allocated to the eligible
policyholder pursuant to the terms of the plan. For those policyholders
receiving policy credits or for those non-electing eligible policyholders who
must receive cash in the demutualization, we will translate the share
allocations into dollar amounts based on the initial public offering price per
share. The cash payments made in lieu of allocated shares consist of $164
million of cash payments that will be distributed to non-electing eligible
policyholders that must receive cash in the demutualization and $2,330 million
in cash payments to eligible policyholders holding approximately 23.8% of the
total number of shares of our common stock allocated to eligible policyholders
who elected to receive cash, assuming an initial public offering price of $14.00
per share. See "The Demutualization -- Payment of Consideration to Eligible
Policyholders". The pro forma consolidated statement of income also reflects the
elimination of
42
<PAGE> 45
the surplus tax on earnings and the inclusion of the minority interest related
to the units and is presented before the extraordinary item for demutualization
expense. The pro forma consolidated statement of income does not give effect to
any pro forma earnings resulting from the use of the net proceeds from the
offerings or the charge related to the payments to be made to certain
transferred Canadian policyholders described above.
We will account for the demutualization using the historical carrying
values of our assets and liabilities.
We have based the pro forma information on available information and on
assumptions management believes are reasonable and that reflect the effects of
these transactions. We have provided this information for informational purposes
only. The number of shares and units actually sold in the offerings and the
private placements and their respective prices may vary from the amounts
assumed. The plan of reorganization requires that the aggregate net proceeds
from the offerings and the private placements be at least equal to specified
amounts. See "The Demutualization -- Summary of the Plan of Reorganization". If
the actual proceeds raised in the initial public offering, the private
placements or the offering of the equity security units are different than the
amount estimated, we will be required to change the sizes of the other
transactions, subject to the limit in the plan that the proceeds of the units
offering may not exceed one-third of the combined proceeds of that offering, the
private placements and the offering of MetLife, Inc.'s common stock pursuant to
this prospectus. The amount of proceeds from the offerings and the private
placements and the final terms of the units will depend on market conditions and
our capital needs at the time of issuance. This information does not necessarily
indicate our consolidated financial position or results of operations had the
demutualization, the establishment of the closed block, the offering of units,
the initial public offering and the private placements been consummated on the
dates assumed. It also does not project or forecast our consolidated financial
position or results of operations for any future date or period. You should read
the pro forma information in conjunction with our historical consolidated
financial statements included elsewhere in this prospectus and with the
information set forth under "Management's Discussion and Analysis of Financial
Condition and Results of Operations", "The Demutualization" and "Business".
43
<PAGE> 46
METLIFE, INC.
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
AS ADJUSTED
ESTABLISHMENT FOR THE CLOSED THE
OF THE THE BLOCK AND THE UNIT
HISTORICAL CLOSED BLOCK(1) DEMUTUALIZATION DEMUTUALIZATION OFFERING PRO FORMA
---------- --------------- --------------- --------------- -------- ---------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Premiums......................... $12,088 $(3,924) $ -- $ 8,164 $ -- $ 8,164
Universal life and
investment-type product policy
fees........................... 1,438 -- -- 1,438 -- 1,438
Net investment income............ 9,816 (2,177) -- 7,639 -- 7,639
Other revenues................... 2,154 -- -- 2,154 -- 2,154
Net realized investment losses
(net of amounts allocable to
other accounts of $67)......... (70) 6 -- (64) -- (64)
Contribution from the closed
block.......................... -- (87) -- (87) -- (87)
------- ------- ----- ------- ---- -----------
25,426 (6,182) -- 19,244 -- 19,244
------- ------- ----- ------- ---- -----------
EXPENSES
Policyholder benefits and claims
(excludes amounts directly
related to net realized
investment losses of $21)...... 13,105 (4,002) -- 9,103 -- 9,103
Interest credited to policyholder
account balances............... 2,441 -- -- 2,441 -- 2,441
Policyholder dividends........... 1,690 (1,456) -- 234 -- 234
Other expenses (excludes amounts
directly related to net
realized investment losses of
$46)........................... 6,755 (724) -- 6,031 87(7) 6,118
------- ------- ----- ------- ---- -----------
23,991 (6,182) -- 17,809 87 17,896
------- ------- ----- ------- ---- -----------
Income (loss) before provision
(benefit) for income taxes and
extraordinary item............... 1,435 -- -- 1,435 (87) 1,348
Provision (benefit) for income
taxes............................ 593 -- (125)(9) 468 (32)(7) 436
------- ------- ----- ------- ---- -----------
Income before extraordinary item... $ 842 $ -- $ 125 $ 967 $(55) $ 912
======= ======= ===== ======= ==== ===========
Per share data:
Income before extraordinary item
per share -- basic and
diluted........................ $ 1.22
===========
Number of shares used in
calculation of per share data--
basic and diluted.............. 745,476,118(2)(3)
===========
</TABLE>
The accompanying Notes are an integral part of this
Pro Forma Consolidated Statement of Income.
44
<PAGE> 47
METLIFE, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
AT DECEMBER 31, 1999
<TABLE>
<CAPTION>
AS ADJUSTED FOR
ESTABLISHMENT THE CLOSED
OF THE CLOSED THE BLOCK AND THE
HISTORICAL BLOCK(1) DEMUTUALIZATION DEMUTUALIZATION
---------- ------------- --------------- ---------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
ASSETS
Investments:
Fixed maturities available-
for-sale, at fair value... $ 96,981 $(21,729) $ -- $ 75,252
Equity securities, at fair
value..................... 2,006 -- -- 2,006
Mortgage loans on real
estate.................... 19,739 (4,785) -- 14,954
Real estate and real estate
joint ventures............ 5,649 -- -- 5,649
Policy loans................ 5,598 (3,747) -- 1,851
Other limited partnership
interests................. 1,331 -- -- 1,331
Short-term investments...... 3,055 (8) -- 3,047
Other invested assets....... 1,501 (404) -- 1,097
-------- -------- -------- --------
135,860 (30,673) -- 105,187
Cash and cash equivalents..... 2,789 (251) (2,809)(2) (271)
Accrued investment income..... 1,725 (223) -- 1,502
Premiums and other
receivables................. 6,681 (129) -- 6,552
Deferred policy acquisition
costs....................... 8,492 (4,076) -- 4,416
Deferred income taxes......... 603 36 -- 639
Other......................... 4,141 -- -- 4,141
Closed block assets........... -- 35,316 -- 35,316
Separate account assets....... 64,941 -- -- 64,941
-------- -------- -------- --------
$225,232 $ -- $ (2,809) $222,423
======== ======== ======== ========
LIABILITIES AND EQUITY
LIABILITIES:
Future policy benefits........ $ 73,582 $(38,576) $ 397(2) $ 35,403
Policyholder account
balances.................... 45,901 (4) -- 45,897
Other policyholder funds...... 4,498 (308) -- 4,190
Policyholder dividends
payable..................... 974 (712) -- 262
Short-term debt............... 4,208 -- -- 4,208
Long-term debt................ 2,514 -- -- 2,514
Current income taxes
payable..................... 548 (14) (46)(4) 488
Other......................... 14,376 (13) 178(4) 14,541
Closed block liabilities...... -- 39,627 -- 39,627
Separate account
liabilities................. 64,941 -- -- 64,941
-------- -------- -------- --------
211,542 -- 529 212,071
-------- -------- -------- --------
Company-obligated mandatorily
redeemable securities of
subsidiary trust holding
solely debentures of Parent... -- -- -- --
-------- -------- -------- --------
EQUITY:
Preferred stock............... -- -- -- --
Common stock.................. -- -- 5(2)(8) 5
Additional paid-in capital.... -- -- 10,757(2)(8) 10,757
Retained earnings............. 14,100 -- (14,100)(8) --
Accumulated other
comprehensive loss.......... (410) -- -- (410)
-------- -------- -------- --------
13,690 -- (3,338) 10,352
-------- -------- -------- --------
$225,232 $ -- $ (2,809) $222,423
======== ======== ======== ========
<CAPTION>
THE
INITIAL THE THE
PUBLIC PRIVATE UNIT
OFFERING PLACEMENTS OFFERING PRO FORMA
-------- ---------- -------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
ASSETS
Investments:
Fixed maturities available-
for-sale, at fair value... $ -- $ -- $ -- $ 75,252
Equity securities, at fair
value..................... -- -- -- 2,006
Mortgage loans on real
estate.................... -- -- -- 14,954
Real estate and real estate
joint ventures............ -- -- -- 5,649
Policy loans................ -- -- -- 1,851
Other limited partnership
interests................. -- -- -- 1,331
Short-term investments...... -- -- -- 3,047
Other invested assets....... -- -- -- 1,097
------ ------ ---- --------
-- -- -- 105,187
Cash and cash equivalents..... 2,381(5) 1,022(6) 960(7) 4,092
Accrued investment income..... -- -- -- 1,502
Premiums and other
receivables................. -- -- -- 6,552
Deferred policy acquisition
costs....................... -- -- -- 4,416
Deferred income taxes......... -- -- -- 639
Other......................... -- -- -- 4,141
Closed block assets........... -- -- -- 35,316
Separate account assets....... -- -- -- 64,941
------ ------ ---- --------
$2,381 $1,022 $960 $226,786
====== ====== ==== ========
LIABILITIES AND EQUITY
LIABILITIES:
Future policy benefits........ $ -- $ -- $ -- $ 35,403
Policyholder account
balances.................... -- -- -- 45,897
Other policyholder funds...... -- -- -- 4,190
Policyholder dividends
payable..................... -- -- -- 262
Short-term debt............... -- -- -- 4,208
Long-term debt................ -- -- -- 2,514
Current income taxes
payable..................... -- -- -- 488
Other......................... -- -- -- 14,541
Closed block liabilities...... -- -- -- 39,627
Separate account
liabilities................. -- -- -- 64,941
------ ------ ---- --------
-- -- -- 212,071
------ ------ ---- --------
Company-obligated mandatorily
redeemable securities of
subsidiary trust holding
solely debentures of Parent... -- -- 947(7) 947
------ ------ ---- --------
EQUITY:
Preferred stock............... -- -- -- --
Common stock.................. 2(5) 1(6) -- 8
Additional paid-in capital.... 2,379(5) 1,021(6) 13(7) 14,170
Retained earnings............. -- -- -- --
Accumulated other
comprehensive loss.......... -- -- -- (410)
------ ------ ---- --------
2,381 1,022 13 13,768
------ ------ ---- --------
$2,381 $1,022 $960 $226,786
====== ====== ==== ========
</TABLE>
The accompanying Notes are an integral part of this
Pro Forma Consolidated Balance Sheet.
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<PAGE> 48
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
(1) The pro forma consolidated balance sheet and pro forma consolidated
statement of income reflect the assets which have been set aside to establish
the closed block, and the related liabilities, revenues and expenses, in each
case based on provisions in the plan of reorganization. Closed block assets and
liabilities on the pro forma consolidated balance sheet are reflected at their
historical carrying values. See "The Demutualization -- Establishment and
Operation of the Closed Block". We have established bookkeeping records to
specifically segregate the assets, liabilities, revenues and expenses in the pro
forma closed block, as if the closed block had been formed on January 1, 1999.
These amounts include any new individual participating policies issued during
1999 and the revenues and expenses associated with individual participating
policies eligible to be included in the closed block. The closed block will
actually be formed on the effective date of the plan and, accordingly, the
actual assets and liabilities ultimately assigned to the closed block and their
carrying values will not be final until that date. In management's opinion, the
assets and liabilities of the closed block as of the effective date of the plan
are not expected to differ materially from the assets and liabilities reflected
in the pro forma consolidated balance sheet.
The pro forma consolidated statement of income reflects actual revenues and
expenses related to the segregated assets and liabilities of the closed block
and certain estimates that management believes are reasonable. We have
determined the closed block amounts in the pro forma consolidated statement of
income using the underlying policyholder administrative records supporting this
business. Actual revenues and expenses related to the segregated closed block
liabilities and closed block assets were used to derive the pro forma
consolidated statement of income for the year ended December 31, 1999. Net
investment income and realized investment gains and losses for the year ended
December 31, 1999 reflect the actual income from assets set aside for assignment
to the closed block. In management's opinion, the revenues and expenses of the
individual participating policies to be included in the closed block as of the
effective date of the plan are not expected to differ materially from the pro
forma consolidated statement of income.
The closed block amounts in the pro forma consolidated statement of income
for the year ended December 31, 1999 reflect new individual participating
policies issued during such period, which will ultimately be included in the
closed block if such policies remain in force as of the effective date of the
plan. Closed block amounts were determined as follows: (1) premiums and benefits
related to the policies to be included within the closed block were used; (2)
net investment income for the year ended December 31, 1999 reflects the actual
income from assets set aside for assignment to the closed block; (3)
policyholder dividends were based on dividend scales of policies to be included
within the closed block; (4) maintenance expenses were based on per policy
charges provided in the plan of reorganization; and (5) realized investment
gains and losses of the closed block for the year ended December 31, 1999
reflect the actual gains and losses from the assets set aside for assignment to
the closed block.
Deferred policy acquisition costs on business included in the closed block
has been reported as an asset of the closed block in the pro forma consolidated
balance sheet. Amortization of closed block deferred policy acquisition costs,
other than amounts arising from realized investment gains and losses on assets
not allocated to the closed block, has been included in other expenses in the
closed block.
The pre-tax contribution from the closed block will include only those
revenues, benefit payments, dividends, premium taxes, administrative expenses
and investment expenses considered in funding the closed block. See "The
Demutualization -- Establishment and Operation of the Closed Block". We will
report the pre-tax contribution from the closed block as a single line item of
total revenues. We will reflect income tax expense applicable to the closed
block, which the closed block will pay, as a component of income tax expense.
The excess of
46
<PAGE> 49
closed block liabilities over closed block assets at the effective date of the
demutualization will represent the estimated maximum future contribution from
the closed block expected to result from operations attributed to the closed
block after income taxes. The contribution from the closed block will be
recognized in income over the period the policies and contracts in the closed
block remain in force. Management believes that over time the actual cumulative
contributions from the closed block will approximately equal the expected
cumulative contributions, due to the effect of dividend changes. If, over the
period the closed block remains in existence, the actual cumulative contribution
from the closed block is greater than the expected cumulative contribution from
the closed block, only such expected contribution will be recognized in income
with the excess recorded as a policyholder dividend obligation, because the
excess of the actual cumulative contribution from the closed block over such
expected cumulative contribution will be paid to closed block policyholders as
additional policyholder dividends unless offset by future unfavorable experience
of the closed block. If over such period, the actual cumulative contribution
from the closed block is less than the expected cumulative contribution from the
closed block, only such actual contribution will be recognized in income.
However, we may change dividends in the future, which would be intended to
increase future actual contributions until the actual cumulative contributions
equal the expected cumulative contributions.
Pursuant to the plan of reorganization, Metropolitan Life Insurance Company
has set aside assets for assignment to the closed block in an amount that
produces cash flows which, together with anticipated revenue from the individual
life insurance policies included in the closed block, are reasonably expected to
be sufficient to support obligations and liabilities relating to these policies,
and to provide for the continuation of policyholder dividend scales in effect
for 1999, if the experience underlying such dividend scales continues, and for
appropriate adjustments in such scales if the experience changes. The excess of
closed block liabilities over closed block assets at the effective date of the
demutualization equals the estimated maximum future after tax contribution from
the closed block. As noted above, we will recognize in income the contribution
from the closed block over the period the policies and contracts in the closed
block remain in force.
As a result of the establishment of the closed block, certain line items in
our consolidated financial statements subsequent to the establishment of the
closed block will reflect material reductions in reported amounts, compared with
periods prior to the establishment of the closed block. These changes will have
no effect on net income. We will reflect the results of the closed block
business as a single line item in our consolidated statement of income entitled,
"Contribution from the closed block". Prior to the establishment of the closed
block, the results from the underlying business were reported in various line
items in our consolidated statement of income, including premiums, net
investment income, policyholder benefits and claims and other expenses. In
addition, all assets and liabilities allocated to the closed block will be
reported in our consolidated balance sheet separately under the captions,
"Closed block assets" and "Closed block liabilities," respectively.
(2) The number of shares of our common stock used in the calculation of pro
forma income before extraordinary item per share -- basic and diluted is as
follows:
<TABLE>
<S> <C>
Shares allocated to eligible policyholders.................. 699,974,077
Less shares allocated to eligible policyholders who receive
cash or policy credits.................................... 206,497,959
-----------
Shares issued to the MetLife Policyholder Trust............. 493,476,118
Shares issued in the initial public offering................ 179,000,000
Shares issued in the private placements..................... 73,000,000
-----------
Total shares of common stock outstanding.................... 745,476,118
===========
</TABLE>
47
<PAGE> 50
We expect to contribute $4,023 million of the aggregate net proceeds from
the offerings and the private placements to Metropolitan Life Insurance Company,
of which:
- an estimated $397 million will be used to reimburse Metropolitan Life
Insurance Company for the crediting of policy credits to certain
policyholders in the demutualization in lieu of 28,331,484 allocated
shares of our common stock;
- an estimated $2,494 million will be used to reimburse Metropolitan Life
Insurance Company for cash payments to certain policyholders in the
demutualization in lieu of 178,166,475 allocated shares of our common
stock;
- an estimated $315 million will be used to reimburse Metropolitan Life
Insurance Company for cash payments to be made by its Canadian branch to
certain holders of policies included in its Canadian business sold to
Clarica Life Insurance Company in 1998. See "The
Demutualization -- Transferred Canadian Policies";
- an estimated $361 million to reimburse Metropolitan Life Insurance
Company for the payment of fees and expenses incurred in connection with
the demutualization; and
- an estimated $456 million will be used for general corporate purposes and
to repay up to $450 million of short-term debt incurred in connection
with our acquisition of GenAmerica.
We have reflected the amounts expected to be used to fund those policy
credits referred to above as an increase in future policy benefits and a
reduction of retained earnings in the pro forma consolidated balance sheet. We
have reflected the amounts we expect to use to make the cash payments referred
to above as a reduction in retained earnings in the pro forma consolidated
balance sheet.
In connection with the contribution of the net proceeds from the initial
public offering, the private placements and the offering of equity security
units to Metropolitan Life Insurance Company as described above, Metropolitan
Life Insurance Company expects to issue to MetLife, Inc. its $1 billion
% mandatorily convertible capital note due 2005 having the principal
terms described under "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital
Resources -- MetLife, Inc."
(3) Each unit in the unit offering consists of (a) a contract to purchase
shares of our common stock and (b) a % capital security of MetLife Capital
Trust I. Before the issuance of shares of our common stock upon settlement of
the purchase contracts, the units 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 earnings per share for
any period is deemed to be increased by the excess, if any, of the number of
shares issuable 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 that period, using the proceeds receivable upon settlement. Consequently,
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 $ per share.
(4) The pro forma consolidated balance sheet reflects estimated additional
nonrecurring expenses of $132 million (net of income taxes of $46 million)
related to the demutualization assumed to be incurred at the date of the pro
forma consolidated balance sheet. The pro forma consolidated statement of income
does not reflect such nonrecurring expenses since they will be reported as an
extraordinary item.
(5) Represents gross proceeds of $2,506 million from the issuance of
179,000,000 shares of our common stock at an assumed initial public offering
price of $14.00 per share, less an assumed underwriting discount and estimated
offering expenses aggregating $125 million, in the initial public offering.
48
<PAGE> 51
(6) Represents proceeds of $1,022 million from the issuance of 73,000,000
shares of our common stock at an assumed initial public offering price of $14.00
in the planned private placements.
(7) Represents gross proceeds of $1,000 million from the issuance of the
equity security units, less an assumed underwriting discount and estimated
offering expenses aggregating $40 million. The financial statements of the trust
will be consolidated in our consolidated financial statements, with the capital
securities shown on our consolidated balance sheet under the caption
"Company-obligated mandatorily redeemable securities of subsidiary trust holding
solely debentures of Parent". The proceeds from the units will be allocated to
the underlying purchase contracts and capital securities based on their relative
fair values at the offering date. For purposes of the pro forma consolidated
balance sheet, the fair value of the underlying purchase contracts and capital
securities was assumed to be $13 million and $947 million, respectively. The
forward contracts will be reported in additional paid-in capital and subsequent
changes in fair value will not be recognized. The notes to our consolidated
financial statements will disclose that the sole assets of the trust will be the
debentures. Distributions on the capital securities will be reported as a charge
to minority interest in our consolidated statements of income, whether paid or
accrued. The charge to other expenses in the pro forma consolidated statement of
income reflects distributions on the capital securities at an assumed rate of
7.60% ($76 million) and the accretion of the discount ($11 million) on the
carrying value of the Company-obligated mandatorily redeemable securities of
subsidiary trust holding solely debentures of Parent. The income tax benefit
related to such charges is $32 million.
(8) Represents the reclassification of the retained earnings of
Metropolitan Life Insurance Company to reflect the demutualization as follows:
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS)
---------------------
<S> <C>
Historical retained earnings............................. $14,100
Less proceeds of offerings used to fund policy credits
and cash payments to certain eligible policyholders.... 2,891
Less cash payments made by Metropolitan Life Insurance
Company's Canadian branch to certain holders of
policies included in its Canadian business sold to
Clarica Life Insurance Company. We will account for the
payments to the transferred Canadian policyholders in
other expenses in the same period as the effective date
of the plan of reorganization.......................... 315
Less additional demutualization expenses (net of income
taxes of $46 million).................................. 132
-------
Retained earnings related to eligible policyholders
receiving common stock................................. $10,762
=======
</TABLE>
(9) Represents the elimination of the surplus tax. As a stock life
insurance company, we will no longer be subject to the surplus tax after the
effective date of the plan.
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<PAGE> 52
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following analysis of the consolidated financial condition and results
of operations of MetLife should be read in conjunction with "Selected Financial
Information", the consolidated financial statements and notes thereto and "Pro
Forma Consolidated Financial Information" included elsewhere in this prospectus.
BACKGROUND
We are a leading provider of insurance and financial services to a broad
spectrum of individual and institutional customers. We offer insurance, annuity
and investment products to individuals and group insurance and retirement and
savings products and services to corporations and other institutions. We derive
our revenues principally from:
- premiums from individual and group insurance, including those annuities
that have a death benefit component;
- fees from universal and variable life insurance products, annuity,
investment products and administrative services contracts;
- premiums from property and casualty insurance;
- asset management fees; and
- net investment income and realized investment gains or losses on general
account assets.
Our operating expenses consist of insurance benefits, increases in
liabilities, interest credited on general account liabilities, marketing and
administrative costs relating to products we sell, including commissions to our
sales representatives, net of deferrals, and general business expenses. Our
profitability depends largely on the adequacy of our product pricing,
underwriting and methodology for the establishment of liabilities for future
policyholder benefits, our ability to earn appropriate spreads between earned
investment rates on general account assets and dividend and interest credited
rates to customers, the amount of assets under management and our ability to
manage our expenses.
We are organized into five major business segments: Individual Business,
Institutional Business, Asset Management, Auto & Home and International.
Subsequent to January 6, 2000, the date on which we acquired GenAmerica,
GenAmerica's businesses will be incorporated into our business segments as
applicable, except for RGA, which will be separately designated as our
Reinsurance segment. We also maintain a Corporate segment through which we
report items that are not directly allocable to any of our business segments,
including unallocated capital, income and expenses. We manage and allocate our
general account assets among our business segments through distinct portfolios
for each product group. Capital is allocated among each of our business segments
based on a percentage of the "risk-based capital" levels of the assets allocated
to the segments. RISK-BASED CAPITAL ("RBC") is a regulatory measure designed to
aid in the evaluation of the statutory capital and surplus of life and health
insurers. We also allocate net investment income to each business segment based
upon the assets allocated to the segment.
Sales of our insurance, annuity and investment products have been affected
by overall trends in the insurance industry generally, as Americans have begun
to rely less on traditional life insurance, defined benefit retirement plans,
social security and other government programs, and the "baby-boom" generation
has begun to enter its prime savings years. Reflecting these trends, as well as
the impact of a strong equities market in recent years, sales of our traditional
insurance products have declined in recent years, while sales of variable life
and annuities, mutual funds and other savings products have increased. During
the five years ended 1999, the separate account liabilities related to our
individual variable annuity products grew at a 38.2%
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<PAGE> 53
compound annual rate, and totaled $20.7 billion and $15.8 billion at December
31, 1999 and 1998, respectively. During the five years ended 1999, first-year
premiums and deposits from variable life insurance products grew at a compound
annual rate of 33.1% and were $389 million and $371 million for the years ended
December 31, 1999 and 1998, respectively.
In addition, as the U.S. employment market has become more competitive,
employers are seeking to enhance their ability to hire and retain employees by
providing attractive benefit plans. Current trends in the work environment also
reflect increasing concern of employees about the future of government-funded
retirement and "safety-net" programs, an increasingly mobile workforce and the
desire of employers to share the market risk from the investment of pension
assets with employees. We believe these trends are facilitating the introduction
of new benefits such as long-term care and auto and homeowners insurance, and
are leading more employers to adopt defined contribution pension arrangements
and 401(k) plans. A related trend has been the increased offering of voluntary
products, which provide valued benefits to employees at little or no cost to the
employer. These benefits, while paid for by employees, appeal to them because
they are generally priced at group rates and are usually paid for by payroll
deduction, making them convenient to purchase and maintain.
We enter into reinsurance agreements to spread the risk and minimize the
effect of losses. The amount of each risk retained by us depends on our
evaluation of the specific risk, subject, in certain circumstances, to maximum
limits based on characteristics of coverages. In recent periods, in response to
the reduced cost of reinsurance coverage, we have increased the amount of
MORTALITY risk coverage purchased from third party reinsurers. Since 1996, we
have continually entered into reinsurance agreements that CEDED substantially
all of the mortality risk on term insurance policies issued during 1996 and
subsequent years, and on whole life and survivorship whole life insurance
policies issued in 1997 and subsequent years. In 1998, we reinsured
substantially all of the mortality risk on universal life policies we issued
since 1983. We are continuing to reinsure substantially all of the mortality
risk on our universal life policies as well as insurance face amounts which are
above our retention limits. Generally, as a result of these transactions, we now
reinsure up to 90% of the mortality risk for all new individual insurance
policies that we write.
We also maintain and manage a significant amount of mortality risk,
including through our ownership of RGA, which retains mortality risk from many
insurers, including MetLife. Furthermore, many of our individual life products,
as well as some of our group insurance and annuity products, include elements of
mortality risk.
Our reinsurance agreements generally provide for payments to the reinsurers
for the risks transferred to them, reduced by reimbursements to us of our policy
issuance costs. The amounts presented in our consolidated statements of income
for revenues and policyholder benefits are net of amounts ceded to the
reinsurers. We report amounts reimbursed related to administrative costs for
maintaining policies covered under reinsurance agreements in other revenues.
Over the past three years, we have repositioned our investment portfolio in
order to provide a higher operating rate of return on our invested assets. In
connection with this strategy, we have reduced our investments in treasury
securities, corporate equities and equity real estate and increased our
investments in fixed maturities with a higher current operating yield.
We have selectively acquired and disposed of businesses during the past
several years as part of our business strategies and to enhance our overall
returns. We expanded the distribution channels of Individual Business in the
bank and broker-dealer distribution channels through the acquisitions of
Security First Group in 1997 and of Nathan & Lewis in 1998. We became a leading
provider of administrative services in the 401(k) market through the
acquisitions of Benefit Services Corporation and the defined contribution
record-keeping and participant services business formerly owned by Bankers Trust
Corporation. We sold our commercial finance subsidiary in 1998 because it was
not part of our core business strategy and disposed of a
51
<PAGE> 54
substantial portion of our insurance operations in the U.K. and Canada to exit
mature markets with little opportunity for growth. We expect to continue to make
selective acquisitions and dispositions that augment our business strategies.
On January 6, 2000, we acquired GenAmerica Corporation for $1.2 billion in
cash. In connection with our acquisition of the stock of GenAmerica, we incurred
$900 million of short-term debt, consisting primarily of commercial paper. We
intend to repay up to $450 million of that debt with proceeds from the offerings
and the private placements in excess of those amounts required under the plan.
In addition, we incurred approximately $3.2 billion of short-term debt,
consisting primarily of commercial paper, in connection with our exchange offer
to holders of General American Life funding agreements. On September 29, 1999,
MetLife Funding, Inc. and Metropolitan Life Insurance Company obtained an
additional committed credit facility for $5 billion, which serves as back-up for
this commercial paper. For a description of the acquisition and related
transactions, see "Business -- Acquisition of GenAmerica".
On September 30, 1999, our Auto & Home segment acquired the standard
personal lines property and casualty insurance operations of The St. Paul
Companies, which had in-force premiums of approximately $1.1 billion and
approximately 3,000 independent agencies and brokers. We funded this
acquisition, plus an additional investment in the business, with available cash
and the issuance of commercial paper. This acquisition substantially increased
the size of this segment's business, making us the eleventh largest personal
property and casualty insurer in the U.S. based on 1998 net premiums written.
In recent years, we have implemented programs to reduce operating expenses
and enhance the efficiency of our operations. For the year ended December 31,
1999, we reduced the number of non-sales positions by 1,856, or 7%. These
reductions are in addition to the elimination of 2,267, or 11%, of the non-sales
positions in 1998. In 1999, we began an internal reorganization to integrate the
operations of New England Financial, which since its merger with MetLife had
been operated as a separate division, with the individual insurance operations
of MetLife. The objective of this internal reorganization is to identify
opportunities to eliminate redundant processes and costs, while maintaining the
brand identities of our distribution channels and products.
THE DEMUTUALIZATION
Pursuant to the New York Insurance Law, the board of directors of
Metropolitan Life Insurance Company adopted the plan of reorganization on
September 28, 1999, and subsequently adopted amendments to the plan. On the date
the plan becomes effective, Metropolitan Life Insurance Company will convert
from a mutual life insurance company to a stock life insurance company and
become a wholly-owned subsidiary of MetLife, Inc. This process is commonly known
as a demutualization. We estimate that costs relating to the demutualization,
excluding costs relating to the offerings and the private placements, will total
$361 million, net of income taxes of $83 million. We have recorded
demutualization costs of $229 million, net of income taxes of $37 million,
through December 31, 1999. Demutualization expenses consist of our cost of
printing and mailing materials to policyholders and our aggregate cost of
engaging independent accounting, actuarial, compensation, financial, investment
banking and legal advisors and other consultants to advise us in the
demutualization process and related matters, as well as other administrative
costs. The New York Superintendent of Insurance has also engaged experts to
provide actuarial, investment banking, legal and auditing advice. Pursuant to
the New York Insurance Law, we must pay the fees and expenses of such
consultants, which fees and expenses are included in the above amounts. We have
also agreed to indemnify certain of our consultants and consultants to the New
York Superintendent against liabilities arising out of their engagements in
connection with the demutualization.
In addition, if Metropolitan Life Insurance Company demutualizes, we will
incur costs related to payments to certain holders of Canadian policies included
in the Canadian business sold by
52
<PAGE> 55
Metropolitan Life Insurance Company to Clarica Life Insurance Company in 1998.
See "The Demutualization -- Transferred Canadian Policies". These costs will be
charged to other expenses in the same period as the effective date of the plan.
The payments will be determined in a manner that is consistent with the
treatment of, and fair and equitable to, eligible policyholders of Metropolitan
Life Insurance Company. The amount to be paid to the holders of Canadian
policies is dependent upon the initial public offering price of our common
stock. Assuming an initial public offering price of $14.00 per share, and based
on calculations we have made regarding these payments, we estimate the aggregate
payments will be $315 million.
The plan of reorganization requires us to complete an initial public
offering of our common stock on the effective date of the plan. The plan also
permits us to complete one or more private placements and other specified
capital raising transactions on the effective date of the plan. Concurrently
with this offering, we expect to sell not less than 14,900,000 shares nor more
than 73,000,000 shares in the aggregate to Banco Santander Central Hispano, S.A.
and Credit Suisse Group or their respective affiliates in private placements. In
addition, we and a trust we own are offering 20,000,000 equity security units
for an aggregate offering of $1,000 million, plus up to an additional $150
million if the underwriters' options to purchase additional units are exercised
in full. Each unit consists of (a) a contract to purchase shares of our common
stock and (b) a capital security of MetLife Capital Trust I, a Delaware business
trust wholly-owned by us. For a description of the units see "Description of the
Equity Security Units". Under the plan of reorganization, the total proceeds
raised in the offering of units cannot exceed one-third of the combined proceeds
raised in that offering, the initial public offering of our common stock and the
private placements. The amount of proceeds from the offerings and the private
placements and final terms of the units will depend on market conditions and our
capital needs at the time of issuance. We cannot proceed with any offering
relating to the units and the private placements without the approval of the New
York Superintendent. The final terms of the initial public offering, the
offering of units and the private placements must be approved by the New York
Superintendent. We will be required to use the net proceeds from the initial
public offering, as well as the net proceeds from the offering of units and the
private placements, in the manner set forth under the caption "Use of Proceeds"
above.
The plan of reorganization requires that Metropolitan Life Insurance
Company establish and operate a closed block for the benefit of holders of
certain individual life insurance policies of Metropolitan Life Insurance
Company. We will allocate assets to the closed block in an amount that produces
cash flows which, together with anticipated revenue from the policies included
in the closed block, are reasonably expected to be sufficient to support
obligations and liabilities relating to these policies, including, but not
limited to, provisions for the payment of claims and certain expenses and taxes,
and to provide for the continuation of policyholder dividend scales in effect
for 1999, if the experience underlying such dividend scales continues, and for
appropriate adjustments in such scales if the experience changes. The closed
block assets, the cash flows generated by the closed block assets and the
anticipated revenue from the policies in the closed block will benefit only the
holders of the policies in the closed block. To the extent that, over time, cash
flows from the assets allocated to the closed block and claims and other
experience relating to the closed block are, in the aggregate, more or less
favorable than assumed in establishing the closed block, total dividends paid to
closed block policyholders in the future may be greater than or less than the
total dividends that would have been paid to these policyholders if the
policyholder dividend scales in effect for 1999 had been continued. Any cash
flows in excess of amounts assumed will be available for distribution over time
to closed block policyholders and will not be available to our stockholders. The
closed block will continue in effect as long as any policy in the closed block
remains in force. Its expected life is over 100 years.
We do not expect the closed block will affect our net income or our
liquidity after its establishment. We will use the same accounting principles to
account for the PARTICIPATING
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<PAGE> 56
POLICIES included in the closed block as we used prior to the date of
demutualization. However, we will establish a policyholder dividend obligation
for earnings that will be paid to policyholders as additional dividends in the
amounts described below, unless these earnings are offset by future unfavorable
experience of the closed block. The excess of closed block liabilities over
closed block assets at the effective date of the demutualization represents the
estimated maximum future contributions from the closed block expected to result
from operations attributed to the closed block after income taxes. We will
recognize the contributions from the closed block in income over the period the
policies and contracts in the closed block remain in force. Management believes
that over time the actual cumulative contributions from the closed block will
approximately equal the expected cumulative contributions, due to the effect of
dividend changes. If, over the period the closed block remains in existence, the
actual cumulative contribution from the closed block is greater than the
expected cumulative contribution from the closed block, we will recognize only
the expected cumulative contribution in income with the excess recorded as a
policyholder dividend obligation, because we will pay the excess of the actual
cumulative contribution from the closed block over the expected cumulative
contribution to closed block policyholders as additional policyholder dividends
unless offset by future unfavorable experience of the closed block. If over such
period, the actual cumulative contribution from the closed block is less than
the expected cumulative contribution from the closed block, we will recognize
only the actual contribution in income. However, we may change dividends in the
future, which would be intended to increase future actual contributions until
the actual cumulative contributions equal the expected cumulative contributions.
As required by law, the plan was approved by more than two-thirds of
eligible policyholders who voted in voting completed on February 7, 2000. The
plan of reorganization will not become effective unless, after conducting a
public hearing on the plan, the New York Superintendent of Insurance approves it
based on a finding, among other things, that the plan is fair and equitable to
policyholders. The New York Superintendent held a public hearing on the plan on
January 24, 2000.
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<PAGE> 57
RESULTS OF OPERATIONS
The following table presents summary consolidated financial information for
the periods indicated:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-----------------------------
1999 1998 1997
---- ---- ----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
REVENUES
Premiums.................................................... $12,088 $11,503 $11,278
Universal life and investment-type product policy fees...... 1,438 1,360 1,418
Net investment income....................................... 9,816 10,228 9,491
Other revenues.............................................. 2,154 1,994 1,491
Net realized investment gains (losses) (net of amounts
allocable to other accounts of $(67), $608 and $231,
respectively)............................................. (70) 2,021 787
------- ------- -------
25,426 27,106 24,465
------- ------- -------
EXPENSES
Policyholder benefits and claims (excludes amounts directly
related to net realized investment gains and losses of
$(21), $368 and $161, respectively)....................... 13,105 12,638 12,403
Interest credited to policyholder account balances.......... 2,441 2,711 2,878
Policyholder dividends...................................... 1,690 1,651 1,742
Other expenses (excludes amounts directly related to net
realized investment gains and losses of $(46), $240 and
$70, respectively)........................................ 6,755(1) 8,019(1) 5,771
------- ------- -------
23,991 25,019 22,794
------- ------- -------
Income before provision for income taxes and extraordinary
item...................................................... 1,435 2,087 1,671
Provision for income taxes.................................. 593 740 468
------- ------- -------
Income before extraordinary item............................ 842 1,347 1,203
Extraordinary item -- demutualization expense, net of income
tax of $35 and $2, respectively........................... 225 4 --
------- ------- -------
Net income.................................................. $ 617 $ 1,343 $ 1,203
======= ======= =======
</TABLE>
- ---------------
(1) Other expenses in 1999 includes a pre-tax charge of $499 million principally
related to the settlement of a multidistrict litigation proceeding involving
alleged improper sales practices, accruals for sales practices claims not
covered by the settlement and other legal costs. During 1998, we obtained
certain excess of loss reinsurance and excess insurance policies and
agreements providing coverage for risks associated primarily with sales
practices claims and claims for personal injuries caused by exposure to
asbestos or asbestos-containing products. In 1998, we recorded a pre-tax
charge of $1,895 million, included in other expenses, for related insurance
and reinsurance premiums and for potential liabilities related to certain of
these claims. See "Business -- Legal Proceedings".
YEAR ENDED DECEMBER 31, 1999 COMPARED WITH THE YEAR ENDED DECEMBER 31, 1998
Premiums increased by 5% to $12,088 million in 1999 from $11,503 million in
1998. This increase was attributable to strong growth in Institutional Business
of $366 million, or 7%, and Auto & Home of $348 million, or 25%. These increases
were partially offset by decreases in International of $95 million, or 15%, and
in Individual Business of $34 million, or 1%. Institutional Business' growth was
primarily driven by an increase in non-medical health premiums due to increased
sales and improved policyholder retention in our dental and disability
businesses. Auto & Home's premium increase was primarily due to the acquisition
of the standard personal lines property and casualty insurance operations of The
St. Paul Companies, representing $262
55
<PAGE> 58
million of the premiums, as well as growth in both standard and non-standard
auto insurance businesses. International's premium decrease was primarily due to
the disposition of a substantial portion of our Canadian operations in July
1998. The Individual Business decrease was primarily attributable to the decline
in sales of traditional life insurance policies, which reflected a continued
shift in customers' investment preferences from those policies to variable life
products as well as decreased sales of supplementary contracts with life
contingencies.
Universal life and investment-type product policy fees increased by 6% to
$1,438 million in 1999 from $1,360 million in 1998. This increase was
attributable to increases of $71 million, or 9%, in Individual Business and $27
million, or 6%, in Institutional. These increases were partially offset by a
decrease in International of $20 million, or 29%. The Individual Business policy
fee increase was primarily due to the continued growth in deposits for
investment products as well as stock market appreciation. The $27 million
increase in Institutional Business' policy fees was primarily due to continued
growth in sales of products used in executive and corporate-owned benefit plans.
The majority of International's policy fee decrease resulted from the sale of a
substantial portion of our Canadian operations.
Net investment income decreased by 4% to $9,816 million in 1999 from
$10,228 million in 1998. This decrease was primarily due to reductions in (i)
investment income related to mortgage loans on real estate of $93 million, or
6%, (ii) investment income on other invested assets of $340 million, or 40%,
(iii) equity securities income of $38 million, or 49%, (iv) policy loan income
of $47 million, or 12% and (v) real estate and real estate joint ventures
income, after investment expenses and depreciation, of $106 million, or 15%.
These reductions in net investment income were partially offset by higher income
from fixed maturities of $203 million, or 3%. The reduction in investment income
from mortgage loans on real estate to $1,479 million in 1999 from $1,572 million
in 1998 was due to a reduction in principal balances in MetLife Capital
Holdings, Inc. and a substantial portion of our Canadian operations, which were
sold in 1998, the proceeds from which were reinvested in fixed maturities.
Likewise, the increase in fixed maturity investment income to $6,766 million in
1999 from $6,563 million in 1998 was primarily attributable to increased average
principal balances due, in part, to the reinvestment of proceeds from the sale
of MetLife Capital Holdings, as well as from sales of equity securities, the
dispositions of which were part of our 1998 year-end asset repositioning
program. The reduction in investment income from other invested assets to $501
million in 1999 from $841 million in 1998 was due to a reduction in leveraged
lease balances as a result of the sale of MetLife Capital Holdings and lower
fees received from bond prepayments, calls and tenders. The reduction in real
estate and real estate joint ventures income was primarily attributable to the
timing of sales of investments held by our real estate joint ventures.
Other revenues, which are primarily comprised of expense reimbursements
from reinsurers and fees related to investment management and administrative
services and securities lending activities, increased by 8% to $2,154 million in
1999 from $1,994 million in 1998. This increase was primarily attributable to
growth of $84 million, or 18%, in Individual Business and $54 million, or 9%, in
Institutional Business. The Individual Business increase is primarily due to a
full year of activity from our acquisition of Nathan & Lewis, which was acquired
in April 1998. The increase in Institutional Business is due to increases in our
non-medical health and retirement and savings businesses, partially offset by a
decrease in our group life business. Our non-medical health business increased
$61 million primarily due to growth in our dental administrative service
business. The increase in our retirement and savings business of $44 million
reflected higher administrative fees derived from separate accounts and our
defined contribution record-keeping services. The decrease in the group life
business of $51 million was primarily due to lower income in 1999 related to
funds used to seed separate accounts.
Our realized investment gains and losses are net of related policyholder
amounts. The amounts netted against realized investment gains and losses are (i)
amortization of deferred policy acquisition costs attributable to the increase
or decrease in product gross margins or
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<PAGE> 59
profits resulting from realized investment gains and losses, (ii) additional
policyholder liabilities, which are required when investment gains are realized
and we reinvest the proceeds in lower yielding assets ("loss recognition"), and
(iii) liabilities for those participating contracts in which the policyholders'
accounts are increased or decreased by the related investment gains or losses.
Net realized investment gains (losses) decreased by 103% to $(70) million
in 1999 from $2,021 million in 1998. This decrease reflected total gross
realized investment losses of $(137) million, a decrease of 105%, from total
gross realized investment gains of $2,629 million in 1998, before the offsets
for the amortization of deferred policy acquisition costs of $46 million and
$(240) million, loss recognition of $0 million and $(272) million and credits to
participating contracts of $21 million and $(96) million related to assets sold
in 1999 and 1998, respectively. A significant portion of our net realized
investment gains in 1998 was attributable to a sales program initiated in the
fourth quarter of 1998, which we conducted as part of our strategy to reposition
our investment portfolio in order to provide a higher operating rate of return
on our invested assets. In connection with this repositioning, we reduced our
investments in treasury securities and corporate equities and increased our
investments in fixed maturities with a higher current yield. Net realized
investment losses in 1999 reflect the continuation of our strategy to reposition
our investment portfolio in order to provide a higher operating rate of return
on our invested assets.
We believe the policy of netting related policyholder amounts against
realized investment gains and losses provides important information in
evaluating our operating performance. Realized investment gains and losses are
often excluded by investors when evaluating the overall financial performance of
insurers. We believe our presentation enables readers of our consolidated
statements of income to easily exclude realized investment gains and losses and
the related effects on the consolidated statements of income when evaluating our
operating performance. Our presentation of realized investment gains and losses
net of related policyholder amounts may be different from the presentation used
by other insurance companies and, therefore, amounts in our consolidated
statements of income may not be comparable with amounts reported by other
insurers.
Policyholder benefits and claims increased by 4% to $13,105 million in 1999
from $12,638 million in 1998. This increase reflected total gross policyholder
benefits and claims of $13,084 million, an increase of $78 million from $13,006
million in 1998, before the offsets for loss recognition of $272 million in 1998
period (there were no offsets for loss recognition in 1999) and (reductions) in
or additions to participating contractholder accounts of $(21) million and $96
million directly related to net realized investment gains and losses for the
years ended December 31, 1999 and 1998, respectively. This increase was
primarily attributable to increases of $296 million, or 5%, in Institutional
Business and $272 million, or 26%, in Auto & Home, partially offset by a
decrease of $134 million, or 22%, in International. The Institutional Business
increase was primarily due to overall premium growth within our group dental and
disability businesses. The increase in Auto & Home was primarily due to the St.
Paul acquisition of $195 million, a 6% increase in the number of policies in
force and $23 million of unfavorable claims development due to lower than
expected savings resulting from the implementation of a new technology platform.
The decrease in International was attributable to the sale of a substantial
portion of our Canadian operations.
Interest credited to policyholder account balances decreased by 10% to
$2,441 million in 1999 from $2,711 million in 1998. This decrease was
attributable to reductions of $169 million, or 14%, in Institutional Business,
$64 million, or 4%, in Individual Business and $37 million, or 42%, in
International. Group Insurance in Institutional Business decreased $63 million,
or 14%, primarily due to cancellations in the leveraged corporate-owned life
insurance business attributable to a change in the federal income tax treatment
for those products. In addition, retirement and savings products declined by
$106 million, or 14%, which reflected a shift in policyholders'
57
<PAGE> 60
investment preferences from guaranteed interest products to separate account
alternatives. The decrease in Individual Business was due to a 1998 annuity
reinsurance transaction, as well as a shift in policyholders' preferences to
separate account alternatives. The International decrease was due to the sale of
a substantial portion of our Canadian operations.
Policyholder dividends increased by 2% to $1,690 million in 1999 from
$1,651 million in 1998. This increase was attributable to increases of $64
million, or 4%, in Individual Business and $17 million, or 12%, in Institutional
Business, which were somewhat offset by a $42 million, or 66%, decrease in
International. The increase in Individual Business was primarily due to growth
in cash values of policies associated with our large block of traditional life
insurance business combined with a dividend scale increase on certain mature
policies in 1999. Policyholder dividends within Institutional Business vary from
period to period based on participating group insurance contract experience. The
International decrease was due to the sale of a substantial portion of our
Canadian operations.
Other expenses decreased by 16% to $6,755 million in 1999 from $8,019
million in 1998. This decrease reflected total gross other expenses of $6,709
million, a decrease of 19%, from $8,259 million in 1998, before the offset for
amortization of deferred policy acquisition costs directly attributable to net
realized investment gains and losses of $(46) million and $240 million for the
years ended December 31, 1999 and 1998, respectively. Excluding the effect of
the pay down of debt with proceeds from the sale of MetLife Capital Holdings,
Inc. in 1998, other expenses decreased by $1,372 million. This decrease was
attributable to a $1,570 million, or 60%, decrease in Corporate. The decrease in
Corporate was primarily due to a $1,895 million charge in 1998 for sales
practices claims and claims for personal injuries caused by exposure to asbestos
or asbestos-containing products, compared with a $499 million charge in 1999.
The 1999 charge was principally related to the settlement of a multidistrict
litigation proceeding involving alleged improper sale practices, accruals for
sales practices claims not covered by the settlement and other legal costs. The
1998 charge of $1,895 million was comprised of $925 million and $970 million for
sales practices claims and asbestos-related claims, respectively. We recorded
the accrual for sales practices claims based on preliminary settlement
discussions and the settlement history of other insurers.
Prior to the fourth quarter of 1998, we established a liability for
asbestos-related claims based on settlement costs for claims that we had
settled, estimates of settlement costs for claims pending against us and an
estimate of settlement costs for unasserted claims. The amount for unasserted
claims was based on management's estimate of unasserted claims that would be
probable of assertion. A liability is not established for claims which we
believe are only reasonably possible of assertion. Based on this process, our
accrual for asbestos-related claims at December 31, 1997 was $386 million. Our
potential liabilities for asbestos-related claims are not easily quantified, due
to the nature of the allegations against us, which are not related to the
business of manufacturing, producing, distributing or selling asbestos or
asbestos-containing products, adding to the uncertainty in the number of claims
brought against us.
During 1998, we decided to pursue the purchase of insurance to limit our
exposure to asbestos-related claims. In connection with our negotiations with
the casualty insurers to obtain this insurance, we obtained information that
caused us to reassess our accruals for asbestos-related claims. This information
included:
- Information from the insurers regarding the asbestos-related claims
experience of other insureds, which indicated that the number of claims
that were probable of assertion against us in the future was
significantly greater than we had assumed in our accruals. The number of
claims brought against us is generally a reflection of the number of
asbestos-related claims brought against asbestos defendants generally and
the percentage of those claims in which we are included as a defendant.
The information provided to us relating to other insureds indicated that
we had been included as
58
<PAGE> 61
defendants for a significant percentage of total asbestos-related claims
and that we may be included in a larger percentage of claims in the
future, because of greater awareness of asbestos litigation generally by
potential plaintiffs and plaintiffs' lawyers and because of the
bankruptcy and reorganization or the exhaustion of insurance coverage of
other asbestos defendants; and that, although volatile, there was an
upward trend in the number of total claims brought against asbestos
defendants.
- Information derived from actuarial calculations we made in the fourth
quarter of 1998 in connection with these negotiations, which helped us to
frame, define and quantify this liability. These calculations were made
using, among other things, current information regarding our claims and
settlement experience (which reflected our decision to resolve an
increased number of these claims by settlement), recent and historic
claims and settlement experience of selected other companies and
information obtained from the insurers.
Based on this information, we concluded that certain claims that previously
were considered as only reasonably possible of assertion were now probable of
assertion, increasing the number of assumed claims to approximately three times
the number assumed in prior periods. As a result of this reassessment, we
increased our liability for asbestos-related claims to $1,278 million at
December 31, 1998.
During 1998, we paid $1,407 million of premiums for excess of loss
reinsurance and insurance policies and agreements, consisting of $529 million
for the excess of loss reinsurance agreements for sales practices claims and
excess mortality losses and $878 million for the excess insurance policies for
asbestos-related claims. The excess insurance policies for asbestos-related
claims provide for recovery of losses of up to $1,500 million, while the excess
of loss reinsurance policies provide for recovery of sales practices losses of
up to $550 million and for certain mortality losses with a maximum aggregate
limit of $650 million. We may recover amounts under the policies annually, with
respect to claims paid during the prior calendar year. The policies contain
self-insured retentions and, with respect to asbestos-related claims, annual and
per-claim sublimits, for which we believe adequate provision has been made in
our consolidated financial statements. For additional information regarding the
nature of these claims, see "Business -- Legal Proceedings" and Note 9 of Notes
to Consolidated Financial Statements.
In addition to the decrease in Corporate in 1999, other expenses reflected
a $104 million, or 30%, decrease in International, and increases of $128
million, or 33%, in Auto & Home and $142 million, or 6%, in Individual Business.
The International decrease was primarily due to the sale of a substantial
portion of our Canadian operations. The increase in Auto & Home was primarily
due to the St. Paul acquisition. The increase in Individual Business was
attributable to the net capitalization of deferred acquisition costs, as
discussed below. Excluding the net capitalization of deferred acquisition costs,
other expenses in Individual Business decreased by $81 million, or 3%. This
decrease is primarily attributable to cost reduction initiatives implemented in
1998.
Deferred acquisition costs are principally amortized in proportion to gross
margins or gross profits, including realized investment gains or losses. The
amortization is allocated to realized investment gains (losses) to provide
consolidated statement of income information regarding the impact of investment
gains and losses on the amount of the amortization, and other expenses to
provide amounts related to gross margins or profits originating from
transactions other than investment gains and losses.
Capitalization of deferred acquisition costs increased by 13% to $1,160
million in 1999 from $1,025 million in 1998, while amortization of such costs
decreased slightly to $816 million in 1999 from $827 million in 1998.
Amortization of deferred acquisition costs of $862 million and $587 million was
allocated to other expenses in 1999 and 1998, respectively, while the remainder
of the amortization in each year was allocated to realized investment gains
(losses). The increase in amortization of deferred acquisition costs allocated
to other expenses was primarily
59
<PAGE> 62
attributable to our Individual Business segment, which increased to $613 million
in 1999 from $364 million in 1998. This increase resulted from our reinsurance
of mortality risk at a cost that is expected to be less than our previously
estimated mortality losses in 1998, as well as refinements in our calculation of
estimated gross margins.
Income tax expense in 1999 was $593 million, or 41%, of income before
provision for income taxes and extraordinary item compared with $740 million, or
35%, in 1998. The 1999 effective tax rate differs from the corporate tax rate of
35% primarily due to the impact of surplus tax. We are subject to surplus tax
imposed on mutual life insurance companies under Section 809 of the Internal
Revenue Code. The surplus tax results from the disallowance of a portion of a
mutual life insurance company's policyholder dividends as a deduction from
taxable income. The surplus tax is estimated each year and adjusted the
following year based on actual industry experience. As a stock company, we will
no longer be subject to the surplus tax after the effective date of the
demutualization.
Demutualization expenses, net of income taxes, were $225 million in 1999.
These costs related to our ongoing demutualization efforts.
YEAR ENDED DECEMBER 31, 1998 COMPARED WITH THE YEAR ENDED DECEMBER 31, 1997
Premiums increased by 2% to $11,503 million in 1998 from $11,278 million in
1997. This increase was attributable to strong growth in Institutional Business
of $470 million, or 10%, and in Auto & Home of $49 million, or 4%. These
increases were partially offset by a decrease in International of $290 million,
or 32%. Institutional Business' premium growth was driven primarily by increases
in group life premiums. In addition, Institutional Business' group non-medical
health benefited from market share growth in dental products and services and
long-term care. Auto & Home's premium increase was primarily due to growth in
non-standard auto insurance policies. International's premium decrease was
primarily due to the dispositions of substantial portions of our U.K. operations
in October 1997 and of our Canadian operations in July 1998.
Universal life and investment-type product policy fees decreased by 4% to
$1,360 million in 1998 from $1,418 million in 1997. This decrease was
attributable to reductions of $69 million, or 50%, in International and $38
million, or 4%, in Individual Business. Substantially all of International's
policy fee decrease resulted from the divestitures of substantial portions of
our U.K. and Canadian operations. The Individual Business policy fee decrease
was primarily due to reinsurance treaties entered into during 1998, related to
$86 billion of universal life insurance in-force, which were offset in part by
continued growth of $75 million in annuities and investment products. These
decreases were also offset by a $49 million increase in Institutional Business
policy fees, due to an increase in sales of products used in executive and
corporate-owned benefit plans during 1998.
Net investment income increased by 8% to $10,228 million in 1998 from
$9,491 million in 1997, primarily due to higher other investment income of $473
million, or 129%, higher fixed maturities income of $118 million, or 2%,
improved real estate income after investment expenses and depreciation of $101
million and reduced investment expenses of $198 million. These increases in net
investment income were partially offset by reduced investment income in mortgage
loans on real estate of $112 million, or 7%, and other limited partnership
interests of $106 million, or 35%. The increase in other investment income to
$841 million in 1998 from $368 million in 1997 was principally due to a $289
million increase in revenue attributable to our securities lending program
resulting from the implementation of SFAS No. 125, Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities during 1998.
This increase was offset by a commensurate increase in other expenses. The
remainder of this increase was primarily due to higher fees we received as a
result of bond prepayments, calls and tenders, which reflected, in part,
declining interest rates in 1998. The increase in fixed maturity investment
income to $6,563 million in 1998 from $6,445 million in 1997 was primarily
attributable
60
<PAGE> 63
to increased principal balances due, in part, to the reinvestment of proceeds
from the sale of MetLife Capital Holdings, Inc. Likewise, the reduction in
investment income from mortgage loans on real estate to $1,572 million in 1998
from $1,684 million in 1997 was due to a reduction in principal balances in
MetLife Capital Holdings, Inc. and a substantial portion of our Canadian
operations, which were sold in 1998, the proceeds from which were reinvested in
fixed maturities. The real estate investment income improvement represents the
result of real estate expenses reducing more than real estate income in 1998,
the final leg of our sales program. Since the inception of our sales program in
1995, the average yield on our holdings of real estate has increased to 10.4% in
1998. Investment income from other limited partnership interests decreased to
$196 million in 1998 from $302 million in 1997. Income from other limited
partnership interests fluctuate from period to period due to the unpredictable
nature of realized gains from these partnerships.
Other revenues increased by 34% to $1,994 million in 1998 from $1,491
million in 1997. This increase was primarily attributable to growth of $218
million, or 61%, in Institutional Business, $136 million, or 40%, in Individual
Business and $135 million, or 20%, in Asset Management. The Institutional
Business increase was due to higher administrative fees of $70 million derived
from separate accounts, $56 million from our defined contribution plan
record-keeping services and $32 million from funds held on deposit related to a
reinsurance agreement entered into during 1997. Individual Business' increase
was due to the acquisition of Nathan & Lewis ($62 million of the increase),
additional commission and fee income associated with reinsurance treaties ($39
million of the increase) and growth in expense reimbursements from reinsurers
for administrative costs incurred related to policies covered under reinsurance
agreements ($13 million of the increase). The increase in Asset Management was
attributable to higher management and advisory fees related to growth in assets
managed.
Net realized investment gains increased by 157% to $2,021 million in 1998
from $787 million in 1997. This increase reflected total gross realized
investment gains of $2,629 million, an increase of 158%, from $1,018 million in
1997, before the offsets for the additional amortization of deferred acquisition
costs of $240 million and $70 million, loss recognition for the policy
liabilities of $272 million and $126 million and additional credits to
participating contracts of $96 million and $35 million related to the assets
sold in 1998 and 1997, respectively. The increase in gross realized investment
gains was primarily attributable to a sales program initiated in the fourth
quarter of 1998, which we conducted as part of our strategy of repositioning our
investment portfolio in order to provide a higher operating rate of return on
our invested assets. In connection with this repositioning, we reduced our
investments in treasury securities and corporate equities and increased our
investments in fixed maturities with a higher current yield. We sold
approximately $2.2 billion of corporate equities and reinvested these proceeds
into other fixed maturity securities, which provide a higher current return.
Realized investment gains from fixed maturity and equity securities were $1,567
million in 1998, a 358% increase from $342 million in 1997. Net realized
investment gains also increased by $392 million from the sales of MetLife
Capital Holdings, Inc. and a substantial portion of our Canadian operations
during 1998.
Policyholder benefits and claims increased by 2% to $12,638 million in 1998
from $12,403 million in 1997. This increase reflected total gross policyholder
benefits and claims of $13,006 million, an increase of 4%, from $12,564 million
in 1997, before the offsets for loss recognition of $272 million and $126
million and additions to participating contractholder accounts of $96 million
and $35 million directly related to net realized investment gains in 1998 and
1997, respectively. This increase was attributable to increases of $482 million,
or 8%, in Institutional Business partially offset by a decrease of $256 million
in International attributable to the U.K. and Canadian divestitures. The
Institutional Business increase was commensurate with the increase in
Institutional Business premiums of $470 million, and was also attributable to
less favorable experience on participating group insurance contracts, which were
offset by reduced dividends to those policyholders of $163 million.
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Interest credited to policyholder account balances decreased by 6% to
$2,711 million in 1998 from $2,878 million in 1997. This decrease was primarily
attributable to declines of $120 million, or 9%, in Institutional Business and
$48 million, or 35%, in International. Retirement and savings products in
Institutional Business declined by $186 million, or 20%, due to a shift in
customers' investment preferences from guaranteed interest products to separate
account alternatives and the continuation of the low interest rate environment.
The International decline was due to the divestitures of substantial portions of
our U.K. and Canadian operations.
Policyholder dividends decreased by 5% to $1,651 million in 1998 from
$1,742 million in 1997. This decrease was attributable to reductions of $163
million, or 53%, in Institutional Business and $33 million, or 34%, in
International. The Institutional Business decrease was due to less favorable
claims experience on participating group insurance contracts. The International
decrease was due to the U.K. and Canadian divestitures. These decreases were
partially offset by a $105 million, or 8%, increase in Individual Business,
primarily due to dividend increases from growth in cash values in policies
associated with our large block of traditional life insurance business, offset
by reductions in policyholder dividend scales.
Other expenses increased by 39% to $8,019 million in 1998 from $5,771
million in 1997. This increase reflected total gross other expenses of $8,259
million, an increase of 41%, from $5,841 million in 1997, before the offset for
accelerated amortization of deferred policy acquisition costs directly
attributable to net realized investment gains of $240 million and $70 million in
1998 and 1997, respectively. This increase was primarily attributable to a
charge of $1,895 million in 1998 for sales practices claims and claims for
personal injuries caused by exposure to asbestos, or asbestos-containing
products, compared with $300 million in 1997. These amounts have been charged to
the Corporate segment. In addition, the increase in other expenses in 1998
included $266 million resulting from a change in accounting for our securities
lending program. This increase related to our securities lending program, which
is reflected in the results of operations for each business segment, is
commensurate with a related increase in investment income. Expenses in
Institutional Business increased by $435 million, or 37%, due to higher
administrative expenses, the majority of which are reimbursed and are reflected
in other revenues, related to growth in our administrative service contracts
business as well as a full year's expenses attributable to our December 1997
acquisition of the defined contribution and participant services business from
Bankers Trust Corporation. Individual Business expenses increased by $183
million, or 8%, from 1997, primarily as a result of the acquisition of Nathan &
Lewis and the inclusion of a full year's activity from the October 1997
acquisition of Security First Group.
Capitalization of deferred acquisition costs increased slightly to $1,025
million in 1998 from $1,000 million in 1997 while amortization of such costs
decreased by 2% to $827 million in 1998 from $841 million in 1997. Amortization
of deferred acquisition costs of $587 million and $771 million was allocated to
other expenses in 1998 and 1997, respectively, while the remainder of the
amortization in each year was allocated to realized investment gains and losses.
The decrease in amortization of deferred acquisition costs allocated to other
expenses was primarily attributable to our individual business segment which
decreased to $364 million in 1998 from $546 million in 1997. Approximately $87
million of this decrease was attributable to higher than expected future
investment spreads on our traditional business and approximately $96 million of
this decrease was attributable to higher estimated gross margins which resulted
from the reinsurance of mortality risk at a cost that is expected to be less
than our previously estimated mortality losses.
Income tax expense in 1998 was $740 million, or 35%, of income before
provision for income taxes, discontinued operations and extraordinary item,
compared with $468 million, or 28%, of income before provision for income taxes,
discontinued operations and extraordinary item in 1997. The difference between
the 1998 and 1997 effective tax rates was primarily due to the impact of surplus
tax and, in 1997, taxes on sales of subsidiaries.
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Demutualization expenses, net of income taxes, were $4 million in 1998.
These costs related to our ongoing demutualization efforts.
INDIVIDUAL BUSINESS
The following table presents summary consolidated financial information for
Individual Business for the periods indicated:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
---------------------------
1999 1998 1997
---- ---- ----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
REVENUES
Premiums............................................... $ 4,289 $ 4,323 $ 4,327
Universal life and investment-type product policy
fees................................................. 888 817 855
Net investment income.................................. 5,346 5,480 4,754
Other revenues......................................... 558 474 338
Net realized investment gains (losses)................. (14) 659 356
------- ------- -------
11,067 11,753 10,630
------- ------- -------
EXPENSES
Policyholder benefits and claims....................... 4,625 4,606 4,597
Interest credited to policyholder account balances..... 1,359 1,423 1,422
Policyholder dividends................................. 1,509 1,445 1,340
Other expenses......................................... 2,719 2,577 2,394
------- ------- -------
10,212 10,051 9,753
------- ------- -------
Income before provision for income taxes............... 855 1,702 877
Provision for income taxes............................. 300 633 278
------- ------- -------
Net income............................................. $ 555 $ 1,069 $ 599
======= ======= =======
</TABLE>
YEAR ENDED DECEMBER 31, 1999 COMPARED WITH THE YEAR ENDED DECEMBER 31, 1998 --
INDIVIDUAL BUSINESS
Premiums decreased by $34 million, or 1%, to $4,289 million in 1999 from
$4,323 million in 1998. Premiums from insurance products decreased by $16
million to $4,215 million in 1999 from $4,231 million in 1998. This decrease was
primarily due to a decline in sales of traditional life insurance policies,
which reflected a continued shift in policyholders' preferences from those
policies to variable life products. Premiums from annuity and investment
products decreased by $18 million, or 20%, to $74 million in 1999 from $92
million in 1998, primarily due to lower sales of supplementary contracts with
life contingencies. The relatively high level of supplemental contract premiums
in 1998 reflected the initial offering of a payout annuity feature in that year.
Universal life and investment-type product policy fees increased by $71
million, or 9%, to $888 million in 1999 from $817 million in 1998. Policy fees
from insurance products increased by $3 million, or 1%, to $571 million in 1999
from $568 million in 1998. This increase is attributable to a $77 million
increase in separate account contract fees arising from increased sales of
variable life products. This increase was almost entirely offset by reinsurance
treaties entered into during 1998 related to $86 billion of universal life
insurance in-force, which constituted the majority of our mortality risk on
universal life business written subsequent to January 1, 1983. Policy fees from
annuity and investment products increased by $68 million, or 27%, to $317
million in 1999 from $249 million in 1998, primarily due to the continued growth
in deposits for investment products and stock market appreciation.
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<PAGE> 66
Other revenues increased by $84 million, or 18%, to $558 million in 1999
from $474 million in 1998. Other revenues for insurance products increased by
$85 million, or 19%, to $521 million in 1999 from $436 million in 1998. This
increase was primarily attributable to the inclusion of a full year's activity
of Nathan & Lewis, as well as increased commission and fee income associated
with increased sales of non-proprietary products. Other revenues for annuity and
investment products were essentially flat at $37 million in 1999 compared with
$38 million in 1998.
Policyholder benefits and claims increased by $19 million to $4,625 million
in 1999 from $4,606 million in 1998. Policyholder benefits and claims for
insurance products increased by $85 million, or 2%, to $4,450 million in 1999
from $4,365 million in 1998. This increase was primarily due to growth in our
existing block of traditional life policyholder liabilities. Policyholder
benefits and claims for annuity and investment products decreased by $66
million, or 27%, to $175 million in 1999 from $241 million in 1998 consistent
with the decreased premiums discussed above.
Interest credited to policyholder account balances decreased by $64
million, or 4%, to $1,359 million in 1999 from $1,423 million in 1998. Interest
on insurance products decreased by $18 million, or 4%, to $419 million in 1999
from $437 million in 1998. This decrease was primarily due to reduced crediting
rates on our universal life products. Interest on annuity and investment
products decreased by $46 million, or 5%, to $940 million in 1999 from $986
million in 1998. This decrease was due to a 1998 reinsurance transaction, a
shift in policyholders' preferences to separate account alternatives and reduced
crediting rates.
Policyholder dividends increased by $64 million, or 4%, to $1,509 million
in 1999 from $1,445 million in 1998. This increase was due to dividend increases
from growth in cash values of policies associated with our large block of
traditional individual life insurance business, combined with a dividend scale
increase in 1999.
Other expenses increased by $142 million, or 6%, to $2,719 million in 1999
from $2,577 million in 1998. Excluding the net capitalization of deferred
acquisition costs, other expenses decreased by $81 million, or 3%, to $2,888
million in 1999 from $2,969 million in 1998. Other expenses related to insurance
products decreased by $160 million, or 7%, to $2,239 million in 1999 from $2,399
million in 1998. This decrease was attributable to expense management
initiatives instituted in 1999 and an adjustment to the allocation of expenses
in 1999 between our insurance and annuity products to better match expenses to
the mix of our business. These decreases were partially offset by a $44 million
increase due to the inclusion of a full year's activity of Nathan & Lewis. Other
expenses related to annuity and investment products increased $79 million, or
14%, to $649 million in 1999 from $570 million in 1998, primarily due to the
adjustment of expenses noted above.
Deferred acquisition costs are principally amortized in proportion to gross
margins or gross profits, including realized investment gains or losses. The
amortization is allocated to realized investment gains (losses) to provide
consolidated statement of income information regarding the impact of investment
gains and losses on the amount of the amortization, and other expenses to
provide amounts related to gross margins or profits originating from
transactions other than investment gains and losses.
Capitalization of deferred acquisition costs increased to $782 million in
1999 from $756 million in 1998 while total amortization of such costs decreased
to $567 million in 1999 from $604 million in 1998. Amortization of deferred
acquisition costs of $613 million and $364 million was allocated to other
expenses in 1999 and 1998, respectively, while the remainder of the amortization
in each year was allocated to realized investment gains (losses). Amortization
of deferred acquisition costs allocated to other expenses related to insurance
products increased to $515 million in 1999 from $267 million in 1998
attributable to the reinsurance transaction discussed above and refinements in
our calculation of estimated gross margins. Amortization of annuity products
deferred acquisition costs allocated to other expenses remained essentially
unchanged at $98 million in 1999 compared with $97 million in 1998.
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<PAGE> 67
YEAR ENDED DECEMBER 31, 1998 COMPARED WITH THE YEAR ENDED DECEMBER 31, 1997 --
INDIVIDUAL BUSINESS
Premiums decreased slightly to $4,323 million in 1998 compared with $4,327
million in 1997. Premiums from insurance products decreased 1% to $4,231 million
in 1998 compared with $4,266 million in 1997. Higher premiums from insurance
riders, which permit the purchase of additional coverage, on our block of
traditional individual life insurance business was offset by declines in
premiums of traditional life insurance policies of $27 million, reflecting a
continued shift in customers' preferences from those policies to variable life
products. Premiums from annuities and investment products increased by $31
million, or 51%, to $92 million in 1998 from $61 million in 1997, primarily due
to an increase in the number of conversions from annuities to payout annuities
with life contingencies related to our traditional business.
Universal life and investment-type product policy fees decreased by 4% in
1998 to $817 million from $855 million in 1997. Policy fees from insurance
products decreased by $113 million, or 17%, to $568 million in 1998 from $681
million in 1997, primarily due to reinsurance treaties entered into during 1998
relating to $86 billion of universal life insurance in-force, constituting most
of our universal life business written subsequent to January 1, 1983. Excluding
the impact of the reinsurance treaties, policy fees from insurance products
increased by $47 million, or 7%, primarily due to an increase in insurance
coverages provided in 1998 compared with 1997. Policy fees from annuities and
investment products increased by $75 million, or 43%, to $249 million in 1998
from $174 million in 1997, due primarily to the growth in deposits for
tax-advantaged investment products as well as stock market appreciation.
Other revenues increased by 40% to $474 million in 1998 from $338 million
in 1997. Other revenues for insurance products increased by $127 million, or
41%, to $436 million in 1998 from $309 million in 1997. This increase was
primarily due to the acquisition of Nathan & Lewis, additional commission and
fee income associated with reinsurance treaties, and an increase in the expense
allowance under a reinsurance treaty involving term products resulting from an
increase in policies in-force covered by those treaties. Other revenues for
annuities and investment products increased by $9 million, or 31%, to $38
million in 1998 from $29 million in 1997, primarily due to the acquisition of
Security First Group in October 1997.
Policyholder benefits and claims increased slightly to $4,606 million in
1998 compared with $4,597 million in 1997. Policyholder benefits and claims for
insurance products decreased by $80 million, or 2%, to $4,365 million in 1998
from $4,445 million in 1997. This decrease was primarily due to an increase in
claims ceded of $131 million under the universal life reinsurance treaties
discussed above offset by the acquisition of Nathan & Lewis. Policyholder
benefits and claims for annuity and investment products increased by $89
million, or 59%, to $241 million in 1998 from $152 million in 1997, primarily
due to the increase in premiums described above.
Interest credited to policyholder account balances increased slightly to
$1,423 million in 1998 compared with $1,422 million in 1997. Interest on
insurance products increased by $8 million, or 2%, to $437 million in 1998 from
$429 million in 1997, primarily due to an increase in policyholder account
balances. Interest on annuities and investment products decreased slightly to
$986 million in 1998 compared with $993 million in 1997, primarily due to a
reduction in crediting rates attributable to the declining general interest rate
environment. This decrease was offset by the inclusion of a full year's activity
of $94 million related to Security First Group, which was acquired in October
1997.
Policyholder dividends increased by 8% to $1,445 million in 1998 from
$1,340 million in 1997, primarily due to dividend increases from growth in cash
values in policies associated with our large block of traditional individual
life insurance business, offset by reductions in dividend scales.
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<PAGE> 68
Other expenses increased by 8% to $2,577 million in 1998 from $2,394
million in 1997. Excluding the net capitalization of deferred acquisition costs,
other expenses increased by 13% to $2,969 million in 1998 from $2,624 million in
1997. Other expenses related to insurance products increased by $158 million, or
7%, to $2,399 million in 1998 from $2,241 million in 1997, primarily due to the
acquisition of Nathan & Lewis and higher non-field and sales office expenses.
Other expenses related to annuity and investment products increased by $187
million, or 49%, to $570 million in 1998 from $383 million in 1997, $94 million
of which was due to the inclusion of a full year's activity from Security First
Group. The remaining variance was due to higher general and administrative
expenses commensurate with the growth in our businesses.
Capitalization of deferred acquisition costs decreased to $756 million in
1998 from $776 million in 1997 and amortization of such costs was essentially
unchanged at $604 million in 1998 from $607 million in 1997. Amortization of
deferred acquisition costs of $364 million and $546 million was allocated to
other expenses in 1998 and 1997, respectively, while the remainder of the
amortization in each year was allocated to realized investment gains and losses.
Amortization of deferred acquisition costs allocated to other expenses related
to insurance products decreased to $267 million in 1998 from $455 million in
1997. Approximately $87 million of this decrease was attributable to higher than
expected future investment spreads on our traditional business and approximately
$96 million of this decrease was attributable to higher estimated gross margins
resulting from the reinsurance of mortality risk at a cost that is expected to
be less than our previously estimated mortality losses. Amortization of deferred
acquisition costs allocated to other expenses related to annuity products
increased in 1998 to $97 million from $91 million in 1997, reflecting growth in
the business.
INSTITUTIONAL BUSINESS
The following table presents summary consolidated financial information for
Institutional Business for the periods as indicated:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
--------------------------
1999 1998 1997
---- ---- ----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
REVENUES
Premiums................................................. $ 5,525 $ 5,159 $4,689
Universal life and investment-type product policy fees... 502 475 426
Net investment income.................................... 3,755 3,885 3,754
Other revenues........................................... 629 575 357
Net realized investment gains (losses)................... (31) 557 45
------- ------- ------
10,380 10,651 9,271
------- ------- ------
EXPENSES
Policyholder benefits and claims......................... 6,712 6,416 5,934
Interest credited to policyholder account balances....... 1,030 1,199 1,319
Policyholder dividends................................... 159 142 305
Other expenses........................................... 1,589 1,613 1,178
------- ------- ------
9,490 9,370 8,736
------- ------- ------
Income before provision for income taxes................. 890 1,281 535
Provision for income taxes............................... 323 435 196
------- ------- ------
Net income............................................... $ 567 $ 846 $ 339
======= ======= ======
</TABLE>
YEAR ENDED DECEMBER 31, 1999 COMPARED WITH THE YEAR ENDED DECEMBER 31, 1998 --
INSTITUTIONAL BUSINESS
Premiums increased by 7% to $5,525 million in 1999 from $5,159 million in
1998. Group insurance premiums increased by $478 million, or 10%, to $5,095
million in 1999 from
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<PAGE> 69
$4,617 million in 1998. This increase was mainly attributable to strong sales
and improved policyholder retention in non-medical health, primarily our dental
and disability businesses. Retirement and savings premiums decreased by $112
million, or 21%, to $430 million in 1999 from $542 million in 1998, primarily
due to premiums received from several large existing customers in 1998.
Universal life and investment-type product policy fees increased by 6%, to
$502 million in 1999 from $475 million in 1998. This increase reflected the
continued growth in the sale of products used in executive and corporate-owned
benefit plans due to the continued favorable tax status associated with these
products.
Other revenues increased by 9% to $629 million in 1999 from $575 million in
1998. Group life decreased by $51 million, or 77%, to $15 million in 1999 from
$66 million in 1998. This decrease was primarily due to lower income in 1999
related to funds used to seed separate accounts. Non-medical health increased by
$61 million, or 27%, to $287 million in 1999 from $226 million in 1998. This
increase was primarily due to growth in our dental administrative service
business. Retirement and savings increased by $44 million, or 16%, to $327
million in 1999 from $283 million in 1998. This increase reflected higher
administrative fees derived from separate accounts and our defined contribution
record-keeping services. In addition, the 1999 results reflected interest on
funds held on deposit related to a reinsurance transaction entered into during
December 1998.
Policyholder benefits and claims increased by 5% to $6,712 million in 1999
from $6,416 million in 1998. Group insurance increased by $362 million, or 8%,
to $4,857 million in 1999 from $4,495 million in 1998. This increase was
primarily due to overall growth and is comparable to the growth in premiums
discussed above. Retirement and savings decreased by $66 million, or 3%, to
$1,855 million in 1999 from $1,921 million in 1998. The decrease was
commensurate with the premium variance discussed above, partially offset by an
increase in liabilities associated with the continued accumulation of interest
on liabilities related to our large block of non-participating annuity business.
Interest credited to policyholder account balances decreased by 14% to
$1,030 million in 1999 from $1,199 million in 1998. Group insurance decreased by
$63 million, or 14%, to $398 million in 1999 from $461 million in 1998. This
decrease was primarily due to cancellations in our leveraged corporate-owned
life insurance business attributable to a change in the federal income tax
treatment for these products. Retirement and savings decreased by $106 million,
or 14%, to $632 million in 1999 from $738 million in 1998 due to a shift in
customers' investment preferences from guaranteed interest products to separate
account alternatives and the continuation of the low interest rate environment.
Policyholder dividends increased by 12% to $159 million in 1999 from $142
million in 1998. Non-medical health increased by $26 million to $27 million in
1999. Group life and retirement and savings decreased $9 million, or 6%, to $132
million in 1999 from $141 million in 1998. Policyholder dividends vary from
period to period based on participating group insurance contract experience.
Other expenses decreased by 1% to $1,589 million in 1999 from $1,613
million in 1998. Other expenses related to group life decreased by $14 million,
or 4%, to $382 million in 1999 from $396 million in 1998. Other expenses related
to non-medical health decreased by $18 million, or 3%, to $673 million in 1999
from $691 million in 1998. These decreases were primarily attributable to
reductions in non-sales positions and operational efficiencies. Other expenses
related to retirement and savings products increased by $8 million, or 2%, to
$534 million in 1999 from $526 million in 1998. This increase was due to higher
interest expense of $47 million primarily due to commercial paper issued in
connection with amounts placed on deposit related to a 1998 reinsurance
transaction and a $15 million increase in volume-related expenses, including
premium taxes, separate account investment management expenses and commissions.
These
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<PAGE> 70
increases were partially offset by a $54 million decrease due to reductions in
non-sales positions and other administrative expenses.
YEAR ENDED DECEMBER 31, 1998 COMPARED WITH THE YEAR ENDED DECEMBER 31, 1997 --
INSTITUTIONAL BUSINESS
Premiums increased by 10% in 1998 to $5,159 million from $4,689 million in
1997. Group insurance premiums increased by $385 million, or 9%, in 1998 to
$4,617 million from $4,232 million in 1997. Group life premiums increased by
$153 million, or 5%, to $3,274 million in 1998 from $3,121 million in 1997.
Group non-medical health premiums increased by $232 million, or 21%, to $1,343
million in 1998 from $1,111 million in 1997, due primarily to market share
growth in our dental and long-term care businesses resulting from our expanding
network of dentists and our appointment as of January 1, 1998 by the American
Association of Retired Persons ("AARP") to offer long-term care products to its
members and the effect of a full year's results related to a disability block of
business acquired in late 1997. Retirement and savings premiums increased by $85
million, or 19%, to $542 million in 1998 from $457 million in 1997, due
primarily to premiums received from one large existing customer.
Universal life and investment-type product policy fees increased by 12% in
1998 to $475 million from $426 million in 1997. This increase reflected the
growth in the sale of products used in executive and corporate-owned benefit
plans during 1998.
Other revenues increased by 61% in 1998 to $575 million from $357 million
in 1997. Other revenues from group insurance increased by $75 million, or 35%,
to $292 million in 1998 from $217 million in 1997. This increase was primarily
attributable to increased administrative fee income from significant growth in
insurance contracts having separate account features, the largest being the
in-force AARP block of long-term care business. Other revenues from retirement
and savings products increased by $143 million, or 102%, to $283 million in 1998
from $140 million in 1997. This gain reflected increased administrative fees
derived from separate accounts of $21 million and $56 million related to our
defined contribution record-keeping services. The December 1997 acquisition of
the defined contribution record-keeping and participant services business from
Bankers Trust Corporation accounted for the majority of the growth in our
administrative service fee income during 1998. In addition, the 1998 results
reflected an increase of $32 million related to the full-year interest on funds
held on deposit related to a reinsurance transaction entered into during
December 1997.
Policyholder benefits and claims increased by 8% to $6,416 million in 1998
from $5,934 million in 1997. Group insurance increased by $469 million, or 12%,
to $4,495 million in 1998 from $4,026 million in 1997. This increase reflected
an overall growth in the business and less favorable experience on participating
group insurance contracts, and an increase of $20 million related to a full
year's results from a disability block of business acquired in late 1997, which
is partially offset by reduced dividends of $161 million. Retirement and savings
increased slightly to $1,921 million in 1998 compared with $1,908 million in
1997 primarily due to the ongoing accumulation of interest related to our large
block of non-participating annuity business.
Interest credited to policyholder account balances decreased by 9% to
$1,199 million in 1998 from $1,319 million in 1997. Interest on group insurance
products increased by $66 million, or 17%, to $461 million in 1998 from $395
million in 1997, primarily due to growth in deposits for tax-advantaged
investment products. Interest on retirement and savings products decreased by
$186 million, or 20%, to $738 million in 1998 from $924 million in 1997 due to a
shift in customers' investment preferences from guaranteed interest products to
separate account alternatives.
Policyholder dividends decreased by 53% to $142 million in 1998 from $305
million in 1997. These dividends vary from period to period based on the claims
experience of participating group insurance contracts.
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<PAGE> 71
Other expenses increased by 37% to $1,613 million in 1998 from $1,178
million in 1997. Other expenses related to group insurance increased by $204
million, or 23%, to $1,087 million in 1998 from $883 million in 1997. The
primary causes of this increase were higher premium taxes and sales commissions
related to premium growth; costs incurred in connection with various strategic
initiatives, which were intended to expand our penetration of the small and
medium case institutional markets; and costs incurred in connection with
initiatives that focused on improving our service delivery capabilities through
investments in technology. Group insurance also experienced an increase in
administrative expenses, the majority of which are reimbursed, as a result of
the AARP business. Other expenses related to retirement and savings products
increased by $231 million, or 78%, to $526 million in 1998 from $295 million in
1997. This increase was due to $45 million of ongoing expenses attributable to
the acquisition of the defined contribution record-keeping and participant
services business of Bankers Trust Corporation and a change in the presentation
of expenses relating to our securities lending program in 1998 of $65 million.
In addition, the increase of cash flows into separate accounts resulted in
higher investment management and other administrative expenses.
ASSET MANAGEMENT
The following table presents summary consolidated financial information for
Asset Management for the periods indicated:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-----------------------
1999 1998 1997
---- ---- ----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
REVENUES
Net investment income....................................... $ 80 $ 75 $ 78
Other revenues.............................................. 803 817 682
---- ---- ----
883 892 760
OTHER EXPENSES.............................................. 741 740 629
---- ---- ----
Income before provision for income taxes and minority
interest.................................................. 142 152 131
Provision for income taxes.................................. 37 44 36
Minority interest........................................... 54 59 50
---- ---- ----
Net income.................................................. $ 51 $ 49 $ 45
==== ==== ====
</TABLE>
YEAR ENDED DECEMBER 31, 1999 COMPARED WITH THE YEAR ENDED DECEMBER 31, 1998 --
ASSET MANAGEMENT
Other revenues, which are primarily comprised of management and advisory
fees, decreased by $14 million, or 2%, to $803 million in 1999 from $817 million
in 1998, reflecting an overall decrease in assets under management of $1
billion, or 1%, to $190 billion in 1999 from $191 billion in 1998. This decrease
in assets was primarily attributable to a reduction in assets under management
in value-style products. Management and advisory fees are typically calculated
based on a percentage of assets under management, and are not necessarily
proportionate to average assets managed due to changes in account mix.
Other expenses were essentially unchanged in 1999 from 1998. Total
compensation and benefits of $424 million consisted of approximately 53% base
compensation and 47% variable compensation. Base compensation increased by $10
million, or 5%, to $225 million in 1999 from $215 million in 1998, primarily due
to annual salary increases and higher staffing levels. Variable compensation
decreased by $15 million, or 7%, to $199 million in 1999 from $214 million in
1998. Variable incentive payments are based upon profitability, investment
portfolio performance, new business sales and growth in revenues and profits.
The variable compensation plans reward the
69
<PAGE> 72
employees for growth in their businesses, but also require them to share in the
impact of any declines. In addition, general and administrative expenses
increased $6 million, or 2%, to $317 million in 1999 from $311 million in 1998,
primarily due to increased discretionary spending.
Minority interest, reflecting the value of third-party ownership interests
in Nvest, decreased by $5 million, or 9%, to $54 million in 1999 from $59
million in 1998.
YEAR ENDED DECEMBER 31, 1998 COMPARED WITH THE YEAR ENDED DECEMBER 31, 1997 --
ASSET MANAGEMENT
Other revenues, which are primarily comprised of management and advisory
fees, increased by 20% to $817 million in 1998 from $682 million in 1997.
Management and advisory fees are typically calculated based on a percentage of
assets under management, which increased by $16 billion, or 9%, to $191 billion
in 1998 from $175 billion in 1997. This increase was mainly attributable to net
cash inflows to customers' accounts of $5 billion and overall market
appreciation of $11 billion during 1998. Management and advisory fees earned are
not necessarily proportionate to average assets managed due to changes in
account mix.
Other expenses increased by 18% to $740 million in 1998 from $629 million
in 1997. This increase was primarily due to increases in compensation and
benefits of $62 million, or 17%, and general and administrative expenses of $49
million, or 19%. Compensation and benefits of $429 million consisted of 50% base
compensation and 50% variable compensation. Base compensation increased by $31
million, or 17%, to $215 million in 1998 from $184 million in 1997, primarily
due to annual salary increases and higher staffing. Variable compensation
increased by $31 million, or 17%, to $214 million in 1998 from $183 million in
1997, due to increased incentive payments based on profitability, investment
portfolio performance, new business sales and growth in revenues and profits.
General and administrative expenses increased by $49 million, or 19%, to $311
million in 1998 from $262 million in 1997, due to expanded business activities
and distribution and marketing initiatives.
Minority interest increased by $9 million, or 18%, to $59 million in 1998
from $50 million in 1997.
AUTO & HOME
The following table presents summary consolidated financial information for
Auto & Home for the periods indicated:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
------------------------
1999 1998 1997
---- ---- ----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
REVENUES
Premiums................................................. $1,751 $1,403 $1,354
Net investment income.................................... 103 81 71
Other revenues........................................... 21 36 25
Net realized investment gains............................ 1 122 9
------ ------ ------
1,876 1,642 1,459
------ ------ ------
EXPENSES
Policyholder benefits and claims......................... 1,301 1,029 1,003
Other expenses........................................... 514 386 351
------ ------ ------
1,815 1,415 1,354
------ ------ ------
Income before provision for income taxes................. 61 227 105
Provision for income taxes............................... 5 66 31
------ ------ ------
Net income............................................... $ 56 $ 161 $ 74
====== ====== ======
</TABLE>
70
<PAGE> 73
YEAR ENDED DECEMBER 31, 1999 COMPARED WITH THE YEAR ENDED DECEMBER 31,
1998 -- AUTO & HOME
Premiums increased by 25% to $1,751 million in 1999 from $1,403 million in
1998 primarily due to the St. Paul acquisition. Excluding the impact of the St.
Paul acquisition, premiums increased $88 million, or 6%. Auto premiums increased
by $54 million, or 5%, to $1,218 million in 1999 from $1,164 million in 1998.
This increase was due to growth in both our standard and non-standard auto
insurance books of business. "Non-standard" auto insurance is insurance for
risks bearing higher loss experience or loss potential than risks covered by
standard auto insurance policies. In addition, the standard auto policyholder
retention increased 1% to 88%. Homeowner premiums increased by $30 million, or
13%, to $255 million in 1999 from $225 million in 1998 due to higher new
business production, an average premium increase of 1% and increased
policyholder retention to 90% in 1999 from 89% in 1998. Premiums from other
personal lines increased to $18 million in 1999 from $14 million in 1998.
Other revenues decreased by 42% to $21 million in 1999 from $36 million in
1998. This decrease was primarily attributable to a decrease in payments
resulting from experience-related adjustments under a reinsurance agreement
related to the disposition of our reinsurance business in 1990.
Expenses increased by 28% to $1,815 million in 1999 from $1,415 million in
1998. This resulted in an increase in the COMBINED RATIO to 103.7% in 1999 from
100.8% in 1998. Excluding the impact of the St. Paul acquisition, expenses
increased by $116 million, or 8%, which resulted in an increase in the combined
ratio to 102.8% in 1999 from 100.8% in 1998. This increase was primarily due to
higher overall loss costs in the auto and homeowners line as discussed below. In
addition, both lines experienced modestly elevated acquisition expenses due to
increased levels of new business premiums.
Policyholder benefits and claims increased by 26% to $1,301 million in 1999
from $1,029 million in 1998. Correspondingly, the auto and homeowners loss
ratios increased to 76.1% from 74.9% and to 67.2% from 65.0% in 1999 and 1998,
respectively. Excluding the impact of the St. Paul acquisition, policyholder
benefits and claims increased by $85 million, or 8%. Auto policyholder benefits
and claims increased by $67 million, or 8%, to $939 million in 1999 from $872
million in 1998, due to a 6% increase in the number of policies in force and $23
million of unfavorable claims development due to lower than expected savings
resulting from the implementation of a new technology platform. Correspondingly,
the AUTO LOSS RATIO increased to 77.1% in 1999 from 74.9% in 1998. Homeowners
benefits and claims increased $17 million, or 12%, to $163 million in 1999 from
$146 million in 1998 due to increased volume of this book of business. The
homeowners loss ratio decreased by 0.6% to 64.4% in 1999 from 65.0% in 1998.
Other personal lines benefits and claims increased by $1 million to $12 million
in 1999 from $11 million in 1998.
Other expenses increased by 33% to $514 million in 1999 from $386 million
in 1998, which resulted in an increase in our EXPENSE RATIO to 29.3% in 1999
from 27.4% in 1998. Excluding the impact of the St. Paul acquisition, operating
expenses increased $31 million, or 8%, resulting in an increase in our expense
ratio to 27.9% in 1999 from 27.4% in 1998. This increase was primarily due to
$10 million in additional administration expenses and $23 million in new
business acquisition expenses, which were partially offset by a reduction in
employee-related expenses.
YEAR ENDED DECEMBER 31, 1998 COMPARED WITH THE YEAR ENDED DECEMBER 31, 1997 --
AUTO & HOME
Premiums increased by 4% in 1998 to $1,403 million from $1,354 million in
1997. Auto premiums increased by $41 million, or 4%, to $1,164 million in 1998
from $1,123 million in 1997. This increase was caused by continued growth in
premiums from our non-standard auto insurance book of business. In addition, our
overall auto policyholder retention increased to 87%
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<PAGE> 74
from 86%. These increases were offset in part by a mandated rate decrease for
standard auto insurance of $9 million, or 4%, in 1998 in Massachusetts, which
comprised 19% of our total auto premiums in both 1998 and 1997. Homeowners
premiums increased by $8 million, or 4%, to $225 million in 1998 from $217
million in 1997. This increase was attributable to contractual inflationary
adjustments of 2% and an average rate increase of 3% in 1998, which outpaced a
1% decline in the number of policies in force. This decline in the number of
policies in force, which occurred in states having greater exposure to severe
hurricanes, reflects our continued efforts to reduce catastrophe losses.
Premiums from other personal lines were stable at $14 million in both 1998 and
1997.
Other revenues increased by 44% to $36 million in 1998 from $25 million in
1997. This increase was primarily attributable to an increase of payments to us
resulting from experience-related adjustments under a reinsurance agreement
related to the disposition of our reinsurance business in 1990.
Expenses increased by 5% to $1,415 million in 1998 from $1,354 million in
1997, primarily due to higher catastrophe-related policyholder benefits and
claims of $35 million, resulting in our combined ratio increasing to 100.8% in
1998 from 99.9% in 1997. The remaining increase in expenses was more than offset
by higher net earned premiums, resulting in our combined ratio, excluding
catastrophes, decreasing to 96.8% in 1998 from 98.6% in 1997.
Policyholder benefits and claims increased by 3% to $1,029 million in 1998
from $1,003 million in 1997. Excluding catastrophes, auto policyholder benefits
and claims decreased slightly to $857 million in 1998 compared with $864 million
in 1997. Correspondingly, our auto loss ratio decreased to 74.9% in 1998
compared with 77.1% in 1997. These decreases reflect our ongoing efforts to
improve the claims adjusting process through technological efficiencies and
heightened fraud detection efforts. While the impact of severe weather on auto
has historically been low, our auto catastrophe ratio increased to 1.3% of net
earned premiums in 1998 compared with 0.2% in 1997, due primarily to Midwestern
hail storms. Excluding catastrophes, homeowners policyholder benefits and claims
decreased to $104 million in 1998 from $116 million in 1997 and our loss ratio
decreased to 46.5% in 1998 from 53.6% in 1997. These decreases reflect changes
in our underwriting practices, physical reinspections of selected in-force
policies and the use of credit report data for selecting new risks and for
reunderwriting at the time of renewal. Reinsurance costs decreased by $5
million, or 23%, to $17 million in 1998 from $22 million in 1997, reflecting the
continuing reduction in our exposure to hurricanes and the current competitive
pricing environment within the reinsurance market. Homeowners' catastrophes
increased by $26 million to $41 million in 1998 from $15 million in 1997,
reflecting Midwestern hail storms and spring storms in the southeast. The
property and casualty industry as a whole experienced a more typical amount of
losses resulting from events classified as catastrophes in 1998 and a lower than
average amount of losses in 1997. Other personal lines increased by $9 million
to $12 million in 1998 from $3 million in 1997, due to an above average number
of new claims.
Other expenses increased by 10% to $386 million in 1998 from $351 million
in 1997. Other expenses related to auto insurance increased by $27 million, or
10%, to $305 million in 1998 from $278 million in 1997, primarily due to higher
general and administrative expenses which resulted in an increase in our expense
ratio to 27.4% in 1998 from 25.9% in 1997. Other expenses related to homeowners
insurance and other personal lines increased $8 million, or 11%, to $81 million
in 1998 from $73 million in 1997, primarily due to increased administrative
expenses and new business acquisition expenses.
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INTERNATIONAL
The following table presents summary consolidated financial information for
International for the periods indicated:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
----------------------
1999 1998 1997
---- ---- ----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
REVENUES
Premiums................................................... $523 $ 618 $ 908
Universal life and investment-type product policy fees..... 48 68 137
Net investment income...................................... 206 343 504
Other revenues............................................. 12 33 54
Net realized investment gains.............................. 1 117 142
---- ------ ------
790 1,179 1,745
---- ------ ------
EXPENSES
Policyholder benefits and claims........................... 463 597 869
Interest credited to policyholder account balances......... 52 89 137
Policyholder dividends..................................... 22 64 97
Other expenses............................................. 248 352 497
---- ------ ------
785 1,102 1,600
---- ------ ------
Income before provision (benefit) for income taxes......... 5 77 145
Provision (benefit) for income taxes....................... (16) 21 19
---- ------ ------
Net income................................................. $ 21 $ 56 $ 126
==== ====== ======
</TABLE>
YEAR ENDED DECEMBER 31, 1999 COMPARED WITH THE YEAR ENDED DECEMBER 31, 1998 --
INTERNATIONAL
Premiums decreased by 15% to $523 million in 1999 from $618 million in
1998, primarily due to the disposition of a substantial portion of our Canadian
operations. Excluding the impact of this sale, premiums increased by $109
million, or 26%, to $523 million from $414 million. Argentina's premiums
increased $11 million primarily due to expanded business operations. Korea's and
Taiwan's premiums increased $24 and $39 million, respectively, due to improved
economic environments. Spain's premiums increased $24 million primarily due to
increased sales from our joint venture partnership.
Universal life and investment type-product policy fees decreased by 29% to
$48 million in 1999 from $68 million in 1998. Excluding the impact of the
Canadian divestiture, universal life and investment type-product policy fees
increased by $2 million, or 4%, to $48 million in 1999 from $46 million in 1998,
primarily due to expanded business operations in Argentina.
Other revenues decreased by 64% to $12 million in 1999 from $33 million in
1998. Excluding the impact of the Canadian divestiture, other revenues increased
slightly to $12 million in 1999 from $10 million in 1998.
Policyholder benefits and claims decreased by 22% to $463 million in 1999
from $597 million in 1998. Excluding the impact of the Canadian divestiture,
policyholder benefits and claims increased $106 million, or 30%, to $463 million
in 1999 from $357 million in 1998. This increase is commensurate with the
aforementioned increase in premiums.
Interest credited to policyholder account balances decreased by 42% to $52
million in 1999 from $89 million in 1998. Excluding the impact of the Canadian
divestiture, interest credited to policyholder account balances increased $1
million, or 2%, to $52 million in 1999 from $51 million in 1998 in line with
increased account balances.
Policyholder dividends decreased by 66% to $22 million in 1999 from $64
million in 1998. Excluding the impact of the Canadian divestiture, policyholder
dividends decreased $1 million, or
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5%, to $22 million in 1999 from $21 million in 1998, primarily due to less
favorable experience on participating policies in Spain.
Other expenses decreased by 30% to $248 million in 1999 from $352 million
in 1998. Excluding the impact of the Canadian divestiture, other expenses
decreased $7 million, or 3%, to $248 million in 1999 from $255 million in 1998.
This decrease was primarily attributable to ongoing cost reduction initiatives.
YEAR ENDED DECEMBER 31, 1998 COMPARED WITH THE YEAR ENDED DECEMBER 31, 1997 --
INTERNATIONAL
Premiums decreased by 32% to $618 million in 1998 from $908 million in
1997, primarily due to the dispositions of a substantial portion of our U.K.
operations in October 1997 and of our Canadian operations in July 1998.
Excluding the impact of these sales, premiums decreased by $31 million, or 7%,
to $414 million in 1998 from $445 million in 1997, primarily attributable to a
$64 million, or 40%, reduction in premiums in South Korea due to a significant
economic downturn in this country. This decrease was partially offset by a $15
million, or 48%, increase in Spain related to the effect of a full year's
activity under a revised sales agreement entered into with Banco Santander
during September 1997.
Universal life and investment-type product policy fees decreased by 50% to
$68 million in 1998 from $137 million in 1997, primarily due to the U.K. and
Canadian divestitures.
Other revenues decreased by 39% to $33 million in 1998 from $54 million in
1997. Excluding the impact of the U.K. and Canadian divestitures, other revenues
increased to $10 million in 1998 from $7 million in 1997.
Policyholder benefits and claims decreased by 31% to $597 million in 1998
from $869 million in 1997. Excluding the impact of the U.K. and Canadian
divestitures, policyholder benefit and claims decreased by 5% to $357 million in
1998 from $374 million in 1997. This decrease was primarily attributable to the
decline in premiums of $64 million in South Korea and was offset in part by
minor increases in several other countries.
Interest credited to policyholder account balances decreased by 35% to $89
million in 1998 from $137 million in 1997. Excluding the impact of the U.K. and
Canadian divestitures, interest credited to policyholder account balances
decreased by 9% to $51 million in 1998 from $56 million in 1997. This decrease
was attributable to lower variable crediting rates in South Korea reflecting a
reduction in interest rates.
Policyholder dividends decreased by 34% to $64 million in 1998 from $97
million in 1997. Excluding the impact of the U.K. and Canadian divestitures,
policyholder dividends were essentially unchanged at $21 million in 1998
compared with $22 million in 1997.
Other expenses decreased by 29% to $352 million in 1998 from $497 million
in 1997. Excluding the impact of the U.K. and Canadian divestitures, other
expenses increased by 5% to $255 million in 1998 from $242 million in 1997. This
increase was primarily due to higher business development costs.
CORPORATE
Total revenues for our Corporate segment, which consisted of net investment
income and realized investment gains and losses that are not allocated to our
business segments, were $623 million in 1999, a decrease of $849 million, or
58%, from $1,472 million in 1998, primarily due to a reduction in investment
gains and investment income of $722 million due to the sale of MetLife Capital
Holdings, Inc. in 1998. Total Corporate expenses were $1,031 million in 1999, a
decrease of $1,560 million, or 60%, from $2,591 million in 1998. This decrease
is primarily due to a $1,895 million charge in 1998 for sales practices claims
and claims for personal injuries caused by
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<PAGE> 77
exposure to asbestos or asbestos-containing products as well as the elimination
of $270 million of expenses due to the sale of MetLife Capital Holdings. These
decreases were partially offset by a $499 million charge in 1999 principally
related to the settlement of a multidistrict litigation proceeding involving
alleged improper sales practices, accruals for sales practices claims not
covered by the settlement and other legal costs.
Total revenues for our Corporate segment were $1,472 million in 1998, an
increase of $427 million, or 41%, from $1,045 million in 1997, primarily due to
the realized investment gain from the sale of MetLife Capital Holdings of $433
million. Total Corporate expenses were $2,591 million in 1998, an increase of
$1,625 million, or 168%, from $966 million in 1997, primarily due to the
aforementioned charges for sales practices claims and asbestos-related claims in
1998.
LIQUIDITY AND CAPITAL RESOURCES
METLIFE, INC.
Following the effective date of the plan, Metropolitan Life Insurance
Company will become a wholly-owned subsidiary and the principal asset of
MetLife, Inc. The primary uses of liquidity of MetLife, Inc. will include
payment of dividends on our common stock, interest payments on our debentures
issued to MetLife Capital Trust I and other debt servicing, contributions to our
subsidiaries and payment of general operating expenses. The primary source of
our liquidity will be dividends we may receive from Metropolitan Life Insurance
Company and the interest received from Metropolitan Life Insurance Company under
the capital note described below. In addition, we expect to retain up to $340
million from the proceeds of the offerings and the private placements at
MetLife, Inc., which will be available to pay dividends to our stockholders,
make contributions to our subsidiaries, make payments on the debentures issued
to MetLife Capital Trust I and meet our other obligations. Our ability, on a
continuing basis, to meet our cash needs depends primarily upon the receipt of
dividends and the interest on the capital note from Metropolitan Life Insurance
Company.
Under the New York Insurance Law, Metropolitan Life Insurance Company will
be permitted to pay a stockholder dividend to MetLife, Inc. only if it files
notice of its intention to declare such a dividend and the amount thereof with
the New York Superintendent of Insurance and the New York Superintendent does
not disapprove the distribution. Under the New York Insurance Law, the New York
Superintendent has broad discretion in determining whether the financial
condition of a stock life insurance company would support the payment of
dividends to its stockholders. The New York Insurance Department has established
informal guidelines for such determinations. The guidelines, among other things,
focus on the insurer's overall financial condition and profitability under
statutory accounting practices. We cannot provide assurance that Metropolitan
Life Insurance Company will have statutory earnings to support the payment of
dividends to MetLife, Inc. in an amount sufficient to fund our cash requirements
and pay cash dividends or that the New York Superintendent will not disapprove
any dividends that Metropolitan Life Insurance Company may seek to pay. Our
other insurance subsidiaries are also subject to restrictions on the payment of
dividends.
The dividend limitation is based on statutory financial results. Statutory
accounting practices differ in certain respects from accounting principles used
in financial statements prepared in conformity with generally accepted
accounting principles. The significant differences relate to deferred
acquisition costs, deferred income taxes, required investment reserves, reserve
calculation assumptions and surplus notes. Furthermore, although the impact
cannot be determined at this time, the recent adoption of the Codification of
Statutory Accounting Principles by the NAIC may reduce STATUTORY SURPLUS,
thereby making the dividend limitation more restrictive. See "-- Metropolitan
Life Insurance Company -- Risk-based capital". See Note 13 of Notes to
Consolidated Financial Statements for a reconciliation of the difference between
statutory financial results with those determined in conformity with generally
accepted accounting principles.
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<PAGE> 78
In connection with the contribution of the net proceeds from the initial
public offering, the private placements and the offering of equity security
units to Metropolitan Life Insurance Company as described under "Use of
Proceeds", Metropolitan Life Insurance Company expects to issue to MetLife, Inc.
its % mandatorily convertible capital note due 2005 having the following
principal terms:
PRINCIPAL AMOUNT.............. $1 billion
MATURITY...................... , 2005
INTEREST...................... % (equal to initial interest rate on
MetLife, Inc. debentures issued to MetLife
Capital Trust I), payable quarterly, subject to
reset and deferral provisions substantially
identical to those set forth in the debentures.
PAYMENT RESTRICTIONS.......... As required by the New York Insurance Law, the
capital note will provide that Metropolitan
Life Insurance Company may not make any payment
of the interest on or the principal of the
capital note so long as specified payment
restrictions exist and have not been waived by
the New York Superintendent of Insurance.
Payment restrictions would exist if the level
of Metropolitan Life Insurance Company's
statutory total adjusted capital falls below
certain thresholds relative to the level of its
statutory risk-based capital or the amount of
its outstanding capital notes, surplus notes or
similar obligations. As of the date hereof,
Metropolitan Life Insurance Company's statutory
total adjusted capital significantly exceeds
these limitations. Interest will continue to
accrue while payment restrictions exist.
CONVERSION.................... At , 2004 and at the stated maturity
of the capital note, the capital note shall be
mandatorily convertible, without any further
action by MetLife, Inc. or Metropolitan Life
Insurance Company, into 500 shares at each such
date of common stock of Metropolitan Life
Insurance Company. The capital note will also
become immediately convertible into 1,000
shares upon an acceleration of the capital
note. The issuance of such shares will be in
full satisfaction of Metropolitan Life
Insurance Company's obligation to pay the
principal of the note.
RANKING....................... The capital note will be unsecured and will be
subordinated to all present and future
indebtedness, policy claims and other creditor
claims (each as defined in the capital note) of
Metropolitan Life Insurance Company. The
capital note will rank pari passu with all
existing surplus notes of Metropolitan Life
Insurance Company and with all capital notes,
surplus notes or similar obligations of
Metropolitan Life Insurance Company thereafter
issued, made or incurred.
As required by the New York Insurance Law, the terms of the capital note
must be approved by the New York Superintendent of Insurance as not adverse to
the interests of Metropolitan Life Insurance Company's policyholders. If the New
York Superintendent does not approve the issuance of the capital note, or the
payment of interest is prevented by application of the payment restrictions
described above, the interest on the capital note will not be available as a
source of liquidity for MetLife, Inc.
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<PAGE> 79
Based on the historic cash flows and the current financial results of
Metropolitan Life Insurance Company, subject to any dividend limitations which
may be imposed upon Metropolitan Life Insurance Company or its subsidiaries by
regulatory authorities, we believe that cash flows from operating activities,
together with up to $340 million of proceeds from the offerings and the private
placements to be retained by MetLife, Inc. and the interest received on the
capital note from Metropolitan Life Insurance Company, will be sufficient to
enable us to make dividend payments on our common stock as described in
"Dividend Policy", to pay all operating expenses, make payments on the
debentures issued to MetLife Capital Trust I and meet our other obligations.
METROPOLITAN LIFE INSURANCE COMPANY
LIQUIDITY SOURCES. Metropolitan Life Insurance Company's principal cash
inflows from its insurance activities come from life insurance premiums, annuity
considerations and deposit funds. A primary liquidity concern with respect to
these cash inflows is the risk of early contract holder and policyholder
withdrawal. Metropolitan Life Insurance Company seeks to include provisions
limiting withdrawal rights from general account institutional pension products
(generally group annuities, including guaranteed interest contracts and certain
deposit fund liabilities) sold to employee benefit plan sponsors.
Metropolitan Life Insurance Company's principal cash inflows from its
investment activities result from repayments of principal and proceeds from
maturities and sales of invested assets, investment income, as well as dividends
and distributions from subsidiaries. The primary liquidity concerns with respect
to these cash inflows are the risks of default by debtors, interest rate and
other market volatilities and potential illiquidity of subsidiaries.
Metropolitan Life Insurance Company closely monitors and manages these risks.
See "Business -- Investments".
Additional sources of liquidity to meet unexpected cash outflows are
available from Metropolitan Life Insurance Company's portfolio of liquid assets.
These liquid assets include substantial holdings of U.S. treasury securities,
short-term investments, common stocks and marketable fixed maturity securities.
Metropolitan Life Insurance Company's available portfolio of liquid assets was
approximately $88 billion and $91 billion at December 31, 1999 and 1998,
respectively.
Sources of liquidity also include facilities for short- and long-term
borrowing as needed, primarily arranged through MetLife Funding, Inc., a
subsidiary of Metropolitan Life Insurance Company. See "-- Financing".
LIQUIDITY USES. Metropolitan Life Insurance Company's principal cash
outflows primarily relate to the liabilities associated with its various life
insurance, annuity and group pension products, operating expenses, income taxes,
contributions to subsidiaries, principal and interest on its outstanding debt
obligations, including the capital note described above, as well as dividend
payments that may be declared and are payable to MetLife, Inc. Liabilities
arising from its insurance activities primarily relate to benefit payments under
the above-named products, as well as payments for policy surrenders, withdrawals
and loans.
Management of Metropolitan Life Insurance Company believes that its sources
of liquidity are more than adequate to meet its current cash requirements.
LITIGATION. Various litigation claims and assessments against us have
arisen in the course of our business, including in connection with our
activities as an insurer, employer, investor, investment advisor and taxpayer.
Further, state insurance regulatory authorities and other authorities regularly
make inquiries and conduct investigations concerning our compliance with
applicable insurance and other laws and regulations.
In some of these matters, very large and/or indeterminate amounts,
including punitive and treble damages, are sought. While it is not feasible to
predict or determine the ultimate outcome
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<PAGE> 80
of all pending investigations and legal proceedings or to provide reasonable
ranges of potential losses, it is the opinion of our management that their
outcomes, after consideration of available insurance and reinsurance and the
provisions made in our consolidated financial statements, are not likely to have
a material adverse effect on our consolidated financial condition. However,
given the large and/or indeterminate amounts sought in certain of these matters
and the inherent unpredictability of litigation, it is possible that an adverse
outcome in certain matters could, from time to time, have a material adverse
effect on our operating results or cash flows in particular quarterly or annual
periods.
We have recorded, in other expenses, charges of $499 million ($317 million
after-tax), $1,895 million ($1,203 million after-tax) and $300 million ($190
million after-tax) for the years ended December 31, 1999, 1998 and 1997,
respectively, for sales practice claims and claims for personal injuries caused
by exposure to asbestos or asbestos-containing products. The charge for the year
ended December 31, 1999 was principally related to the settlement of the
multidistrict litigation proceeding involving alleged improper sales practices,
accruals for sales practices claims not covered by the settlement and other
legal costs. The 1998 charge of $1,895 million was comprised of $925 million and
$970 million for sales practices claims and asbestos-related claims,
respectively. We recorded the accrual for sales practices claims based on
preliminary settlement discussions and the settlement history of other insurers.
Prior to the fourth quarter of 1998, we established a liability for
asbestos-related claims based on settlement costs for claims that we had
settled, estimates of settlement costs for claims pending against us and an
estimate of settlement costs for unasserted claims. The amount for unasserted
claims was based on management's estimate of unasserted claims that would be
probable of assertion. A liability is not established for claims which we
believe are only reasonably possible of assertion. Based on this process, our
accrual for asbestos-related claims at December 31, 1997 was $386 million. Our
potential liabilities for asbestos-related claims are not easily quantified, due
to the nature of the allegations against us, which are not related to the
business of manufacturing, producing, distributing or selling asbestos or
asbestos-containing products, adding to the uncertainty as to the number of
claims brought against us.
During 1998, we decided to pursue the purchase of insurance to limit our
exposure to asbestos-related claims. In connection with our negotiations with
the casualty insurers to obtain this insurance, we obtained information that
caused us to reassess our accruals for asbestos-related claims. This information
included:
- Information from the insurers regarding the asbestos-related claims
experience of other insureds, which indicated that the number of claims
that were probable of assertion against us in the future was
significantly greater than we had assumed in our accruals. The number of
claims brought against us is generally a reflection of the number of
asbestos-related claims brought against asbestos defendants generally and
the percentage of those claims in which we are included as a defendant.
The information provided to us relating to other insureds indicated that
we had been included as defendants for a significant percentage of total
asbestos-related claims and that we may be included in a larger
percentage of claims in the future, because of greater awareness of
asbestos litigation generally by potential plaintiffs and plaintiffs'
lawyers and because of the bankruptcy and reorganization or the
exhaustion of insurance coverage of other asbestos defendants and that,
although volatile, there was an upward trend in the number of total
claims brought against asbestos defendants.
- Information derived from actuarial calculations we made in the fourth
quarter of 1998 in connection with these negotiations, which helped us to
frame, define and quantify this liability. These calculations were made
using, among other things, current information regarding our claims and
settlement experience (which reflected our decision to resolve an
increased number of these claims by settlement), recent and historic
claims and
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<PAGE> 81
settlement experience of selected other companies and information
obtained from the insurers.
Based on this information, we concluded that certain claims that previously
were considered as only reasonably possible of assertion were now probable of
assertion, increasing the number of assumed claims to approximately three times
the number assumed in prior periods. As a result of this reassessment, we
increased our liability for asbestos-related claims to $1,278 million at
December 31, 1998.
During 1998, we paid $1,407 million of premiums for excess of loss
reinsurance and insurance agreements and policies, consisting of $529 million
for the excess of loss reinsurance agreements for sales practices claims and
excess mortality losses and $878 million for the excess insurance policies for
asbestos-related claims.
We obtained the excess of loss reinsurance agreements to provide
reinsurance with respect to sales practices claims made on or prior to December
31, 1999 and for certain mortality losses in 1999. These reinsurance agreements
have a maximum aggregate limit of $650 million, with a maximum sublimit of $550
million for losses for sales practices claims. This coverage is in excess of an
aggregate self-insured retention of $385 million with respect to sales practices
claims and $506 million, plus our statutory policy reserves released upon the
death of insureds, with respect to life mortality losses. At December 31, 1999,
the subject losses under the reinsurance agreements due to sales practices
claims and related counsel fees from the time Metropolitan Life Insurance
Company entered into the reinsurance agreements did not exceed that self-insured
retention. The maximum sublimit of $550 million for sales practices claims was
within a range of losses that management believed was reasonably possible at
December 31, 1998. Each excess of loss reinsurance agreement for sales practices
claims and mortality losses contains an experience fund, which provides for
payments to us at the commutation date if experience is favorable at such date.
We account for the aggregate excess of loss reinsurance agreements as
reinsurance; however, if deposit accounting were applied, the effect on our
consolidated financial statements in 1998, and in 1999 and 2000, would not be
significant. Under reinsurance accounting, the excess of the liability recorded
for sales practices losses recoverable under the agreements of $550 million over
the premium paid of $529 million results in a deferred gain of $21 million which
is being amortized into income over the settlement period from January 1999
through April 2000. Under deposit accounting, the premium would be recorded as
an other asset rather than as an expense, and the reinsurance loss recoverable
and the deferred gain would not have been recorded. Because the agreements also
contain an experience fund which increases with the passage of time, the
increase in the experience fund in 1999 and 2000 under deposit accounting would
be recognized as interest income in an amount approximately equal to the
deferred gain that will be amortized into income under reinsurance accounting.
The excess insurance policies for asbestos-related claims provide for
recovery of losses of up to $1,500 million, which is in excess of a $400 million
self-insured retention ($878 million of which was recorded as a recoverable at
December 31, 1999 and 1998). The asbestos-related policies are also subject to
annual and per-claim sublimits. Amounts are recoverable under the policies and
agreements annually with respect to claims paid during the prior calendar year.
Although amounts paid in any given year that are recoverable under the policies
and agreements will be reflected as a reduction in our operating cash flow for
that year, management believes that the payments will not have a material
adverse effect on our liquidity. Each asbestos-related policy contains an
experience fund and a reference fund that provides for payments to us at the
commutation date if experience under the policy to such date has been favorable,
or pro rata reductions from time to time in the loss reimbursement to us if the
cumulative return on the reference fund is less than the return specified in the
experience fund.
We believe that the excess of loss reinsurance agreements should provide
coverage for a portion of the multidistrict sales practices settlement described
above, although we have yet to file a claim under those agreements. The increase
in liabilities for death benefits and policy
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<PAGE> 82
adjustments and the cash payments to be made under the settlement should be
substantially offset by amounts recoverable under those agreements, as well as
amounts provided in our consolidated financial statements, and accordingly we do
not believe that they will have a material adverse effect on our business,
results of operations, financial condition or cash flows in future periods.
We believe adequate provision has been made in our consolidated financial
statements for all reasonably probable and estimable losses for sales practices
and asbestos-related claims.
RISK-BASED CAPITAL. Section 1322 of the New York Insurance Law requires
that New York life insurers report their RBC based on a formula calculated by
applying factors to various asset, premium and statutory reserve items. The
formula takes into account the risk characteristics of the insurer, including
asset risk, insurance risk, interest rate risk and business risk. Section 1322
gives the New York Superintendent of Insurance explicit regulatory authority to
require various actions by, or take various actions against, insurers whose
total adjusted capital does not exceed certain RBC levels. At December 31, 1999,
Metropolitan Life Insurance Company's total adjusted capital was in excess of
each of those RBC levels. See "Business -- Regulation -- Insurance
regulation -- Risk-based capital".
Each of the U.S. insurance subsidiaries of Metropolitan Life Insurance
Company is subject to these same RBC requirements. At December 31, 1999, the
total adjusted capital of each of these insurance subsidiaries was in excess of
each of these RBC levels.
The NAIC has recently adopted the Codification of Statutory Accounting
Principles for life insurers, which is to become effective on January 1, 2001.
Prior to implementation by Metropolitan Life Insurance Company, the Codification
requires adoption by the New York Insurance Department. Based on a study
commissioned by the NAIC, the overall impact to life insurers resulting from
adoption of the Codification is not expected to be materially adverse; however,
a detailed analysis will be necessary to determine the actual impact of the
Codification on the statutory results of operations and statutory financial
position of Metropolitan Life Insurance Company and its U.S. insurance
subsidiaries.
FINANCING. MetLife Funding, Inc. serves as a centralized finance unit for
Metropolitan Life Insurance Company. Pursuant to a support agreement,
Metropolitan Life Insurance Company has agreed to cause MetLife Funding to have
a tangible net worth of at least one dollar. At December 31, 1999 and 1998,
MetLife Funding had a tangible net worth of $10.5 million and $10.9 million,
respectively. MetLife Funding raises funds from various funding sources and uses
the proceeds to extend loans to Metropolitan Life Insurance Company and its
other subsidiaries. MetLife Funding manages its funding sources to enhance the
financial flexibility and liquidity of MetLife. At December 31, 1999 and 1998,
MetLife Funding had total outstanding liabilities of $4.2 billion and $3.6
billion, respectively, consisting primarily of commercial paper.
In connection with our acquisition of the stock of GenAmerica, we incurred
$900 million of short-term debt, consisting primarily of commercial paper. We
intend to repay up to $450 million of that debt with proceeds from the
offerings. We also incurred approximately $3.2 billion of short-term debt,
consisting primarily of commercial paper, in connection with our October 1, 1999
exchange offer to holders of General American Life funding agreements. Through
December 31, 1999, approximately $1.5 billion of this debt was repaid. The
remaining $1.7 billion was included in the outstanding liabilities of MetLife
Funding at December 31, 1999. See "Business -- Acquisition of GenAmerica".
MetLife Funding and Metropolitan Life Insurance Company also maintained $7
billion ($5 billion of which served as back-up for the commercial paper incurred
in connection with the exchange offer to holders of General American Life
funding agreements) and $2 billion in committed credit facilities at December
31, 1999 and 1998, respectively, which served as back-up for MetLife Funding's
commercial paper program and for general corporate purposes. These credit
facilities were not utilized during 1999 or 1998.
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SUPPORT AGREEMENTS. In addition to its support agreement with MetLife
Funding, Metropolitan Life Insurance Company has entered into a net worth
maintenance agreement with New England Life Insurance Company ("NELICO"),
whereby it is obligated to maintain NELICO's statutory capital and surplus at
the greater of $10 million or the amount necessary to prevent certain regulatory
action by Massachusetts, the state of domicile of this subsidiary. The capital
and surplus of NELICO at December 31, 1999 and 1998, respectively, was
significantly in excess of the amount that would trigger such an event.
Furthermore, Metropolitan Life Insurance Company has never been called upon to
provide support to NELICO.
In connection with Metropolitan Life Insurance Company's acquisition of
GenAmerica Corporation, Metropolitan Life Insurance Company entered into a net
worth maintenance agreement with General American Life Insurance Company,
whereby Metropolitan Life Insurance Company is obligated to maintain General
American Life's statutory capital and surplus at the greater of $10 million or
the amount necessary to maintain the capital and surplus of General American
Life at a level not less than 180% of the NAIC Risk Based Capitalization Model
and to ensure that General American Life's liquidity is sufficient to meet its
current obligations on a timely basis. The capital and surplus of General
American Life Insurance Company at December 31, 1999 was in excess of the
required amount.
Metropolitan Life Insurance Company has also entered into arrangements with
some of its other subsidiaries and affiliates to assist such subsidiaries and
affiliates in meeting various jurisdictions' regulatory requirements regarding
capital and surplus. In addition, Metropolitan Life Insurance Company has
entered into a support arrangement with respect to reinsurance obligations of
its wholly-owned subsidiary, Metropolitan Insurance and Annuity Company.
Management does not anticipate that these arrangements will place any
significant demands upon MetLife's liquidity resources.
CONSOLIDATED CASH FLOWS. Net cash provided by operating activities was
$3.9 billion, $0.8 billion and $2.9 billion for the years ended December 31,
1999, 1998 and 1997, respectively. In 1999, the change in cash provided by
operating activities was primarily due to strong growth in our Institutional and
Auto & Home segments. The growth in our Institutional segment was primarily
related to strong sales and improved policyholder retention in non-medical
health, primarily in our dental and disability businesses. The growth in Auto &
Home was primarily due to the acquisition of the standard personal lines
property and casualty insurance operations of The St. Paul Companies, as well as
growth in both standard and non-standard auto insurance businesses. In 1998, the
change in cash provided by operating activities was primarily attributable to
$1.4 billion paid in 1998 for excess insurance policies providing coverage for
amounts which may be paid in connection with exposure to asbestos claims and
reinsurance agreements providing coverage for, among other things, amounts which
may be paid or incurred in connection with specified sales practices claims. Net
cash provided by operating activities in 1999, 1998 and 1997 was more than
adequate to meet liquidity requirements.
Net cash (used in) provided by investing activities were $(2.4) billion,
$2.7 billion and $(1.7) billion for the years ended December 31, 1999, 1998 and
1997, respectively. Purchases of investments exceeded sales, maturities and
repayments by $0.5 billion, $7.6 billion and $1.6 billion in 1999, 1998 and
1997, respectively. In 1999, the significant decrease in net purchases of
investments resulted from a decrease in the reinvestment of sales proceeds as a
result of the funding agreement exchange offer in connection with the GenAmerica
acquisition, as well as the purchase of the individual disability income
business of Lincoln National Life Insurance Company. In 1998, the significant
increase in net purchases of investments resulted from the reinvestment of
proceeds from the sale of MetLife Capital Holdings, Inc. and a substantial
portion of our Canadian operations and cash from our securities lending program.
Prior to 1998, our securities lending program activity was not reflected in our
consolidated balance sheets or consolidated statements of cash flows. Cash flows
for investing activities also increased by $2.7 billion and $3.8 billion in 1999
and 1998, respectively, as a result of activity from our securities lending
program.
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Net cash used in financing activities was $2.0 billion, $3.1 billion and
$0.6 billion for the years ended December 31, 1999, 1998 and 1997, respectively.
Withdrawals from policyholders' account balances exceeded deposits by $2.2
billion, $2.3 billion and $2.8 billion in 1999, 1998 and 1997, respectively.
Short-term financings increased $0.6 billion in 1999 compared with a decrease of
$1.0 billion in 1998, while net reductions in long-term debt were $389 million
in 1999 compared with net additions of $212 million in 1998.
The operating, investing and financing activities described above resulted
in a decrease in cash and cash equivalents of $512 million for the year ended
December 31, 1999 compared with increases of $390 million and $586 million for
the years ended December 1998 and 1997, respectively.
EFFECTS OF INFLATION
We do not believe that inflation has had a material effect on our
consolidated results of operations, except insofar as inflation may affect
interest rates. See "Risk Factors -- Changes in interest rates may significantly
affect our profitability".
MARKET RISK DISCLOSURE
We must effectively manage, measure and monitor the market risk associated
with our invested assets and interest rate sensitive insurance contracts. We
have developed an integrated process for managing risk, which we conduct through
our Corporate Risk Management Department, several asset/liability committees and
additional specialists at the business segment level. We have established and
implemented comprehensive policies and procedures at both the corporate and
business segment level to minimize the effects of potential market volatility.
MARKET RISK EXPOSURES
We have exposure to market risk through our insurance operations and
investment activities. For purposes of this disclosure, "market risk" is defined
as the risk of loss resulting from changes in interest rates, equity prices and
foreign exchange rates.
INTEREST RATES. Our exposure to interest rate changes results from our
significant holdings of fixed maturities, as well as our interest rate sensitive
liabilities. The fixed maturities include U.S. and foreign government bonds,
securities issued by government agencies, corporate bonds and mortgage-backed
securities, all of which are mainly exposed to changes in medium- and long-term
treasury rates. Our interest rate sensitive liabilities for purposes of this
disclosure include guaranteed interest contracts and fixed annuities, which have
the same interest rate exposure (medium- and long-term treasury rates) as the
fixed maturities. We employ product design, pricing and asset/liability
management strategies to reduce the adverse effects of interest rate volatility.
Product design and pricing strategies include the use of SURRENDER CHARGES or
restrictions on withdrawals in some products. Asset/liability management
strategies include the use of derivatives, the purchase of securities structured
to protect against prepayments, prepayment restrictions and related fees on
mortgage loans and consistent monitoring of the pricing of our products in order
to better match the duration of the assets and the liabilities they support.
EQUITY PRICES. Our investments in equity securities expose us to changes
in equity prices. We manage this risk on an integrated basis with other risks
through our asset/liability management strategies. We also manage equity price
risk through industry and issuer diversification and asset allocation
techniques.
FOREIGN EXCHANGE RATES. Our exposure to fluctuations in foreign exchange
rates against the U.S. dollar results from our holdings in non-U.S. dollar
denominated fixed maturity securities and equity securities and through our
investments in foreign subsidiaries. The principal currencies which create
foreign exchange rate risk in our investment portfolios are Canadian dollars,
Euros,
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German marks, French francs, Spanish pesetas and British pounds. We mitigate the
majority of our fixed maturities' foreign exchange rate risk through the
utilization of foreign currency swaps and forward contracts. Through our
investments in foreign subsidiaries, we are primarily exposed to the Spanish
peseta, Mexican peso, Argentinean dollar and Korean won. We have denominated all
assets and liabilities of our foreign subsidiaries in their respective local
currencies, thereby minimizing our risk to foreign exchange rate fluctuations.
RISK MANAGEMENT
CORPORATE RISK MANAGEMENT. We have established several financial and
non-financial senior management committees as part of our risk management
process. These committees manage capital and risk positions, approve
asset/liability management strategies and establish appropriate corporate
business standards.
We also have a separate Corporate Risk Management Department, which is
responsible for risk throughout MetLife and reports directly to our Chief
Actuary. The Corporate Risk Management Department's primary responsibilities
consist of:
- implementing a board of directors-approved corporate risk framework,
which outlines our approach for managing risk on an enterprise-wide
basis;
- developing policies and procedures for managing, measuring and monitoring
those risks identified in the corporate risk framework;
- establishing appropriate corporate risk tolerance levels;
- deploying capital on a risk-adjusted basis; and
- reporting on a periodic basis to the Audit Committee of the board of
directors and our various financial and non-financial senior management
committees.
ASSET/LIABILITY MANAGEMENT. At MetLife, asset/liability management is the
responsibility of the General Account Portfolio Management Department ("GAPM"),
the operating business segments and various GAPM boards. The GAPM boards are
comprised of senior officers from the investment department, senior managers
from each business segment and the Chief Actuary. The GAPM boards' duties
include setting broad asset/liability management policy and strategy, reviewing
and approving target portfolios, establishing investment guidelines and limits
and providing oversight of the portfolio management process.
The portfolio managers and asset sector specialists, who have
responsibility on a day-to-day basis for risk management of their respective
investing activities, implement the goals and objectives established by the GAPM
boards. The goals of the investment process are to optimize after-tax,
risk-adjusted investment income and after-tax, risk-adjusted total return while
ensuring that the assets and liabilities are managed on a cash flow and duration
basis. The risk management objectives established by the GAPM boards stress
quality, diversification, asset/liability matching, liquidity and investment
return.
Each of our business segments has an asset/liability officer who works with
portfolio managers in the investment department to monitor investment, product
pricing, hedge strategy and liability management issues. We establish target
asset portfolios for each major insurance product, which represent the
investment strategies used to profitably fund our liabilities within acceptable
levels of risk. These strategies include objectives for effective duration,
yield curve sensitivity, convexity, liquidity, asset sector concentration and
credit quality.
To manage interest rate risk, we perform periodic projections of asset and
liability cash flows to evaluate the potential sensitivity of our securities
investments and liabilities to interest rate movements. These projections
involve evaluating the potential gain or loss on most of our in-force business
under various increasing and decreasing interest rate environments. We have
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developed models of our in-force business that reflect specific product
characteristics and include assumptions based on current and anticipated
experience regarding lapse, mortality and interest crediting rates. In addition,
these models include asset cash flow projections reflecting interest payments,
sinking fund payments, principal payments, bond calls, mortgage prepayments and
defaults. New York Insurance Department regulations require that we perform some
of these analyses annually as part of the annual proof of the sufficiency of our
regulatory reserves to meet adverse interest rate scenarios.
HEDGING ACTIVITIES. Our risk management strategies incorporate the use of
various interest rate derivatives that are used to adjust the overall duration
and cash flow profile of our invested asset portfolios to better match the
duration and cash flow profile of our liabilities to reduce interest rate risk.
Such instruments include interest rate swaps, futures and caps. We also use
foreign currency swaps and forward contracts to hedge our foreign currency
denominated fixed income investments.
RISK MEASUREMENT; SENSITIVITY ANALYSIS
We measure market risk related to our holdings of invested assets and other
financial instruments, including certain market risk sensitive insurance
contracts ("other financial instruments"), based on changes in interest rates,
equity prices and foreign currency rates, utilizing a sensitivity analysis. This
analysis estimates the potential changes in fair value, cash flows and earnings
based on a hypothetical 10% change (increase or decrease) in interest rates,
equity prices and currency exchange rates. We believe that a 10% change
(increase or decrease) in these market rates and prices is reasonably possible
in the near-term. In performing this analysis, we used market rates at December
31, 1999 to re-price our invested assets and other financial instruments. The
sensitivity analysis separately calculated each of our market risk exposures
(interest rate, equity price and currency rate) related to our non-trading
invested assets and other financial instruments. We do not maintain a trading
portfolio.
The sensitivity analysis we performed included the market risk sensitive
holdings described above under "Market Risk Disclosure". We modeled the impact
of changes in market rates and prices on the fair values of our invested assets,
earnings and cash flows as follows:
FAIR VALUES. We base our potential loss in fair values on an immediate
change (increase or decrease) in:
- the net present values of our interest rate sensitive exposures resulting
from a 10% change (increase or decrease) in interest rates;
- the U.S. dollar equivalent balances of our currency exposures due to a
10% change (increase or decrease) in currency exchange rates; and
- the market value of our equity positions due to a 10% change (increase or
decrease) in equity prices.
EARNINGS AND CASH FLOWS. We calculate the potential loss in earnings and
cash flows on the change in our earnings and cash flows over a one-year period
based on an immediate 10% change (increase or decrease) in market rates and
equity prices. The following factors were incorporated into our earnings and
cash flows sensitivity analyses:
- the reinvestment of fixed maturity securities;
- the reinvestment of payments and prepayments of principal related to
mortgage-backed securities;
- prepayment rates on mortgage-backed securities were re-estimated for each
10% change (increase or decrease) in the interest rates; and
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- expected turnover (sales) of fixed maturities and equity securities,
including the reinvestment of the resulting proceeds.
The sensitivity analysis is an estimate and should not be viewed as
predictive of our future financial performance. We cannot assure that our actual
losses in any particular year will not exceed the amounts indicated in the table
below. Limitations related to this sensitivity analysis include:
- the market risk information is limited by the assumptions and parameters
established in creating the related sensitivity analysis, including the
impact of prepayment rates on our mortgages;
- the analysis excludes other significant real estate holdings and
liabilities pursuant to insurance contracts; and
- the model assumes that the composition of our assets and liabilities
remains unchanged throughout the year.
Accordingly, we use such models as tools and not substitutes for the
experience and judgment of our corporate risk and asset/liability management
personnel.
Based on our analysis of the impact of a 10% change (increase or decrease)
in market rates and prices, we have determined that such a change could have a
material adverse effect on the fair value of our interest rate sensitive
invested assets. The equity and foreign currency portfolios do not expose us to
material market risk.
The table below illustrates the potential loss in fair value of our
interest rate sensitive financial instruments at December 31, 1999. In addition,
the potential loss with respect to fair value of currency exchange rates and our
equity price sensitive positions at December 31, 1999 is set forth in the table
below.
The potential loss in fair value for each market risk exposure of our
portfolio, all of which is non-trading, for the periods indicated was (in
millions):
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------
1999 1998
-------- --------
<S> <C> <C>
Interest rate risk............................... $5,044.3 $3,977.1
Equity price risk................................ $ 198.0 $ 247.6
Currency exchange rate risk...................... $ 262.5 $ 260.0
</TABLE>
YEAR 2000 READINESS
The Year 2000 issue is the result of many computer hardware and software
systems using only two digits, rather than four, to represent a calendar year.
Without appropriate remediation or replacement, such systems may not process
dates beyond 1999. This system problem could result in a system failure or
miscalculations causing disruptions of operations, including, but not limited
to, a temporary inability to process transactions and engage in normal business
activities.
Given the potential impact of the Year 2000 issue on us, in 1996 we
established a centralized Project Management Office within our Information
Technology Department. The Project Management Office developed a plan that
identified the processes and steps to take so that all of MetLife's own computer
applications, as well as our voice and data communication systems, would
continue to function properly in and beyond the Year 2000.
The scope of our Year 2000 plan included testing the readiness of:
applications, operating systems and hardware on mainframes, personal computers
and local area network platforms; voice and data network software and hardware;
and some non-information technology systems in buildings, facilities and
equipment, including, but not limited to, security systems and building
controls. In addition, we established procedures to contact key suppliers,
customers, joint venture partners and other business parties regarding their
Year 2000 readiness.
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The phases of our Year 2000 plan were: (1) identifying Year 2000 problems
and assigning priorities; (2) assessing the Year 2000 compliance of each of our
business segments; (3) remediating or replacing items for Year 2000 compliance;
(4) testing items for Year 2000 compliance at each of our business segments; and
(5) designing and implementing Year 2000 contingency and business continuity
plans.
We completed phases (1) through (4) by June 30, 1999. We completed phase
(5) by the end of 1999. As to our systems certification, each of our business
segments conducted testing for Year 2000 compliance. We evaluated and tested
each system using a standard certification process and used both internal and
external resources in connection with our certification process. The
certification process included, among other procedures, testing of future dates
near the end of 1999, after the beginning of 2000 and for the leap year. We also
conducted tests of our business-critical systems on an enterprise-wide basis. At
December 31, 1999, approximately 100% of our information technology applications
and systems, security systems, building controls and utilities located in
facilities owned and operated by MetLife were Year 2000 compliant.
As part of our Year 2000 plan, we initiated formal communications with all
of our significant business partners, such as suppliers and customers, to
determine the extent to which we may have been vulnerable to those third
parties' failure to remediate their own Year 2000 issues. A majority of our
significant business partners gave assurances that they were Year 2000 ready by
December 31, 1999. As of the date of this prospectus, we are not aware of any
material Year 2000-related problems experienced by our information technology
and non-information technology systems. We have not been informed by any other
companies, governmental agencies or other entities on which we rely that any
such parties experienced any material Year 2000-related problems. We cannot
guarantee, however, that we or the other companies, governmental agencies or
other entities on which we rely will not experience any Year 2000-related
problems in the future. If such problems do occur, there can be no assurance
that they will not have a material adverse effect on our business, results of
operations and financial condition.
Through December 31, 1999, we had incurred and expensed approximately $220
million related to assessment and remediation or replacement in connection with
our Year 2000 plan. We funded these costs through operating cash flows, expensed
as incurred. During 2000, we expect to have additional Year 2000-related
expenses of approximately $5 million.
Detailed business contingency plans have been developed to address Year
2000 risks that may affect our ability to conduct business. However, we cannot
guarantee that such contingency plans will mitigate all future Year 2000 issues
or prevent future Year 2000 issues from having a material adverse effect on our
business, results of operations and financial condition.
INSOLVENCY ASSESSMENTS
Most of the jurisdictions in which we are admitted to transact business
require life insurers doing business within the jurisdiction to participate in
guaranty associations, which are organized to pay contractual benefits owed
pursuant to insurance policies issued by impaired, insolvent or failed life
insurers. These associations levy assessments, up to prescribed limits, on all
member insurers in a particular state on the basis of the proportionate share of
the premiums written by member insurers in the lines of business in which the
impaired, insolvent or failed insurer engaged. Some states permit member
insurers to recover assessments paid through full or partial premium tax
offsets. Assessments levied against us from January 1, 1997 through December 31,
1999 aggregated $62 million. We maintained a liability of $31 million at
December 31, 1999 for future assessments in respect of currently impaired,
insolvent or failed insurers.
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THE DEMUTUALIZATION
The following is a summary of the material terms of Metropolitan Life
Insurance Company's plan of reorganization. Although we believe the material
provisions of the plan of reorganization have been accurately summarized, you
should refer to the plan of reorganization itself, a copy of which is filed as
an exhibit to the registration statement of which this prospectus forms a part.
PURPOSE
The main purpose of the demutualization is to change our corporate
structure to increase our potential for long-term growth and financial strength.
We believe that our ability, as a stock company, to issue shares of stock will
enable us to raise money more efficiently and will provide us with greater
flexibility to make business acquisitions and combinations. This will allow us
to increase our market leadership, financial strength and strategic position,
providing additional security to our policyholders.
The demutualization will also make it easier for us to take advantage of
changes in laws removing restrictions on affiliations between insurers and other
types of financial services companies, such as banks. In addition, the
demutualization will provide previously unavailable economic value to eligible
policyholders in the form of allocated shares of MetLife, Inc. common stock
(which will be held in the MetLife Policyholder Trust), cash or policy credits,
in exchange for their policyholders' membership interests in Metropolitan Life
Insurance Company.
SUMMARY OF THE PLAN OF REORGANIZATION
On the date the plan of reorganization becomes effective (which will be the
date of the closings of the initial public offering, the offering of units and
the private placements), Metropolitan Life Insurance Company will convert from a
mutual life insurance company to a stock life insurance company, and become a
wholly-owned subsidiary of MetLife, Inc. Each policyholder's membership interest
will be extinguished on the plan effective date and, in consideration thereof,
each eligible policyholder will be entitled to receive, in exchange for that
interest, trust interests representing shares of common stock, cash or an
adjustment to their policy values in the form of policy credits, as provided in
the plan. We will allocate consideration among eligible policyholders based on
actuarial principles. For a description of the actuarial principles used in this
allocation, see "The Demutualization -- Payment of Consideration to Eligible
Policyholders".
The plan of reorganization requires us to make the initial public offering
and to raise proceeds from the initial public offering, together with the
offering of units and the private placements, in an amount, net of underwriting
commissions and related expenses, at least equal to the amounts required for us
to reimburse Metropolitan Life Insurance Company for the crediting of policy
credits and payment of mandatory cash payments to eligible policyholders
pursuant to the plan of reorganization and to reimburse Metropolitan Life
Insurance Company for the cash payments to be made by its Canadian branch to
certain holders of policies included in its Canadian business sold to Clarica
Life Insurance Company in 1998, as well as to pay the fees and expenses we have
incurred in connection with the demutualization.
The plan also permits us to complete one or more private placements and
other specified capital raising transactions on the effective date of the plan.
Concurrently with this offering, we expect to sell not less than 14,900,000
shares nor more than 73,000,000 shares in the aggregate to Banco Santander
Central Hispano, S.A. and Credit Suisse Group or their respective affiliates in
private placements. In addition, we and a trust we own are offering 20,000,000
equity security units for an aggregate offering of $1,000 million, plus up to an
additional $150 million if the underwriters' options to purchase additional
units are exercised in full. Each unit consists of (a) a contract to purchase
shares of our common stock and (b) a capital security of MetLife Capital Trust
I, a Delaware business trust wholly-owned by us. For a description of the units,
see "Description of the Equity Security Units". Under the plan of
reorganization, the total proceeds raised in the offering of units cannot exceed
one-third of the total proceeds raised in that
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offering, the initial public offering and the private placements. The amount of
proceeds from and final terms of the units will depend on market conditions and
our capital needs at the time of issuance. We cannot proceed with any offering
relating to the units and the private placements without the approval of the New
York Superintendent of Insurance. In addition, the final terms of the initial
public offering, the offering of units and the private placements must be
approved by the New York Superintendent.
Pursuant to the New York Insurance Law, the board of directors of
Metropolitan Life Insurance Company adopted the plan of reorganization on
September 28, 1999, and subsequently adopted amendments to the plan. The plan of
reorganization must also be approved by at least two-thirds of the votes validly
cast by the eligible policyholders. The plan of reorganization defines eligible
policyholders as the owners on September 28, 1999, the adoption date of the
plan, of certain policies issued by Metropolitan Life Insurance Company that
were in force on that date. The plan was approved by more than two-thirds of
eligible policyholders who voted in voting completed on February 7, 2000. The
vote of our policyholders was 2,572,832 votes in favor, 188,914 votes opposed.
The plan of reorganization will not become effective unless, after
conducting a public hearing on the plan, the New York Superintendent approves it
based on a finding, among other things, that the plan is fair and equitable to
policyholders. The New York Superintendent held a public hearing on the plan on
January 24, 2000. At the public hearing, some policyholders and others raised
objections to certain aspects of the plan. In addition, a civil complaint
challenging the fairness of the plan and the adequacy and accuracy of the
disclosures to policyholders regarding the plan has been filed in the New York
Supreme Court for Kings County on behalf of an alleged class consisting of the
policyholders of Metropolitan Life Insurance Company who are eligible to receive
notice, vote and receive consideration in the demutualization. The complaint
seeks to enjoin or rescind the plan and seeks other relief. See "Risk
Factors -- A challenge to the New York Superintendent of Insurance's approval
may adversely affect the terms of the demutualization and the market price of
our common stock".
We began incurring expenses related directly or indirectly to the
demutualization during 1998. We estimate that expenses relating to the
demutualization, excluding costs relating to the offerings and the private
placements, will total approximately $361 million, net of income taxes of $83
million. Demutualization expenses consist of our cost of printing and mailing
materials to policyholders and our aggregate cost of engaging independent
accounting, actuarial, compensation, financial, investment banking and legal
advisors and other consultants to advise us in the demutualization process and
related matters, as well as other administrative costs. The New York
Superintendent has also engaged experts to provide actuarial, investment
banking, legal and auditing advice. Pursuant to the New York Insurance Law, we
must pay the fees and expenses of such consultants, which fees and expenses are
included in the above amounts. We have also agreed to indemnify certain of our
consultants and consultants to the New York Superintendent against liabilities
arising out of their engagements in connection with the demutualization.
PAYMENT OF CONSIDERATION TO ELIGIBLE POLICYHOLDERS
On the effective date of the plan of reorganization:
- the policyholders' membership interests will be extinguished and each
eligible policyholder will be allocated a number of trust interests equal
to the number of shares of our common stock allocated to such
policyholder, except that some eligible policyholders will receive cash
or an adjustment to their policy values, known as policy credits; and
- Metropolitan Life Insurance Company will become a stock life insurance
company and a wholly-owned subsidiary of MetLife, Inc.
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We will distribute cash to:
- each eligible policyholder whose mailing address is outside the U.S.;
- each eligible policyholder or class of eligible policyholders for whom we
determine in good faith, to the satisfaction of the New York
Superintendent of Insurance, that it is not reasonably feasible or
appropriate to provide consideration in the form that such policyholder
would otherwise receive;
- each owner of an industrial life insurance policy in reduced paid-up
status with respect to whom we have a reasonable belief, after a
reasonable effort to locate such policyholder, that the mailing address
as shown on our records is an address at which mail to such policyholder
is undeliverable; and
- each group eligible policyholder that is an owner of an individual
retirement annuity or a tax sheltered annuity, and elects to receive cash
instead of common stock (but this provision will apply only to that
policy).
In addition to the cash payments described above, we will make cash
payments to any eligible policyholder (other than an eligible policyholder
required to receive policy credits or cash) that has affirmatively elected on or
before February 7, 2000 to receive cash for such policyholder's allocated
shares. There may be a limit to the amount of funds available to pay cash
compensation to eligible policyholders that elect to receive cash. The plan
provides that the initial public offering and the offering of units must raise
proceeds, net of underwriting commissions and related expenses, in an amount at
least equal to the amount paid by Metropolitan Life Insurance Company to fund
mandatory cash payments pursuant to the plan and policy credits to policyholders
and to pay fees and expenses incurred by Metropolitan Life Insurance Company
related to the demutualization, as well as to reimburse Metropolitan Life
Insurance Company for amounts to be paid by its Canadian branch to certain
former Canadian policyholders. If the initial public offering, the offering of
units and the private placements are not of a sufficient size to fund the
payment of cash to all eligible policyholders that elect to receive cash, it is
possible that the plan will become effective but that cash will not be paid to
all eligible policyholders electing to receive cash. If this were to happen,
cash will be paid as follows:
- each individual eligible policyholder that elects to receive cash will
receive consideration in the form of cash;
- each group eligible policyholder that elects to receive cash and is
allocated not more than 25,000 shares will receive consideration in the
form of cash; and
- each group eligible policyholder that elects to receive cash and is
allocated more than 25,000 shares will receive consideration in the form
of:
- cash, with respect to the first 25,000 shares allocated to the
eligible policyholder; and
- either shares of common stock (to be held in the trust) or a
combination of cash and shares of common stock (to be held in the
trust), with respect to the remaining shares allocated to the eligible
policyholder. Such cash will be allocated to each such eligible
policyholder on a pro rata basis based on the proportion that the
total number of shares in excess of 25,000 shares allocated to such
eligible policyholder bears to the total number of shares in excess of
25,000 shares allocated to all eligible policyholders allocated more
than 25,000 shares that have elected to receive cash.
These proration provisions will not apply to any group eligible policyholder
that is an owner of an individual retirement annuity or a tax sheltered annuity
who elects to receive cash instead of common stock (to be held in the trust),
but only with respect to that policy. The maximum number of allocated shares for
which cash will be available will depend on a number of factors, including the
number of policyholders that elect to receive cash, market conditions and the
size of the initial public offering, the offering of units and the private
placements.
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Until the second year after the plan effective date, if there is an
underwritten public offering by us of common stock, we will offer to each trust
beneficiary holding at the time more than 25,000 trust interests and whose cash
election was not fully satisfied the opportunity to include a number of shares
equal to all of the trust beneficiary's trust interests in the offering. Each
such trust beneficiary may then elect whether it wants to include some or all of
its common stock (held in the trust) in the offering. We will include all shares
desired to be sold in the offering. However, if, based on the advice of a
nationally recognized investment banking firm selected by us, our board of
directors believes that including all such shares would be likely to have an
adverse effect on the price, timing or distribution of the offering, only those
shares, if any, that the board of directors determines can be included without
adversely affecting the offering will be included. If this were to occur, we
will prorate the number of shares that each such trust beneficiary may include
in the offering based on the number of trust interests that each such trust
beneficiary elected to have included in the offering. We will enter into an
underwriting agreement with the underwriters, which will contain indemnification
and other terms acceptable to us and the underwriters. We will bear the costs of
conducting the offering, including the fees and expenses of the underwriters for
the offering. We will establish reasonable procedures for the participation of
such trust beneficiaries in any such offering.
Eligible policyholders owning policies that are individual retirement
annuities, tax sheltered annuities, tax qualified individual life insurance
policies and individual annuity contracts, life or health insurance funding
accounts and guaranteed life insurance funding accounts are required to receive
consideration in the form of policy credits. However, if any such policy has
matured by death or otherwise been surrendered or terminated after September 28,
1999, but prior to the date on which the policy credits would have been
credited, cash in the amount of the policy credits will be paid in lieu of the
policy credits to the person to whom the death benefit, surrender value or other
payment at termination was made under such policy.
The remaining eligible policyholders will be entitled to receive on the
effective date of the plan their allocated shares of Metropolitan Life Insurance
Company common stock, which will then be exchanged on such date for an equal
number of shares of our common stock to be held by the MetLife Policyholder
Trust. We will distribute consideration to eligible policyholders receiving cash
or policy credits as soon as reasonably practicable following the effective date
of the plan, but in any event not later than 60 days after the effective date,
or such later date as may be approved by the New York Superintendent of
Insurance.
Regardless of whether an eligible policyholder is receiving allocated trust
interests, cash or policy credits, the consideration an eligible policyholder
receives under the plan of reorganization will be based on the number of shares
of common stock allocated to the eligible policyholder pursuant to the terms of
the plan of reorganization. The formula for allocating shares of common stock
among eligible policyholders consists of two components. We will allocate a
fixed number of shares of common stock equal to ten shares to each eligible
policyholder, regardless of the number of policies owned by that eligible
policyholder. Additional shares will also be allocated to each eligible
policyholder holding a participating policy -- that is, a policy that is not by
its terms ineligible for dividend payments. The number of such additional shares
will vary for each such eligible policyholder based upon an actuarial formula,
specified in the plan of reorganization, that takes into account, among other
things, the past and future contributions to our statutory surplus from policies
held by the eligible policyholder, as determined by historical experience and
expected future performance.
The amount of the consideration to be paid to an eligible policyholder in
the form of cash or policy credits will generally equal the number of shares of
common stock allocated to the eligible policyholder multiplied by the price per
share at which our common stock is offered to the public in the initial public
offering. The initial public offering price, which will be established through
arm's length negotiations with representatives of the underwriters, will be
based on, among other things, prevailing market conditions, our historical
performance, estimates of our business
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potential and earnings prospects, an assessment of our management and
consideration of the above factors in relation to market valuations of companies
in related businesses. In addition, the final terms of the initial public
offering, including the initial public offering price of our common stock, will
be subject to the approval of the New York Superintendent of Insurance.
We have retained PricewaterhouseCoopers LLP to advise us in connection with
actuarial matters involved in the development of the plan of reorganization and
the payment of consideration to eligible policyholders. The opinion of Kenneth
M. Beck, a principal with the firm of PricewaterhouseCoopers LLP, dated November
16, 1999, states that the plan for allocation of consideration to eligible
policyholders (as defined in the plan of reorganization) as set forth in the
plan of reorganization is fair and equitable to the policyholders of
Metropolitan Life Insurance Company as required by Section 7312 of the New York
Insurance Law. This opinion is included as Annex A of this prospectus.
ESTABLISHMENT AND OPERATION OF THE METLIFE POLICYHOLDER TRUST
Under our plan of reorganization, we will establish the MetLife
Policyholder Trust to hold the shares of our common stock allocated to eligible
policyholders not receiving cash or policy credits.
Each trust beneficiary will have the right to elect to withdraw from the
trust shares of common stock for sale, without the payment of commissions or
brokerage fees, pursuant to the purchase and sale program described below. Sales
may be made at any time after the later of (1) the termination of any
stabilization arrangements and trading restrictions in connection with the
initial public offering and (2) the closing of all underwriters' over-allotment
options which have been exercised and the expiration of all unexercised options
in connection with the initial public offering. We expect that these sales may
begin within approximately 30 days after the plan effective date. In addition,
beginning one year after the plan effective date, trust beneficiaries may elect
to withdraw all (but not less than all) of their allocated shares of our common
stock held through the trust to hold the shares directly, in book entry or
certificated form, or to sell the shares themselves independently, if they wish.
Each trust beneficiary holding fewer than 1,000 trust interests may also
purchase additional shares of our common stock (to be held in the trust) through
the purchase and sale program to increase the trust beneficiary's interests up
to a maximum of 1,000 interests.
The purchase and sale program will be administered by ChaseMellon
Shareholder Services, L.L.C., the program agent for the purchase and sale
program and the custodian for the trust. Generally, each beneficiary may elect
to withdraw from the trust the beneficiary's allocated shares of our common
stock for sale through the purchase and sale program, subject to the following
limitations:
- each trust beneficiary holding 199 or fewer trust interests may elect to
withdraw from the trust for sale the number of shares of our common stock
held by the trust equal to all, but not less than all, of the
beneficiary's trust interests;
- each trust beneficiary holding more than 199 trust interests may elect to
withdraw from the trust for sale a number of shares of our common stock
held by the trust equal to all or part of the beneficiary's trust
interests, subject to the limitation that partial withdrawals may be made
only in increments of 100 shares, and that following any such withdrawal
for sale of part of the trust beneficiary's trust interests the trust
beneficiary holds at least 100 trust interests; and
- for the first 300 days following the effective date of the plan, each
trust beneficiary holding more than 25,000 trust interests will be
subject to the volume limitations described below. Under the purchase and
sale program procedures, if the total shares of our common stock to be
sold on the open market on behalf of trust beneficiaries holding more
than 25,000
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trust interests on any day exceed the lesser of (i) 1/20th of 1% of the
number of shares of our common stock outstanding and (ii) 25% of the
average daily trading volume for the 20 trading days (or such shorter
period, if fewer than 20 trading days have elapsed since the plan
effective date) preceding the trade, the broker-dealer will only process
trades on the open market up to that limit for trust beneficiaries
holding more than 25,000 shares. The broker-dealer affiliate of the
program agent will either defer the excess shares to the next trading day
(which will be subject to the same volume limitations on that day) or
sell the shares as principal through a block trade or through a
nationally recognized brokerage firm that will sell the shares, as agent,
at market clearing prices. For a period of 90 days following the plan
effective date, only the lead managing underwriters for the initial
public offering may sell, as joint agents, the excess shares. After the
first 300 days, these limitations will no longer apply and withdrawals
for sale may be made as permitted under the trust agreement and the
purchase and sale program procedures.
Except for the limitations on sales by trust beneficiaries holding more than
25,000 trust interests, purchases and sales will generally be processed on the
first or second trading day after the day on which instructions are received,
subject to limited exceptions such as an act of God or significant market
disruption.
In addition, the trust agreement allows trust beneficiaries to instruct the
trust custodian to withdraw their allocated trust shares to participate in any
tender or exchange offer or counter offer for our common stock and to make any
cash or share election, or perfect any dissenter's rights, in connection with a
merger of MetLife, Inc.
In addition to the sale features of the purchase and sale program, the
program will permit trust beneficiaries holding fewer than 1,000 trust interests
to elect to purchase additional shares of our common stock (to be held in the
trust) on their behalf, subject to the conditions that upon completion of the
purchase the beneficiary holds no more than 1,000 interests and the total cost
for the purchased shares is at least $250 (or such lesser amount required to
purchase a number of shares that would cause it to hold the 1,000 maximum number
of interests at the closing price of our common stock on the trading day
immediately prior to the mailing of such funds). These purchases may be made at
any time beginning on the first trading day following the 90th day after the
effective date of the plan of reorganization.
Trust beneficiaries making such purchase or sale elections will not be
required to pay any brokerage commissions, mailing charges, registration fees or
other administrative or similar expenses. All purchase and sale elections
received by the program agent for the purchase and sale program will be
processed pursuant to policies and procedures set forth as Exhibit J to the plan
of reorganization, a copy of which has been filed as an exhibit to the
Registration Statement of which this prospectus forms a part. These procedures
may be amended in the future. Trust beneficiaries will be notified of any
changes to the purchase and sale program procedures in the future. Any changes
to the procedures before the first anniversary of the effective date of the plan
of demutualization would require the approval of the New York Superintendent of
Insurance.
The trustee has the exclusive and absolute right to vote, assent or consent
the shares of common stock held in the trust at all times during the term of the
trust. Generally, on all matters brought to our stockholders for a vote, the
trustee will vote in accordance with the recommendation given by our board of
directors to our stockholders or, if no such recommendation is given, as
directed by our board. However, if the matter concerns any of the matters
described below, the trustee will solicit instructions from the trust
beneficiaries and will vote, assent or consent all trust shares, including for
purposes of determining a quorum, in favor of, in opposition to or abstaining
from the matter in the same ratio as trust interests of the trust beneficiaries
who returned voting instructions to the trustee indicated preferences for voting
in favor of, in opposition to or abstaining from such matter. If any such
calculation of votes would require a fractional vote, the trustee will vote the
next lower number of whole shares. In these
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matters, instructions actually given by trust beneficiaries would have
disproportionate weight in the voting. These matters are:
- an election or removal of directors in which a stockholder has properly
nominated one or more candidates in opposition to a nominee or nominees
of our board of directors or a vote on a stockholder's proposal to oppose
a board nominee for director, remove a director for cause or fill the
vacancy caused by the removal of a director by stockholders, provided
that the stockholder making the nomination or proposal deposits funds for
the payment of postage and other expenses for mailing proxy materials to
all of the trust beneficiaries, or such lesser number, holding at least a
majority of the trust interests, that the stockholder seeks to solicit;
- a merger or consolidation, a sale, lease or exchange of all or
substantially all of the assets, or a recapitalization or dissolution of,
MetLife, Inc., in each case requiring a vote of our stockholders under
applicable Delaware law;
- any transaction that would result in an exchange or conversion of shares
of common stock held by the trust for cash, securities or other property;
- issuances of our common stock during the first year after the effective
date of the plan at a price materially less than the then prevailing
market price of our common stock, if a vote of our stockholders is
required to approve the issuance under Delaware law, other than issuances
in an underwritten public offering or pursuant to an employee benefit
plan;
- for the first year after the effective date of the plan, any matter that
requires a supermajority vote of our outstanding stock entitled to vote
thereon under Delaware law or our certificate of incorporation or
by-laws, and any amendment to our certificate of incorporation or by-laws
that is submitted for approval to our stockholders; and
- any proposal requiring our board of directors to amend or redeem the
rights under our stockholder rights plan, other than a proposal with
respect to which we have received advice of nationally-recognized legal
counsel to the effect that the proposal is not a proper subject for
stockholder action under Delaware law.
In the event that voting instructions are required to be solicited from trust
beneficiaries, trust beneficiaries will be mailed proxy statements, annual
reports and other materials with respect to any matter upon which they will
direct the voting of the shares held by the trust. In addition, the custodian
will prepare and mail to each beneficiary (1) an annual statement regarding the
status of such beneficiary's trust interests and any dividends and distributions
received by the trustee with respect to such interests, as well as any interest
earned by the trust with respect to such dividends and distributions, and the
procedures for notifying the custodian of any discrepancies or errors with
respect to such statement, and (2) a notice of the beneficiary's right to make
purchase, sale and withdrawal elections. The custodian will also prepare, file
and mail to each beneficiary all information reports required under federal,
state and local law in respect of the trust beneficiaries. The trustee will
register the trust interests under the Securities Exchange Act of 1934, as
amended, and will prepare and file all periodic and other reports and other
documents pursuant to that Act, including annual reports on Form 10-K containing
financial information regarding the trust, including the amount of dividends
received on the shares of our common stock held by the trust, income from
investments made by the trust and the distribution of those amounts to trust
beneficiaries. The trust will file a similar report on Form 8-K whenever
non-annual distributions are made to trust beneficiaries. The custodian will
inform trust beneficiaries annually, in connection with the expected annual
mailing of dividend checks and account statements, of the availability of the
annual report, and trust beneficiaries who telephone the toll-free number in
order to participate in the purchase and sale program or to obtain further
information will be informed that the annual report is available on our website
or by mail upon request.
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Beneficiaries will be prohibited from selling, transferring, assigning,
encumbering, or granting any option or any other interest in, or otherwise
disposing of, their trust interests, except in limited circumstances set forth
in the trust agreement. Cash dividends, if any, collected or received by the
trustee with respect to the shares of our common stock held by the trust will be
invested by the trustee and distributed, together with interest earned thereon
and net of any applicable withholding taxes, through the custodian of the trust
to the beneficiaries. Regular cash dividends, including interest net of income
taxes, received by June 30 in any calendar year will be distributed on the
following July 31, and those received by December 31 will be distributed on the
following January 31, provided that in no event will such distribution be made
more than 90 days after the receipt of dividends by the trustee. Notwithstanding
this provision, we currently expect to pay dividends directly to the trust
beneficiaries at the same time they are paid to stockholders. Dividends or other
distributions in common stock will be allocated to the beneficiaries pro rata in
accordance with their respective interests in the trust and held by the trustee
as part of the corpus of the trust. All other distributions we may make to
stockholders will be held by the trustee and distributed through the custodian
of the trust as provided in the trust agreement. We will reimburse the trustee
and the custodian for all taxes, fees, commissions and other reasonable
out-of-pocket expenses incurred by the trustee and the custodian, respectively,
except that we will not reimburse the trustee and the custodian for the expense
of mailing to beneficiaries any proxy or other materials received by the trustee
on behalf of persons other than us.
Unless it shall have been previously terminated, the trust will terminate
upon the earlier of:
- 90 days after the trustee receives notice from us that the number of
shares of our common stock held by the trust is 10% or less of the number
of issued and outstanding shares of our common stock; or
- the date on which the last share of our common stock held by the trust
has been withdrawn, distributed or exchanged.
The trust may be terminated earlier upon the first to occur of the
following:
- the 90th day after the trustee receives written notice from us, given in
our discretion, that the number of shares of our common stock held by the
trust is 25% or less of the number of issued and outstanding shares of
our common stock;
- the trustee receives written notice that our board of directors has
determined that continuation of the trust is or is reasonably expected to
become burdensome to us or the trust beneficiaries because of changes in
law or other circumstances;
- any rights issued under a stockholder rights plan adopted by us and held
by the trust pursuant to the trust agreement become separately tradeable
from the shares of our common stock held by the trust to which they
relate; or
- the entry of a final order for termination or dissolution of the trust or
similar relief by a court of competent jurisdiction.
If the trust has not otherwise terminated, it will terminate on the date
necessary to avoid a violation of the rule against perpetuities, if such rule is
applicable.
Upon termination of the trust, the remaining shares of our common stock
held by the trust will be distributed to the trust beneficiaries pro rata, in
accordance with their respective interests in the trust, in book entry form, to
the extent permitted by applicable law, or as otherwise directed by each trust
beneficiary, together with the trust beneficiaries' pro rata share of all unpaid
distributions and dividends and interest earned thereon. The trust provides
that, concurrently with the winding up of the trust, we may, in our discretion,
offer to purchase all or a portion of the shares of our common stock from the
trust at a price equal to the average of the closing prices of our common stock
on the 20 consecutive trading days preceding such offer.
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ESTABLISHMENT AND OPERATION OF THE CLOSED BLOCK
The closed block is an accounting mechanism established to ensure that the
reasonable dividend expectations of policyholders who own certain individual
insurance policies are met. As set forth in the closed block memorandum included
as a schedule to the plan of reorganization, a copy of which has been filed as
an exhibit to the Registration Statement of which this prospectus forms a part,
we will allocate assets to the closed block in an amount that produces cash
flows which, together with anticipated revenue from the closed block policies,
are reasonably expected to be sufficient to support obligations and liabilities
relating to these policies, including, but not limited to, provisions for the
payment of claims and certain expenses and taxes and for continuation of
policyholder dividend scales in effect for 1999, if the experience underlying
such scales continues, and for appropriate adjustments in such scales if the
experience changes. The establishment and operation of the closed block will not
modify or amend the provisions of the policies included therein.
The closed block assets, the cash flows generated by the closed block
assets and the anticipated revenues from the policies in the closed block will
benefit only the holders of the policies included in the closed block. Any cash
flows in excess of amounts assumed will be available for distribution over time
to closed block policyholders and will not be available to our stockholders. See
Note 1 of "Notes to Pro Forma Consolidated Financial Information" for a more
detailed description of the manner in which the financial results of the closed
block will affect the accounting presentation of our results of operations. To
the extent that, over time, cash flows from the assets allocated to the closed
block and claims and other experience relating to the closed block are, in the
aggregate, more or less favorable than assumed in establishing the closed block,
total dividends paid to closed block policyholders in the future may be greater
than or less than the total dividends that would have been paid to these
policyholders if the policyholder dividend scales in effect for 1999 had been
continued. Dividends on policies included in the closed block, as in the past,
will be declared at the discretion of the board of directors of Metropolitan
Life Insurance Company, may vary from time to time, reflecting changes in
investment income, mortality, persistency and other experience factors, and are
not guaranteed. We will not be required to support the payment of dividends on
closed block policies from Metropolitan Life Insurance Company's general funds,
although we could choose to provide such support.
Metropolitan Life Insurance Company will continue to pay guaranteed
benefits under all policies in accordance with their terms, including the
policies included in the closed block. If the assets allocated to the closed
block, the investment cash flows from those assets and the revenues from the
policies included in the closed block prove to be insufficient to pay the
benefits guaranteed under the policies included in the closed block,
Metropolitan Life Insurance Company will be required to make such payments from
its general funds. Since the closed block has been funded to provide for payment
of guaranteed benefits, as well as for continuation of policyholder dividend
scales in effect for 1999, if experience underlying such scales continues, it
should not be necessary to use general funds to pay guaranteed benefits, unless
the policies included in the closed block experience substantial adverse
deviations in investment income, mortality, persistency or other experience
factors. We will use our best efforts to support the policies included in the
closed block with the assets allocated to the closed block. The assets allocated
to the closed block will be subject to the same liabilities (with the same
priority in liquidation) as assets outside the closed block.
As specified in the plan of reorganization, the policies included in the
closed block will generally consist of all classes of United States dollar
denominated individual life insurance policies for which Metropolitan Life
Insurance Company has a dividend scale in effect for 1999, but generally only to
the extent such policies are in force on any date between December 31, 1998 and
the effective date of the plan. A policy may be within a class for which there
is an experience-based dividend scale in effect for 1999 even if it does not
receive a 1999 dividend,
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and, therefore, the policy would be included in the closed block.
Experience-based dividend scales are actuarial formulas used by life insurers to
determine amounts payable as dividends on participating policies based on
experience factors relating to, among other things, investment results,
mortality, lapse rates, expenses, premium taxes and policy loan interest and
utilization rates. The fact that a policy is included in the closed block has no
bearing on whether the holder of that policy is entitled to receive
consideration under the plan or the amount of consideration allocated to the
policyholder.
The closed block includes policies of New England Mutual Life Insurance
Company that were participating policies at the time of its merger with
Metropolitan Life Insurance Company in 1996. Under the terms of the merger,
Metropolitan Life Insurance Company agreed to establish a separate segment
within its general account consisting of assets associated with those policies
plus additional assets. In the aggregate, such assets had a value of $226.4
million at December 31, 1998.
As provided in the plan of reorganization, Metropolitan Life Insurance
Company will add to the closed block premiums and other amounts received by, and
withdraw from the closed block policy benefits and other amounts paid by,
Metropolitan Life Insurance Company on the policies included in the closed
block. Metropolitan Life Insurance Company will charge the closed block with
federal income taxes, state and local premium taxes, and other additive state or
local taxes, as well as investment management expenses relating to the closed
block as provided in the plan of reorganization. Metropolitan Life Insurance
Company will also charge the closed block for expenses of maintaining the
policies included in the closed block. Cash payments with respect to certain
reinsurance will be withdrawn from or paid to the closed block.
The board of directors of Metropolitan Life Insurance Company will set the
dividends on the closed block policies annually, in accordance with applicable
law and consistent with the objective of minimizing tontine effects and
exhausting the assets of the closed block with the final payment made to the
last policy included in the closed block. Metropolitan Life Insurance Company
will retain an independent actuary to review the operations of the closed block
every five years as required by the plan. Additionally, Metropolitan Life
Insurance Company will review the operation of, and prepare an internal report
regarding, the investment operations of the closed block annually.
The closed block will continue in effect until the last policy in the
closed block is no longer in force. The expected life of the closed block is
over 100 years.
CLOSED BLOCK ASSETS AND LIABILITIES
In accordance with the plan of reorganization, we will allocate a portion
of Metropolitan Life Insurance Company's invested assets, as well as cash and
short-term investments, to the closed block. If we had established the closed
block at December 31, 1999, cash and invested assets and their carrying values
would have been as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31, 1999
----------------------------
CARRYING VALUE % OF TOTAL
-------------- ----------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Fixed maturities available-for-sale, at fair value.......... $21,729 70%
Mortgage loans on real estate............................... 4,785 16
Policy loans................................................ 3,747 12
Other invested assets....................................... 404 1
Short-term investments...................................... 8 0
Cash and cash equivalents................................... 251 1
------- ---
Total....................................................... $30,924 100%
======= ===
</TABLE>
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The composition of assets in the closed block will change over time as a
result of new investments. New investments for the closed block acquired on and
after December 31, 1999 with closed block cash flows will be allocated to the
closed block upon acquisition and will consist only of investments permitted by
the plan of reorganization. The assets allocated to the closed block will be
subject to the same liabilities (with the same priority in liquidation) as all
assets in the general account of Metropolitan Life Insurance Company.
If we had established the closed block at December 31, 1999, the policy
liabilities and accruals associated with the closed block would have aggregated
$39,627 million. This amount would have included $38,888 million of policyholder
liabilities, $712 million of dividends payable to policyholders, current income
taxes payable of $14 million and other liabilities of $13 million. See "Pro
Forma Consolidated Financial Information -- Pro Forma Consolidated Balance
Sheet".
We have retained PricewaterhouseCoopers LLP to advise us in connection with
actuarial matters involved in the establishment and operation of the closed
block. The opinion of Kenneth M. Beck, a principal with the firm of
PricewaterhouseCoopers LLP, dated November 16, 1999, states (in reliance upon
the matters and subject to the limitations described in such opinion), among
other things, that MetLife's assets set aside as of December 31, 1998 (including
subsequent adjustments as provided for in the plan), to establish the closed
block, as set forth in the plan, are adequate because they are expected to
produce cash flows which, together with anticipated revenues from the closed
block business, are reasonably expected to be sufficient to support the closed
block business including, but not limited to, provisions for payment of claims
and certain expenses and taxes, and to provide for continuation of dividend
scales payable in 1999, if the experience underlying such scales continues. This
opinion is included as Annex A of this prospectus.
TRANSFERRED CANADIAN POLICIES
In July 1998, Metropolitan Life Insurance Company sold a substantial
portion of its Canadian operations to Clarica Life Insurance Company. As part of
that sale, a large block of policies in effect with Metropolitan Life Insurance
Company in Canada were transferred to Clarica Life, and the holders of the
transferred Canadian policies became policyholders of Clarica Life. Those
transferred policyholders are no longer policyholders of Metropolitan Life
Insurance Company and, therefore, are not entitled to compensation under the
plan of reorganization. However, as a result of a commitment made in connection
with obtaining Canadian regulatory approval of that sale, if Metropolitan Life
Insurance Company demutualizes, its Canadian branch will make cash payments to
those who are, or are deemed to be, holders of these transferred Canadian
policies. The payments, which will be recorded in other expenses in the same
period as the effective date of the plan, will be determined in a manner that is
consistent with the treatment of, and fair and equitable to, eligible
policyholders of Metropolitan Life Insurance Company. The proceeds of the
initial public offering, as well as the net proceeds from the offering of the
units, must be sufficient to reimburse Metropolitan Life Insurance Company for
those payments, as well as to fund mandatory cash payments pursuant to the plan
and policy credits to policyholders and to pay fees and expenses incurred by
Metropolitan Life Insurance Company related to the demutualization. See Notes 2
and 7 of Notes to Pro Forma Consolidated Financial Information.
FEDERAL INCOME TAX CONSEQUENCES OF THE DEMUTUALIZATION
We have received a private letter ruling from the Internal Revenue Service
to the effect that:
- The MetLife Policyholder Trust will be treated as a "grantor trust" for
federal income tax purposes, and each beneficiary of the trust will be
treated for federal income tax purposes as if the beneficiary were the
direct owner of a proportionate interest in the shares of our common
stock (or other property) held in the trust;
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- Beneficiaries of the trust will not recognize gain or loss for federal
income tax purposes as a result of the deposit of shares of our common
stock in the trust or their withdrawal of shares from the trust; and
- The deposit of shares of our common stock in the trust under the terms of
the plan of reorganization will not adversely affect the federal income
tax treatment to eligible policyholders of consideration received under
the plan, or of MetLife, resulting from the conversion of Metropolitan
Life Insurance Company from a mutual life insurance company into a stock
life insurance company owned by MetLife, Inc.
The Internal Revenue Service rulings are based on the accuracy of certain
representations made by us.
Under the terms of the plan of reorganization, the demutualization will not
become effective unless we receive an opinion of our special tax counsel,
Debevoise & Plimpton (or other nationally-recognized tax counsel), to the effect
that:
- Policies issued by Metropolitan Life Insurance Company before the
effective date of the plan will not be treated as newly-issued policies
for any material federal income tax purpose as a result of the
demutualization of Metropolitan Life Insurance Company under the plan;
- Eligible policyholders receiving solely interests in the trust will not
recognize gain or loss for federal income tax purposes as a result of the
demutualization of Metropolitan Life Insurance Company under the plan;
- The consummation of the plan of reorganization, including the crediting
of policy credits to a policy under the terms of the plan, will not
adversely affect any tax-favored status accorded to the policy under the
Internal Revenue Code, and will not be treated as a contribution or
distribution that results in penalties to the holder; and
- The summary of the principal U.S. federal income tax consequences to
eligible policyholders of their receipt of consideration under the plan
of reorganization that is contained under the heading "Federal Income Tax
Consequences" in the information booklet provided to policyholders is
correct and complete in all material respects.
In addition to the required opinion described above regarding the federal
income tax treatment to policyholders, it is also a condition to the
effectiveness of the plan that we receive an opinion from our special tax
counsel to the effect that:
- MetLife, Inc. will not recognize any gain or loss for federal income tax
purposes as a result of (1) its issuance of its common stock to the
trust; (2) its receipt of shares of Metropolitan Life Insurance Company
common stock; (3) its cancellation, for no consideration, of its common
stock previously issued to and held by the Metropolitan Life Insurance
Company immediately prior to the effective date of the plan; or (4) its
sale of shares of its common stock in the initial public offering for
cash; and
- The conversion of Metropolitan Life Insurance Company from a mutual life
insurance company to a stock life insurance company will qualify as a
"reorganization" under the Internal Revenue Code.
We have received an additional opinion from Debevoise & Plimpton, our
special tax counsel, which is not required under the terms of the plan, to the
effect that, under the Internal Revenue Code, the regulations issued thereunder,
and current Internal Revenue Service and judicial interpretations of the
Internal Revenue Code and regulations:
- The affiliated federal income tax group of which Metropolitan Life
Insurance Company is the common parent immediately before the
demutualization will remain in existence after the effectiveness of the
plan, with MetLife, Inc. as the common parent; and
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- Following its conversion from a mutual life insurance company to a stock
life insurance company, Metropolitan Life Insurance Company will continue
to be an eligible member for inclusion in that affiliated federal income
tax group.
Based on the Internal Revenue Service rulings we have received and the
opinions of our special tax counsel described above, we believe that MetLife
will not realize significant income, gain or loss for federal income tax
purposes as a result of the consummation of the demutualization under the terms
of the plan of reorganization.
The opinions of special tax counsel described above are based on the
accuracy of representations and undertakings made by us. We have not sought a
private letter ruling from the Internal Revenue Service regarding the matters
addressed by the opinions of special tax counsel described above.
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BUSINESS
We are a leading provider of insurance and financial services to a broad
spectrum of individual and institutional customers. We currently provide
individual insurance, annuities and investment products to approximately nine
million households, or one of every eleven households in the U.S. We also
provide group insurance and retirement and savings products and services to
approximately 64,000 corporations and other institutions, including 86 of the
FORTUNE 100 largest companies. Our institutional clients have approximately 33
million employees and members.
We are a leader in each of our major U.S. businesses. We believe that our
unparalleled franchises and brand names uniquely position us to be the
preeminent provider of insurance and financial services in the U.S. businesses
in which we compete.
We are one of the largest and best capitalized insurance and financial
services companies in the U.S. Our revenues for 1999 were $25.4 billion and our
net income was $617 million. We had total consolidated assets of $225.2 billion
and equity of $13.7 billion at December 31, 1999.
We are organized into five major business segments: Individual Business,
Institutional Business, Asset Management, Auto & Home and International.
INDIVIDUAL BUSINESS. Individual Business offers a wide variety of
protection and asset accumulation products for individuals, including life
insurance and annuities. Individual Business also distributes products
provided by our other business segments, including mutual funds and auto
and homeowners insurance. Reflecting overall trends in the insurance
industry, sales of our traditional life insurance products have declined in
recent years, while first-year premiums and deposits from variable life
insurance products have grown at a compound annual rate of 33.1% for the
five years ended 1999 and represented 67.4% of our total life insurance
sales for Individual Business in 1999. Our principal distribution channels
are the MetLife career agency and the New England Financial general agency
distribution systems and, after our recent acquisition of GenAmerica
Corporation, GenAmerica's independent general agency system. We also have
dedicated sales forces that market to non-profit organizations and banks
and their customers. In total, we had approximately 11,000 active sales
representatives in 1999. In addition to these distribution channels, we are
increasing the distribution of our products through independent insurance
agents and registered representatives. We believe our ability to
effectively manage these multiple distribution channels represents a
significant competitive advantage. Individual Business had $11.1 billion of
revenues, or 43.5% of our total revenues, and $565 million of operating
income in 1999.
INSTITUTIONAL BUSINESS. Institutional Business offers a broad range
of group insurance and retirement and savings products and services. Our
group insurance products and services include group life insurance and
non-medical health insurance such as short- and long-term disability,
long-term care and dental insurance, as well as other related products and
services. Our group insurance premiums, fees and other income, which
totaled $5.9 billion in 1999, have grown at a compound annual rate of 10.0%
for the three years ended 1999. Our retirement and savings products and
services include administrative services sold to sponsors of 401(k) and
other defined contribution plans, guaranteed interest products and separate
account products. We distribute our Institutional Business products through
a sales force of approximately 300 MetLife employees that is organized by
both customer size and product. In total, we have approximately 64,000
institutional customers, including 86 of the FORTUNE 100 largest companies.
Institutional Business had $10.4 billion of revenues, or 40.8% of our total
revenues, and $585 million of operating income in 1999.
ASSET MANAGEMENT. Through our wholly-owned subsidiary, State Street
Research & Management Company, and our controlling interest in Nvest
Companies, L.P. and its affiliates, Asset Management provides a broad
variety of asset management products and services primarily to third-party
institutions and individuals. Our Asset Management segment
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managed $189.8 billion of our total assets under management at December 31,
1999, including $54.9 billion of assets in mutual funds and in separate
accounts supporting individual variable life and annuity products. For the
five years ended 1999, this segment's assets under management grew at a
compound annual rate of 14.2%. We distribute our asset management products
through several distribution channels, including State Street Research's
and Nvest's dedicated sales forces and also through our Individual Business
and Institutional Business distribution channels. Asset Management had $0.9
billion of revenues, or 3.5% of our total revenues, and $51 million of
operating income in 1999.
AUTO & HOME. Auto & Home offers auto insurance, homeowners insurance
and other personal property and casualty insurance products. We sell these
products directly to employees through employer-sponsored programs, as well
as through a variety of retail distribution channels. These channels
include agents in the MetLife career agency system, approximately 6,000
independent agents and brokers, which includes those of The St. Paul
Companies acquired in 1999, and approximately 385 Auto & Home specialists.
We are the leading provider of personal auto and homeowners insurance
through employer-sponsored programs in the U.S. Net premiums earned from
products sold through employer-sponsored programs have grown at a 14.3%
compound annual rate for the five years ended 1999. On September 30, 1999,
our Auto & Home segment acquired the standard personal insurance operations
of The St. Paul Companies, which had in-force premiums of approximately
$1.1 billion, substantially increasing the size of our personal lines
business, making us the eleventh largest personal property and casualty
insurer in the U.S. based on 1998 net premiums written. See
"Business -- Auto & Home". Auto & Home had $1.9 billion of revenues, or
7.4% of our total revenues, and $54 million of operating income in 1999.
INTERNATIONAL. We have international insurance operations in ten
countries, with a focus on the Asia/Pacific region, Latin America and
selected European countries. Our International segment offers life
insurance, accident and health insurance, annuities and retirement and
savings products and services to both individuals and groups and auto and
homeowners coverage to individuals. Assets of our International segment, as
adjusted for the recent divestitures of a substantial portion of our U.K.
and Canadian operations, have grown at a compound annual rate of 21.4% for
the five years ended 1999. International had $0.8 billion of revenues, or
3.1% of our total revenues, and $18 million of operating income in 1999.
STRATEGY
Our mission is to build financial freedom for everyone. Consistent with
this mission, our goal is to be the preeminent provider of insurance and
financial services in each of the U.S. businesses in which we compete. In order
to achieve that goal, we will pursue the following strategies across all of our
business segments:
BUILD ON WIDELY RECOGNIZED BRAND NAMES
Our widely recognized brand names are among our most valuable assets. We
believe that our leading market share positions in the insurance and financial
services industries, our long history of innovation, integrity and reliability,
and our reputation for high quality products and services to individuals and
institutions have resulted in the MetLife name becoming one of the most
well-known brand names in the U.S. We have also been successful in utilizing
additional brand names, such as New England Financial, Security First Group and
State Street Research, for specific market segments. We believe our recent
acquisition of GenAmerica and RGA further strengthens our brand portfolio. In
addition, we believe that our brand names give us a key competitive advantage,
allowing us to continue to build and maintain strong relationships with our
customers and distributors. We intend to continue to aggressively capitalize on
our brand recognition across multiple products, distribution channels and
customer groups.
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CAPITALIZE ON LARGE CUSTOMER BASE
As a leading provider of insurance and financial services for over 130
years, we have built an unparalleled base of customers, including nine million
households, or one of every eleven households in the U.S., and approximately
64,000 institutional customers with approximately 33 million employees and
members. We believe that our large, existing customer base represents a
significant growth opportunity. We intend to pursue the following growth
initiatives:
- enhancing our relationships with our existing individual customers by:
- offering a broad array of products that meets the needs of our
customers throughout their entire life cycle of financial needs;
- improving the training of our agents and other financial services
representatives to strengthen their ability to serve the needs of our
customers; and
- developing direct marketing programs in partnership with our agency
sales force to identify additional sales opportunities among our
existing customers;
- programs offering financial advice and education, retirement planning and
beneficiary assistance services directly to employees of our
institutional customers; and
- increasing sales to our institutional customers by expanding the offering
of voluntary (employee-paid) products, including auto and homeowners and
long-term care insurance and pre-paid legal services plans.
EXPAND MULTIPLE DISTRIBUTION CHANNELS
We believe that our development and successful management of multiple
distribution channels represent a significant competitive advantage. Our
multiple distribution channels include our proprietary career and general agency
distribution systems and our nationwide Institutional Business sales force, as
well as a wide variety of other distribution channels in each of our business
segments. We intend to grow our core distribution channels and to continue to
build complementary distribution channels for sales of our products.
We believe our career agency and general agency systems provide us with
important advantages, allowing us to more effectively control our distribution
and build and maintain long-term relationships with our customers. Our objective
is to increase the size and productivity of our agency distribution systems by:
- expanding our investment in the recruiting, training and retention of
agents, including changing our compensation practices to improve
incentives for more productive agents and increasing our recruiting of
agencies as well as individual agents; and
- enhancing the technology that supports agents, including improving their
access to product and client information and offering more sophisticated
client management systems to enable them to service larger numbers of
clients and prospects more effectively.
Our four-year agent retention rate has improved from 10.2% in 1995 to 24.2%
in 1999. The industry average in 1998 was 14.2%. During the period from 1995 to
1999, the productivity of our career and general agency distribution systems, as
measured by NET SALES CREDITS per agent, an industry measure for agent
productivity, has grown at a compound annual rate of 12.0%.
In addition to our core distribution channels, we have also developed and
seek to expand additional complementary distribution channels that provide
opportunities for further growth. Examples of our initiatives include:
- our recent acquisition of GenAmerica, which sells its life insurance and
annuity products through multiple distribution channels;
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- our recent acquisitions of Security First Group and the Nathan & Lewis
companies, which increased our presence in the fast-growing bank and
broker-dealer distribution channels;
- expanding our marketing efforts to the independent agency community by
introducing new products and programs;
- establishing the Small Business Center, which has offices located
throughout the U.S., to better access the rapidly growing small-sized
institutional markets;
- entering into joint ventures and other arrangements with third parties to
expand the marketing and distribution opportunities of our Institutional
Business products and services;
- establishing additional distribution channels for Asset Management,
including the development of a dedicated sales force for State Street
Research and increased coordination of distribution among Nvest's
investment managers; and
- introducing a direct response marketing program to generate additional
Auto & Home sales.
Complementary distribution channels within Individual Business accounted
for 2.4% of first-year life insurance premiums and deposits and 32.2% of annuity
premiums and deposits in 1999. In addition, premiums and other income from
products sold through Institutional Business' Small Business Center have grown
at a compound annual rate of 28.1% for the three years ended 1999 and totaled
$328 million in 1999.
CONTINUE TO INTRODUCE INNOVATIVE AND COMPETITIVE PRODUCTS
The products and services offered by the financial services industry
continue to evolve as the financial needs of consumers change. We intend to be
at the forefront of the insurance and financial services industries in offering
innovative and competitive products to our customers. Recent initiatives
include:
- new or revised products covering a substantial portion of our individual
product offerings, including the introduction of a new variable universal
life product, a long-term care insurance product and an equity additions
feature to our traditional participating whole life insurance product,
which allows policyholder dividends to be invested in an equity index
account; and
- new voluntary institutional products, including long-term care and auto
and homeowners insurance, as well as pre-paid legal services plans, for
employees of our Institutional Business customers.
INCREASE FOCUS ON ASSET ACCUMULATION PRODUCTS
We intend to expand our assets under management in both our insurance
operations and our Asset Management segment by increasing our focus on sales of
asset accumulation products, including variable life and annuity products,
mutual funds and 401(k) plan products, which we believe provide a stable source
of fee income as well as a higher operating return on equity compared with
traditional insurance products. During the five years ended 1999, the separate
account liabilities related to our individual variable annuity products grew at
a 38.2% compound annual rate, and totaled $20.7 billion at December 31, 1999.
Assets under management for mutual funds and separate accounts supporting
individual variable life and annuity products grew at a compound annual rate of
16.7% for the five years ended 1999, and totaled $54.9 billion at December 31,
1999. In addition, primarily through two recent acquisitions, our Institutional
Business segment has become a leading provider of administrative services in the
defined contribution 401(k) plan market. We intend to use this position to
attract more 401(k) plan assets for our Asset Management segment.
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REDUCE OPERATING EXPENSES
We are committed to improving profitability by reducing operating expenses.
As part of an overall program to reduce operating expenses and enhance the
efficiency of our operations, we have implemented the following programs:
- during 1998, we reduced the number of non-sales positions by 2,267, an
11% reduction, and during 1999, we reduced the number of non-sales
positions by 1,856, or 7%;
- in 1999, as part of an internal reorganization, we began to integrate the
operations of New England Financial, which since its merger with MetLife
had been operated as a separate division, with the individual insurance
operations of MetLife, and further consolidate administrative services
throughout our organization; we believe this will reduce operating
expenses by eliminating redundancies; and
- we have made substantial investments in technological improvements in
recent years, totaling approximately $925 million for the three years
ended 1999, which we believe will enhance the efficiency of our
operations, as well as improve our customer service and financial
reporting.
STRENGTHEN PERFORMANCE-ORIENTED CULTURE
Our management team intends to strengthen the performance-oriented culture
throughout our organization. We have implemented a number of initiatives to
significantly enhance the performance of our employees, including:
- establishing a new compensation program to better align compensation with
individual and MetLife performance;
- enhancing the expertise of our management and workforce by selectively
hiring experienced new employees at all levels of our organization, with
28% of new officer appointments for the three years ended 1999 coming
from outside MetLife;
- expanding our training effort, including new management training programs
for all of our officers and expanded training for our employees; and
- implementing a new performance measurement and review program for our
employees to increase individual accountability and better align
individual and corporate goals.
CONTINUE TO OPTIMIZE OPERATING RETURNS FROM INVESTMENT PORTFOLIO
The return on our invested assets has contributed significantly to our
earnings growth. Over the past three years, we have repositioned our investment
portfolio in order to provide a higher operating rate of return on our invested
assets. In connection with that repositioning, we reduced our investments in
treasury securities and corporate equities and have increased our investments in
fixed maturities with higher current yields. At the same time, we have continued
to maintain a prudent asset mix, with investment grade fixed maturities
constituting 91.0% of our total fixed maturities at December 31, 1999. We
believe that the expertise of our investment department will enable us to
continue to optimize the operating returns on our invested assets in the future.
ENHANCE CAPITAL EFFICIENCY OF OUR OPERATIONS
We seek to maximize our operating return on equity by enhancing the capital
efficiency of our operations. We have recently implemented a new internal
capital allocation system that we believe will allow us to more effectively
invest our capital. Consistent with a more disciplined approach to capital
allocation, we have divested operations that did not meet targeted rates of
return or growth, including our medical insurance operations, substantial
portions of our U.K. and Canadian operations and our commercial leasing
business. We also intend to increase sales of asset accumulation products, such
as variable life and annuity products, that require less capital
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than traditional insurance products. In addition, as a publicly traded stock
company, we will have a greater ability to make acquisitions and raise external
capital in a more efficient manner, which we believe will increase our adjusted
operating return on equity and enhance stockholder value.
FOCUS INTERNATIONAL OPERATIONS ON GROWING MARKETS
We have established insurance operations in selected international markets
that are experiencing significant growth in demand for insurance products and
where we believe we can gain significant market share. We intend to expand our
international operations by continuing to make capital investments in countries
in which we have existing operations, as well as in selected new markets, either
through start-up operations or by acquisition. We now have operations in ten
emerging insurance markets, including Indonesia and Uruguay, which we entered in
1998, and Brazil, which we entered in 1999. In addition, at the end of 1999, we
obtained a license to sell life insurance in Poland. As part of our strategy to
focus on growth markets, as well as to divest operations that would not meet our
financial objectives, we disposed of substantial portions of our operations in
the U.K. in 1997 and in Canada in 1998.
INDIVIDUAL BUSINESS
Our Individual Business segment offers a wide variety of protection and
asset accumulation products aimed at serving the financial needs of our
customers throughout their entire life cycle. Products offered by Individual
Business include insurance products such as traditional, universal and variable
life insurance, individual disability insurance and long-term care insurance and
annuities and investment products such as variable and fixed annuities and
mutual funds. Our principal distribution channels are the MetLife career agency
and the New England Financial general agency distribution systems and, after our
recent acquisition of GenAmerica Corporation, GenAmerica's independent general
agency system. We also have dedicated sales forces that market to non-profit
organizations and banks and their customers. In total, we had approximately
11,000 active sales representatives in 1999. In addition to these distribution
channels, we are increasing the distribution of our products through independent
insurance agents and registered representatives.
Our broadly recognized brand names and strong distribution channels have
allowed us to maintain our position as the largest provider of individual life
insurance and annuities in the U.S., with $11.5 billion of total individual life
and annuity premiums and deposits in 1999. Through September 30, 1999 we were
also the largest issuer of individual variable life insurance in the U.S. with
$278.7 million in first-year premiums and deposits, and the seventh largest
variable annuity writer with approximately $24.1 billion in variable annuity
assets managed.
The U.S. individual life insurance industry had approximately $12.7
trillion of insurance in force and $1.3 trillion of total annuity assets at or
for the year ended December 31, 1998. The U.S. insurance and investment market
has undergone tremendous change in recent years, as Americans have begun to rely
less on traditional life insurance, defined benefit retirement plans, social
security and other government programs and the "baby-boom" generation has begun
to enter their prime savings years. At the same time, technology advances have
greatly increased the availability and timeliness of information so consumers
are better informed about financial products and the state of their financial
affairs. As a result of these trends, sales of mutual funds, variable annuities
and other savings products have increased. We believe that the growth of
annuities and investment products will continue and that, as the baby-boom
generation begins to retire, asset payout products will also increase in
importance. We believe that, as these trends continue, the types of products we
offer, including variable life insurance, fixed and variable annuities and
long-term care insurance, will become the products of choice for the protection
and transfer of wealth.
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INDIVIDUAL BUSINESS STRATEGY
BUILD ON WIDELY RECOGNIZED BRAND NAMES. We believe we have one of the most
well-known brand names in the U.S., built through our leading market share
positions in the insurance and financial services industries, our reputation for
high quality products and services and our long practice of advertising the
MetLife name and Peanuts(TM) characters. We have also successfully used
additional brand names in our Individual Business segment, such as New England
Financial, Security First Group and Texas Life, to focus on specific market
segments. We believe our recent acquisition of GenAmerica further strengthens
our brand portfolio. In addition, we believe that our brand names give us a key
competitive advantage, allowing us to continue to build and maintain strong
relationships with our customers and distributors. We intend to continue to
aggressively capitalize on our brand recognition across multiple products,
distribution channels and customer groups.
CAPITALIZE ON LARGE CUSTOMER BASE. We believe consumers increasingly seek
comprehensive financial advice and information regarding their financial affairs
and superior products that serve them throughout the different stages of their
lives. We believe that building long-term relationships with our large existing
customer base represents a significant growth opportunity. Approximately nine
million households, or one of every eleven households in the U.S., own a MetLife
individual product. Our goal is to obtain a larger share of the individual
insurance, annuities and investment products purchased by these households by
providing them with the best products and services that are available to meet
their needs. We intend to pursue the following key initiatives:
- offering a broad array of products that meet the financial needs of our
customers throughout their entire life cycle, including protection
products, such as life and disability insurance; asset accumulation
products, such as annuities and mutual funds; asset distribution
products, such as payout annuities; and wealth transfer products, such as
life insurance and long-term care insurance;
- improving the training of our agents and other financial services
representatives to strengthen their ability to offer sophisticated
financial advice to our customers; and
- developing direct marketing programs in partnership with our agency sales
force to identify additional sales opportunities among our existing
customers.
We also seek to utilize our historically strong position among our institutional
customers to provide programs offering financial advice and education,
retirement planning and beneficiary assistance services to their employees.
GROW CORE DISTRIBUTION CHANNELS. Although we utilize a number of different
distribution channels to market our individual products, we believe that our
core career agency and general agency distribution systems are among our most
valuable assets, allowing us to more effectively control our distribution and
build and maintain long-term relationships with our customers. We intend to
increase the size and productivity of our agency distribution systems by:
- expanding our investment in the recruiting, training and retention of
agents, including changing our compensation practices to improve
incentives for more productive agents and increasing our recruiting of
agencies as well as individual agents; and
- enhancing the technology that serves agents, including improving their
access to product and client information and offering more sophisticated
client management systems to enable them to service larger groups of
clients and prospects more effectively.
The productivity of our career and general agency distribution systems, as
measured by net sales credits per agent, an industry measure for agent
productivity, has grown at a compound annual rate of 12.0% for the five years
ended 1999. During that period, our four-year agent retention rate has improved
from 10.2% in 1995 to 24.2% in 1999. The industry average in 1998 was 14.2%.
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INCREASE DISTRIBUTION THROUGH OTHER CHANNELS. We expect to continue
aggressively seeking opportunities to expand our distribution capabilities in
attractive markets. In 1997, we acquired Security First Group, which expanded
our distribution through the rapidly growing bank market for annuities and
investment products and to the nonprofit, educational and health care markets.
In 1998, we purchased Nathan & Lewis, which increased our presence in the
fast-growing broker-dealer distribution channel. Our recent acquisition of
GenAmerica added its multiple distribution channels, including its independent
general agency system. We also expect to increase our use of independent life
agents and registered representatives in the future. Sales through additional
channels represented 2.4% of annualized first-year life insurance premiums and
deposits and 32.2% of individual annuity premiums and deposits in 1999.
CONTINUE TO INTRODUCE INNOVATIVE AND COMPETITIVE PRODUCTS. The products
offered by the financial services industry continue to evolve as the financial
needs of consumers change and as technology improves. We intend to be at the
forefront of the insurance and financial services industries in offering
innovative and competitive products to our customers. Recent initiatives
include:
- continuing to enhance the competitiveness of our products, such as the
1998 introduction of new or revised products covering a substantial
portion of our product offerings;
- creating products to reflect the needs of specific distribution channels
and by marketing products under several brand names, including MetLife,
New England Financial, Security First, Texas Life and General American
Life; and
- distributing products created by others, such as mutual funds and 401(k)
plans, which may be offered under one of our own brand names or carry the
name of the company that created them.
MARKETING AND DISTRIBUTION
We target the large, middle-income market, as well as affluent individuals,
owners of small businesses and executives of small to medium-sized companies. We
have also been successful in selling our products in various multicultural
markets. We distribute our individual products nationwide through multiple
channels, with the primary distribution systems being the MetLife career agency
system and the New England Financial general agency system. While continuing to
invest in our traditional distribution channels, we have also expanded into
additional channels in order to supplement our growth or penetrate specific
target markets. During the year ended December 31, 1999, the MetLife career
agency and the New England Financial general agency systems and our additional
distribution channels accounted for 49.8%, 47.8% and 2.4%, respectively, of
first-year premiums and deposits for individual life insurance and 54.9%, 12.9%
and 32.2%, respectively, of individual annuity deposits.
METLIFE CAREER AGENCY SYSTEM. The MetLife career agency system had 6,866
agents in 318 agencies at December 31, 1999. Our career agency sales force
focuses on the large, middle-income market, including multicultural markets. The
average face amount of a life insurance policy sold through the career agency
system in 1999 was approximately $160,000.
Agents in our career agency system are full-time MetLife employees whom we
compensate primarily with commissions based on sales. As our employees, they
also receive certain benefits. Agents in our career agency system may not offer
products of other insurers without our approval. At December 31, 1999,
approximately 93% of the agents in our career agency system were licensed to
sell one or more of the following products: variable life insurance, variable
annuities or mutual funds.
We support our efforts in multicultural markets through targeted
advertising, specially trained agents and sales literature written in
non-English languages. We estimate sales in multicultural markets represent
one-fourth of MetLife's career agency individual life sales.
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From 1994 to 1998, the number of agents in the MetLife career agency system
declined, from 9,521 to 6,853. Most of this decline was due to a reduction in
the number of less experienced agents, with the number of agents having at least
five years of experience at MetLife declining from approximately 4,100 to
approximately 3,400 during this period. We believe that this decline was
principally the result of the adverse impact of sales practices litigation
brought against us beginning in the early 1990s, the establishment of more
stringent company-wide criteria for recruiting and retaining agents and a
consolidation of sales offices and changes in compensation practices for our
sales force during this period. We have undertaken several initiatives to grow
our career agency force in the future, including expanding our investment in the
recruiting, training and retention of agents, changing our compensation
practices to improve incentives for more productive agents and increasing our
recruiting of agencies as well as individual agents. At December 31, 1999, the
number of agents in the MetLife career agency system was 6,866. In addition, our
career agency system is increasingly productive, with net sales credits per
agent, an industry measure for agent productivity, growing at a compound annual
rate of 10.6% for the five years ended 1999.
NEW ENGLAND FINANCIAL GENERAL AGENCY SYSTEM. In 1996, we merged with the
parent company of New England Life Insurance Company, which afforded us better
access to its target market of affluent individuals, owners of small businesses
and executives of small- to medium-sized companies. We operate the New England
Life Insurance Company business through our New England Financial division. The
average face amount of a life insurance policy sold through the New England
Financial general agency system in 1999 was approximately $310,000. At December
31, 1999, New England Financial's sales force comprised 76 general agencies
providing support to 2,825 agents and a network of independent brokers
throughout the U.S. The compensation of both agents, who are independent
contractors, and general agents, who have exclusive contracts with New England
Financial, is based on sales, although we also provide general agents with an
allowance for benefits and other expenses.
New England Financial has a highly trained general agency sales force and,
according to The American College, in 1998 ranked third in the insurance
industry in the percentage of agents who are Chartered Life Underwriters and
Chartered Financial Consultants. Approximately 92% of New England Financial's
general agents are licensed to sell variable products and mutual funds. New
England Financial's general agency sales force increased total agent count by
123 agents in 1999; we believe it is one of the few life insurance organizations
to register a significant increase in agents in 1999. To capitalize on its
distribution strengths and achieve even higher levels of performance and agent
retention, New England Financial is creating a compensation system in which the
interests of the company and its top performing agents and field managers are
more closely aligned. Productivity of the New England Financial general agency
force, as measured by net sales credits, has grown at a compound annual rate of
13.8% for the five years ended 1999.
ADDITIONAL DISTRIBUTION CHANNELS. We also distribute our individual
insurance and investment products through several additional distribution
channels, including Nathan & Lewis, MetLife Brokerage, New England Financial's
Independent Producer Network, the Security First Group, MetLife Resources and
Texas Life.
Nathan & Lewis. Nathan & Lewis Securities, Inc., a MetLife subsidiary
acquired in 1998, is a broker-dealer that markets mutual funds and other
securities, as well as variable life insurance and variable annuity
products, through approximately 1,000 independent registered
representatives. With the acquisition, we obtained the use of Nathan &
Lewis's account information and client management systems, which we intend
to integrate into our other broker-dealer operations.
Independent Distribution Network. In 1999, Individual Business
combined MetLife Brokerage, a division of MetLife, and New England
Financial's Independent Producer Network to create the Independent
Distribution Network (IDN). IDN will market integrated,
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specially-designed insurance products to upper income customers in the
wealth preservation market through approximately 1,000 independent retail
and wholesale insurance brokerage agencies, independent producers and
agents in the career and general agency systems.
Security First Group. Security First Group, a MetLife subsidiary
acquired in 1997, distributes proprietary and third-party fixed and
variable annuity products and mutual funds to customers of approximately 65
national, regional and community banks.
MetLife Resources. MetLife Resources, a division of MetLife, markets
retirement, annuity and other financial products on a national basis
through approximately 415 agents and independent brokers. MetLife Resources
targets the nonprofit, educational and health care markets.
Texas Life. Texas Life, a MetLife subsidiary, markets whole life and
universal life insurance products under the Texas Life name through
approximately 1,585 active independent insurance brokers. These brokers are
independent contractors that sell insurance for Texas Life on a
nonexclusive basis. Recently, a number of MetLife career agents have also
begun to market Texas Life products. Texas Life sells permanent life
insurance policies with low cash values that are marketed through the use
of brochures, as well as payroll deduction life insurance products.
PRODUCTS
We offer a wide variety of individual insurance, annuities and investment
products aimed at serving our customers' financial needs throughout their entire
life cycle. Our individual insurance products consist of variable life,
universal life, whole life, term life and other insurance products. Our
individual annuities and investment products consist of variable and fixed
annuities and mutual funds.
The following table sets forth selected financial information regarding our
individual insurance, annuities and investment products at the dates or for the
periods indicated:
INDIVIDUAL INSURANCE, ANNUITIES AND INVESTMENT PRODUCTS
<TABLE>
<CAPTION>
AT OR FOR THE YEARS ENDED
DECEMBER 31,
------------------------------------
1999 1998 1997
---- ---- ----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
INSURANCE PRODUCTS:
Variable life:
First-year premiums/Deposits.............................. $ 389.1 $ 371.0 $ 242.2
Premiums/Deposits......................................... $ 997.7 $ 857.1 $ 657.3
Number of policies........................................ 480,107 415,933 360,790
Future policy benefits/Policy account balance............. $ 381.4 $ 289.7 $ 226.8
Separate account liability................................ $ 4,160.0 $ 3,148.4 $ 2,063.1
Life insurance in force................................... $ 81,146.8 $ 65,902.1 $ 52,647.2
Universal life:
First-year premiums/Deposits.............................. $ 14.8 $ 20.7 $ 28.7
Premiums/Deposits......................................... $ 556.1 $ 578.0 $ 613.6
Number of policies........................................ 907,214 1,058,081 1,097,026
Future policy benefits/Policy account balance............. $ 5,870.0 $ 5,793.2 $ 5,688.0
Life insurance in force................................... $ 78,729.0 $ 82,330.3 $ 86,016.9
Whole life:
First-year premiums/Deposits.............................. $ 135.8 $ 162.2 $ 198.7
Premiums/Deposits......................................... $ 3,834.2 $ 3,843.7 $ 3,859.4
Number of policies........................................ 7,788,905 8,160,567 8,532,166
Future policy benefits/Policy account balance............. $ 36,887.6 $ 35,725.8 $ 34,589.8
Life insurance in force................................... $193,522.8 $193,819.5 $196,785.8
</TABLE>
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<TABLE>
<CAPTION>
AT OR FOR THE YEARS ENDED
DECEMBER 31,
------------------------------------
1999 1998 1997
---- ---- ----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Term life:
First-year premiums/Deposits.............................. $ 37.2 $ 42.6 $ 29.7
Premiums/Deposits......................................... $ 312.3 $ 307.6 $ 284.8
Number of policies........................................ 659,742 675,362 689,767
Future policy benefits/Policy account balance............. $ 483.6 $ 454.0 $ 435.6
Life insurance in force................................... $126,511.6 $123,561.8 $117,443.2
Other Individual insurance products:(1)
First-year premiums/Deposits.............................. $ 432.9 $ 295.7 $ 269.0
Premiums/Deposits......................................... $ 1,221.3 $ 1,082.2 $ 1,011.5
Number of policies........................................ 3,004,914 3,173,831 3,411,881
Future policy benefits/Policy account balance............. $ 5,213.4 $ 5,186.2 $ 5,549.9
Separate account liability................................ $ 3,950.1 $ 4,020.8 $ 3,457.3
ANNUITIES AND INVESTMENT PRODUCTS:
Annuities:
Premiums/Deposits......................................... $ 4,547.0 $ 3,992.6 $ 3,167.1
Number of contracts....................................... 1,483,874 1,453,943 1,411,103
Future policy benefits/policy account balance............. $ 21,022.3 $ 21,100.2 $ 21,313.2
Separate account liability................................ $ 20,718.2 $ 15,844.0 $ 11,686.4
Mutual funds:
Deposits.................................................. $ 3,848.2 $ 3,303.1 $ 2,540.4
</TABLE>
- ---------------
(1) Consists of individual disability insurance products; individual long-term
care insurance products; small face amount life insurance policies sold by
our agents until 1964, known as industrial policies; and employee benefit
products and group pension products sold through New England Financial.
Reflecting trends in the insurance industry, sales of mutual funds,
variable annuities, variable life insurance policies and other savings products
have increased in recent years, while sales of our traditional insurance
products have declined. During the five years ended 1999, the separate account
liabilities related to our individual variable annuity products grew at a 38.2%
compound annual rate, and totaled $20.7 billion at December 31, 1999. First-year
premiums and deposits for variable life insurance products have grown at a 33.1%
compound annual rate and were $389.1 million in 1999. During this same period,
mutual fund sales have grown at a 29.7% compound annual rate and in 1999
accounted for $3.8 billion of deposits. Sales of whole and term life insurance
products, however, declined during this period, to $173.0 million of first-year
premiums and deposits in 1999 from $341.6 million in 1995, which represented an
annual rate of decline of 15.6%.
INSURANCE PRODUCTS
Our individual insurance products include variable life products, universal
life products, traditional life products, including whole life and term
insurance, and other insurance products, including individual disability
insurance and long-term care insurance products, which are designed to meet a
multitude of consumer needs.
We continually review and update our products. We have introduced new
products and features designed to increase the competitiveness of our portfolio
and the flexibility of our products to meet the broad range of asset
accumulation, protection and distribution needs of our customers. Some of these
updates have included the introduction of a new variable universal life product,
a long-term care insurance product and an equity additions feature to our
traditional participating whole life insurance product, which allows
policyholder dividends to be invested in a stock index investment account.
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Distribution options under life policies and under both fixed and variable
annuities include level payments guaranteed for the lifetime of the owner or
beneficiary, for a specified term or combinations of these two options.
Distribution options may be accessed through an immediate annuity or following
the accumulation phase of a deferred annuity.
VARIABLE LIFE. Variable life products provide insurance coverage through a
contract which gives the policyholder flexibility in investment choices and,
depending on the product, in premium payments and coverage amounts, with certain
guarantees. For example, we retain the right within limits to adjust the fees we
assess for providing administrative services and death benefit coverage. Most
importantly, with variable life products, premiums and cash value can be
directed by the policyholder into a variety of separate investment accounts or
directed to our general account. In the separate investment accounts, the
policyholder bears the entire risk of the investment results. We collect
specified fees for the management of these various investment accounts and any
net return is credited directly to the policyholder's account. In some
instances, third-party money management firms manage investment accounts that
support variable insurance products. With some products, by maintaining a
certain premium level, policyholders may have the benefit of various death
benefit guarantees that may protect the death benefit from adverse investment
experience.
UNIVERSAL LIFE. Universal life products provide insurance coverage on the
same basis as variable life, except that they allow premiums, and the resulting
accumulated balances, to be allocated only to our general account. Universal
life products may allow the insured to increase or decrease the amount of death
benefit coverage over the term of the contract and may allow the owner to adjust
the frequency and amount of premium payments. We credit premiums, net of
specified expenses, to an account maintained for the policyholder, as well as
interest, at rates we determine, subject to specified minimums. Specific charges
are made against the account for the cost of insurance protection and for
expenses.
WHOLE LIFE INSURANCE. Whole life insurance products provide a guaranteed
benefit upon the death of the insured in return for the periodic payment of a
fixed premium over a predetermined period. Premium payments may be required for
the whole of the contract period, to a specified age or for a specified period,
and may be level or change in accordance with a predetermined schedule. Whole
life insurance includes policies that provide a participation feature in the
form of dividends. Policyholders may receive dividends in cash or apply them to
increase death benefits, increase cash values available upon surrender or reduce
the premiums required to maintain the contract in force. In certain
jurisdictions, dividends may be directed into an equity investment account.
Because the use of dividends is specified by the policyholder, this group of
products provides significant flexibility to individuals to tailor the product
to suit their specific needs and circumstances, while at the same time providing
guaranteed benefits.
We intend to continue offering participating policies after the
demutualization. We will be subject to statutory restrictions that limit to 10%
the amount of statutory profits on participating policies written after the
demutualization (measured before dividends to policyholders) that can inure to
the benefit of stockholders. We believe that the impact of these restrictions on
our earnings will not be significant.
TERM INSURANCE. Term insurance provides a guaranteed benefit upon the
death of the insured within a specified time period in return for the periodic
payment of premiums. Specified coverage periods range from one year to twenty
years, but in no event are longer than the period over which premiums are paid.
Death benefits may be level over the period or decreasing. Decreasing coverage
is used principally to provide for loan repayment in the event of death.
Premiums may be guaranteed at a level amount for the coverage period or may be
non-level and non-guaranteed. Term insurance products are sometimes referred to
as pure protection products, in that there are normally little or no savings or
investment elements. Term contracts expire without value at the end of the
coverage period if the insured party is still alive.
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OTHER INDIVIDUAL INSURANCE PRODUCTS. Individual disability
insurance. Individual disability products provide a benefit in the event of the
disability of the insured. In most instances, this benefit is in the form of a
monthly income paid to age sixty-five. In addition to income replacement, the
product may be used to provide for the payment of business overhead expenses for
disabled business owners or mortgage payment protection. We also distribute
individual disability policies through a joint venture between New England
Financial and Provident Companies, Inc. Although policies are issued in New
England Financial's name, all underwriting, administration and servicing is
handled by Provident, and 80% of the risk on all these new disability policies
is reinsured by Provident.
Individual long-term care insurance. Our long-term care insurance provides
reimbursement for certain costs associated with nursing home care and other
services that may be provided to older individuals unable to perform the
activities of daily living.
Other products. In addition to these products, we operate a closed block
of small face amount life insurance policies that our agents sold until 1964,
known as industrial policies. New England Financial also sells a small amount of
employee benefit products and group pension products, which are included in the
financial results of our Individual Business segment.
ANNUITIES AND INVESTMENT PRODUCTS
We offer a variety of individual annuities and investment products,
including variable and fixed annuities and mutual funds.
VARIABLE ANNUITIES. We offer variable annuities for both asset
accumulation and asset distribution needs. Variable annuities allow the
contractholder to make deposits into various investment accounts, as determined
by the contractholder. The investment accounts are separate accounts of MetLife
or New England Financial, and risks associated with investments in the separate
accounts are borne entirely by the contractholders. Contractholders may also
choose to allocate all or a portion of their account to our general account, in
which case we credit interest at rates we determine, subject to certain
minimums. They may also elect certain death benefit guarantees.
Separate account investments may be managed by us or by various
unaffiliated third-party portfolio managers. Third-party managers include such
well-known names as Janus Capital Corp., T. Rowe Price Associates, Inc., Scudder
Kemper Investments, Inc., Neuberger Berman Management Inc. and Fidelity
Investments. The availability of these managers depends on the particular
product series and distribution channel used by the contractholder. At December
31, 1999, $15.0 billion of variable annuity assets were allocated to separate
accounts managed by us, $5.7 billion to separate accounts managed by third
parties and $8.0 billion to our general account.
FIXED ANNUITIES. Fixed annuities are used for both asset accumulation and
asset distribution needs. Fixed annuities do not allow the same investment
flexibility provided by variable annuities but provide guarantees related to
preservation of principal and credited interest. Deposits made into these
contracts are allocated to the general account and are credited with interest at
rates we determine, subject to certain minimums. Credited interest rates may be
guaranteed not to change for certain limited periods of time, normally one year.
MUTUAL FUNDS AND SECURITIES. We offer both proprietary and non-proprietary
mutual funds. Proprietary funds include those of State Street Research and the
Nvest Funds Group. We also offer investment accounts for mutual funds and
general securities that allow customers to buy, sell and retain holdings in one
centralized location, as well as brokerage accounts that offer the accessibility
and liquidity of a money market mutual fund. Of the mutual funds we sold in
1999, $1,667 million of the deposited assets were managed by our Asset
Management segment and $2,181 million by third parties.
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INSTITUTIONAL BUSINESS
Our Institutional Business segment offers a broad range of group insurance
and retirement and savings products and services to corporations and other
institutions.
Our group insurance products and services include group life insurance,
non-medical health insurance, such as short- and long-term disability, long-term
care and dental insurance and related administrative services, as well as other
benefits such as employer-sponsored auto and homeowners insurance provided
through our Auto & Home segment and prepaid legal services plans. We sell these
products either as an employer-paid benefit or as a voluntary benefit in which
the premiums are paid by the employee. Revenues from our group insurance
products and services were $7.0 billion in 1999, representing 67.3% of total
Institutional Business revenues of $10.4 billion. Group insurance operating
income was $334 million in 1999.
Our retirement and savings products and services include administrative
services sold to sponsors of 401(k) and other defined contribution plans,
guaranteed interest products and other retirement and savings products and
services, including separate account contracts for the investment of defined
benefit and defined contribution plan assets. Revenues from our retirement and
savings products were $3.4 billion in 1999, representing 32.7% of total
Institutional Business revenues. Retirement and savings operating income was
$251 million in 1999.
We are a leader in the U.S. group insurance market. In 1999, we were:
- the largest group life insurer, with $5.3 billion of total statutory
direct premiums written;
- the second largest group long-term disability carrier and the largest
provider of group short-term disability and group long-term care based on
premiums and equivalents. In addition, we were the second largest
commercial dental carrier based on premiums and equivalents with the
largest commercial preferred provider organization in the U.S., having
approximately 44,000 participating dentists at December 31, 1999;
- a leading provider of administrative services to 401(k) and other defined
contribution plans, with 1.6 million participants; and
- one of the largest insurer managers of retirement and savings products,
as measured by assets under management, with approximately $64.2 billion
in retirement and savings assets under management at December 31, 1999.
We have built this position through long-standing relationships with many
of the largest corporate employers in the U.S. In 1999, 86 of the FORTUNE 100
largest companies purchased our products; these companies have been our
customers for an average of approximately 20 years. We believe that these large
customers provide an important and stable base from which to grow our
institutional business.
The employee benefit market served by Institutional Business has begun to
change dramatically in recent years. As the U.S. employment market has become
more competitive, employers are seeking to enhance their ability to hire and
retain employees by providing attractive benefit plans. The market also reflects
increasing concern of employees about the future of government-funded retirement
and safety-net programs, an increasingly mobile workforce and the desire of
employers to share the market risk of retirement benefits with employees. We
believe these trends are facilitating the introduction of new "voluntary"
products, such as long-term care and auto and homeowners insurance, as well as
leading more employers to adopt defined contribution pension arrangements such
as 401(k) plans.
Voluntary products, which give valued benefits to employees at little or no
cost to the employer, are attractive to employees since they are generally
priced at group rates and are usually paid through payroll deduction, making
them convenient to purchase and maintain. Voluntary products are particularly
popular as workforces become more diverse and prefer to
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tailor benefits to their individual circumstances. Voluntary products have
become an increasingly important part of our group insurance product offerings.
A substantial portion of our group insurance products are offered on a voluntary
basis. Premiums for our voluntary products, which include employer-sponsored
auto and homeowners insurance, were $2.1 billion in 1999.
INSTITUTIONAL BUSINESS STRATEGY
INCREASE EMPHASIS ON VOLUNTARY PRODUCTS. We seek to increase sales to our
institutional customers by expanding the offering of voluntary, or employee-paid
products, including auto and homeowners and long-term care insurance and prepaid
legal services plans. We believe that voluntary products represent a substantial
growth area. Although many employers still do not offer these products, we
believe that they will be an increasingly important part of the benefits offered
to attract and retain employees as the cost and convenience advantages receive
more recognition in the marketplace. Since they are generally paid through
payroll deduction, we believe they provide us with a stable customer base and
source of revenues.
FOCUS ON DEFINED CONTRIBUTION MARKET. With the acquisitions of Benefit
Services Corporation, which specializes in the small and mid-size markets, and
the defined contribution record keeping and participant services business
formerly owned by Bankers Trust Corporation, which focuses on the large
corporate market, we have become a leading provider of administrative services
in the 401(k) plan market. At December 31, 1999, we provided administrative
services for $85.9 billion of defined contribution plan assets. We intend to use
our position as a leading administrator of defined contribution plans to capture
more assets under management for our Asset Management segment.
INCREASE OUR PRESENCE IN SMALL AND MID-SIZE EMPLOYER MARKET. We believe
there is an opportunity to build on our strong brand name and experience to
increase our sales to small and mid-size employers. To address this opportunity,
we formed the Small Business Center in 1994 to focus on small employers and the
brokers and intermediaries who service them and expanded our marketing to
mid-sized employers through this channel in 1999. From 1997 to 1999, our
premiums and other income from products currently sold through the Small
Business Center have grown from $200 million to $328 million, a compound annual
rate of 28.1%.
MARKETING AND DISTRIBUTION
Institutional Business markets our products through separate sales forces,
comprised of MetLife employees, for both our group insurance and retirement and
savings lines.
We distribute our group insurance products and services through a regional
sales force that is segmented by the size of the target customer. Marketing
representatives sell either directly to corporate and other institutional
customers or through an intermediary, such as a broker or a consultant.
Voluntary products are sold through the same sales channels, as well as by
specialists for these products. As of December 31, 1999, the group insurance
sales channels had approximately 300 marketing representatives.
Our group insurance products are distributed through the following
channels:
- The National Accounts unit focuses exclusively on our largest 125
customers, generally those having more than 25,000 employees. This unit
assigns account executives and other administrative and technical
personnel to a discrete customer or group of customers in order to
provide them with individualized products and services;
- Our regional sales force operates from 27 offices and generally
concentrates on sales to employers with fewer than 25,000 employees,
through selected national and regional brokers, as well as through
consultants; and
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- The Small Business Center focuses on improving our position in the
smaller end of the market. Currently, seventeen individual offices
staffed with sales and administrative employees are located throughout
the U.S. These centers provide comprehensive support services on a local
basis to brokers and other intermediaries by providing an array of
products and services designed for smaller businesses.
We distribute our retirement and savings products primarily through
separate sales forces for each of our major product groups. We market pension
and other investment-related products to sponsors of retirement and savings
plans covering employees of large private sector companies with plan assets in
excess of $600 million, mid-size and smaller private sector companies, plans
covering public employees, collective bargaining units, nonprofit organizations
and other institutions and individuals. Pension and other investment-related
products are marketed and sold through approximately 50 marketing
representatives. Defined contribution services are marketed through several
distribution channels depending on the target market. For mid- and large-size
employers, a dedicated sales force focuses on new relationships and
cross-selling opportunities with other Institutional Business distribution
channels. With respect to the small plan segment, generally those with less than
500 lives, defined contribution services are distributed through the agency
system, the Small Business Center and our group regional sales force.
We have entered into several joint ventures and other arrangements with
third parties to expand the marketing and distribution opportunities of our
Institutional Business products and services.
- In February 1998, in cooperation with the AXA Group of France, we
launched the MAXIS Employee Benefits Network to better serve our
multinational clients. The MAXIS Network consists of insurers in more
than 50 countries, including MetLife and AXA and their international
affiliates, offering multinational customers the ability to pool the
experience of local insurance plans and to obtain their insurance needs
through a single program.
- In April 1998, we formed an alliance with Travelers Property Casualty
Corp. to offer Synchrony(SM), a product which combines administration of
short- and long-term disability benefits with workers' compensation
benefits from Travelers.
- In 1998, we entered into an agreement with American Express Company to
offer our 401(k) plan investment management and administrative services
to their small employer customers.
We also seek to sell our Institutional Business products and services
through sponsoring organizations and affinity groups. In 1998, AARP, the
nation's leading organization for people 50 years and older, selected us to
offer long-term care insurance to its members. In 1999, we had $75.3 million in
long-term care premiums from this group. In addition, we were selected in 1998
as the preferred provider of long-term care products by the National Long Term
Care Coalition, a national organization of large companies.
GROUP INSURANCE PRODUCTS AND SERVICES
Our group insurance products and services include group life insurance and
non-medical health insurance such as short- and long-term disability, long-term
care and dental insurance. Other products include employer-sponsored auto and
homeowners insurance provided through our Auto & Home segment and prepaid legal
plans. The following table sets forth premiums and
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fees and other selected data for each of our group insurance products and
services for the periods indicated:
GROUP INSURANCE PRODUCTS(1)
<TABLE>
<CAPTION>
AT OR FOR THE YEARS ENDED
DECEMBER 31,
--------------------------------
1999 1998 1997
---- ---- ----
(DOLLARS IN MILLIONS, EXCEPT AS
INDICATED)
<S> <C> <C> <C>
Group Life:
Premiums, fees and other income........................... $ 3,985 $ 3,815 $ 3,592
Policyholder liabilities.................................. $12,176 $11,656 $10,598
Life insurance in-force (in billions)..................... $ 1,196 $ 1,096 $ 1,135
Group Non-Medical Health:
Premiums, fees and other income........................... $ 1,913 $ 1,570 $ 1,281
Policyholder liabilities.................................. $ 3,854 $ 3,178 $ 3,169
</TABLE>
- ---------------
(1) Premiums from our employer-sponsored auto and homeowners insurance are
reported in our Auto & Home segment.
GROUP LIFE. Group life insurance products and services include group term,
group universal life, group variable universal life, dependent life and survivor
benefits. These products and services can be standard products or tailored to
meet specific customer needs. This category also includes high face amount life
insurance products covering senior executives for compensation-related or
benefit-funding purposes.
GROUP NON-MEDICAL HEALTH. Group non-medical health insurance consists of
short- and long-term disability, long-term care, dental and accidental death and
dismemberment. We also sell excess risk and administrative services only
arrangements to some employers. We sold our medical insurance operations in
1995.
OTHER PRODUCTS AND SERVICES. We are the market leader in auto and
homeowners insurance programs that are sponsored by employers and offered on a
voluntary basis. Through our Auto & Home segment, we offer auto and homeowners
insurance to employees in the workplace, which is usually paid for through
payroll deduction. See "-- Auto & Home". Other products and services include
prepaid legal plans, which are offered through approximately 250 corporate
sponsors. Prepaid legal plans are generally voluntary products that provide
employees with access to covered legal services at competitive prices.
RETIREMENT AND SAVINGS PRODUCTS AND SERVICES
Our retirement and savings products and services include administrative
services sold to 401(k) and other defined contribution plans, guaranteed
interest products and other retirement and savings products and services. The
following table sets forth selected data for each of our retirement and savings
products and services for the periods indicated:
RETIREMENT AND SAVINGS PRODUCTS AND SERVICES
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------
1999 1998 1997
----- ---- ----
(DOLLARS IN BILLIONS)
<S> <C> <C> <C>
Defined Contribution Plans Services:
Number of participants (in millions)...................... 1.6 1.7 1.6
Assets administered....................................... $85.9 $79.4 $67.1
Liabilities for guaranteed interest products................ $20.4 $21.8 $20.6
Liabilities for other retirement and savings products....... $41.2 $43.1 $42.6
</TABLE>
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DEFINED CONTRIBUTION PLAN SERVICES. Since 1996, we have made a number of
key acquisitions in the defined contribution marketplace, making us a leading
provider of administrative services to 401(k) and other defined contribution
plans. We provide full service defined contribution programs to companies of all
sizes in the expanding 401(k) plan market, as well as to the nonprofit,
educational and health care markets. Our programs involve a full range of
record-keeping (including employee communications) services, either on a
stand-alone basis or combined with asset management services.
GUARANTEED INTEREST PRODUCTS. We offer guaranteed interest contracts,
known as GICs, our Met Managed GIC and similar products. In traditional GICs and
funding agreements, corporations and other institutions invest their funds in
products in which the principal and interest are guaranteed by the issuing
insurance company for a specified period of time. We also sell annuity guarantee
products, generally in connection with the termination of pension plans, funds
available from defined contribution plans or the funding of structured
settlements. Sales of guaranteed interest products declined in 1999 and 1998,
primarily as a result of a shift in customers' investment preferences from
guaranteed interest products to separate account alternatives as interest rates
declined in those years. Substantially all of our GICs contain provisions
limiting early terminations, including penalties for early terminations and
minimum notice requirements. Included in our guaranteed interest products at
December 31, 1999 are $2.5 billion of funding agreements, $0.6 billion of which
we assumed from General American Life Insurance Company. Of the $2.5 billion of
funding agreements, $29 million, $708 million, $452 million and $1,117 million
may be terminated after 1-day, 7-day, 30-day and 90-day notice periods,
respectively. The remaining $176 million of the $2.5 billion of funding
agreements may not be put by the holder prior to their maturity. Excluded from
this total is $5.1 billion of funding agreements assumed from General American
Life Insurance Company, which were terminated on October 1, 1999 in connection
with our exchange offer. See "Business -- Acquisition of GenAmerica".
The Met Managed GIC is an investment product that complements traditional
GICs through the added feature of customer participation in the investment
results of the funds underlying the Met Managed GIC product. We are the industry
leader in assets under management for this type of product with assets of $11.9
billion in 1999. The Met Managed GICs allow the contractholders to receive, at
termination, the market value of their accounts or to transfer their accounts at
book value to a traditional GIC product, in which case the interest rate
credited will be adjusted to reflect any difference between the market value of
the transferred account and its book value.
OTHER RETIREMENT AND SAVINGS PRODUCTS AND SERVICES. Other retirement and
savings products and services include separate account contracts for the
investment and management of defined benefit and defined contribution plans on
behalf of corporations and other institutions. Customer funds are deposited in
separate accounts managed by us or by an independent manager, and invested in a
variety of assets including fixed income instruments, common stock and real
estate. In 1999, 88.3% of our institutional separate account assets were managed
by a MetLife affiliate and 11.7% were managed by non-affiliates. We report asset
management fees for assets managed by us in our Asset Management segment, while
administrative fees are reported in our Institutional Business segment.
ASSET MANAGEMENT
Through our wholly-owned subsidiary State Street Research and our
controlling interest in Nvest Companies, L.P. and its affiliates, Asset
Management provides a broad variety of asset management products and services
primarily to third-party institutions and individuals. Asset Management had
total assets under management of $189.8 billion at December 31, 1999, growing at
a compound annual rate of 14.2% for the five years ended 1999. Included in this
total was $54.9 billion in mutual funds and separate accounts supporting
individual variable life and annuity products, which have grown at a compound
annual rate of 16.7% for the five years ended 1999. At December 31, 1999, Asset
Management's assets under management consisted of
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equities, representing 44% of Asset Management's total assets under management,
fixed income investments (45%), money market investments (6%) and real estate
(5%).
We distribute our asset management products and services through numerous
distribution channels, including State Street Research's and Nvest's dedicated
sales forces, and also through our Individual Business and Institutional
Business distribution channels.
The investment management industry, which includes both retail mutual funds
and institutional asset management, has experienced strong growth over the last
ten years. Mutual fund assets have grown at a compound annual rate of 23.8% for
the ten years ended December 31, 1998. During the same period, institutional
assets, including corporate, government and endowments and foundations, have
grown at a compound annual rate of 10.3%. The number of prime savers (persons
aged 40 to 60 years) has grown 37% between 1988 and 1998. While overall industry
growth has been strong, there has been a shift in preference from defined
benefit plans to defined contribution plans and mutual funds due to favorable
legislation regarding individual savings, a more transient workforce for whom
defined benefit plans are not the best solution and uncertainty surrounding the
long-term viability of Social Security. We believe we are well-positioned to
benefit from this shift due to our broad offering of both institutional and
retail products and our multi-channel distribution network.
ASSET MANAGEMENT STRATEGY
The primary objective of our asset management strategy is to grow assets
under management. To attain this goal, we have implemented the following
strategies:
OFFER EXPANDED LINE OF PRODUCTS AND SERVICES. We seek to grow Asset
Management by offering customers a diverse line of products and services that
focus on the distinct capabilities of each of our subsidiaries. Each of Nvest's
investment management firms implements an independent investment specialty and
philosophy. We believe this approach fosters an entrepreneurial environment that
encourages the development of new, innovative investment management products and
services, while maintaining access to the significant resources of the larger
organization. State Street Research seeks to grow its business by targeting
markets outside its core large institutional retirement plan market, including
the fast growing mid-size plan market and mutual funds.
EXECUTE STRATEGIC ACQUISITIONS. Each of our Asset Management subsidiaries
seeks acquisition opportunities that provide diversification of asset classes
and methods of distribution. We believe Nvest's public holding company structure
provides it with an opportunity to make acquisitions that enhance the overall
business while retaining the acquired company's independent identity. Key
employees are generally expected to continue as active participants in the
acquired business and the acquired firm's executive personnel are responsible
for reviewing their firm's results, plans and budgets. State Street Research
also seeks acquisitions that will enhance the products and services it offers.
For instance, in 1997 a team of professionals specializing in managing money for
professional athletes joined State Street Research, and it has since expanded
its distribution to high net worth individuals through financial services
supermarkets, brokers and financial planners.
ENHANCED DISTRIBUTION SYSTEMS. We seek to increase sales of our products
and services through enhanced distribution systems, including improved
coordination of the independent distribution systems of Nvest, and through
increased utilization of our Individual Business and Institutional Business
distribution channels. We believe that further opportunities exist to increase
sales in many of the markets served by these channels, including sales of mutual
funds to individuals and asset management services to 401(k) plans served by
Institutional Business.
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NVEST
Nvest Companies, L.P. offers a broad array of investment management
products and services across a wide range of asset categories to institutions,
mutual funds and private accounts. Nvest operates as a holding company for
twelve investment management firms and six principal distribution and consulting
firms, all but one of which are wholly owned by Nvest. The twelve investment
management firms operate as independent entities, with each company having
responsibility for its own investment strategy and decisions, business plans,
product development and management fee schedules. Through its distribution and
consulting firms, Nvest makes available certain distribution, consulting and
administrative services that Nvest's subsidiary investment management firms draw
on as needed. These services include marketing, product development and
administrative support such as financial, management information and employee
benefits services.
We are the general partner and, at December 31, 1999, owned approximately
48% of the total economic interest of Nvest and its affiliates. Through Nvest,
L.P., a New York Stock Exchange-listed limited partnership, approximately 14% of
the economic interest in Nvest is publicly traded, with the remaining 38% owned
by others. We acquired our interest in Nvest in August 1996 as part of our
merger with New England Mutual Life Insurance Company. During the five years
ended 1999, Nvest's assets under management have grown at a compound annual rate
of 14.6% to $133 billion. At December 31, 1999, Nvest's assets under management
consisted of equities, representing 44% of Nvest's total assets under
management, fixed income investments (43%), money market investments (8%) and
real estate (5%).
The following table summarizes Nvest's assets under management by investor
type at the dates indicated:
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------
1999 1998 1997
---- ---- ----
(DOLLARS IN BILLIONS)
<S> <C> <C> <C>
Institutional............................................... $ 86 $ 87 $ 80
Mutual Funds................................................ 36 36 33
Private Accounts............................................ 11 12 12
---- ---- ----
$133 $135 $125
==== ==== ====
</TABLE>
INVESTMENT MANAGEMENT FIRMS
Each of the following twelve investment management firms pursues an
independent investment strategy and philosophy:
- Loomis, Sayles & Company, L.P. actively manages portfolios of publicly
traded fixed-income securities, equity securities and other financial
instruments for a client base consisting of institutional clients,
endowments, foundations and third-party corporate investment portfolios,
manages assets for high net worth individuals and advises the Loomis
Sayles Funds.
- Harris Associates L.P. is primarily a value-equity style investment
advisory firm with institutional, private account and multi-manager
product offerings; it also serves as the investment advisor for The
Oakmark Family of Funds.
- AEW Capital Management, L.P. is a real estate advisory firm which
utilizes its real estate, research and capital markets expertise to focus
on high-yield equity and debt strategies, real estate securities and
directly held interests in real estate portfolios.
- Back Bay Advisors, L.P., which manages mutual funds in two mutual fund
groups sponsored by Nvest affiliates, as well as institutional funds for
the pension and foundation marketplace, specializes in fixed-income
management.
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- Jurika & Voyles, L.P. provides investment advisory services to
institutions, individuals and mutual funds utilizing a fundamental,
research-driven investment approach which seeks to invest at
opportunistic prices in the stock of companies exhibiting growth in cash
flow.
- Kobrick Funds, LLC provides investment management services for equity
mutual funds.
- Reich & Tang Funds, a division of Reich & Tang Asset Management L.P.,
manages money market mutual funds that are marketed primarily through
brokerage houses and regional commercial banks and acts as administrator
for mutual funds advised by third parties and for the equity funds
managed by Reich & Tang Capital Management.
- Reich & Tang Capital Management, a division of Reich & Tang Asset
Management L.P., manages mutual funds, private investment partnerships
and equity funds for institutions and individuals.
- Snyder Capital Management, L.P. provides investment advisory services
primarily to institutions and high net worth individuals and families,
and specializes in investing in small- to mid-capitalization equities.
- Vaughan, Nelson, Scarborough & McCullough, L.P. manages equity, fixed
income and balanced portfolios for foundations, endowments, institutions
and high net worth individuals.
- Westpeak Investment Advisors, L.P. provides customized equity management
for institutional investors, such as pension plans, foundations and
endowments, and mutual funds, utilizing an active, quantitative research
capability.
- Capital Growth Management Limited Partnership provides investment
management services for mutual funds and for a limited number of large
institutions and individual clients.
Nvest's investment management firms market their services to institutions,
individually managed private accounts for high net worth individuals and mutual
funds. The institutional market for investment management services includes
corporate, government and union pension plans, endowments and foundations and
corporations purchasing investment management services for their own account.
Nvest's management firms also advise or sub-advise approximately 100 mutual
funds, the great majority of which are grouped into eight fund "families" and
are marketed through a variety of channels.
DISTRIBUTION AND CONSULTING FIRMS
Nvest and its six principal distribution and consulting firms listed below
provide distribution, marketing and administrative services to Nvest's
investment management firms:
- Nvest Funds Distributor, L.P. serves as the distributor and is
responsible for all sales-related activities of the Nvest Funds Group, a
proprietary group of mutual funds. It distributes mutual funds through
retail sales networks of regional and national brokerage firms and other
distribution channels, including our Individual and Institutional
channels.
- Nvest Associates, Inc. provides institutional marketing and consulting
services to Nvest's investment management firms.
- Nvest Advisor Services assists in the marketing and distribution of
mutual funds advised by several of Nvest's investment management firms
through financial planners and advisors.
- Nvest Managed Account Services assists in the marketing and distribution
of investment products to mutual fund wrap programs.
- Nvest Retirement Services assists in the marketing and distribution of
mutual funds advised by several of Nvest's investment management firms to
retirement plan sponsors, large 401(k) plan providers and consultants.
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- Nvest Services Company, Inc. provides fund administration, legal and
compliance and human resources services to the Nvest Funds Group. It also
provides its services, on a voluntary basis, to Nvest's other affiliates
and fund families.
STATE STREET RESEARCH
State Street Research conducts its operations through two wholly-owned
subsidiaries, State Street Research & Management Company, a full-service
investment management firm, and SSR Realty Advisors, Inc., a full-service real
estate investment advisor. State Street Research offers investment management
services in all major investment disciplines through multiple channels of
distribution in both the retail and institutional marketplaces. State Street
Research had assets under management of $56.8 billion, having grown at a
compound annual rate of 13.2% for the five years ended 1999. At December 31,
1999, State Street Research's assets under management consisted of equities,
representing 44% of State Street Research's total assets under management, fixed
income investments (50%), money market investments (1%) and real estate (5%).
State Street Research is currently an investment manager for ten of the
twelve largest U.S. corporate pension plans. The majority of State Street
Research's institutional business is concentrated in qualified retirement funds,
including both defined benefit and defined contribution plans. State Street
Research also provides investment management services to foundations and
endowments. In addition, State Street Research serves as advisor or subadvisor
for 37 mutual funds, as well as five mutual fund portfolios underlying MetLife's
variable life and annuity products, collectively with $18.9 billion of assets
under management at December 31, 1999.
The following table summarizes State Street Research's assets under
management by investor type for the periods indicated:
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------
1999 1998 1997
---- ---- ----
(DOLLARS IN BILLIONS)
<S> <C> <C> <C>
Institutional............................................... $37.6 $38.8 $35.4
Mutual Funds................................................ 18.9 17.0 14.7
Private Accounts............................................ 0.3 0.2 --
----- ----- -----
$56.8 $56.0 $50.1
===== ===== =====
</TABLE>
MARKETING AND DISTRIBUTION
State Street Research distributes its investment products to institutions
through its own institutional sales force, MetLife's institutional sales force
and pension consultants. Our Institutional Business sales force is the largest
contributor to State Street Research institutional sales, representing 68% of
the 1999 total. State Street Research's mutual fund products are distributed
primarily through large retail brokerage firms (40.5% of mutual fund sales) and
by the MetLife career agency sales force (59.5% of mutual fund sales). In
addition to the primary distribution channels, State Street Research has
developed distribution capabilities through regional brokerage firms, mutual
fund supermarkets, registered investment advisors and financial planners. State
Street Research also offers its products to the defined contribution market
through Institutional Business' defined contribution group, as well as directly
through its own distribution channel.
AUTO & HOME
Auto & Home, operating primarily through Metropolitan Property and Casualty
Insurance Company, a wholly-owned subsidiary of MetLife, offers personal lines
property and casualty insurance directly to employees through employer-sponsored
programs, as well as through a
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variety of retail distribution channels, including the MetLife career agency
system, independent agents and Auto & Home specialists. Auto & Home primarily
sells auto insurance, which represented 79.0% of Auto & Home's total net
premiums earned in 1999, and homeowners insurance, which represented 19.8% of
Auto & Home's total net premiums earned in 1999. Auto insurance includes both
standard and non-standard (insurance for risks having higher loss experience or
loss potential than risks covered by standard insurance) policies.
On September 30, 1999, our Auto & Home segment acquired the standard
personal lines property and casualty insurance operations of The St. Paul
Companies, which had in-force premiums of approximately $1.1 billion and
approximately 3,000 independent agents and brokers. This acquisition
substantially increased the size of this segment's business, making us the
eleventh largest personal property and casualty insurer in the U.S. based on
1998 net premiums written, and will also give us a strong presence in a number
of additional states.
AUTO & HOME STRATEGY
EXPAND EMPLOYER-SPONSORED PROGRAMS. We believe the employer-sponsored
distribution channel represents a significant growth opportunity to expand sales
of our Auto & Home products to our Institutional Business clients. The rapid
growth and acceptance of employer-sponsored marketing of auto and homeowners
insurance is a relatively recent development, and most employers do not
currently offer it as a benefit. Currently only a small percentage of our
Institutional Business clients offer Auto & Home products. We also anticipate
significant growth of existing employer-sponsored programs through greater
penetration of the employee base.
CONTINUE BUILDING DIRECT MARKETING CAPABILITY. In the third quarter of
1998, Auto & Home launched a direct response marketing distribution channel. We
expect the direct marketing distribution channel to generate sales through
target mailings, telemarketing, broad advertising, affinity groups, agent
referrals, bank relationships and the Internet. We believe that our experience
with using direct marketing distribution techniques in the employer-sponsored
distribution channel, combined with the strength of the MetLife brand name,
should enable us to compete successfully in the direct marketing distribution
channel.
ENHANCE RETAIL DISTRIBUTION. We currently market our products through
retail channels in 46 states. Since 1997, we have emphasized, through additional
advertising, pricing, and underwriting efforts, certain states in which we
believe we have the most potential for profitable growth.
CONTINUE TO REDUCE CATASTROPHE EXPOSURE. Since Hurricane Andrew in 1992,
our management has worked actively to reduce Auto & Home's exposure to losses
from catastrophes. Actions include a reduction in homeowners policies in force
in states having greater exposure to severe hurricanes, in conformity with
regulatory requirements. At the same time, Auto & Home has significantly
enhanced reinsurance coverage in all regions to limit losses from catastrophes.
PRODUCTS
Auto & Home's insurance products include:
- auto, including both standard and non-standard private passenger;
- homeowners, including renters, condominium and dwelling fire; and
- other personal lines, including umbrella (protection against losses in
excess of amounts covered by other liability insurance policies),
recreational vehicles and boat owners.
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The following table sets forth net premiums earned and other operating results
for Auto & Home for the periods indicated:
<TABLE>
<CAPTION>
AT OR FOR THE YEARS ENDED
DECEMBER 31,
--------------------------
1999 1998 1997
---- ---- ----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
AUTO:(1)
Net premiums earned....................................... $1,383 $1,164 $1,123
Loss ratio without catastrophes........................... 75.6% 73.6% 76.9%
Loss ratio due to catastrophes............................ 0.5% 1.3% 0.2%
------ ------ ------
Loss ratio................................................ 76.1% 74.9% 77.1%
Expense ratio............................................. 27.9% 26.3% 24.8%
------ ------ ------
Combined ratio............................................ 104.0% 101.2% 101.9%
Combined ratio without catastrophes....................... 103.5% 99.9% 101.7%
HOMEOWNERS:(1)
Net premiums earned....................................... $ 347 $ 225 $ 217
Loss ratio without catastrophes........................... 60.9% 46.5% 53.6%
Loss ratio due to catastrophes............................ 6.3% 18.5% 7.1%
------ ------ ------
Loss ratio................................................ 67.2% 65.0% 60.7%
Expense ratio............................................. 34.3% 32.3% 30.3%
------ ------ ------
Combined ratio............................................ 101.5% 97.3% 91.0%
Combined ratio without catastrophes....................... 95.2% 78.8% 83.9%
ALL LINES:(1)
Net premiums earned....................................... $1,751 $1,403 $1,354
Loss ratio without catastrophes........................... 72.7% 69.4% 72.7%
Loss ratio due to catastrophes............................ 1.7% 4.0% 1.3%
------ ------ ------
Loss ratio................................................ 74.4% 73.4% 74.0%
Expense ratio............................................. 29.3% 27.4% 25.9%
------ ------ ------
Combined ratio............................................ 103.7% 100.8% 99.9%
Combined ratio without catastrophes....................... 102.0% 96.8% 98.6%
</TABLE>
- ---------------
(1) Loss adjustment expenses are reflected in our loss ratio. We believe this
presentation is consistent with the presentation of other property and
casualty insurers.
AUTO COVERAGES. Auto insurance policies include coverages for private
passenger automobiles, utility automobiles and vans, motorcycles, motor homes,
antique or classic automobiles and trailers. Auto & Home offers common coverages
such as liability, uninsured motorist, no fault or personal injury protection
and collision and comprehensive coverages. Auto & Home also offers non-standard
auto insurance, which accounted for $128 million in net premiums earned in 1999.
HOMEOWNERS COVERAGES. Homeowners insurance provides protection for
homeowners, renters, condominium owners and residential landlords against losses
arising out of damage to dwellings and contents from a wide variety of perils,
as well as coverage for liability arising from ownership or occupancy.
Traditional insurance policies for dwellings represent most of Auto &
Home's homeowners policies providing protection for loss on a "replacement cost"
basis. These policies provide additional coverage for reasonable expenses for
normal living expenses incurred by policyholders who have been displaced from
their homes.
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MARKETING AND DISTRIBUTION
Personal lines auto and homeowners insurance products are directly marketed
to employees through employer-sponsored programs. Auto & Home products are also
marketed and sold by the MetLife career agency sales force, independent agents
and Auto & Home specialists. For the year ended December 31, 1999,
employer-sponsored programs, independent agents, the MetLife career agency
force, Auto & Home specialists and other distribution channels accounted for
32.0%, 30.5%, 25.0%, 7.9% and 4.6%, respectively, of total net premiums earned
by the Auto & Home segment.
EMPLOYER-SPONSORED PROGRAMS. Net premiums earned through Auto & Home's
employer-sponsored distribution channel have grown from $329.2 million in 1995
to $561.6 million in 1999, a compound annual rate of 14.3%. Auto & Home is the
leading provider of employer-sponsored auto and homeowners products. At December
31, 1999, over 1,000 employers offered our Auto & Home products to their
employees.
Institutional Business marketing representatives market the
employer-sponsored Auto & Home products to employers through a variety of means,
including broker referrals and cross-selling to our group customers. Once
endorsed by the employer, we commence marketing efforts to employees. Employees
who are interested in the group auto and homeowners products can call a
toll-free number for a quote, and can purchase coverage and authorize payroll
deduction over the telephone. Auto & Home has also developed proprietary
software that permits an employee to obtain a quote for group auto insurance
through Auto & Home's Internet website.
In the early 1990s, Auto & Home created a multi-tiered pricing structure
that permits Auto & Home to underwrite virtually any individual auto risk,
allowing us to offer a policy to virtually all of a company's employees. Auto &
Home's multi-tiered pricing structure for auto insurance permits us to write
classes of business for which other industry participants do not compete, or
compete solely by writing through multiple companies, which is less convenient
for employees and more expensive to administer.
RETAIL DISTRIBUTION CHANNELS. We market and sell Auto & Home products
through the MetLife career agency sales force, independent agents and Auto &
Home specialists. In recent years, we have increased our use of independent
agents and Auto & Home specialists to sell these products.
Independent agents. At December 31, 1999, Auto & Home maintained contracts
with approximately 6,000 agents and brokers, which includes those of The St.
Paul Companies. Independent agents have been the primary source of new business
production for Auto & Home's non-standard auto insurance program.
Auto & Home specialists. Approximately 385 Auto & Home specialists sell
products for Auto & Home in 19 states. Auto & Home's strategy is to utilize Auto
& Home specialists, who are our employees, in geographic markets that are
underserved by our career agents. Auto & Home intends to increase the number of
Auto & Home specialists in many of the selected states on which we focus.
MetLife career agency system. Approximately 2,400 agents in the MetLife
career agency system sell Auto & Home insurance products. Sales of Auto & Home
products by agents have been declining since the early 1990s, due principally to
the reduction in the number of agents in our career agency sales force. See
"-- Individual Business -- Marketing and Distribution".
OTHER DISTRIBUTION CHANNELS. We believe that Auto & Home's experience with
direct response marketing in connection with the employer-sponsored marketing
distribution channel, plus the strength of the MetLife brand name, give Auto &
Home advantages that can successfully be used to establish a direct response
marketing operation. During late 1997 and early 1998, Auto & Home developed
pricing, underwriting, financial control and sales capabilities and information
technology for our auto products needed to enter the direct response marketing
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distribution channel. In the third quarter of 1998, Auto & Home commenced direct
response marketing activities for our auto products in California. During 1999,
the direct response channel was extended to Maryland, Michigan and Missouri, and
presently represents 5% of new auto insurance sales. The direct response
marketing channel will permit sales to be generated through sources such as
target mailings, broad advertising, affinity groups, career agent referrals,
bank relationships and the Internet.
In 1999, Auto & Home's lines of business were concentrated in the following
states, as measured by net premiums earned: Massachusetts ($265 million or 15.0%
of total net premiums earned), New York ($250 million or 14.2%), Connecticut
($100 million or 5.7%), Florida ($99 million or 5.6%) and Illinois ($84 million
or 4.8%).
CLAIMS
Auto & Home's claims department includes approximately 2,100 employees
located in Auto & Home's Warwick, Rhode Island home office, fifteen field claim
offices, four law department house counsel offices and drive-in inspection and
other sites throughout the United States. These employees include claim
adjusters, appraisers, attorneys, managers, medical specialists, investigators,
customer service representatives, claim financial analysts and support staff.
Claim adjusters, representing the majority of employees, investigate, evaluate
and settle over 700,000 claims annually, principally by telephone.
Auto & Home seeks to control claims severity by using experienced
adjusters, medical management resources and preferred provider organizations.
Auto & Home also employs an expert software system incorporating a database of
expert medical opinions to evaluate the severity of bodily injury and uninsured
motorist bodily injury claims. That system is licensed under an agreement that
expires in 2002.
Auto & Home is currently installing a new proprietary claims handling
system that uses technology with data mining capabilities to help claims
personnel provide service and control claims severity while limiting personnel
costs. The system is being used in all Auto & Home claims offices, and is
expected to be installed, by year-end 2000, in the claims offices acquired as a
result of the acquisition of The St. Paul standard personal lines.
INTERNATIONAL
International provides life insurance, accident and health insurance,
annuities and savings and retirement products to both individuals and groups,
and auto and homeowners coverage to individuals. We focus on the Asia/Pacific
region, Latin America and selected European countries. We currently have
insurance operations in South Korea, Taiwan, Hong Kong, Indonesia, Mexico,
Argentina, Brazil, Uruguay, Spain and Portugal. In addition, at the end of 1999
we obtained a license to sell life insurance in Poland. We operate in
international markets through subsidiary and branch operations, as well as
through joint ventures. In 1999, International had over six million customers.
INTERNATIONAL STRATEGY
We seek to develop a presence in international markets that are
experiencing significant demand for insurance products and where we believe we
can gain significant market share. We evaluate potential markets in terms of the
market opportunity, such as our ability to generate long-term profits, the
regulatory and competitive environment and related market risk. We believe that
such markets provide us with the opportunity to realize higher growth rates and
higher profit margins than we might achieve domestically. Accordingly, we seek
higher rates of return on these operations. However, because these operations
are not yet mature, we focus not only on current earnings, but on building
embedded value. Our primary focus is on developing economies in Asia, Latin
America and Europe. We intend to expand our international operations by
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continuing to make investments in countries in which we currently have
operations, as well as in selected new markets, either through start-up
operations or by acquisition.
As part of this strategy to focus on growth markets, as well as to divest
operations that would not meet our financial objectives, we disposed of
substantial portions of our operations in the U.K. in 1997 and in Canada in
1998. Both operations were located in mature, highly competitive and rapidly
consolidating markets in which market share gains were very difficult.
The following table sets forth selected data for International for the
periods indicated:
INTERNATIONAL(1)
<TABLE>
<CAPTION>
AT OR FOR THE YEARS ENDED
DECEMBER 31,
----------------------------
1999 1998 1997
---- ---- ----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Premiums.................................................... $ 518 $ 414 $ 444
Deposits.................................................... $ 303 $ 530 $ 162
Assets...................................................... $3,289 $2,324 $1,707
Number of agents............................................ 6,591 3,680 5,197
Number of countries......................................... 10 8 8
</TABLE>
- ---------------
(1) Information in table excludes data for the U.K. and Canada. We disposed of
substantial portions of our operations in the U.K. in 1997 and in Canada in
1998.
ASIA/PACIFIC REGION
SOUTH KOREA. MetLife Saengmyoung Ltd., which became a wholly-owned
subsidiary in 1998, has more than 200,000 customers and sells individual life
insurance, savings and retirement and non-medical health products. The company
also sells group life and savings and retirement products. Premiums and deposits
for 1999 were $188 million.
TAIWAN. We launched our Taiwanese operations through a branch of
Metropolitan Insurance and Annuity Company in May 1989. The branch has
approximately 3.3 million customers and sells individual life, accident,
non-medical health and personal travel insurance products, as well as group
life, accident, and non-medical health insurance products. Individual products
are primarily sold through career agents and through direct marketing, while
group coverages are sold through agents and brokers. Premiums and deposits for
1999 were $124 million.
HONG KONG. Metropolitan Life Insurance Company of Hong Kong Limited, which
was established in 1995, sells individual life insurance products through sales
agents. In 1998, we signed an agreement to distribute our products through an
established brokerage network. We also distribute our products in Hong Kong
through other brokers and general agents. In addition, we recently entered into
a marketing agreement with the local operations of The Chase Manhattan Bank to
offer insurance products to the credit card and retail banking customers of
Chase in Hong Kong.
INDONESIA. P.T. MetLife Sejahtera was established in November 1997 and
began selling its products in March 1998. The joint venture sells individual
life insurance products through a full-time agency sales force.
LATIN AMERICA
MEXICO. We expanded into Latin America in 1992 with the launching of
Seguros Genesis, S.A., a wholly-owned subsidiary, in Mexico. Seguros Genesis
sells individual and group
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insurance, as well as savings and retirement products, through sales agents and
brokers, and is now the fifth largest life insurer in Mexico. Premiums and
deposits for 1999 were $207 million.
ARGENTINA. We established our Argentine operations through Metropolitan
Life Seguros de Vida S.A. and Metropolitan Life Seguros de Retiro S.A. in 1994.
Through these affiliates, we sell group life insurance products through
established brokers and directly to employers, and individual life insurance and
disability products through an agency sales force, as well as through other
distribution channels, such as direct marketing and independent agent
franchises. In 1997, we began to market group insurance and individual deferred
and immediate annuities and currently have over 515,000 customers. Premiums and
deposits for 1999 were $64 million.
BRAZIL. Metropolitan Life Seguros e Previdencia Privada, S.A., based in
Sao Paulo, was formed in 1997 and started business in early 1999, focusing on
group life and accident products.
URUGUAY. In July 1998, we established Metropolitan Life Seguros de Vida
S.A., and started business in early 1999, offering individual life insurance
products through an agency sales force.
EUROPE
SPAIN. We operate in Spain through a 50-50 joint venture with Banco
Santander Central Hispano, S.A., Spain's largest financial group. Our Spanish
affiliates sell personal life insurance, savings and retirement and non-life
insurance products through both their own agency sales force and the branch
network of Banco Santander. The affiliates operate under the "Genesis" brand. In
November 1995, Genesis launched a direct auto business (Genesis Auto) and there
are now over 127,000 Genesis Auto policyholders. Premiums and deposits for 1999
were $193 million.
PORTUGAL. In late 1992, we entered the market in Portugal through branches
of our Spanish joint venture subsidiaries. Genesis in Portugal distributes
personal life insurance, savings and retirement and non-life insurance products
through its agency sales force and the branch network of Banco Santander
Portugal. Premiums and deposits for 1999 were $41 million.
In addition, we obtained a license to sell life insurance in Poland in
1999.
ACQUISITION OF GENAMERICA
BACKGROUND
On January 6, 2000, we acquired GenAmerica Corporation for $1.2 billion in
cash. GenAmerica is a leading provider of life insurance, life reinsurance and
other financial services to affluent individuals, businesses, insurers and
financial institutions. GenAmerica's products and services include individual
life insurance and annuities, life reinsurance, institutional asset management,
group life and health insurance and administration, pension benefits
administration and software products and technology services for the life
insurance industry. GenAmerica's subsidiary, General American Life Insurance
Company, distributes its life insurance products through approximately 625
agents in its independent general agency system and approximately 1,575 active
independent insurance agents and brokers.
GenAmerica is a holding company which owns General American Life Insurance
Company. GenAmerica's subsidiaries also include Reinsurance Group of America,
Inc. ("RGA"), one of the largest life reinsurers in the United States based on
in-force premiums, and Conning Corporation ("Conning"), a manager of investments
for General American Life and other insurer and pension clients. Upon completion
of the acquisition of GenAmerica, we owned approximately 58% and 61% of the
outstanding common stock of RGA and Conning, respectively. On March 9, 2000, we
announced that we had agreed to acquire all of the outstanding shares of Conning
common stock not already owned by us for $12.50 per share in cash, or
approximately $65 million. The transaction is subject to customary terms and
conditions, including regulatory
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<PAGE> 130
approvals. Both RGA and Conning are publicly traded. See "Business -- Legal
Proceedings" for a description of legal proceedings relating to the Conning
offer.
We agreed to acquire GenAmerica after it developed liquidity problems and
General American Life was placed under administrative supervision by the
Missouri Department of Insurance. At July 31, 1999, General American Life's
outstanding funding agreements aggregated $6.8 billion, of which $3.4 billion
and $1.8 billion were reinsured by ARM Financial Group, Inc. and RGA,
respectively. These reinsurance transactions were recorded using the deposit
method of accounting. These funding agreements guarantee the holder a return on
principal at a stated interest rate for a specified period of time. They also
allow the holder to "put" the agreement to General American Life for a payout of
the principal and interest within designated time periods of 7, 30 or 90 days.
In July 1999, Moody's Investors Services, Inc. downgraded the claims paying
ability rating of ARM due to the relative illiquidity of certain of its invested
assets, which resulted in General American Life recapturing the obligations and
assets related to the funding agreements reinsured by ARM. As a result of the
recapture, Moody's downgraded General American Life's claims paying ability
rating from A2 with a stable outlook to A3. Upon announcement of the downgrade,
a large number of funding agreement holders exercised puts of agreements having
outstanding principal amounts aggregating approximately $5.0 billion. General
American Life was unable to liquidate sufficient assets in an orderly fashion
without incurring significant losses. General American Life notified the
Missouri Department of Insurance of a liquidity crisis on August 9, 1999 and the
Department placed General American Life under administrative supervision.
Shortly thereafter, General American Mutual Holding Company, the parent of
GenAmerica, entered into discussions with us and several other companies for the
sale of GenAmerica. Those discussions culminated in our execution of a stock
purchase agreement with General American Mutual Holding Company on August 26,
1999 and our purchase of GenAmerica on January 6, 2000.
REASONS FOR THE ACQUISITION
GenAmerica offers us a strategic opportunity to expand our Individual
Business distribution system. GenAmerica's independent general agency system,
which principally targets affluent individuals, complements the current MetLife
and New England distribution systems. GenAmerica also provides us with
relationships with regional networks of broker-dealers and a strong geographic
presence in the midwest. Additionally, GenAmerica has been a leader in supplying
technology to the life insurance industry, having developed a number of
sophisticated software products and technology services that are used by a
number of life insurers. Finally, the acquisition of RGA and Conning allows us
to expand our opportunities in the life reinsurance and investment management
businesses.
TERMS OF ACQUISITION
Pursuant to the stock purchase agreement, we have a first priority
perfected security interest in the purchase price proceeds to cover losses that
we incur for which GenAmerica's parent, General American Mutual Holding Company,
has indemnified us. Such indemnified losses include breaches of representations
and warranties, certain legal proceedings brought within three years after the
date of closing, alleged breaches of General American Life's funding agreements
and guaranteed interest contracts and the acceleration of payments under certain
compensation arrangements and benefit plans. Amounts will be released to General
American Mutual Holding Company over time, but, subject to holdbacks for
disputed pending or threatened claims existing at that time, no later than the
third anniversary of the closing date. Costs incurred in connection with any
matter covered by the seller's indemnification will be recorded as expenses in
our consolidated statement of income in the period they are incurred. Recoveries
of such costs will be evaluated and estimated independently of the costs
incurred and will be recorded in
128
<PAGE> 131
Metropolitan Life Insurance Company's consolidated statement of income for the
period recovery is probable.
In connection with the acquisition, we offered each holder of a General
American Life funding agreement the option to exchange its funding agreement for
a MetLife funding agreement with substantially identical terms and conditions or
receive cash equal to the principal amount of the funding agreement and accrued
interest. Holders of approximately $5.1 billion of the total $5.7 billion of
General American Life's remaining funding agreement liabilities elected to
receive cash. We completed the funding agreement exchange offer on September 29,
1999. In consideration of this exchange offer, General American Life transferred
to Metropolitan Life Insurance Company assets selected by Metropolitan Life
Insurance Company and General American Life having a market value equal to the
market value of the funding agreement liabilities. In addition, Metropolitan
Life Insurance Company has coinsured new and certain existing business of
General American Life and some of its affiliates.
FINANCING
We financed the acquisition of GenAmerica stock from available funds and
the proceeds from the issuance of $900 million of short-term debt. We expect to
use a portion of the proceeds from the offerings and the private placements to
repay up to $450 million of this debt.
In addition, we incurred approximately $3.2 billion of short-term debt,
consisting primarily of commercial paper, in connection with our exchange offer
to holders of General American Life funding agreements. During the fourth
quarter of 1999, we repaid $1.5 billion of this debt. On September 29, 1999,
MetLife Funding, Inc. and Metropolitan Life Insurance Company obtained an
additional committed credit facility for $5 billion, which serves as back-up for
this commercial paper.
BUSINESS OF GENAMERICA
GenAmerica is organized into four major business segments: Life Insurance
and Annuity; Life Reinsurance; Institutional Asset Management; and Insurance
Services and Related Businesses. GenAmerica also maintains a Corporate and
Consolidation/Elimination segment through which it reports items that are not
directly allocable to any of its business segments, primarily home office
general and administrative expenses and interest expense on long-term debt. This
segment includes the elimination of all inter-segment amounts. The accounting
policies of these segments, including inter-segment transactions, are
consistent, in all material respects, with those described in MetLife's
consolidated financial statements. GenAmerica's businesses will be incorporated
into our business segments as applicable, except for RGA, which we will
separately designate as our Reinsurance segment.
The following table sets forth selected data for GenAmerica and for each of
GenAmerica's segments for the periods indicated:
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED
DECEMBER 31,
---------------------------------
1999 1998 1997
--------- --------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
STATEMENT OF INCOME AND BALANCE SHEET DATA:
Total revenues........................................ $ 3,919.5 $ 3,863.6 $ 3,192.9
Operating income(1)................................... $ 28.1 $ 120.9 $ 98.9
Net income (loss)..................................... $ (174.3) $ 113.5 $ 96.2
Assets................................................ $23,594.3 $28,949.2 $23,947.2
Policyholder liabilities.............................. $14,117.2 $20,559.0 $16,995.7
Separate account liabilities.......................... $ 6,892.0 $ 5,194.9 $ 4,052.0
</TABLE>
129
<PAGE> 132
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED
DECEMBER 31,
---------------------------------
1999 1998 1997
--------- --------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
SEGMENT DATA:(2)
LIFE INSURANCE AND ANNUITY:
Total revenues........................................ $ 1,442.3 $ 1,497.6 $ 1,350.7
Operating income(1)................................... $ 35.9 $ 52.5 $ 41.3
Net income............................................ $ 14.9 $ 51.9 $ 45.1
Assets................................................ $15,154.5 $14,256.9 $13,333.9
LIFE REINSURANCE:
Total revenues........................................ $ 1,721.4 $ 1,503.1 $ 1,071.8
Operating income(1)................................... $ 49.1 $ 49.3 $ 43.7
Net income............................................ $ 17.5 $ 34.1 $ 32.5
Assets................................................ $ 5,107.5 $ 6,329.6 $ 4,680.5
INSTITUTIONAL ASSET MANAGEMENT:
Total revenues........................................ $ 47.3 $ 191.1 $ 137.1
Operating income(1)................................... $ 9.2 $ 15.9 $ 12.5
Net income (loss)..................................... $ (188.6) $ 15.7 $ 13.2
Assets................................................ $ 104.7 $ 7,108.1 $ 4,293.0
INSURANCE SERVICES AND RELATED BUSINESSES:
Total revenues........................................ $ 738.2 $ 691.6 $ 645.7
Operating income (loss)(1)............................ $ (13.8) $ 10.8 $ 10.7
Net income............................................ $ 17.0 $ 12.7 $ 12.4
Assets................................................ $ 3,314.0 $ 2,994.8 $ 2,663.0
CORPORATE AND CONSOLIDATION/ELIMINATION:
Total revenues........................................ $ (29.7) $ (19.8) $ (12.4)
Operating loss........................................ $ (52.3) $ (7.6) $ (9.3)
Net loss.............................................. $ (35.1) $ (0.9) $ (7.0)
Assets................................................ $ (86.4) $(1,740.2) $(1,023.2)
</TABLE>
- ---------------
(1) Operating income (loss) is calculated as net income (loss) less (i) realized
investment gains and losses, (ii) GenAmerica's share of RGA's gains or
losses on operations that are classified as discontinued in RGA's
consolidated financial statements, but included in GenAmerica's operating
income (loss), (iii) surplus tax, and (iv) fees to exit the funding
agreement business. Realized investment gains and losses have been adjusted
for (a) deferred policy acquisition amortization to the extent that such
amortization results from realized investment gains and losses and (b)
additions to future policy benefits resulting from the need to establish
additional liabilities due to the recognition of investment gains. This
presentation may not be comparable to presentations made by other insurers.
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<PAGE> 133
The following provides a reconciliation of net income (loss) to operating
income for GenAmerica consolidated:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-------------------------
1999 1998 1997
------- ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Net income (loss)........................................... $(174.3) $113.5 $ 96.2
Adjustments to reconcile net income (loss) to operating
income
Gross realized investment (gains) losses.................. 164.0 (12.4) (28.4)
Income tax on gross realized investment gains and
losses.................................................. (54.4) 3.9 10.0
------- ------ ------
Realized investment (gains) losses, net of income tax... 109.6 (8.5) (18.4)
------- ------ ------
Amounts allocated to investment gains and losses.......... (8.4) (0.5) 6.8
Income tax on amounts allocated to investment gains and
losses.................................................. 3.0 0.2 (2.4)
------- ------ ------
Amount allocated to investment gains and losses, net of
income tax............................................ (5.4) (0.3) 4.4
------- ------ ------
Loss from discontinued operations, net of income tax...... 6.3 16.2 11.4
------- ------ ------
Surplus tax............................................... -- -- 5.3
------- ------ ------
Fees to exit funding agreement business, net of income tax
of $49.5................................................ 91.9 -- --
------- ------ ------
Operating income............................................ $ 28.1 $120.9 $ 98.9
======= ====== ======
</TABLE>
The following provides a reconciliation of net income to operating income
for the Life Insurance and Annuity segment of GenAmerica:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-----------------------
1999 1998 1997
----- ----- -----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Net income.................................................. $14.9 $51.9 $45.1
Adjustments to reconcile net income to operating income:
Gross realized investments (gains) losses................. 36.2 1.1 (15.1)
Income tax on gross realized investment gains and
losses.................................................. (9.7) (0.3) 5.3
----- ----- -----
Realized investment (gains) losses, net of income tax... 26.5 0.8 (9.8)
----- ----- -----
Amounts allocated to investment gains and losses.......... (8.5) (0.4) 6.8
Income tax on amounts allocated to investment gains and
losses.................................................. 3.0 0.2 (2.4)
----- ----- -----
Amount allocated to investment gains and losses, net of
income tax............................................. (5.5) (0.2) 4.4
----- ----- -----
Surplus tax............................................... -- -- 1.6
----- ----- -----
Operating income............................................ $35.9 $52.5 $41.3
===== ===== =====
</TABLE>
The following provides a reconciliation of net income to operating income
for the Life Reinsurance segment of GenAmerica:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
----------------------
1999 1998 1997
------ ----- -----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Net income.................................................. $ 17.5 $34.1 $32.5
Adjustments to reconcile net income to operating income:
Gross realized investment (gains) losses.................. 38.9 (1.7) (0.3)
Income tax on gross realized investment gains and
losses.................................................. (13.6) 0.7 0.1
------ ----- -----
Realized investment (gains) losses, net of income tax... 25.3 (1.0) (0.2)
------ ----- -----
Loss from discontinued operations, net of income tax...... 6.3 16.2 11.4
------ ----- -----
Operating income............................................ $ 49.1 $49.3 $43.7
====== ===== =====
</TABLE>
131
<PAGE> 134
The following provides a reconciliation of net income (loss) to operating
income to operating income for the Institutional Asset Management segment of
GenAmerica:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-----------------------
1999 1998 1997
------- ----- -----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Net income (loss)........................................... $(188.6) $15.7 $13.2
Adjustments to reconcile net income (loss) to operating
income:
Gross realized investment (gains) losses.................. 163.0 0.3 (1.3)
Income tax on gross realized investment gains and
losses.................................................. (57.1) (0.1) 0.4
------- ----- -----
Realized investment (gains) losses, net of income tax... 105.9 0.2 (0.9)
------- ----- -----
Surplus tax............................................. -- -- 0.2
------- ----- -----
Fees to exit funding agreement business, net of income tax
of $49.5................................................ 91.9 -- --
------- ----- -----
Operating income............................................ $ 9.2 $15.9 $12.5
======= ===== =====
</TABLE>
The following provides a reconciliation of net income to operating income
(loss) for the Insurance Services and Related Businesses segment of GenAmerica:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
----------------------
1999 1998 1997
------ ----- -----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Net income.................................................. $ 17.0 $12.7 $12.4
Adjustments to reconcile net income to operating income
(loss):
Gross realized investment gains........................... (47.5) (2.1) (3.8)
Income tax on gross realized investment gains............. 16.6 0.3 1.3
------ ----- -----
Realized investment gains, net of income tax............ (30.9) (1.8) (2.5)
------ ----- -----
Amounts allocated to investment gains..................... 0.1 (0.1) --
Income tax on amounts allocated to investment gains....... -- -- --
------ ----- -----
Amount allocated to investment gains, net of income
tax.................................................... 0.1 (0.1) --
------ ----- -----
Surplus tax............................................... -- -- 0.8
------ ----- -----
Operating income (loss)..................................... $(13.8) $10.8 $10.7
====== ===== =====
</TABLE>
The following provides a reconciliation of net loss to operating loss for
the Corporate and Consolidation/Elimination segment of GenAmerica:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
--------------------------
1999 1998 1997
------ ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Net loss.................................................... $(35.1) $ (0.9) $ (7.0)
Adjustments to reconcile net loss to operating loss
Gross realized investment gains........................... (26.6) (10.0) (7.9)
Income tax on gross realized investment gains............. 9.4 3.3 2.9
------ ------ ------
Realized investment gains, net of income tax............ (17.2) (6.7) (5.0)
------ ------ ------
Surplus tax............................................... -- -- 2.7
------ ------ ------
Operating loss.............................................. $(52.3) $ (7.6) $ (9.3)
====== ====== ======
</TABLE>
We believe the supplemental operating information presented above allows
for a more complete analysis of results of operations. Realized investment gains
and losses have been excluded due to their volatility between periods and
because such data are often excluded when evaluating the overall financial
performance of insurers. Operating income (loss) should not be considered as a
substitute for any GAAP measure of performance. Our method of calculating
operating income (loss) may be different from the method used by other companies
and therefore comparability may be limited.
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<PAGE> 135
(2) Segment data does not include consolidation and elimination entries related
to intersegment amounts.
After General American Life was placed under administrative supervision by
the Missouri Department of Insurance, sales of new insurance policies and
annuity contracts by GenAmerica declined significantly and surrender levels for
existing policyholders and annuity owners increased. Although we intend to
quickly integrate GenAmerica into our existing operations, we cannot guarantee
that we will be able to do so or that sales by GenAmerica of new insurance
policies and annuity contracts and surrender rates for existing policies and
contracts will return to pre-supervision levels. GenAmerica incurred a net loss
in 1999, principally due to losses from the sale of invested assets to meet
funding agreement and other policy obligations and the write-down of assets to
their current market value; there can be no assurance that future profitability
will not be adversely affected.
LIFE INSURANCE AND ANNUITY. GenAmerica's Life Insurance and Annuity
segment, which represented approximately 37% of GenAmerica's total revenues in
1999, offers a wide variety of life insurance and annuity products to individual
customers. GenAmerica's individual life insurance products consist of universal
and variable universal life, whole life and term life. GenAmerica's annuity
products consist of variable annuities and fixed annuities. GenAmerica sells
these products primarily to professionals, business owners and other affluent
individuals, resulting in an average face value of approximately $340,000, one
of the highest average face values per policy in the insurance industry.
GenAmerica uses multiple distribution channels to sell its life insurance
and annuity products, including approximately 275 independent general agencies,
representing a total of approximately 625 agents in its independent general
agency system and approximately 1,575 active independent insurance agents and
brokers. GenAmerica markets its various products through additional channels,
including consultants, insurance brokers, worksite, affinity group and direct
marketing to businesses and affluent individuals.
The Life Insurance and Annuity segment's revenues, excluding realized
investment gains and losses, grew from $1.3 billion in 1997 to $1.5 billion in
1999, a compound annual rate of 7.4%. In 1999, operating income declined by
31.6% to $35.9 million and net income declined by 71.3% to $14.9 million as a
result of the effect of GenAmerica's liquidity problems on its sales, expenses
and investment performance.
LIFE REINSURANCE. GenAmerica's Life Reinsurance segment, which represented
approximately 44% of GenAmerica's total revenues in 1999, sells reinsurance
products to life insurers in the U.S. and internationally. GenAmerica conducts
this business through its publicly traded subsidiary RGA. RGA is one of the
largest life reinsurers in North America based on in-force business. It markets
life reinsurance primarily to the largest U.S. life insurers and, in 1999, held
treaties with most of the top 100 U.S. life insurers. U.S. insurers accounted
for 72.2% of RGA's net premiums in 1999. Outside of the U.S., RGA operates
principally in Canada, Latin America and the Asia Pacific region. These
international operations are rapidly expanding and accounted for 27.8% of RGA's
net premiums in 1999.
RGA's business principally consists of traditional, mortality-based
reinsurance, written on both facultative and automatic treaty bases. RGA also
writes non-traditional reinsurance, including asset intensive products and
financial reinsurance. RGA distributes these products and services in the U.S.
through a regionalized direct sales force and internationally primarily through
a direct sales force located in the respective international locations. RGA also
makes limited use of reinsurance intermediaries and brokers to help supplement
sales to its targeted market.
The Life Reinsurance segment's revenues, excluding realized investment
gains and losses, grew at a compound annual rate of 27.9% from $1.1 billion in
1997 to $1.8 billion in 1999. Operating income in 1999 was $49.1 million, which
was essentially unchanged from the 1998
133
<PAGE> 136
reported amount. Net income declined 48.7% to $17.5 million in 1999 due to
exiting the funding agreement business.
INSTITUTIONAL ASSET MANAGEMENT. GenAmerica's Institutional Asset
Management segment, which represented approximately 1.2% of GenAmerica's total
revenues in 1999, offers asset management and related products and services
primarily to the insurance industry. GenAmerica conducts its asset management
business through Conning. Conning's assets under management grew from $26.0
billion in 1997 to $33.2 billion in 1999, a compound annual rate of 13.0%. At
December 31, 1999, of Conning's $33.2 billion of assets under management,
approximately $11.6 billion, or 34.9%, were GenAmerica assets.
The products and services provided by Conning consist of: (1) institutional
asset management and related services; (2) private equity funds; (3) mortgage
loan origination and real estate management; and (4) insurance industry
research. Also reported in GenAmerica's Institutional Asset Management segment
are the results relating to GenAmerica's funding agreement business. GenAmerica
exited the funding agreement business on September 29, 1999. See "-- Terms of
Acquisition".
The Institutional Asset Management segment's revenues, excluding realized
gains and losses, grew from $135.8 million in 1997 to $210.3 million in 1999, a
compound annual rate of 24.4%. In 1999, its operating income declined 42.1% to
$9.2 million. This segment incurred a net loss of $188.6 million due to exiting
the funding agreement business and due to the large investment losses sustained
in raising liquidity and transferring assets to MetLife.
INSURANCE SERVICES AND RELATED BUSINESSES. GenAmerica's Insurance Services
and Related Businesses segment, which represented approximately 19% of total
revenues in 1999, provides administrative services and insurance products for
employers and their employees, as well as software products and technology
services to companies in the life insurance industry.
In its administrative services business, GenAmerica provides administrative
support services to employer sponsored health plans and investment products and
investment, administrative and consulting services to 401(k) and pension plans.
Through its wholly-owned subsidiary NaviSys, GenAmerica also provides
software products and technology services that include life and annuity
administration systems, insurance underwriting systems, sales illustration
software, and electronic commerce and Internet-related products and services.
The Insurance Services and Related Businesses segment's revenues, excluding
realized investment gains and losses, grew from $641.9 million in 1997 to $690.8
million in 1999, a compound annual rate of 3.7%. This segment incurred an
operating loss of $13.8 million as a result of the aforementioned liquidity
problem and subsequent sale of the group health business. Net income increased
33.9% to $17.0 million primarily due to a realized investment gain related to
the sale of a non-strategic subsidiary.
On January 1, 2000, GenAmerica exited the group medical business through a
co-insurance agreement with Great-West Life & Annuity Insurance Company
(Great-West). This co-insurance agreement also includes any life and health
business that is directly associated with the medical business. GenAmerica is
required to reimburse Great-West for up to $10 million in net operating losses
incurred during 2000. These amounts have been reflected in the 1999 consolidated
financial statements of GenAmerica. GenAmerica must also compensate Great-West
for certain amounts receivable related to this business should they be deemed
uncollectible.
GENAMERICA INVESTMENTS
GenAmerica had total consolidated assets at December 31, 1999 of $23.6
billion. Of its total consolidated assets, $16.7 billion were held in the
general accounts of its insurance subsidiaries
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<PAGE> 137
while the remaining $6.9 billion were held in the separate accounts of its
insurance subsidiaries. Of the $16.7 billion of assets held in the general
accounts, $13.1 billion consisted of cash and invested assets.
The following table summarizes the consolidated cash and invested assets
held in the general accounts of GenAmerica's insurance subsidiaries at the dates
indicated.
GENAMERICA INVESTED ASSETS
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------------------------------
1999 1998
---------------------- ----------------------
CARRYING CARRYING
VALUE % OF TOTAL VALUE % OF TOTAL
-------- ---------- -------- ----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Fixed maturities(1)............................... $ 6,959.6 53.0% $11,230.9 65.4%
Equity securities(1).............................. 42.5 0.3 38.8 0.2
Commercial mortgage loans......................... 1,678.9 12.8 2,337.5 13.6
Policy loans...................................... 2,243.9 17.1 2,151.0 12.5
Real estate....................................... 131.2 1.0 129.9 0.8
Other invested assets............................. 898.8 6.8 457.6 2.7
Short-term investments............................ 295.3 2.2 200.4 1.2
Cash and cash equivalents......................... 888.3 6.8 619.5 3.6
--------- ----- --------- -----
Total invested assets............................. $13,138.5 100.0% $17,165.6 100.0%
========= ===== ========= =====
</TABLE>
- ---------------
(1) All fixed maturities and equity securities are classified as
available-for-sale and carried at estimated fair value.
The yield on general account invested assets (including net realized gains and
losses on investments) was 6.6%, 7.3% and 7.5% for the years ended December 31,
1999, 1998 and 1997, respectively.
FIXED MATURITIES. Fixed maturities consist of publicly traded and
privately placed debt securities, primarily of United States corporations,
mortgage-backed securities, asset-backed securities and obligations of the
Canadian government and provinces. The portion of funds invested in Canadian
dollar obligations supports corresponding Canadian liabilities. Fixed maturities
represented approximately 53.0% and 65.4% of GenAmerica's total invested assets
at December 31, 1999 and 1998, respectively.
The following table summarizes GenAmerica's total fixed maturities by NAIC
designation or, if not rated by the NAIC, by the comparable rating of Moody's or
S&P or, if not rated by Moody's or S&P, by GenAmerica's internal rating system.
GENAMERICA TOTAL FIXED MATURITIES BY CREDIT QUALITY
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------------------------------------------------
1999 1998
------------------------------ ------------------------------
NAIC RATING AGENCY AMORTIZED % OF ESTIMATED AMORTIZED % OF ESTIMATED
DESIGNATION EQUIVALENT DESIGNATION COST TOTAL FAIR VALUE COST TOTAL FAIR VALUE
- ----------- ---------------------- --------- ----- ---------- --------- ----- ----------
(DOLLARS IN MILLIONS)
<C> <S> <C> <C> <C> <C> <C> <C>
1 Aaa/Aa/A........... $4,267.3 55.9% $3,980.0 $ 6,842.0 62.8% $ 7,157.5
2 Baa................ 2,802.5 36.7 2,534.5 3,555.4 32.6 3,619.1
3 Bb................. 421.4 5.6 351.7 400.9 3.7 378.1
4 B.................. 102.3 1.3 66.8 64.1 0.6 47.2
5 Caa and lower...... 22.9 0.3 14.4 31.1 0.3 25.3
6 In or near default... 15.4 0.2 12.2 4.1 0.0 3.7
-------- ----- -------- --------- ----- ---------
Total fixed maturities............ $7,631.8 100.0% $6,959.6 $10,897.6 100.0% $11,230.9
======== ===== ======== ========= ===== =========
</TABLE>
135
<PAGE> 138
Mortgage-backed securities and asset-backed securities represented
approximately 16.3% and 20.2% of GenAmerica's total invested assets at December
31, 1999 and 1998, respectively. GenAmerica invests in pass-through and
collateralized mortgage obligations collateralized by the Federal National
Mortgage Association, the Federal Home Loan Mortgage Corporation, Governmental
National Mortgage Association and Canadian Housing Authority collateral. The
following table sets forth the types of mortgage-backed securities, as well as
other asset-backed securities, held by GenAmerica as of the dates indicated.
GENAMERICA MORTGAGE AND ASSET-BACKED SECURITIES
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------
1999 1998
---- ----
(DOLLARS IN MILLIONS)
<S> <C> <C>
CMOs........................................................ $ 741.7 $1,584.2
Commercial mortgage-backed securities....................... 145.0 211.9
Principal only/interest only................................ 27.2 1.8
Other mortgage-backed securities............................ 26.9 42.8
Asset-backed securities..................................... 1,198.1 1,632.8
-------- --------
Total mortgage-backed securities and asset-backed
securities................................................ $2,138.9 $3,473.5
======== ========
</TABLE>
COMMERCIAL MORTGAGE LOANS. GenAmerica's commercial mortgage loan portfolio
comprised 12.8% and 13.6% of its total invested assets at December 31, 1999 and
1998, respectively. During the years ended December 31, 1999, 1998 and 1997, the
average yield on its commercial mortgage loans was 8.8%, 8.4%, and 9.1% per
year, respectively.
The carrying value of commercial mortgage loans at December 31, 1999 was
$1.7 billion. This amount is net of valuation allowances aggregating $29.1
million. The net valuation allowances represent GenAmerica's best estimate of
the cumulative impairments on these loans at that date. However, there can be no
assurance that increases in valuation allowances will not be necessary. Any such
increases may have a material adverse effect on GenAmerica's financial position
and results of operations.
At December 31, 1999, the carrying value of potential problem, problem and
restructured commercial mortgage loans was $48.8 million, $8.6 million and $12.6
million, respectively, net of valuation allowances of $29.1 million in the
aggregate.
Gross interest income on restructured commercial mortgage loan balances
that would have been recorded in accordance with the loans' original terms was
approximately $0.1 million, $1.6 million and $3.7 million for the years ended
December 31, 1999, 1998 and 1997, respectively.
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<PAGE> 139
The following table presents the carrying amounts of potential problem,
problem and restructured commercial mortgages relative to the carrying value of
all commercial mortgages as of the dates indicated:
GENAMERICA POTENTIAL PROBLEM, PROBLEM AND RESTRUCTURED COMMERCIAL MORTGAGES AT
CARRYING VALUE
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------
1999 1998
---- ----
(DOLLARS IN MILLIONS)
<S> <C> <C>
Total commercial mortgages.................................. $1,678.9 $2,337.5
======== ========
Potential problem commercial mortgages...................... $ 48.8 $ 85.2
Problem commercial mortgages................................ 8.6 20.1
Restructured commercial mortgages........................... 12.6 29.5
-------- --------
Total potential problem, problem and restructured commercial
mortgages................................................. $ 70.0 $ 134.8
======== ========
Total potential problem, problem and restructured commercial
mortgages as a percent of total commercial mortgages...... 4.2% 5.8%
======== ========
</TABLE>
FUTURE POLICY BENEFITS
For all of our product lines, we establish, and carry as liabilities,
actuarially determined amounts that are calculated to meet our policy
obligations at such time as an annuitant takes income, a policy matures or
surrenders or an insured dies or becomes disabled. We compute the amounts for
future policy benefits in our consolidated financial statements in conformity
with generally accepted accounting principles.
We distinguish between short duration and long duration contracts. Short
duration contracts arise from our group life and group dental business. The
liability for future policy benefits for short duration contracts consists of
gross unearned premiums as of the valuation date and the discounted amount of
the future payments on pending claims as of the valuation date. Our long
duration contracts consist of traditional life, term, non-participating whole
life, individual disability income, group long-term disability and long-term
care contracts. We determine future policy benefits for long duration contracts
using assumptions based on current experience, plus a margin for adverse
deviation for these policies. Where they exist, we amortize deferred policy
acquisition costs in relation to the associated premium.
We also distinguish between investment contracts, limited pay contracts and
universal life type contracts. The future policy benefits for these products
primarily consist of policyholders' account balances. We also establish
liabilities for future policy benefits (associated with base policies and
riders, unearned mortality charges and future disability benefits), for other
policyholder funds (associated with unearned revenues and claims payable) and
for unearned revenue (the unamortized portion of front-end loads charged).
Investment contracts primarily consist of individual annuity and certain group
pension contracts that have limited or no mortality risk. We amortize the
deferred policy acquisition costs on these contracts in relation to estimated
gross profits. Limited pay contracts primarily consist of single premium
immediate individual and group pension annuities. For limited pay contracts, we
defer the excess of the gross premium over the net premium and recognize such
excess into income in relation to anticipated future benefit payments. Universal
life type contracts consist of universal and variable life contracts. We
amortize deferred policy acquisition costs for limited pay and universal type
contracts using the product's estimated gross profits. For universal life type
contracts with front-end loads, we defer the charge and amortize the unearned
revenue using the product's estimated gross profits.
The liability for future policy benefits for our participating traditional
life insurance is the net level reserve using the policy's guaranteed mortality
rates and the dividend fund interest rate or
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<PAGE> 140
nonforfeiture interest rate, as applicable. We amortize deferred policy
acquisition costs in relation to the product's estimated gross margins.
We establish liabilities to account for the estimated ultimate costs of
losses and LOSS ADJUSTMENT EXPENSES ("LAE") for claims that have been reported
but not yet settled, and claims incurred but not reported for the Auto & Home
segment. We base unpaid losses and loss adjustment expenses on:
- case estimates for losses reported on direct business, adjusted in the
aggregate for ultimate loss expectations;
- estimates of incurred but not reported losses based upon past experience;
- estimates of losses on insurance assumed primarily from involuntary
market mechanisms; and
- estimates of future expenses to be incurred in settlement of claims.
We deduct estimated amounts of salvage and subrogation from unpaid losses and
loss adjustment expenses. Implicit in all these estimates are underlying
inflation assumptions because we determine all estimates using expected actual
amounts to be paid. We derive estimates for development of reported claims and
for incurred but not reported claims principally from actuarial analyses of
historical patterns of claims and development for each line of business.
Similarly, we derive estimates of unpaid loss adjustment expenses principally
from actuarial analyses of historical development patterns of the relationship
of loss adjustment expenses to losses for each line of business. We anticipate
ultimate recoveries from salvage and subrogation principally on the basis of
historical recovery patterns.
Pursuant to state insurance laws, our insurance subsidiaries also establish
STATUTORY RESERVES, carried as liabilities, to meet their obligations on their
policies. We establish these statutory reserves in amounts sufficient to meet
our policy and contract obligations, when taken together with expected future
premiums and interest at assumed rates. Statutory reserves generally differ from
liabilities for future policy benefits determined using generally accepted
accounting principles.
The New York Insurance Law and regulations require us to submit to the New
York Superintendent of Insurance, with each annual report, an opinion and
memorandum of a "qualified actuary" that the statutory reserves and related
actuarial amounts recorded in support of specified policies and contracts, and
the assets supporting such statutory reserves and related actuarial amounts,
make adequate provision for our statutory liabilities with respect to these
obligations.
Due to the nature of the underlying risks and the high degree of
uncertainty associated with the determination of our liabilities, we cannot
precisely determine the amounts that we will ultimately pay with respect to
these liabilities, and the ultimate amounts may vary from the estimated amounts,
particularly when payments may not occur until well into the future. However, we
believe our liabilities for future benefits adequately cover the ultimate
benefits. We periodically review our estimates for liabilities for future
benefits and compare them with our actual experience. We revise our estimates
when we determine that future expected experience differs from assumptions used
in the development of our liabilities. If the liabilities originally recorded
prove inadequate, we must increase our liabilities, which may have a material
adverse effect on our business, results of operations and financial condition.
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<PAGE> 141
UNDERWRITING AND PRICING
INDIVIDUAL AND INSTITUTIONAL BUSINESSES
Our individual and group insurance underwriting involves an evaluation of
applications for life, disability, dental, retirement and savings and long-term
care insurance products and services by a professional staff of underwriters and
actuaries, who determine the type and the amount of risk that we are willing to
accept. We employ detailed underwriting policies, guidelines and procedures
designed to assist the underwriter to properly assess and quantify risks before
issuing a policy to qualified applicants or groups.
Individual underwriting considers not only an applicant's medical history,
but other factors such as financial profiles, foreign travel, avocations and
alcohol, drug and tobacco use. Our group underwriters generally evaluate the
risk characteristics of each prospective insured group, although with certain
products employees may be underwritten on an individual basis. Generally, we are
not obligated to accept any risk or group of risks from, or to issue a policy or
group of policies to, any employer or intermediary. Requests for coverage are
reviewed on their merits and generally a policy is not issued unless the
particular risk or group has been examined and approved for underwriting.
Underwriting is generally done on a centralized basis by our employees, although
some policies are underwritten by intermediaries under strict guidelines we have
established.
In order to maintain high standards of underwriting quality and
consistency, we engage in a multilevel series of ongoing internal underwriting
audits, and are subject to external audits by our reinsurers, at both our remote
underwriting offices and our corporate underwriting office.
We have established senior level oversight of this process that facilitates
quality sales, serving the needs of our customers, while supporting our
financial strength and business objectives. Our goal is to achieve the
underwriting, mortality and MORBIDITY assumptions in our product pricing. This
is accomplished by determining and establishing underwriting policies,
guidelines, philosophies and strategies that are competitive and suitable for
the customer, the representative and us.
Individual and group product pricing reflects our insurance underwriting
standards. Product pricing on insurance products is based on the expected payout
of benefits calculated through the use of assumptions for mortality, morbidity,
expenses, persistency and investment returns, as well as certain macroeconomic
factors such as inflation. Investment-oriented products are priced based on
various factors, including investment return, expenses and persistency,
depending on the specific product features. Product specifications are designed
to prevent greater than expected mortality, and we periodically monitor
mortality and morbidity assumptions.
Unique to group insurance pricing is experience rating, the process by
which the rate charged to a group policyholder reflects credit for positive past
claim experience or a charge for poor experience. We employ both prospective and
retrospective experience rating. Prospective experience rating involves the
evaluation of past experience for the purpose of determining future premium
rates. Retrospective experience rating involves the evaluation of past
experience for the purpose of determining the actual cost of providing insurance
for the customer for the time period in question.
We continually review our underwriting and pricing guidelines so that our
policies remain progressive, competitive and supportive of our marketing
strategies and profitability goals. Decisions are based on established actuarial
pricing and risk selection principles to ensure that our underwriting and
pricing guidelines are appropriate.
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<PAGE> 142
AUTO & HOME
Auto & Home's underwriting function has six principal aspects:
- evaluating potential worksite marketing employer accounts and independent
agencies;
- establishing guidelines for the binding of risks by agents with binding
authority;
- reviewing coverage bound by agents;
- on a case by case basis, underwriting potential insureds presented by
agents outside the scope of their binding authority;
- pursuing information necessary in certain cases to enable Auto & Home to
issue a policy within our guidelines; and
- ensuring that renewal policies continue to be written at rates
commensurate with risk.
Subject to very few exceptions, agents in each of our distribution channels
have binding authority for risks which fall within Auto & Home's published
underwriting guidelines. Risks falling outside the underwriting guidelines may
be submitted for approval to the underwriting department; alternatively, agents
in such a situation may call the underwriting department to obtain authorization
to bind the risk themselves. In most states, Auto & Home generally has the right
within a specified period (usually 60 days) to cancel any policy.
Auto & Home establishes prices for our major lines of insurance based on
our proprietary data base, rather than relying on rating bureaus. Auto & Home
determines prices in part from a number of variables specific to each risk. The
pricing of personal lines insurance products takes into account, among other
things, the expected frequency and severity of losses, the costs of providing
coverage (including the costs of acquiring policyholders and administering
policy benefits and other administrative and overhead costs), competitive
factors and profit considerations.
The major pricing variables for personal lines automobile insurance include
characteristics of the automobile itself, such as age, make and model,
characteristics of insureds, such as driving record and experience, and the
insured's personal financial management. Auto & Home's ability to set and change
rates is subject to regulatory oversight.
As a condition of our license to do business in each state, Auto & Home,
like all other automobile insurers, is required to write or share the cost of
private passenger automobile insurance for higher risk individuals who would
otherwise be unable to obtain such insurance. This "involuntary" market, also
called the "shared market," is governed by the applicable laws and regulations
of each state, and policies written in this market are generally written at
higher than standard rates.
In homeowners' insurance, price is driven by, among other factors, the
frequency of the occurrence of covered perils, the cost to repair or replace
damaged or lost property and the cost of litigation associated with liability
claims. Major underwriting considerations include the condition and maintenance
of the property, adequacy of fire protection and characteristics of insureds,
such as personal financial management. Most homeowners insurance policies have a
provision for automatic annual adjustments in coverage and premium due to
inflation in building and labor costs. Homeowners pricing also includes the
consideration of the incidence and severity of natural catastrophes, such as
hurricanes and earthquakes, over a long-term period.
REINSURANCE
We cede premiums to other insurers under various agreements that cover
individual risks, group risks or defined blocks of business, on a coinsurance,
yearly renewable term, excess or catastrophe excess basis. These reinsurance
agreements spread the risk and minimize the effect
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<PAGE> 143
on us of losses. The amount of each risk retained by us depends on our
evaluation of the specific risk, subject, in certain circumstances, to maximum
limits based on characteristics of coverages. Under the terms of the reinsurance
agreements, the reinsurer agrees to reimburse us for the ceded amount in the
event the claim is paid. However, we remain liable to our policyholders with
respect to ceded insurance if any reinsurer fails to meet the obligations
assumed by it. Since we bear the risk of nonpayment by one or more of our
reinsurers, we cede reinsurance to well-capitalized, highly rated reinsurers.
INDIVIDUAL BUSINESS
In recent periods, in response to the reduced cost of reinsurance coverage,
we have increased the amount of individual mortality risk coverage purchased
from third-party reinsurers. Since 1996, we have entered into reinsurance
agreements that cede substantially all of the mortality risk on term insurance
policies issued during 1996 and subsequent years, and on survivorship whole life
insurance policies issued in 1997 and subsequent years. In 1998, we reinsured
substantially all of the mortality risk on our universal life policies issued
since 1983. We are continuing to reinsure substantially all of the mortality
risk on the universal life policies. As a result of these transactions, we now
reinsure up to 90% of the mortality risk for all new individual insurance
policies that we write.
In addition to these reinsurance policies, we reinsure risk on specific
coverages.
While our retention limit on any one life is $25 million ($30 million for
joint life cases), we may cede amounts below those limits on a case-by-case
basis depending on the characteristics of a particular risk. In addition, we
routinely reinsure certain classes of risks in order to limit our exposure to
particular travel, avocation and lifestyle hazards. We have several individual
life reinsurance agreements with a diversified group of third-party reinsurers.
These automatic pools have permitted us to enhance product performance, while
decreasing business risk.
INSTITUTIONAL BUSINESS
We generally do not utilize reinsurance for our group insurance products,
but we do reinsure when capital requirements and the economic terms of the
reinsurance make it appropriate to do so.
AUTO & HOME
Auto & Home purchases reinsurance to control our exposure to large losses
(primarily catastrophe losses), to stabilize earnings and to protect surplus.
Auto & Home cedes to reinsurers a portion of risks and pays premiums based upon
the risk and exposure of the policies subject to reinsurance.
To control our exposure to large property and casualty losses, Auto & Home
utilizes three varieties of reinsurance agreements in which protection is
provided for a specified type or category of risks. First, we utilize property
catastrophe excess of loss agreements. Second, we utilize casualty excess of
loss agreements. Third, we utilize property per risk excess of loss agreements.
PROPERTY CATASTROPHE EXCESS OF LOSS. Protection against hurricane losses
in Florida is obtained through (1) the state-run Catastrophe Fund, which
provides coverage of 90% of $153 million in excess of $36 million, (2) privately
placed reinsurance of $52.5 million in excess of $200 million, and (3) a
multi-year treaty for Florida second-event coverage in which the maximum
recoverable is $46.5 million in excess of $50 million. This multi-year treaty is
subject to a 24-month activation period and upon activation the contract period
is 36 months. This coverage becomes activated when the aggregate incurred losses
for the insurance industry exceed $8 billion or the Florida Hurricane
Catastrophe Fund is depleted. For other regions, on January 1,
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<PAGE> 144
2000, Auto & Home entered into a multi-year treaty in which the maximum
recoverable amounts are $37.5 million for any one loss occurrence in excess of
$75 million, $75 million for any one annual period and no more than $112.5
million during the four-year contract term. On January 1, 2000, Auto & Home also
entered into an annual treaty in which the maximum recoverable amount is $122.5
million for each and every loss occurrence in excess of $125 million. The
aggregate effect of these coverages is to limit Auto & Home's probable maximum
after-tax loss from a one in 250-year hurricane in Florida or a one in 100-year
hurricane in the Northeast to less than 10% of Auto & Home's statutory surplus.
PROPERTY PER RISK EXCESS OF LOSS. Auto & Home's property per risk excess
of loss coverage has three layers of protection: each current layer is effective
through June 30, 2000. The first layer of coverage provides up to $1 million of
recoveries for each loss in excess of $1 million. The second layer provides up
to $3 million of coverage for each loss in excess of $2 million. The third layer
provides up to $10 million of coverage for each loss in excess of $5 million.
For a given occurrence, the entire program provides maximum coverage of $24
million.
CASUALTY EXCESS OF LOSS. Auto & Home's casualty excess of loss coverage
has three layers of protection: each current layer is effective through June 30,
2000. The first layer covers up to $3 million of losses for each occurrence in
excess of $2 million. The second layer covers up to $5 million of losses for
each occurrence in excess of $5 million. The third layer covers up to $10
million of losses for each occurrence in excess of $10 million.
INVESTMENTS
We had total cash and invested assets at December 31, 1999 of $138.6
billion. In addition, we had $64.9 billion held in our separate accounts, for
which we generally do not bear investment risk.
Our primary investment objective is to maximize after-tax operating income
consistent with acceptable risk parameters. We are exposed to three primary
sources of investment risk:
- credit risk, relating to the uncertainty associated with the continued
ability of a given obligor to make timely payments of principal and
interest;
- interest rate risk, relating to the market price and cash flow
variability associated with changes in market interest rates; and
- market valuation risk for equity holdings.
We manage credit risk through in-house fundamental analysis of the
underlying obligors, issuers, transaction structures and real estate properties.
We also manage credit risk and valuation risk through industry and issuer
diversification and asset allocation. For real estate and agricultural assets,
we manage credit risk and valuation risk through geographic, property type, and
product type diversification and asset allocation. We manage interest rate risk
as part of our asset and liability management strategies, product design, such
as the use of market value adjustment features and surrender charges, and
proactive monitoring and management of certain non-guaranteed elements of our
products, such as the resetting of credited interest and dividend rates for
policies that permit such adjustments.
For further information on our management of interest rate risk and market
valuation risk, see "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Market Risk Disclosure".
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<PAGE> 145
The following table summarizes our cash and invested assets at December 31,
1999 and 1998:
INVESTED ASSETS
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------------------------
1999 1998
----------------- -----------------
CARRYING % OF CARRYING % OF
VALUE TOTAL VALUE TOTAL
-------- ----- -------- -----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Fixed maturities available-for-sale, at fair value.......... $ 96,981 69.9% $100,767 72.5%
Mortgage loans on real estate............................... 19,739 14.2 16,827 12.1
Equity real estate and real estate joint ventures........... 5,649 4.1 6,287 4.5
Policy loans................................................ 5,598 4.0 5,600 4.0
Equity securities, at fair value............................ 2,006 1.5 2,340 1.7
Cash and cash equivalents................................... 2,789 2.0 3,301 2.4
Other limited partnership interests......................... 1,331 1.0 1,047 0.7
Short-term investments...................................... 3,055 2.2 1,369 1.0
Other invested assets....................................... 1,501 1.1 1,484 1.1
-------- ----- -------- -----
Total cash and invested assets..................... $138,649 100.0% $139,022 100.0%
======== ===== ======== =====
</TABLE>
INVESTMENT RESULTS
The yield on general account cash and invested assets, excluding net
realized investment gains and losses, was 7.3%, 7.5% and 7.1% for the years
ended December 31, 1999, 1998 and 1997, respectively.
The following table illustrates the yields on average assets for each of
the components of our investment portfolio for the years ended December 31,
1999, 1998 and 1997:
<TABLE>
<CAPTION>
AT OR FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------------------------------
1999 1998 1997
------------------ ------------------- ------------------
YIELD(1) AMOUNT YIELD(1) AMOUNT YIELD(1) AMOUNT
-------- ------ -------- ------ -------- ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
FIXED MATURITIES:(2)
Investment income.............................. 7.5% $ 7,171 7.4% $ 6,990 7.4% $ 6,481
Net realized gains (losses).................... (538) 573 118
------- -------- -------
Total........................................ $ 6,633 $ 7,563 $ 6,599
------- -------- -------
Ending assets.................................. $96,981 $100,767 $92,630
------- -------- -------
MORTGAGE LOANS:(3)
Investment income.............................. 8.1% $ 1,484 8.5% $ 1,580 8.6% $ 1,692
Net realized gains............................. 28 23 56
------- -------- -------
Total........................................ $ 1,512 $ 1,603 $ 1,748
------- -------- -------
Ending assets.................................. $19,739 $ 16,827 $20,193
------- -------- -------
EQUITY REAL ESTATE AND REAL ESTATE JOINT
VENTURES:(4)
Investment income, net of expenses............. 9.7% $ 581 10.4% $ 687 7.5% $ 586
Net realized gains............................. 265 424 446
------- -------- -------
Total........................................ $ 846 $ 1,111 $ 1,032
------- -------- -------
Ending assets.................................. $ 5,649 $ 6,287 $ 7,080
------- -------- -------
POLICY LOANS:
Investment income.............................. 6.1% $ 340 6.6% $ 387 6.3% $ 368
------- -------- -------
Ending assets.................................. $ 5,598 $ 5,600 $ 5,846
------- -------- -------
</TABLE>
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<PAGE> 146
<TABLE>
<CAPTION>
AT OR FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------------------------------
1999 1998 1997
------------------ ------------------- ------------------
YIELD(1) AMOUNT YIELD(1) AMOUNT YIELD(1) AMOUNT
-------- ------ -------- ------ -------- ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
CASH, CASH EQUIVALENTS AND SHORT-TERM
INVESTMENTS:
Investment income.............................. 4.2% $ 173 5.3% $ 187 5.1% $ 169
------- -------- -------
Ending assets.................................. $ 5,844 $ 4,670 $ 3,590
------- -------- -------
EQUITY SECURITIES:
Investment income.............................. 1.8% $ 40 2.0% $ 78 1.4% $ 50
Net realized gains............................. 99 994 224
------- -------- -------
Total........................................ $ 139 $ 1,072 $ 274
------- -------- -------
Ending assets.................................. $ 2,006 $ 2,340 $ 4,250
------- -------- -------
OTHER LIMITED PARTNERSHIP INTERESTS:
Investment income.............................. 17.2% $ 199 20.3% $ 196 32.7% $ 302
Net realized gains............................. 33 13 12
------- -------- -------
Total........................................ $ 232 $ 209 $ 314
------- -------- -------
Ending assets.................................. $ 1,331 $ 1,047 $ 855
------- -------- -------
OTHER INVESTED ASSETS:
Investment income.............................. 6.0% $ 91 12.2% $ 406 7.3% $ 324
Net realized gains (losses).................... (24) 71 23
------- -------- -------
Total........................................ $ 67 $ 477 $ 347
------- -------- -------
Ending assets.................................. $ 1,501 $ 1,484 $ 4,456
------- -------- -------
TOTAL INVESTMENTS:
Investment income before expenses and fees..... 7.5% $10,079 7.7% $ 10,511 7.5% $ 9,972
Investment expenses and fees................... (0.2%) (263) (0.2%) (283) (0.4%) (481)
---- ------- ---- -------- ---- -------
Net investment income.......................... 7.3% $ 9,816 7.5% $ 10,228 7.1% $ 9,491
Net realized gains (losses).................... (137) 2,098 879
Realized gains from sales of subsidiaries...... -- 531 139
Adjustments to realized gains (losses)(5)...... 67 (608) (231)
------- -------- -------
Total........................................ $ 9,746 $ 12,249 $10,278
======= ======== =======
</TABLE>
- ---------------
(1) Yields are based on quarterly average asset carrying values for 1999 and
1998, and annual average asset carrying values for 1997 excluding unrealized
investment gains(losses), and for yield calculation purposes, average assets
exclude fixed maturities associated with our security lending program. Fixed
maturity investment income has been reduced by rebates paid under the
program.
(2) Included in fixed maturities are equity linked notes of $1,079 million, $916
million and $860 million at December 31, 1999, 1998 and 1997, respectively,
which include an equity component as part of the notes' return. Investment
income for fixed maturities includes prepayment fees and income from the
securities lending program that has been reclassed from net investment
income.
(3) Investment income from mortgage loans includes prepayment fees.
(4) Equity real estate and real estate joint venture income is shown net of
operating expenses, including depreciation of $247 million, $282 million and
$338 million in 1999, 1998 and 1997, respectively.
(5) Adjustments to realized gains (losses) include accelerated amortization of
deferred acquisition costs, loss recognition for policy liabilities related
to the assets sold and additional credits to participating contracts.
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<PAGE> 147
FIXED MATURITIES
Fixed maturities consist principally of publicly traded and privately
placed debt securities, and represented 69.9% and 72.5% of total cash and
invested assets at December 31, 1999 and 1998, respectively.
Based on estimated fair value, public fixed maturities and private fixed
maturities comprised 82.6% and 17.4% of total fixed maturities at December 31,
1999, respectively, and 83.3% and 16.7% at December 31, 1998, respectively. We
invest in privately placed fixed maturities to enhance the overall value of the
portfolio, increase diversification and obtain higher yields than can ordinarily
be obtained with comparable public market securities. Generally, private
placements provide us with protective covenants, call protection features and,
where applicable, a higher level of collateral. However, we may not freely trade
our private placements because of restrictions imposed by federal and state
securities laws and illiquid trading markets.
The Securities Valuation Office of the NAIC evaluates the bond investments
of insurers for regulatory reporting purposes and assigns securities to one of
six investment categories called "NAIC designations". The NAIC designations
parallel the credit ratings of the Nationally Recognized Statistical Rating
Organizations for marketable bonds. NAIC designations 1 and 2 include bonds
considered investment grade (rated "Baa3" or higher by Moody's, or rated "BBB-"
or higher by S&P) by such rating organizations. NAIC designations 3 through 6
include bonds considered below investment grade (rated "Ba1" or lower by
Moody's, or rated "BB+" or lower by S&P).
The following tables present our public, private and total fixed maturities
by NAIC designation and the equivalent ratings of the Nationally Recognized
Statistical Rating Organizations at December 31, 1999 and 1998, as well as the
percentage, based on estimated fair value, that each designation comprises:
PUBLIC FIXED MATURITIES BY CREDIT QUALITY
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------------------------------------------
1999 1998
----------------------------- -----------------------------
ESTIMATED ESTIMATED
NAIC RATING AGENCY AMORTIZED FAIR % OF AMORTIZED FAIR % OF
RATING EQUIVALENT DESIGNATION COST VALUE TOTAL COST VALUE TOTAL
- ------ ---------------------- --------- --------- ----- --------- --------- -----
(DOLLARS IN MILLIONS)
<C> <S> <C> <C> <C> <C> <C> <C>
1 Aaa/Aa/A.................... $55,258 $54,511 68.1% $57,003 $60,735 72.4%
2 Baa......................... 19,908 19,106 23.8 16,472 17,001 20.2
3 Ba.......................... 4,355 4,232 5.3 4,635 4,609 5.5
4 B........................... 2,184 2,153 2.7 1,532 1,477 1.8
5 Caa and lower............... 64 54 0.1 138 106 0.1
6 In or near default.......... 23 23 0.0 2 5 0.0
------- ------- ----- ------- ------- -----
Total public fixed
maturities................ $81,792 $80,079 100.0% $79,782 $83,933 100.0%
======= ======= ===== ======= ======= =====
</TABLE>
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<PAGE> 148
PRIVATE FIXED MATURITIES BY CREDIT QUALITY
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------------------------------------------
1999 1998
----------------------------- -----------------------------
ESTIMATED ESTIMATED
NAIC RATING AGENCY AMORTIZED FAIR % OF AMORTIZED FAIR % OF
RATING EQUIVALENT DESIGNATION COST VALUE TOTAL COST VALUE TOTAL
- ------ ---------------------- --------- --------- ----- --------- --------- -----
(DOLLARS IN MILLIONS)
<C> <S> <C> <C> <C> <C> <C> <C>
1 Aaa/Aa/A...................... $ 7,597 $ 7,696 45.5% $ 7,372 $ 7,865 46.7%
2 Baa........................... 6,975 6,845 40.5 6,637 6,862 40.8
3 Ba............................ 1,453 1,404 8.3 1,391 1,362 8.1
4 B............................. 833 816 4.8 621 606 3.6
5 Caa and lower................. 104 87 0.5 129 110 0.6
6 In or near default............ 45 44 0.3 11 14 0.1
------- ------- ----- ------- -------- -----
Subtotal...................... 17,007 16,892 99.9 16,161 16,819 99.9
Redeemable preferred stock.... 10 10 0.1 15 15 0.1
------- ------- ----- ------- -------- -----
Total private fixed
maturities.................. $17,017 $16,902 100.0% $16,176 $ 16,834 100.0%
======= ======= ===== ======= ======== =====
</TABLE>
TOTAL FIXED MATURITIES BY CREDIT QUALITY
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------------------------------------------
1999 1998
----------------------------- -----------------------------
ESTIMATED ESTIMATED
NAIC RATING AGENCY AMORTIZED FAIR % OF AMORTIZED FAIR % OF
RATING EQUIVALENT DESIGNATION COST VALUE TOTAL COST VALUE TOTAL
- ------ ---------------------- --------- --------- ----- --------- --------- -----
(DOLLARS IN MILLIONS)
<C> <S> <C> <C> <C> <C> <C> <C>
1 Aaa/Aa/A...................... $62,855 $62,207 64.2% $64,375 $ 68,600 68.1%
2 Baa........................... 26,883 25,951 26.8 23,109 23,863 23.7
3 Ba............................ 5,808 5,636 5.8 6,026 5,971 5.9
4 B............................. 3,017 2,969 3.1 2,153 2,083 2.1
5 Caa and lower................. 168 141 0.1 267 216 0.2
6 In or near default............ 68 67 0.0 13 19 0.0
------- ------- ----- ------- -------- -----
Subtotal...................... 98,799 96,971 100.0 95,943 100,752 100.0
Redeemable preferred stock.... 10 10 0.0 15 15 0.0
------- ------- ----- ------- -------- -----
Total fixed maturities........ $98,809 $96,981 100.0% $95,958 $100,767 100.0%
======= ======= ===== ======= ======== =====
</TABLE>
Based on estimated fair values, total investment grade public and private
placement fixed maturities comprised 91.0% and 91.8% of total fixed maturities
in the general account at December 31, 1999 and 1998, respectively.
146
<PAGE> 149
The following table shows the amortized cost and estimated fair value of
fixed maturities, by contractual maturity dates (excluding scheduled sinking
funds), at December 31, 1999 and 1998:
FIXED MATURITIES BY CONTRACTUAL MATURITY DATES
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------------------------------
1999 1998
---------------------- ----------------------
ESTIMATED ESTIMATED
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
--------- --------- --------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Due in one year or less..........................
$ 3,180 $ 3,217 $ 2,380 $ 2,462
Due after one year through five years............
18,152 18,061 17,062 17,527
Due after five years through ten years...........
23,755 23,114 23,769 24,714
Due after ten years..............................
26,316 25,918 26,276 29,070
------- ------- ------- --------
Subtotal.......................................
71,403 70,310 69,487 73,773
Mortgage-backed and other asset-backed
securities.....................................
27,396 26,661 26,456 26,979
------- ------- ------- --------
Subtotal.......................................
98,799 96,971 95,943 100,752
Redeemable preferred stock.......................
10 10 15 15
------- ------- ------- --------
Total fixed maturities...........................
$98,809 $96,981 $95,958 $100,767
======= ======= ======= ========
</TABLE>
PROBLEM, POTENTIAL PROBLEM AND RESTRUCTURED FIXED MATURITIES. We monitor
fixed maturities to identify investments that management considers to be
problems or potential problems. We also monitor investments that have been
restructured.
We define problem securities in the fixed maturities category as securities
as to which principal or interest payments are in default or are to be
restructured pursuant to commenced negotiations, or as securities issued by a
debtor that has subsequently entered bankruptcy.
We define potential problem securities in the fixed maturity category as
securities of an issuer deemed to be experiencing significant operating problems
or difficult industry conditions. We use various criteria, including the
following, to identify potential problem securities:
- debt service coverage or cash flow falling below certain thresholds which
vary according to the issuer's industry and other relevant factors;
- significant declines in revenues or margins;
- violation of financial covenants;
- public securities trading at a substantial discount as a result of
specific credit concerns; and
- other subjective factors.
We define restructured securities in the fixed maturities category as
securities to which we have granted a concession that we would not have
otherwise considered but for the financial difficulties of the obligor or
issuer. We enter into a restructuring when we believe we will realize a greater
economic value under the new terms than through liquidation or disposition. The
terms of the restructuring may involve some or all of the following
characteristics: a reduction in the interest or dividend rate, an extension of
the maturity date, an exchange of debt for equity or a partial forgiveness of
principal or interest.
147
<PAGE> 150
The following table presents the estimated fair value of our total fixed
maturities classified as performing, problem, potential problem and restructured
fixed maturities at December 31, 1999 and 1998:
PROBLEM, POTENTIAL PROBLEM AND RESTRUCTURED FIXED MATURITIES
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------------------------
1999 1998
------------------- -------------------
ESTIMATED % OF ESTIMATED % OF
FAIR VALUE TOTAL FAIR VALUE TOTAL
---------- ----- ---------- -----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Performing......................................... $96,464 99.5% $100,409 99.6%
Problem............................................ 20 0.0 152 0.2
Potential problem.................................. 482 0.5 192 0.2
Restructured....................................... 15 0.0 14 0.0
------- ----- -------- -----
Total............................................ $96,981 100.0% $100,767 100.0%
======= ===== ======== =====
</TABLE>
We classify all of our fixed maturities as available-for-sale and mark them
to market. We write down to management's expectations of ultimate realizable
value fixed maturities that we deem to be other than temporarily impaired. We
record write-downs as realized losses and include them in earnings and adjust
the cost basis of the fixed maturities accordingly. We do not change the revised
cost basis for subsequent recoveries in value. Such writedowns were $98 million
and $7 million for the years ended December 31, 1999 and 1998, respectively.
Cumulative write-downs on fixed maturities owned were $76 million and $16
million at December 31, 1999 and 1998, respectively.
FIXED MATURITIES BY SECTOR. We diversify our fixed maturities by security
sector. The following tables set forth the estimated fair value of our fixed
maturities by sector, as well as the percentage of the total fixed maturities
holdings that each security sector comprised at December 31, 1999 and 1998, and
show by security type the relative amounts of publicly traded and privately
placed securities:
FIXED MATURITIES BY SECTOR
<TABLE>
<CAPTION>
AT DECEMBER 31, 1999
--------------------------------------------------------------
PUBLICLY TRADED PRIVATELY PLACED TOTAL
------------------ ------------------ ------------------
ESTIMATED % OF ESTIMATED % OF ESTIMATED % OF
FAIR VALUE TOTAL FAIR VALUE TOTAL FAIR VALUE TOTAL
---------- ----- ---------- ----- ---------- -----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
U.S. treasuries/agencies.......... $ 6,298 7.9% $ 1 0.0% $ 6,299 6.5%
Corporate securities.............. 40,207 50.2 15,336 90.7 55,543 57.3
Foreign government securities..... 4,095 5.1 111 0.7 4,206 4.3
Mortgage-backed securities........ 20,032 25.0 247 1.5 20,279 20.9
Asset-backed securities........... 5,715 7.1 667 3.9 6,382 6.6
Other fixed income assets......... 3,732 4.7 540 3.2 4,272 4.4
------- ----- ------- ----- ------- -----
Total........................... $80,079 100.0% $16,902 100.0% $96,981 100.0%
======= ===== ======= ===== ======= =====
</TABLE>
148
<PAGE> 151
FIXED MATURITIES BY SECTOR
<TABLE>
<CAPTION>
AT DECEMBER 31, 1998
--------------------------------------------------------------
PUBLICLY TRADED PRIVATELY PLACED TOTAL
------------------ ------------------ ------------------
ESTIMATED % OF ESTIMATED % OF ESTIMATED % OF
FAIR VALUE TOTAL FAIR VALUE TOTAL FAIR VALUE TOTAL
---------- ----- ---------- ----- ---------- -----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
U.S. treasuries/agencies.......... $ 7,744 9.2% $ 3 0.0% $ 7,747 7.7%
Corporate securities.............. 42,525 50.6 15,453 91.8 57,978 57.5
Foreign government securities..... 4,173 5.0 117 0.7 4,290 4.3
Mortgage-backed securities........ 20,452 24.4 440 2.6 20,892 20.7
Asset-backed securities........... 5,852 7.0 235 1.4 6,087 6.0
Other fixed income assets......... 3,187 3.8 586 3.5 3,773 3.8
------- ----- ------- ----- -------- -----
Total........................... $83,933 100.0% $16,834 100.0% $100,767 100.0%
======= ===== ======= ===== ======== =====
</TABLE>
CORPORATE FIXED MATURITIES. The table below shows the major industry types
that comprise our corporate bond holdings at the dates indicated:
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------------------------
1999 1998
------------------- -------------------
ESTIMATED % OF ESTIMATED % OF
FAIR VALUE TOTAL FAIR VALUE TOTAL
---------- ----- ---------- -----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Industrial.......................................... $26,480 47.6% $28,388 49.0%
Utility............................................. 6,487 11.7 7,690 13.2
Finance............................................. 11,631 21.0 11,252 19.4
Yankee/Foreign(1)................................... 10,423 18.8 10,295 17.8
Other............................................... 522 0.9 353 0.6
------- ----- ------- -----
Total............................................. $55,543 100.0% $57,978 100.0%
======= ===== ======= =====
</TABLE>
- ---------------
(1) Includes dollar-denominated debt obligations of foreign obligors, known as
Yankee bonds, and other foreign investments.
We diversify our corporate bond holdings by industry and issuer. The
portfolio has no significant exposure to any single issuer. At December 31,
1999, our combined holdings in the ten issuers to which we had the greatest
exposure totaled $3,154 million, which was less than 3% of our total invested
assets at such date. The exposure to the largest single issuer of corporate
bonds we held at December 31, 1999 was $388 million, which was less than 1% of
our total invested assets at such date.
At December 31, 1999, investments of $4,182 million, or 40.1% of the
Yankee/Foreign sector, represented exposure to traditional "Yankee" bonds, which
are dollar-denominated debt obligations of foreign obligors. The balance of this
exposure is primarily dollar-denominated, foreign private placements and project
finance loans. We diversify the Yankee/Foreign portfolio by country and issuer.
We do not have material exposure to foreign currency risk in our invested
assets. In our international insurance operations, both our assets and
liabilities are denominated in local currencies. Foreign currency denominated
securities supporting U.S. dollar liabilities are generally swapped back into
U.S. dollars.
149
<PAGE> 152
MORTGAGE-BACKED SECURITIES. The following table shows the types of
mortgage-backed securities we held at December 31, 1999 and 1998:
MORTGAGE-BACKED SECURITIES
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------------------------
1999 1998
------------------- -------------------
ESTIMATED % OF ESTIMATED % OF
FAIR VALUE TOTAL FAIR VALUE TOTAL
---------- ----- ---------- -----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Pass-through securities............................. $ 8,478 41.8% $ 8,546 40.9%
------- ----- ------- -----
Collateralized mortgage obligations
Planned amortization class........................ 3,974 19.6 4,593 22.0
Sequential pay class.............................. 3,359 16.5 3,827 18.3
Other............................................. 361 1.8 141 0.7
------- ----- ------- -----
Subtotal....................................... 7,694 37.9 8,561 41.0
Commercial mortgage-backed securities............... 4,107 20.3 3,785 18.1
------- ----- ------- -----
Total..................................... $20,279 100.0% $20,892 100.0%
======= ===== ======= =====
</TABLE>
At December 31, 1999, pass-through and collateralized mortgage obligations
totaled $16,172 million, or 79.7% of total mortgage-backed securities, and a
majority of this amount represented agency-issued pass-through and
collateralized mortgage obligations guaranteed or otherwise supported by the
Federal National Mortgage Association, Federal Home Loan Mortgage Corporation or
Government National Mortgage Association. Other types of mortgage-backed
securities comprised the balance of such amounts reflected in the table. At
December 31, 1999, approximately $2,614 million, or 63.6% of the commercial
mortgage-backed securities and $13,880 million, or 85.9% of the pass-through
securities and collateralized mortgage obligations were rated Aaa/AAA by Moody's
or S&P.
Mortgage-backed securities are purchased to diversify the portfolio risk
characteristics from primarily corporate credit risk to a mix of credit risk and
cash flow risk. The majority of the mortgage-backed securities in our investment
portfolio have relatively low cash flow variability.
The principal risks inherent in holding mortgage-backed securities are
prepayment and extension risks, which will affect the timing of when cash flow
will be received. Our active monitoring of our mortgage-backed securities
mitigates exposure to losses from cash flow risk associated with interest rate
fluctuations.
Mortgage-backed pass-through certificates are the most liquid assets in the
mortgage-backed sector. Pass-through securities represented 41.8% and 40.9% of
our mortgage-backed securities at December 31, 1999 and 1998 respectively.
Pass-through securities distribute, on a pro rata basis to their holders, the
monthly cash flows of principal and interest, both scheduled and prepayments,
generated by the underlying mortgages.
We also invested 37.9% and 41.0% of our mortgage-backed securities at
December 31, 1999 and 1998, respectively, in collateralized mortgage obligations
("CMOs") which have a greater degree of cash flow stability than pass-throughs.
Planned Amortization Class bonds ("PAC") represented 19.6% and 22.0% of our
mortgage-backed securities at December 31, 1999 and 1998, respectively. These
bonds or tranches are structured to provide more certain cash flows to the
investor and therefore are subject to less prepayment and extension risk than
other mortgage-backed securities. PAC tranches derive their stability from
having a specified principal payment schedule, provided prepayments of the
underlying securities remain within their expected range. The other tranches of
a CMO absorb
150
<PAGE> 153
prepayment variations so that PACs maintain a better defined maturity profile
than other mortgage-backed securities. By buying PACs, we accept a lower yield
in return for more certain cash flow. The principal risk of holding PACs is that
prepayments may differ significantly from expectations and we will not receive
the expected yield on the PAC. In contrast, Sequential Pay Class tranches
receive principal payments in a prescribed sequence without a pre-determined
prepayment schedule. In addition to our PACs and Sequential Pay Class tranches,
we had approximately $108 million invested in interest-only or principal-only
mortgage-backed securities at December 31, 1999.
ASSET-BACKED SECURITIES. The following table below shows the types of
asset-backed securities we held at December 31, 1999 and 1998:
ASSET-BACKED SECURITIES
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------------------------------
1999 1998
--------------------- ---------------------
ESTIMATED % OF ESTIMATED % OF
FAIR VALUE TOTAL FAIR VALUE TOTAL
---------- ----- ---------- -----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Credit card receivables..................... $1,960 30.7% $2,885 47.4%
Automobile receivables...................... 1,070 16.8 1,432 23.5
Home equity loans........................... 1,541 24.1 1,026 16.9
Other....................................... 1,811 28.4 744 12.2
------ ----- ------ -----
Total..................................... $6,382 100.0% $6,087 100.0%
====== ===== ====== =====
</TABLE>
Asset-backed securities are purchased both to diversify the overall risks
of our fixed maturities assets and to provide attractive returns. Our
asset-backed securities are diversified both by type of asset and by issuer.
Credit card receivables constitute the largest exposure in our asset-backed
securities investments. Except for asset-backed securities backed by home equity
loans, the asset-backed securities investments generally have little sensitivity
to changes in interest rates. At December 31, 1999, approximately $3,661
million, or 57.4%, of the total was rated Aaa/AAA by Moody's or S&P.
The principal risks in holding asset-backed securities are structural,
credit and capital market risks. Structural risks include the security's
priority in the issuer's capital structure, the adequacy of and ability to
realize proceeds from the collateral and the potential for prepayments. Credit
risks include consumer or corporate credits such as credit card holders,
equipment lessees, and corporate obligors. Capital market risks include the
general level of interest rates and the liquidity for these securities in the
market place.
MORTGAGE LOANS
Our mortgage loans are collateralized by commercial, agricultural and
residential properties. Mortgage loans comprised 14.2% and 12.1% of our total
cash and invested assets at December 31, 1999 and 1998, respectively. The
carrying value of mortgage loans is stated at original cost net of repayments,
amortization of premiums, accretion of discounts and valuation
151
<PAGE> 154
allowances. The following table shows the carrying value of our mortgage loans
by such types at December 31, 1999 and 1998:
MORTGAGE LOANS BY PORTFOLIO
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------------------------------
1999 1998
------------------- -------------------
CARRYING % OF CARRYING % OF
VALUE TOTAL VALUE TOTAL
-------- ----- -------- -----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Commercial................................... $14,862 75.3% $12,360 73.5%
Agricultural................................. 4,798 24.3 4,227 25.1
Residential.................................. 79 0.4 240 1.4
------- ----- ------- -----
Total...................................... $19,739 100.0% $16,827 100.0%
======= ===== ======= =====
</TABLE>
COMMERCIAL MORTGAGE LOANS. We diversify our commercial mortgage loans by
both geographic region and property type, and manage these investments through a
network of regional offices overseen by our investment department. The following
table presents the distribution across geographic regions and property types for
commercial mortgage loans at December 31, 1999 and 1998:
COMMERCIAL MORTGAGE LOAN DISTRIBUTION BY GEOGRAPHIC REGION AND PROPERTY TYPE
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------------------------
1999 1998
----------------- -----------------
CARRYING % OF CARRYING % OF
VALUE TOTAL VALUE TOTAL
-------- ----- -------- -----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
REGION
South Atlantic....................................... $ 4,098 27.6% $ 3,463 28.0%
Middle Atlantic...................................... 2,703 18.2 2,220 18.0
Pacific.............................................. 2,596 17.5 1,935 15.7
East North Central................................... 1,865 12.5 1,832 14.8
New England.......................................... 1,095 7.4 1,077 8.7
West South Central................................... 1,012 6.8 676 5.5
West North Central................................... 652 4.4 569 4.6
Mountain............................................. 490 3.3 335 2.7
East South Central................................... 149 1.0 152 1.2
International........................................ 202 1.3 101 0.8
------- ----- ------- -----
Total.............................................. $14,862 100.0% $12,360 100.0%
======= ===== ======= =====
PROPERTY TYPE
Office............................................... $ 6,789 45.7% $ 6,118 49.5%
Retail............................................... 3,620 24.4 2,286 18.5
Apartments........................................... 2,382 16.0 2,378 19.2
Industrial........................................... 1,136 7.6 848 6.9
Hotel................................................ 843 5.7 657 5.3
Other................................................ 92 0.6 73 0.6
------- ----- ------- -----
Total.............................................. $14,862 100.0% $12,360 100.0%
======= ===== ======= =====
</TABLE>
152
<PAGE> 155
The following table presents the scheduled maturities for our commercial
mortgage loans at December 31, 1999 and 1998:
COMMERCIAL MORTGAGE LOAN SCHEDULED MATURITIES
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------------------------
1999 1998
----------------- -----------------
CARRYING % OF CARRYING % OF
VALUE TOTAL VALUE TOTAL
-------- ----- -------- -----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Due in 1 year or less................................ $ 806 5.4% $ 808 6.5%
Due after 1 year through 2 years..................... 482 3.2 816 6.6
Due after 2 years through 3 years.................... 708 4.8 532 4.3
Due after 3 years through 4 years.................... 787 5.3 679 5.5
Due after 4 years through 5 years.................... 1,608 10.8 881 7.1
Due after 5 years.................................... 10,471 70.5 8,644 70.0
------- ----- ------- -----
Total.............................................. $14,862 100.0% $12,360 100.0%
======= ===== ======= =====
</TABLE>
We monitor our mortgage loans on a continual basis. Through this monitoring
process, we review loans that are restructured, delinquent or under foreclosure
and identify those that management considers to be potentially delinquent. These
loan classifications are generally consistent with those used in industry
practice.
We define restructured mortgage loans, consistent with industry practice,
as loans in which we, for economic or legal reasons related to the debtor's
financial difficulties, grant a concession to the debtor that we would not
otherwise consider. This definition provides for loans to exit the restructured
category under certain conditions. We define delinquent mortgage loans,
consistent with industry practice, as loans as to which two or more interest or
principal payments are past due. We define mortgage loans under foreclosure,
consistent with industry practice, as loans as to which foreclosure proceedings
have formally commenced. We define potentially delinquent loans as loans which,
in management's opinion, have a high probability of becoming delinquent.
We review all mortgage loans on an annual basis. These reviews may include
an analysis of the property financial statement and rent roll, lease rollover
analysis, property inspections, market analysis and tenant creditworthiness. We
also review loan-to-value ratios and debt coverage ratios for restructured
loans, delinquent loans, loans under foreclosure, potentially delinquent loans,
loans with an existing valuation allowance, loans maturing within two years and
loans with a loan-to-value ratio greater than 90% as determined in the prior
year.
We establish valuation allowances for loans that we deem impaired, as
determined through our annual review process. We define impaired loans
consistent with Statement of Financial Accounting Standards No. 114, Accounting
by Creditors for Impairment of a Loan, as loans as to which we probably will not
collect all amounts due according to applicable contractual terms of the
agreement. We base valuation allowances upon the present value of expected
future cash flows discounted at the loan's original effective interest rate or
the value of the loan's collateral. We record valuation allowances as realized
losses and include them in earnings. We record subsequent adjustments to
allowances as realized gains or losses and include them in earnings.
153
<PAGE> 156
The following table presents the amortized cost and valuation allowances
for commercial mortgage loans distributed by loan classification at December 31,
1999 and 1998:
COMMERCIAL MORTGAGE LOAN DISTRIBUTION AND VALUATION ALLOWANCE BY LOAN
CLASSIFICATION
<TABLE>
<CAPTION>
AT DECEMBER 31, 1999 AT DECEMBER 31, 1998
----------------------------------------- -----------------------------------------
% OF % OF
AMORTIZED % OF VALUATION AMORTIZED AMORTIZED % OF VALUATION AMORTIZED
COST(1) TOTAL ALLOWANCE COST COST(1) TOTAL ALLOWANCE COST
--------- ----- --------- --------- --------- ----- --------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Performing.............. $14,098 94.5% $11 0.1% $11,490 91.9% $ 44 0.4%
Restructured............ 810 5.4 52 6.4% 953 7.7 85 8.9%
Delinquent or under
foreclosure........... 17 0.1 4 25.0% 55 0.4 10 18.2%
Potentially
delinquent............ 6 0.0 2 33.3% 4 0.0 3 75.0%
------- ----- --- ------- ----- ----
Total................. $14,931 100.0% $69 0.5% $12,502 100.0% $142 1.1%
======= ===== === ======= ===== ====
</TABLE>
- ---------------
(1) Amortized cost is equal to carrying value before valuation allowances.
The following table presents the changes in valuation allowances for
commercial mortgage loans for the years ended December 31, 1999, 1998 and 1997:
CHANGES IN COMMERCIAL MORTGAGE LOAN VALUATION ALLOWANCES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1999 1998 1997
---- ---- -----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Balance, beginning of year.................................. $ 142 $ 259 $ 454
Additions................................................... 36 30 46
Deductions for writedowns and dispositions(1)............... (109) (147) (241)
----- ----- -----
Balance, end of year........................................ $ 69 $ 142 $ 259
===== ===== =====
</TABLE>
- ---------------
(1) Includes $26 million related to commercial mortgage loans held by entities
sold in 1998.
The principal risks in holding commercial mortgage loans are property
specific, supply and demand, financial and capital market risks. Property
specific risks include the geographic location of the property, the physical
condition of the property, the diversity of tenants and the rollover of their
leases and the ability of the property manager to attract tenants and manage
expenses. Supply and demand risks include changes in the supply and/or demand
for rental space which cause changes in vacancy rates and/or rental rates.
Financial risks include the overall level of debt on the property and the amount
of principal repaid during the loan term. Capital market risks include the
general level of interest rates, the liquidity for these securities in the
marketplace and the capital available for refinancing of a loan.
154
<PAGE> 157
AGRICULTURAL MORTGAGE LOANS. We diversify our agricultural mortgage loans
by both geographic region and product type. We manage these investments through
a network of regional offices and field professionals overseen by our investment
department. The following table presents the distribution across geographic
regions and product types for agricultural mortgage loans at December 31, 1999
and 1998:
AGRICULTURAL MORTGAGE LOAN DISTRIBUTION
BY GEOGRAPHIC REGION AND BY PRODUCT TYPE
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------------------------
1999 1998
----------------- -----------------
CARRYING % OF CARRYING % OF
VALUE TOTAL VALUE TOTAL
-------- ----- -------- -----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
REGION
Pacific................................................ $1,184 24.7% $1,085 25.6%
West North Central..................................... 1,053 21.9 931 22.0
South Atlantic......................................... 840 17.5 734 17.4
East North Central..................................... 737 15.4 671 15.9
West South Central..................................... 405 8.5 356 8.4
Mountain............................................... 371 7.7 327 7.7
East South Central..................................... 189 3.9 108 2.6
New England............................................ 19 0.4 15 0.4
------ ----- ------ -----
Total................................................ $4,798 100.0% $4,227 100.0%
====== ===== ====== =====
PRODUCT TYPE
Annual Crop............................................ $2,276 47.4% $2,128 50.3%
Permanent.............................................. 932 19.5 848 20.1
Agribusiness........................................... 761 15.8 578 13.7
Livestock.............................................. 655 13.7 564 13.3
Timber................................................. 174 3.6 109 2.6
------ ----- ------ -----
Total................................................ $4,798 100.0% $4,227 100.0%
====== ===== ====== =====
</TABLE>
The following table presents the scheduled maturities for our agricultural
mortgage loans at December 31, 1999 and 1998:
AGRICULTURAL MORTGAGE LOAN MATURITY PROFILE
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------------------------
1999 1998
----------------- -----------------
CARRYING % OF CARRYING % OF
VALUE TOTAL VALUE TOTAL
-------- ----- -------- -----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Due in 1 year or less.................................. $ 99 2.1% $ 70 1.7%
Due after 1 year through 2 years....................... 74 1.5 76 1.8
Due after 2 years through 3 years...................... 97 2.0 88 2.1
Due after 3 years through 4 years...................... 135 2.8 112 2.6
Due after 4 years through 5 years...................... 134 2.8 161 3.8
Due after 5 years...................................... 4,259 88.8 3,720 88.0
------ ----- ------ -----
Total................................................ $4,798 100.0% $4,227 100.0%
====== ===== ====== =====
</TABLE>
Approximately 62% of the $4,798 million of agricultural mortgage loans
outstanding at December 31, 1999 was subject to rate resets prior to maturity. A
substantial portion of these loans are successfully renegotiated and remain
outstanding to maturity. The process and policies
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for monitoring the agricultural mortgage loans and classifying them by
performance status are generally the same as those for the commercial mortgage
loans.
The following table presents the amortized cost and valuation allowances
for agricultural mortgage loans distributed by loan classification at December
31, 1999 and 1998:
AGRICULTURAL MORTGAGE LOAN DISTRIBUTION AND VALUATION ALLOWANCE BY LOAN
CLASSIFICATION
<TABLE>
<CAPTION>
AT DECEMBER 31, 1999 AT DECEMBER 31, 1998
----------------------------------------- -----------------------------------------
% OF % OF
AMORTIZED % OF VALUATION AMORTIZED AMORTIZED % OF VALUATION AMORTIZED
COST(1) TOTAL ALLOWANCE COST COST(1) TOTAL ALLOWANCE COST
--------- ----- --------- --------- --------- ----- --------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Performing............. $4,616 95.8% $ 1 0.0% $4,051 95.2% $10 0.2%
Restructured........... 165 3.4 11 6.7% 182 4.3 14 7.7%
Delinquent or under
foreclosure.......... 27 0.6 2 7.4% 10 0.2 -- 0.0%
Potentially
delinquent........... 8 0.2 4 50.0% 12 0.3 4 33.3%
------ ----- --- ------ ----- ---
Total................ $4,816 100.0% $18 0.4% $4,255 100.0% $28 0.7%
====== ===== === ====== ===== ===
</TABLE>
- ---------------
(1) Amortized cost is equal to carrying value before valuation allowances.
The following table presents the changes in valuation allowances for
agricultural mortgage loans for the years ended December 31, 1999, 1998 and
1997:
CHANGES IN AGRICULTURAL MORTGAGE LOAN VALUATION ALLOWANCES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1999 1998 1997
---- ---- ----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Balance, beginning of year.................................. $ 28 $27 $12
Additions................................................... 4 10 15
Deductions for writedowns and dispositions.................. (14) (9) --
---- --- ---
Balance, end of year........................................ $ 18 $28 $27
==== === ===
</TABLE>
The principal risks in holding agricultural mortgage loans are property
specific, supply and demand, financial and capital market risks. Property
specific risks include the location of the property, soil types, weather
conditions and the other factors that may impact the borrower's personal
guaranty. Supply and demand risks include the supply and demand for the
commodities produced on the specific property and the related price for those
commodities. Financial risks include the overall level of debt on the property
and the amount of principal repaid during the loan term. Capital market risks
include the general level of interest rates, the liquidity for these securities
in the marketplace and the capital available for refinancing of a loan.
EQUITY REAL ESTATE AND REAL ESTATE JOINT VENTURES
Our equity real estate and real estate joint venture investments consist of
commercial and agricultural properties located throughout the U.S. and Canada.
We manage these investments through a network of regional offices overseen by
our investment department. At December 31, 1999 and 1998, the carrying value of
our equity real estate and real estate joint ventures was $5,649 million and
$6,287 million, respectively, or 4.1% and 4.5% of total cash and invested
assets. The carrying value of equity real estate is stated at depreciated cost
net of impairments and valuation allowances. The carrying value of real estate
joint ventures is stated at our equity in the real estate joint ventures net of
impairments and valuation allowances. These holdings consist of equity real
estate, interests in real estate joint ventures and real estate acquired upon
foreclosure
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of commercial and agricultural mortgage loans. The following table presents the
carrying value of our equity real estate and real estate joint ventures at
December 31, 1999 and 1998:
EQUITY REAL ESTATE AND REAL ESTATE JOINT VENTURES
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------------------------
1999 1998
----------------- -----------------
CARRYING % OF CARRYING % OF
VALUE TOTAL VALUE TOTAL
-------- ----- -------- -----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
TYPE
Equity real estate..................................... $5,271 93.3% $5,559 88.5%
Real estate joint ventures............................. 331 5.9 574 9.1
------ ----- ------ -----
Subtotal............................................. 5,602 99.2 6,133 97.6
Foreclosed real estate................................. 47 0.8 154 2.4
------ ----- ------ -----
Total................................................ $5,649 100.0% $6,287 100.0%
====== ===== ====== =====
</TABLE>
These investments are diversified by geographic location and property
types. The following table presents the distribution across geographic regions
and property types for equity real estate and real estate joint ventures at
December 31, 1999 and 1998:
EQUITY REAL ESTATE AND REAL ESTATE JOINT VENTURES
DISTRIBUTION BY GEOGRAPHIC REGION AND PROPERTY TYPE
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------------------------
1999 1998
----------------- -----------------
CARRYING % OF CARRYING % OF
VALUE TOTAL VALUE TOTAL
-------- ----- -------- -----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
REGION
East................................................... $1,863 33.0% $1,960 31.2%
West................................................... 1,657 29.3 1,828 29.1
South.................................................. 1,416 25.1 1,628 25.9
Midwest................................................ 544 9.6 681 10.8
International.......................................... 169 3.0 190 3.0
------ ----- ------ -----
Total................................................ $5,649 100.0% $6,287 100.0%
====== ===== ====== =====
PROPERTY TYPE
Office................................................. $3,846 68.1% $4,265 67.8%
Retail................................................. 587 10.4 640 10.2
Apartments............................................. 474 8.4 418 6.6
Land................................................... 258 4.6 313 5.0
Industrial............................................. 160 2.8 168 2.7
Hotel.................................................. 151 2.7 169 2.7
Agriculture............................................ 96 1.7 195 3.1
Other.................................................. 77 1.3 119 1.9
------ ----- ------ -----
Total................................................ $5,649 100.0% $6,287 100.0%
====== ===== ====== =====
</TABLE>
Office properties representing 68.1% and 67.8% of our equity real estate
and real estate joint venture holdings at December 31, 1999 and 1998,
respectively, are well diversified geographically. The average occupancy level
of office properties was 92% and 93% at December 31, 1999 and 1998,
respectively.
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We classify equity real estate and real estate joint ventures as held for
investment or held for sale. The following table presents the carrying value of
equity real estate and real estate joint ventures by such classifications at
December 31, 1999 and 1998:
EQUITY REAL ESTATE AND REAL ESTATE JOINT VENTURES
CLASSIFICATION BY HELD FOR INVESTMENT AND HELD FOR SALE
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------------------
1999 1998
---------------- ----------------
CARRYING % OF CARRYING % OF
VALUE TOTAL VALUE TOTAL
-------- ----- -------- -----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Equity real estate and real estate joint ventures held for
investment............................................... $5,151 91.2% $5,893 93.7%
Equity real estate and real estate joint ventures held for
sale..................................................... 498 8.8 394 6.3
------ ----- -------- -----
Total.................................................... $5,649 100.0% $6,287 100.0%
====== ===== ======== =====
</TABLE>
Ongoing management of these investments includes quarterly appraisals, as
well as an annual market update and review of each property's budget, financial
returns, lease rollover status and our exit strategy. In addition to individual
property reviews, we employ an overall strategy of selective dispositions and
acquisitions as market opportunities arise. Our current strategy follows the
completion of a program to substantially reduce the size of our total real
estate holdings. Our disposition effort began in 1995, when the carrying value
of our holdings at year end was $9,514 million, and ended in 1998 with a
carrying value of our holdings at $6,287 million.
We adjust the carrying value of equity real estate and real estate joint
ventures held for investment for impairments whenever events or changes in
circumstances indicate that the carrying value of the property may not be
recoverable. We write down impaired real estate to estimated fair value, which
we generally compute using the present value of future cash flows from the
property, discounted at a rate commensurate with the underlying risks. We record
writedowns as realized losses through earnings and we reduce the cost basis of
the properties accordingly. We do not change the new cost basis for subsequent
recoveries in value. Cumulative writedowns on equity real estate and real estate
joint ventures that are held for investment, excluding real estate acquired upon
foreclosure of commercial and agricultural mortgage loans, were $289 million and
$408 million at December 31, 1999 and 1998, respectively.
We record real estate acquired upon foreclosure of commercial and
agricultural mortgage loans at the lower of estimated fair value or the carrying
value of the mortgage loan at the date of foreclosure.
Once we identify a property to be sold and commence a firm plan for
marketing the property, we establish and periodically revise, if necessary, a
valuation allowance to adjust the carrying value of the property to its expected
sales value, less associated selling costs, if it is lower than the property's
carrying value. We record allowances as realized losses and include them in
earnings. We record subsequent adjustments to allowances as realized gains or
losses and include them in earnings.
Our carrying value of equity real estate and real estate joint ventures
held for sale, including real estate acquired upon foreclosure of commercial and
agricultural mortgage loans, in the amounts of $498 million and $394 million at
December 31, 1999 and 1998, respectively, are net of impairments of $187 million
and $119 million and net of valuation allowances of $34 million and $33 million,
respectively.
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EQUITY SECURITIES AND OTHER LIMITED PARTNERSHIP INTERESTS
Our equity securities primarily consist of investments in common stocks.
Substantially all of the common stock is publicly traded on major securities
exchanges. The other limited partnership interests primarily represent ownership
interests in pooled investment funds that make private equity investments in
companies in the U.S. and overseas. We classify our investments in common stocks
as available-for-sale and mark them to market except for non-marketable private
equities which are generally carried at cost. We account for our investments in
limited partnership interests in which we do not have a controlling interest in
accordance with the equity method of accounting. Our investments in equity
securities represented 1.5% and 1.7% of cash and invested assets at December 31,
1999 and 1998, respectively.
The following table presents the carrying values of our investments in
equity securities and other limited partnership interests at December 31, 1999
and 1998:
INVESTMENTS IN EQUITY SECURITIES AND OTHER LIMITED PARTNERSHIP INTERESTS
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------------------------
1999 1998
----------------- -----------------
CARRYING % OF CARRYING % OF
VALUE TOTAL VALUE TOTAL
-------- ----- -------- -----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Equity securities...................................... $2,006 60.1% $2,340 69.1%
Other limited partnership interests.................... 1,331 39.9 1,047 30.9
------ ----- ------ -----
Total................................................ $3,337 100.0% $3,387 100.0%
====== ===== ====== =====
</TABLE>
Equity securities include, at December 31, 1999 and 1998, $237 million and
$239 million, respectively, of private equity securities. We may not freely
trade our private equity securities, because of restrictions imposed by federal
and state securities laws and illiquid trading markets.
At December 31, 1999 and 1998, approximately $380 million and $452 million,
respectively, of our equity securities holdings were effectively fixed at a
minimum value of $355 million and $371 million in these respective periods,
primarily through the use of convertible securities and other derivatives. In
1998, one exchangeable subordinated debt security was terminated resulting in
realized investment gains of $32 million. The remaining exchangeable
subordinated debt securities mature through 2002 and we may terminate them
earlier at our discretion.
PROBLEM AND POTENTIAL PROBLEM EQUITY SECURITIES AND OTHER LIMITED PARTNERSHIP
INTERESTS
We monitor our equity securities and other limited partnership interests on
a continual basis. Through this monitoring process, we identify investments that
management considers to be problems or potential problems.
Problem equity securities and other limited partnership interests are
defined as securities (1) in which significant declines in revenues and/or
margins threaten the ability of the issuer to continue operating or (2) where
the issuer has subsequently entered bankruptcy.
Potential problem equity securities and other limited partnership interests
are defined as securities issued by a company that is experiencing significant
operating problems or difficult industry conditions. Criteria generally
indicative of these problems or conditions are (1) cash flows falling below
varying thresholds established for the industry and other relevant factors, (2)
significant declines in revenues and/or margins, (3) public securities trading
at a substantial discount as a result of specific credit concerns and (4) other
information that becomes available.
Equity securities or other limited partnership interests which are deemed
to be other than temporarily impaired are written down to management's
expectation of ultimate realizable value. Writedowns are recorded as realized
investment losses and are included in earnings and the cost
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<PAGE> 162
basis of the equity securities and other limited partnership interests are
adjusted accordingly. The new cost basis is not changed for subsequent
recoveries in value. For the years ended December 31, 1999 and 1998, such
writedowns were $35 million and $38 million, respectively. Cumulative writedowns
on equity securities and other limited partnership interests owned at December
31, 1999 and 1998 were $35 million and $55 million, respectively.
OTHER INVESTED ASSETS
Our other invested assets consist principally of leveraged leases, which
are recorded net of non-recourse debt. We participate in lease transactions
which are diversified by geographic area. We regularly review residual values
and write down residuals to expected values as needed. Our other invested assets
represented 1.1% of cash and invested assets at both December 31, 1999 and 1998.
DERIVATIVE FINANCIAL INSTRUMENTS
We use derivative instruments to manage market risk through one of four
principal risk management strategies: the hedging of invested assets,
liabilities, portfolios of assets or liabilities and anticipated transactions.
Our derivative strategy employs a variety of instruments including financial
futures, financial forwards foreign exchange contracts, foreign currency swaps,
interest rate swaps, interest rate caps and options.
We held the following positions in derivative financial instruments (other
than equity options) at December 31, 1999 and 1998:
DERIVATIVE FINANCIAL INSTRUMENTS
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------------------
1999 1998
---------------- ----------------
NOTIONAL % OF NOTIONAL % OF
AMOUNT TOTAL AMOUNT TOTAL
-------- ----- -------- -----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Financial futures...................................... $ 3,140 15.1% $ 2,190 17.0%
Foreign exchange contracts............................. -- 0.0 136 1.1
Foreign currency swaps................................. 4,002 19.2 580 4.5
Interest rate swaps.................................... 1,316 6.3 1,621 12.5
Interest rate caps..................................... 12,376 59.4 8,391 64.9
------- ----- ------- -----
Total................................................ $20,834 100.0% $12,918 100.0%
======= ===== ======= =====
</TABLE>
SECURITIES LENDING
Pursuant to our securities lending program, we lend securities to major
brokerage firms. Our policy requires a minimum of 102% of the fair value of the
loaned securities as collateral, calculated on a daily basis. Our securities on
loan at December 31, 1999 and 1998 had estimated fair values of $6,391 million
and $4,552 million, respectively.
SEPARATE ACCOUNT ASSETS
We manage each separate account's assets in accordance with the prescribed
investment policy that applies to that specific separate account. We establish
separate accounts on a single client and multi-client commingled basis in
conformity with insurance laws. Generally, separate accounts are not chargeable
with liabilities that arise from any other business of ours. Separate account
assets are subject to our general account's claims only to the extent that the
value of such assets exceeds the separate account liabilities, as defined by the
account's contract. If we use a separate account to support a contract providing
guaranteed benefits, we must comply
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with the asset maintenance requirements stipulated under Regulation 128 of the
New York Insurance Department. We monitor these requirements at least monthly
and in addition perform cash flow analyses, similar to those conducted for the
general account, on an annual basis. We report separately as assets and
liabilities investments held in separate accounts and liabilities of the
separate accounts. We report substantially all separate account assets at their
fair market value. Investment income and gains or losses on the investments of
separate accounts accrue directly to contractholders, and, accordingly, we do
not reflect them in our consolidated statements of income and cash flows. We
reflect in our revenues fees charged to the separate accounts by us, including
mortality charges, risk charges, policy administration fees, investment
management fees and surrender charges.
REGULATION
INSURANCE REGULATION
Metropolitan Life Insurance Company is licensed to transact insurance
business in, and is subject to regulation and supervision by, all 50 states, the
District of Columbia, Puerto Rico, the U.S. Virgin Islands and Canada and each
of its 11 provinces. Each of our other insurance subsidiaries is licensed and
regulated in all U.S. and international jurisdictions where it conducts
insurance business. The extent of such regulation varies, but most jurisdictions
have laws and regulations governing the financial aspects of insurers, including
standards of solvency, reserves, reinsurance, capital adequacy and the business
conduct of insurers. In addition, statutes and regulations usually require the
licensing of insurers and their agents, the approval of policy forms and related
materials and, for certain lines of insurance, the approval of rates. Such
statutes and regulations also prescribe the permitted types and concentration of
investments.
The New York Insurance Law limits the sales commissions and certain other
marketing expenses that may be incurred in connection with the sale of life
insurance policies and annuity contracts. Our insurance subsidiaries are each
required to file reports, generally including detailed annual financial
statements, with insurance regulatory authorities in each of the jurisdictions
in which they do business, and their operations and accounts are subject to
periodic examination by such authorities. Our subsidiaries must also file, and
in many jurisdictions and in some lines of insurance obtain regulatory approval
for, rules, rates and forms relating to the insurance written in the
jurisdictions in which they operate.
The NAIC has established a program of accrediting state insurance
departments. NAIC accreditation permits accredited states to conduct periodic
examinations of insurers domiciled in such states. NAIC-accredited states will
not accept reports of examination of insurers from unaccredited states, except
under limited circumstances. As a direct result, insurers domiciled in
unaccredited states may be subject to financial examination by accredited states
in which they are licensed, in addition to any examinations conducted by their
domiciliary states. The accreditation of the New York Insurance Department, our
principal insurance regulator, has been suspended as a result of the New York
legislature's failure to adopt certain model NAIC laws, including provisions
restricting dividends to holding companies. We believe that the suspension of
the NAIC accreditation of the Department, even if continued, will not have a
significant impact upon our ability to conduct our insurance businesses.
State and federal insurance and securities regulatory authorities and other
state law enforcement agencies and attorneys general from time to time make
inquiries regarding compliance by our insurance subsidiaries with insurance,
securities and other laws and regulations regarding the conduct of our insurance
and securities businesses. We endeavor to respond to such inquiries in an
appropriate way and to take corrective action if warranted.
HOLDING COMPANY REGULATION. We and our insurance subsidiaries are subject
to regulation under the insurance holding company laws of various jurisdictions.
The insurance holding company laws and regulations vary from jurisdiction to
jurisdiction, but generally require an
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insurance holding company (and insurers that are subsidiaries of insurance
holding companies) to register with state regulatory authorities and to file
with those authorities certain reports, including information concerning their
capital structure, ownership, financial condition, certain intercompany
transactions and general business operations.
State insurance statutes also typically place restrictions and limitations
on the amount of dividends or other distributions payable by insurance company
subsidiaries to their parent companies, as well as on transactions between an
insurer and its affiliates. See "Risk Factors -- Dividends and payments on our
indebtedness may be affected by limitations imposed on Metropolitan Life
Insurance Company and our other subsidiaries" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources -- MetLife, Inc." The New York Insurance Law and the
regulations thereunder also restrict the aggregate amount of investments
Metropolitan Life Insurance Company may make in non-life insurance subsidiaries,
and provide for detailed periodic reporting on subsidiaries.
GUARANTY ASSOCIATIONS AND SIMILAR ARRANGEMENTS. Most of the jurisdictions
in which we are admitted to transact business require life insurers doing
business within the jurisdiction to participate in guaranty associations, which
are organized to pay contractual benefits owed pursuant to insurance policies
issued by impaired, insolvent or failed life insurers. These associations levy
assessments, up to prescribed limits, on all member insurers in a particular
state on the basis of the proportionate share of the premiums written by member
insurers in the lines of business in which the impaired, insolvent or failed
insurer is engaged. Some states permit member insurers to recover assessments
paid through full or partial premium tax offsets.
In none of the past five years have the aggregate assessments levied
against Metropolitan Life Insurance Company and its insurance subsidiaries been
material. While the amount and timing of future assessments are not predictable,
we have established liabilities for guarantee fund assessments that we consider
adequate for assessments with respect to insurers that are currently subject to
insolvency proceedings.
STATUTORY EXAMINATION. As part of their routine regulatory oversight
process, state insurance departments conduct periodic detailed examinations of
the books, records and accounts of insurers domiciled in their states. These
examinations are generally conducted in cooperation with the departments of two
or three other states under guidelines promulgated by the NAIC. The New York
Insurance Department recently completed an examination of Metropolitan Life
Insurance Company for the five-year period ended December 31, 1993. The New York
Insurance Department's Report on Examination of Metropolitan Life Insurance
Company as of December 31, 1993 found that, during the five-year examination
period 1989 through 1993, Metropolitan Life Insurance Company failed to fully
comply with the disclosure requirements of a New York Insurance Department
regulation regarding replacements of certain of its insurance policies with
other policies issued by it, and used certain policy forms that had not been
filed with or approved by the Insurance Department. These findings resulted in a
$250,000 fine and other remedies which, in our view, are not material to our
business, financial condition or results of operations. The Report contained
other findings which did not result in a fine. The New York Insurance Department
recently commenced an examination of Metropolitan Life Insurance Company for
each of the five years in the period ended December 31, 1998.
State insurance departments also periodically conduct market conduct
examinations of the sales practices of insurance companies, including our life
insurance subsidiaries. Regulatory authorities in a small number of states,
including both insurance departments and attorneys general, have ongoing
investigations of our sales of individual life insurance policies or annuities,
including investigations of alleged improper replacement transactions and
alleged improper sales of insurance with inaccurate or inadequate disclosures as
to the period for which premiums would be payable. Over the past several years,
we have resolved a number of investigations by
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other regulatory authorities for monetary payments and certain other relief, and
may continue to do so in the future.
NAIC RATIOS. On the basis of statutory financial statements filed with
state insurance regulators, the NAIC calculates annually twelve financial ratios
to assist state regulators in monitoring the financial condition of insurers. A
"usual range" of results for each ratio is used as a benchmark. Departure from
the "usual range" on four or more of the ratios can lead to inquiries from
individual state insurance departments. In each of the years 1996 through 1999,
at most one ratio for Metropolitan Life Insurance Company fell outside the usual
range.
POLICY AND CONTRACT RESERVE SUFFICIENCY ANALYSIS. Under the New York
Insurance Law, Metropolitan Life Insurance Company is required to conduct
annually an analysis of the sufficiency of all life and health insurance and
annuity statutory reserves. A qualified actuary must submit an opinion which
states that the statutory reserves, when considered in light of the assets held
with respect to such reserves, make good and sufficient provision for the
associated contractual obligations and related expenses of the insurer. If such
an opinion cannot be provided, the insurer must set up additional reserves by
moving funds from surplus. Since the inception of this requirement, we have
provided this opinion without any qualifications.
STATUTORY INVESTMENT RESERVES. Statutory accounting practices require a
life insurer to maintain both an asset valuation reserve and an interest
maintenance reserve to absorb both realized and unrealized gains and losses on a
portion of its investments. The asset valuation reserve is a statutory reserve
for fixed maturity securities, equity securities, mortgage loans, equity real
estate and other invested assets. The asset valuation reserve is designed to
capture all realized and unrealized gains and losses on such assets, other than
those resulting from changes in interest rates. The level of the asset valuation
reserve is based on both the type of investment and its credit rating. In
addition, the reserves required for similar investments, for example, fixed
maturity securities, differ according to the credit ratings of the investments,
which are based upon ratings established periodically by the NAIC Securities
Valuation Office. The interest maintenance reserve applies to all types of fixed
maturity securities, including bonds, preferred stocks, mortgage-backed
securities, asset-backed securities and mortgage loans. The interest maintenance
reserve is designed to capture the net gains which are realized upon the sale of
such investments and which result from changes in the overall level of interest
rates. The captured net realized gains or losses are then amortized into income
over the remaining period to the stated maturity of the investment sold. Any
increase in the asset valuation reserve and interest maintenance reserve causes
a reduction in our insurance companies' statutory capital and surplus which, in
turn, reduces funds available for stockholder dividends.
SURPLUS AND CAPITAL. The New York Insurance Law requires Metropolitan Life
Insurance Company, as a New York domestic insurer, to maintain at least $300,000
in surplus. After the demutualization, Metropolitan Life Insurance Company will
be required to maintain $2,000,000 in capital. In addition, prior to the
demutualization, the New York Insurance Law limited the amount of surplus that
Metropolitan Life Insurance Company, as a New York domestic mutual insurer,
could accumulate. We intend to continue offering participating policies after
the demutualization. We will be subject to statutory restrictions that limit to
10% the amount of statutory profits on participating policies written after the
demutualization (measured before dividends to policyholders) that can inure to
the benefit of stockholders. We believe that the impact of these restrictions on
our earnings will not be significant.
Our U.S. insurance subsidiaries are subject to the supervision of the
regulators in each jurisdiction in which they are licensed to transact business.
Regulators have discretionary authority, in connection with the continued
licensing of these insurance subsidiaries, to limit or prohibit sales to
policyholders if, in their judgment, the regulators determine that such insurer
has not maintained the minimum surplus or capital or if further transaction of
business will be hazardous to policyholders.
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<PAGE> 166
RISK-BASED CAPITAL. Section 1322 of the New York Insurance Law requires
that New York life insurers report their RBC based on a formula calculated by
applying factors to various asset, premium and reserve items. The formula takes
into account the risk characteristics of the insurer, including asset risk,
insurance risk, interest rate risk and business risk. The New York Insurance
Department uses the formula only as an early warning regulatory tool to identify
possibly inadequately capitalized insurers for purposes of initiating regulatory
action, and not as a means to rank insurers generally. Section 1322 imposes
broad confidentiality requirements on those engaged in the insurance business
(including insurers, agents, brokers and others) and on the Insurance Department
as to the use and publication of RBC data.
Section 1322 gives the New York Superintendent of Insurance explicit
regulatory authority to require various actions by, or take various actions
against, insurers whose total adjusted capital does not exceed certain RBC
levels. At December 31, 1999, Metropolitan Life Insurance Company's total
adjusted capital was in excess of each of those RBC levels.
The U.S. insurance subsidiaries of Metropolitan Life Insurance Company are
also subject, each individually, to these same RBC requirements. At December 31,
1999, the total adjusted capital of each of these insurance subsidiaries also
was in excess of each of those RBC levels.
The NAIC has recently adopted the Codification of Statutory Accounting
Principles for life insurers, which is to become effective on January 1, 2001.
Prior to implementation by Metropolitan Life Insurance Company, the Codification
requires adoption by the New York Insurance Department, which may adopt the
standards, in full or in part, or fail to adopt the standards. Based on a study
commissioned by the NAIC, the overall impact to life insurers resulting from
adoption of the codification is not expected to have a material adverse impact;
however, a detailed analysis will be necessary to determine the actual impact of
Codification on the statutory results of operations and statutory financial
position of Metropolitan Life Insurance Company.
REGULATION OF INVESTMENTS. Metropolitan Life Insurance Company and each of
its insurance subsidiaries are subject to state laws and regulations that
require diversification of our investment portfolios and limit the amount of
investments in certain asset categories such as below investment grade fixed
income securities, equity real estate, other equity investments and derivatives.
Failure to comply with these laws and regulations would cause investments
exceeding regulatory limitations to be treated as NON-ADMITTED ASSETS for
purposes of measuring surplus, and, in some instances, would require divestiture
of such non-qualifying investments. We believe that the investments made by
Metropolitan Life Insurance Company and each of its insurance subsidiaries
complied with such regulations at December 31, 1999.
FEDERAL INSURANCE INITIATIVES. Although the federal government generally
does not directly regulate the insurance business, federal initiatives often
have an impact on the business in a variety of ways. Current and proposed
federal measures that may significantly affect the insurance business include
limitations on antitrust immunity and minimum solvency requirements. For a
discussion of the Gramm-Leach-Bliley Act of 1999, permitting affiliations
between banks and insurers, see "Business -- Competition".
VALUATION OF LIFE INSURANCE POLICIES MODEL REGULATION. The NAIC has
adopted a revision to the Valuation of Life Insurance Policies Model Regulation
(known as XXX Regulation). This model regulation would establish new minimum
statutory reserve requirements for certain individual life insurance policies
written in the future. Before the new reserve standards can become effective,
individual states must adopt the model regulation. If these reserve standards
were adopted in their current form, insurers selling certain individual life
insurance products such as term life insurance with guaranteed premium periods
and universal life insurance products with no-lapse guarantees would be required
to redesign their products or hold increased reserves to be consistent with the
new minimum standards with respect to policies issued after the effective date
of the regulation. It is likely that the industry will encourage the states to
adopt
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the regulation with an effective date of January 1, 2000. New York State adopted
a regulation similar to the model regulation in 1994, and is considering
amending its regulation to be consistent with XXX Regulation.
BROKER-DEALER AND SECURITIES REGULATION
Metropolitan Life Insurance Company, some of its subsidiaries and certain
policies and contracts offered by them are subject to various levels of
regulation under the federal securities laws administered by the Securities and
Exchange Commission. Metropolitan Life Insurance Company and some of its
subsidiaries are investment advisers registered under the Investment Advisers
Act of 1940, as amended. In addition, some separate accounts and a variety of
mutual funds are registered under the Investment Company Act of 1940, as
amended. Some annuity contracts and insurance policies issued by Metropolitan
Life Insurance Company and some of its subsidiaries are funded by separate
accounts, the interests in which are registered under the Securities Act of
1933, as amended. Metropolitan Life Insurance Company and some of its
subsidiaries are registered as broker-dealers under the Securities Exchange Act
of 1934, as amended, and with the National Association of Securities Dealers,
Inc.
Metropolitan Life Insurance Company also has certain pooled investment
vehicles that are exempt from registration under the Securities Act and the
Investment Company Act, but may be subject to certain other provisions of such
acts.
Federal and state securities regulatory authorities from time to time make
inquiries regarding compliance by Metropolitan Life Insurance Company and its
subsidiaries with securities and other laws and regulations regarding the
conduct of their securities businesses. We endeavor to respond to such inquiries
in an appropriate way and to take corrective action if warranted.
These laws and regulations are primarily intended to protect investors in
the securities markets and generally grant supervisory agencies broad
administrative powers, including the power to limit or restrict the conduct of
business for failure to comply with such laws and regulations. We may also be
subject to similar laws and regulations in the states and foreign countries in
which we provide investment advisory services, offer the products described
above or conduct other securities-related activities.
ENVIRONMENTAL CONSIDERATIONS
As owners and operators of real property, we are subject to extensive
federal, state and local environmental laws and regulations. Inherent in such
ownership and operation is also the risk that there may be potential
environmental liabilities and costs in connection with any required remediation
of such properties. In addition, we hold equity interests in companies that
could potentially be subject to environmental liabilities, although we routinely
have environmental assessments performed with respect to real estate being
acquired for investment and real property to be acquired through foreclosure. We
cannot provide assurance that unexpected environmental liabilities will not
arise. However, based on information currently available to management,
management believes that any costs associated with compliance with environmental
laws and regulations or any remediation of such properties will not have a
material adverse effect on our business, results of operations and financial
condition.
ERISA CONSIDERATIONS
We provide certain products and services to certain employee benefit plans
that are subject to the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), or the Internal Revenue Code of 1986, as amended ("Code"). As
such, our activities are subject to the restrictions imposed by ERISA and the
Code, including the requirement under ERISA that fiduciaries must perform their
duties solely in the interests of ERISA plan participants and beneficiaries and
the requirement under ERISA and the Code that fiduciaries may not cause a
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covered plan to engage in certain prohibited transactions with persons who have
certain relationships with respect to such plans. The applicable provisions of
ERISA and the Code are subject to enforcement by the Department of Labor, the
Internal Revenue Service and the Pension Benefit Guaranty Corporation.
On December 13, 1993, the U.S. Supreme Court issued its opinion in John
Hancock Mutual Life Insurance Company v. Harris Trust and Savings Bank. The
Court held that certain assets in excess of amounts necessary to satisfy
guaranteed obligations held by John Hancock in its general account under a
participating group annuity contract are "plan assets" and therefore subject to
certain fiduciary obligations under ERISA, which specifies that fiduciaries must
perform their duties solely in the interest of ERISA plan participants and
beneficiaries. The Court limited the imposition of ERISA fiduciary obligations
in these instances to certain assets in an insurer's general account that were
not reserved to pay benefits of guaranteed benefit policies. On January 5, 2000,
the Secretary of Labor issued final regulations providing guidance for the
purpose of determining, in cases where an insurer issues one or more policies
backed by the insurer's general account to or for the benefit of an employee
benefit plan, the extent to which assets of the insurer constitute plan assets
for purposes of ERISA and the Code. The regulations apply only with respect to a
policy issued by an insurer on or before December 31, 1998 ("Transition
Policy"). In the case of such a policy, the regulations generally become
applicable on July 5, 2001. Generally, no person will be liable under ERISA or
the Code for conduct occurring prior to the applicability dates, where the basis
of a claim is that insurance company general account assets constitute plan
assets. Insurers issuing new policies after December 31, 1998 that are not
guaranteed benefit policies will generally be subject to fiduciary obligations
under ERISA.
The regulations indicate the requirements that must be met so that assets
supporting a Transition Policy will not be considered plan assets for purposes
of ERISA and the Code. These requirements include detailed disclosures to be
made to the employee benefits plan and the requirement that the insurer must
permit the policyholder to terminate the policy on 90 days' notice and receive
without penalty, at the policyholder's option, either (1) the unallocated
accumulated fund balance (which may be subject to market value adjustment) or
(2) a book value payment of such amount in annual installments with interest. We
have taken and are continuing to take steps designed to ensure compliance with
these regulations, as appropriate.
COMPETITION
We believe that competition with our business segments is based on a number
of factors, including service, product features, price, commission structure,
financial strength, claims-paying ratings and name recognition. We compete with
a large number of other insurers, as well as non-insurance financial services
companies, such as banks, broker-dealers and asset managers, for individual
consumers, employer and other group customers and agents and other distributors
of insurance and investment products. Some of these companies offer a broader
array of products, have more competitive pricing or, with respect to other
insurers, have higher claims paying ability ratings. Some may also have greater
financial resources with which to compete. National banks, with their
pre-existing customer bases for financial services products, may increasingly
compete with insurers who sell annuities, as a result of the U.S. Supreme
Court's 1994 decision in NationsBank of North Carolina v. Variable Annuity Life
Insurance Company. That decision permits national banks to sell annuity products
of life insurers in some circumstances.
On November 12, 1999, President Clinton signed into law the
Gramm-Leach-Bliley Act of 1999, implementing fundamental changes in the
regulation of the financial services industry in the U.S. The Act permits
mergers that combine commercial banks, insurers and securities firms under one
holding company. Under the Act, national banks retain their existing ability to
sell insurance products in some circumstances. In addition, bank holding
companies that qualify and elect to be treated as "financial holding companies"
may engage in activities, and acquire
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companies engaged in activities, that are "financial" in nature or "incidental"
or "complementary" to such financial activities, including acting as principal,
agent or broker in selling life, property and casualty and other forms of
insurance and annuities. A financial holding company can own any kind of insurer
or insurance broker or agent, but its bank subsidiary cannot own the insurer.
Under state law, the financial holding company would need to apply to the
insurance commissioner in the insurer's state of domicile for prior approval of
the acquisition of the insurer, and the Act provides that the commissioner, in
considering the application, may not discriminate against the financial holding
company because it is affiliated with a bank. Under the Act, no state may
prevent or interfere with affiliations between banks and insurers, insurance
agents or brokers, or the licensing of a bank or affiliate as an insurer or
agent or broker. Until passage of the Gramm-Leach-Bliley Act, the Glass-Steagall
Act of 1933, as amended, had limited the ability of banks to engage in
securities-related businesses, and the Bank Holding Company Act of 1956, as
amended, had restricted banks from being affiliated with insurers. With the
passage of the Gramm-Leach-Bliley Act, among other things, bank holding
companies may acquire insurers, and insurance holding companies may acquire
banks. The ability of banks to affiliate with insurers may materially adversely
affect all of our product lines by substantially increasing the number, size and
financial strength of potential competitors.
We must attract and retain productive sales representatives to sell our
insurance, annuities and investment products. Strong competition exists among
insurers for sales representatives with demonstrated ability. We compete with
other insurers for sales representatives primarily on the basis of our financial
position, support services and compensation and product features. From 1994 to
1998, the number of agents in the MetLife career agency system declined, from
9,521 to 6,853. We have undertaken several initiatives to grow our career agency
force in the future. At December 31, 1999, the number of agents in the MetLife
career agency system was 6,866. See "Business -- Individual
Business -- Marketing and Distribution". We cannot provide assurance that these
initiatives will succeed in attracting and retaining new agents. Sales of
individual insurance, annuities and investment products and our results of
operations and financial position could be materially adversely affected if we
are unsuccessful in attracting and retaining agents.
Many of our insurance products, particularly those offered by our
Institutional Business segment, are underwritten yearly, and, accordingly, group
purchasers may be able to obtain more favorable terms from competitors rather
than renewing coverage with us. The effect of competition may, as a result,
adversely affect the persistency of these and other products, as well as our
ability to sell products in the future.
The investment management and securities brokerage businesses have
relatively few barriers to entry and continually attract new entrants. Many of
our competitors in these businesses offer a broader array of investment products
and services and are better known than we as sellers of annuities and other
investment products.
The Clinton Administration and various members of Congress have also
proposed reforms to the nation's health care system. While we do offer
non-medical health insurance products (such as group dental insurance, long-term
care and disability insurance), we generally do not offer medical indemnity
products or managed care products, and, accordingly, do not expect to be
directly affected by such proposals to any significant degree. However, the
uncertain environment resulting from health care reform could cause group health
insurance providers to enter some of the markets in which we do business,
thereby increasing competition.
CLAIMS PAYING ABILITY RATINGS
Claims paying ability and financial strength ratings are a factor in
establishing the competitive position of insurers. A ratings downgrade (or the
potential for such a downgrade) of Metropolitan Life Insurance Company or any of
our other subsidiaries could, among other things,
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increase the number of policies surrendered and withdrawals by policyholders of
cash values from their policies, adversely affect relationships with
broker-dealers, banks, agents, wholesalers and other distributors of our
products and services, negatively impact new sales, adversely affect our ability
to compete and thereby have a material adverse effect on our business, results
of operations and financial condition. Our current claims paying ability and
financial strength ratings are listed in the table below:
<TABLE>
<CAPTION>
RATING
AGENCY COMPANIES RATED RATING RATING STRUCTURE
<S> <C> <C> <C>
Standard & Metropolitan Life Insurance AA Second highest of nine
Poor's Company, New England Life ("Very Strong") ratings categories and
Ratings Insurance Company, Security mid-range within the
Services First Life Insurance Company, category based on modifiers
Metropolitan Insurance and (e.g., AA+, AA and AA- are
Annuity Company, Metropolitan "Very Strong")
Property and Casualty Insurance
Company and RGA Reinsurance
Company
General American Life Insurance AA- Second highest of nine
Company, COVA Financial ("Very Strong") ratings categories and
Services Life Insurance lowest within the category
Company, COVA Financial Life based on modifiers
Insurance Company, First COVA
Life Insurance Company, General
Life Insurance Company, General
Life Insurance Company of
America, Paragon Life Insurance
Company and Security Equity
Life Insurance Company
Moody's Metropolitan Life Insurance Aa2 Second highest of nine
Investors Company, New England Life ("Excellent") ratings categories and
Service, Insurance Company, General mid-range within the
Inc. American Life Insurance Company category based on modifiers
and COVA Financial Services (e.g., Aa1, Aa2 and Aa3 are
Life Insurance Company "Excellent")
Security First Life Insurance Aa3 Second highest of nine
Company, Metropolitan Insurance ("Excellent") ratings categories and
and Annuity Company and lower-range within the
Metropolitan Property and category based on modifiers
Casualty Insurance Company
RGA Reinsurance Company A1 Third highest of nine
("Good") ratings categories and
highest within the category
based on modifiers
</TABLE>
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<TABLE>
<CAPTION>
RATING
AGENCY COMPANIES RATED RATING RATING STRUCTURE
<S> <C> <C> <C>
A.M. Best Metropolitan Life Insurance A+ Highest of nine ratings
Company, Company and Metropolitan Tower ("Superior") categories and second
Inc. Life Insurance Company highest within the category
based on modifiers (e.g.,
A++ and A+ are "Superior"
while A and A- are
"Excellent")
New England Life Insurance A Second highest of nine
Company, Security First Life ("Excellent") ratings categories and
Insurance Company, Metropolitan highest within the category
Insurance and Annuity Company, based on modifiers
Texas Life Insurance Company,
Metropolitan Property and
Casualty Insurance Company,
General American Life Insurance
Company, RGA Reinsurance
Company, COVA Financial
Services Life Insurance
Company, COVA Financial Life
Insurance Company, First COVA
Life Insurance Company, General
Life Insurance Company, General
Life Insurance Company of
America, Paragon Life Insurance
Company and Security Equity
Life Insurance Company
Duff & Metropolitan Life Insurance AA+ Second highest of eight
Phelps Company, New England Life ("Very High") ratings categories and
Credit Insurance Company, Security highest within the category
Rating Co. First Life Insurance Company, based on modifiers (e.g.,
General American Life Insurance AA+, AA and AA- are "Very
Company, COVA Financial High")
Services Life Insurance
Company, Paragon Life Insurance
Company and Security Equity
Life Insurance Company
</TABLE>
The foregoing ratings reflect each rating agency's opinion of Metropolitan
Life Insurance Company's and our other subsidiaries' financial strength,
operating performance and ability to meet our obligations to policyholders, and
are not evaluations directed toward the protection of holders of MetLife, Inc.'s
common stock or the units.
EMPLOYEES
At December 31, 1999, we employed approximately 42,300 employees. We
believe that our relations with our employees are satisfactory.
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LEGAL PROCEEDINGS
Metropolitan Life Insurance Company and its affiliates are currently
defendants in approximately 500 lawsuits raising allegations of improper
marketing and sales of individual life insurance policies or annuities. These
lawsuits are generally referred to as "sales practices claims."
On December 28, 1999, after a fairness hearing, the United States District
Court for the Western District of Pennsylvania approved a class action
settlement resolving a multidistrict litigation proceeding involving alleged
sales practices claims. The settlement class includes most of the owners of
permanent life insurance policies and annuity contracts or certificates issued
pursuant to individual sales in the United States by Metropolitan Life Insurance
Company, Metropolitan Insurance and Annuity Company or Metropolitan Tower Life
Insurance Company between January 1, 1982 and December 31, 1997. This class
includes owners of approximately six million in-force or terminated insurance
policies and approximately one million in-force or terminated annuity contracts
or certificates.
In addition to dismissing the consolidated class actions, the District
Court's order also bars sales practices claims by class members for sales by the
defendant insurers during the class period, effectively resolving all pending
class actions against these insurers. The defendants are in the process of
having these claims dismissed.
Under the terms of the order, only those class members who excluded
themselves from the settlement may continue an existing, or start a new, sales
practices lawsuit against Metropolitan Life Insurance Company, Metropolitan
Insurance and Annuity Company or Metropolitan Tower Life Insurance Company for
sales that occurred during the class period. Approximately 20,000 class members
elected to exclude themselves from the settlement. Over 400 of the approximately
500 lawsuits noted above are brought by individuals who elected to exclude
themselves from the settlement.
The settlement provides three forms of relief. General relief, in the form
of free death benefits, is provided automatically to class members who did not
exclude themselves from the settlement or who did not elect the claim evaluation
procedures set forth in the settlement. The claim evaluation procedures permit a
class member to have a claim evaluated by a third party under procedures set
forth in the settlement. Claim awards made under the claim evaluation procedures
will be in the form of policy adjustments, free death benefits or, in some
instances, cash payments. In addition, class members who have or had an
ownership interest in specified policies will also automatically receive
deferred acquisition cost tax relief in the form of free death benefits. The
settlement fixes the aggregate amounts that are available under each form of
relief.
We expect that the total cost to us of the settlement will be approximately
$957 million. This amount is equal to the amount of the increase in liabilities
for the death benefits and policy adjustments and the present value of expected
cash payments to be provided to included class members, as well as attorneys'
fees and expenses and estimated other administrative costs, but does not include
the cost of litigation with policyholders who are excluded from the settlement.
We believe that the cost to us of the settlement will be substantially covered
by available reinsurance and the provisions made in our consolidated financial
statements, and thus will not have a material adverse effect on our business,
results of operations or financial position. We have not yet made a claim under
those reinsurance agreements and, although there is a risk that the carriers
will refuse coverage for all or part of the claim, we believe this is very
unlikely to occur. We believe we have made adequate provision in our
consolidated financial statements for all probable losses for sales practices
claims, including litigation costs involving policyholders who are excluded from
the settlement.
The class action settlement does not resolve nine purported or certified
class actions currently pending against New England Mutual Life Insurance
Company with which we merged in
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1996. Eight of those actions have been consolidated as a multidistrict
proceeding for pre-trial purposes in the United States District Court in
Massachusetts. That Court certified a mandatory class as to those claims.
Following an appeal of that certification, the United States Court of Appeals
remanded the case to the District Court for further consideration. We are
negotiating a settlement with class counsel.
The class action settlement also does not resolve three putative sales
practices class action lawsuits which have been brought against General American
Life Insurance Company. These lawsuits have been consolidated in a single
proceeding in the United States District Court for the Eastern District of
Missouri. General American Life Insurance Company and counsel for plaintiffs
have negotiated a settlement in principle of this consolidated proceeding.
General American Life Insurance Company has not reached agreement with
plaintiffs' counsel on the attorneys' fees to be paid. However, negotiations are
ongoing.
In addition, the class action settlement does not resolve two putative
class actions involving sales practices claims filed against Metropolitan Life
Insurance Company in Canada. The class action settlement also does not resolve a
certified class action with conditionally certified subclasses against
Metropolitan Life Insurance Company, Metropolitan Insurance and Annuity Company,
Metropolitan Tower Life Insurance Company and various individual defendants
alleging improper sales abroad. That lawsuit is pending in a New York federal
court.
In the past, we have resolved some individual sales practices claims
through settlement, dispositive motion or, in a few instances, trial. Most of
the current cases seek substantial damages, including in some cases punitive and
treble damages and attorneys' fees. Additional litigation relating to our
marketing and sales of individual life insurance may be commenced in the future.
The following table sets forth the number of sales practices claims pending
against Metropolitan Life Insurance Company and its affiliates, as of the dates
indicated, the number of new claims during the periods ending on those dates and
the total settlement payments made to resolve sales practices claims during
those periods:
<TABLE>
<CAPTION>
AT OR FOR THE YEARS ENDED
DECEMBER 31(1)
---------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Sales practices claims at period end (approximate).......... 447 458 321
Number of new claims during period (approximate)............ 194 136 79
Settlement payments during period (Dollars in
millions)(2).............................................. $13.7 $15.3 $12.4
</TABLE>
- ---------------
(1) The table does not include information concerning sales practices claims
against General American Life Insurance Company.
(2) Settlement payments represent payments made during the period in connection
with settlements made in that period and in prior periods. Amounts do not
include our attorneys' fees and expenses.
Regulatory authorities in a small number of states, including both
insurance departments and one state attorney general, as well as the National
Association of Securities Dealers, Inc., have ongoing investigations or
inquiries relating to our sales of individual life insurance policies or
annuities, including investigations or inquiries of alleged improper replacement
transactions and alleged improper sales of insurance with inaccurate or
inadequate disclosures as to the period for which premiums would be payable.
Over the past several years, we have resolved a number of investigations by
other regulatory authorities for monetary payments and certain other relief, and
may continue to do so in the future.
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Metropolitan Life Insurance Company is also a defendant in numerous
lawsuits seeking compensatory and punitive damages for personal injuries
allegedly caused by exposure to asbestos or asbestos-containing products. We
have never engaged in the business of manufacturing, producing, distributing or
selling asbestos or asbestos-containing products. Rather, these lawsuits,
currently numbering in the thousands, have principally been based upon
allegations relating to certain research, publication and other activities of
one or more of Metropolitan Life Insurance Company's employees during the period
from the 1920s through approximately the 1950s and alleging that Metropolitan
Life Insurance Company learned or should have learned of certain health risks
posed by asbestos and, among other things, improperly publicized or failed to
disclose those health risks. Legal theories asserted against Metropolitan Life
Insurance Company have included negligence, intentional tort claims and
conspiracy claims concerning the health risks associated with asbestos. While
Metropolitan Life Insurance Company believes it has meritorious defenses to
these claims, and has not suffered any adverse judgments in respect of these
claims, most of the cases have been resolved by settlements. Metropolitan Life
Insurance Company intends to continue to exercise its best judgment regarding
settlement or defense of such cases. The number of such cases that may be
brought or the aggregate amount of any liability that Metropolitan Life
Insurance Company may ultimately incur is uncertain.
Significant portions of amounts paid in settlement of such cases have been
funded with proceeds from a previously resolved dispute with Metropolitan Life
Insurance Company's primary, umbrella and first level excess liability insurance
carriers. Metropolitan Life Insurance Company is presently in litigation with
several of its excess liability insurers regarding amounts payable under its
policies with respect to coverage for these claims. The trial court has granted
summary judgment to these insurers. Metropolitan Life Insurance Company has
appealed. There can be no assurances regarding the outcome of this litigation or
the amount and timing of recoveries, if any, from these excess liability
insurers. Metropolitan Life Insurance Company's asbestos-related litigation with
these insurers should have no effect on its recoveries under the excess
insurance policies described below.
The following table sets forth the total number of asbestos personal injury
claims pending against Metropolitan Life Insurance Company as of the dates
indicated, the number of new claims during the periods ending on those dates and
the total settlement payments made to resolve asbestos personal injury claims
during those periods:
<TABLE>
<CAPTION>
AT OR FOR THE YEARS ENDED
DECEMBER 31,
--------------------------
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Asbestos personal injury claims at period end
(approximate)............................................. 60,000 72,000 71,000
Number of new claims during period (approximate)............ 35,500 31,000 28,000
Settlement payments during period (Dollars in
millions)(1).............................................. $113.3 $47.0 $27.3
</TABLE>
- ---------------
(1) Settlement payments represent payments made during the period in connection
with settlements made in that period and in prior periods. Amounts do not
include our attorneys' fees and expenses and do not reflect amounts received
from insurance carriers.
We have recorded, in other expenses, charges of $499 million ($317 million
after-tax), $1,895 million ($1,203 million after-tax) and $300 million ($190
million after-tax) for the years ended December 31, 1999, 1998 and 1997,
respectively, for sales practices claims and claims for personal injuries caused
by exposure to asbestos or asbestos-containing products. The charge for the year
ended December 31, 1999 was principally related to the settlement of the
multidistrict litigation proceeding involving alleged improper sales practices
claims, accruals for sales practices claims not covered by the settlement and
other legal costs. The 1998 charge of $1,895 million was comprised of $925
million and $970 million for sales practices claims and asbestos-related claims,
respectively. We recorded the charges for sales practices claims based on
preliminary settlement discussions and the settlement history of other insurers.
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Prior to the fourth quarter of 1998, we established a liability for
asbestos-related claims based on settlement costs for claims that we had
settled, estimates of settlement costs for claims pending against us and an
estimate of settlement costs for unasserted claims. The amount for unasserted
claims was based on management's estimate of unasserted claims that would be
probable of assertion. A liability is not established for claims which we
believe are only reasonably possible of assertion. Based on this process, the
accrual for asbestos-related claims at December 31, 1997 was $386 million.
Potential liabilities for asbestos-related claims are not easily quantified, due
to the nature of the allegations against us, which are not related to the
business of manufacturing, producing, distributing or selling asbestos or
asbestos-containing products, adding to the uncertainty as to the number of
claims that may be brought against us.
During 1998, we decided to pursue the purchase of excess insurance to limit
our exposure to asbestos-related claims. In connection with our negotiations
with the casualty insurers to obtain this insurance, we obtained information
that caused us to reassess our accruals for asbestos-related claims. This
information included:
- Information from the insurers regarding the asbestos-related claims
experience of other insureds, which indicated that the number of claims
that were probable of assertion against us in the future was
significantly greater than we had assumed in our accruals. The number of
claims brought against us is generally a reflection of the number of
asbestos-related claims brought against asbestos defendants generally and
the percentage of those claims in which we are included as a defendant.
The information provided to us relating to other insureds indicated that
we had been included as a defendant for a significant percentage of total
asbestos-related claims and that we may be included in a larger
percentage of claims in the future, because of greater awareness of
asbestos litigation generally by potential plaintiffs and plaintiffs'
lawyers and because of the bankruptcy and reorganization or the
exhaustion of insurance coverage of other asbestos defendants; and that,
although volatile, there was an upward trend in the number of total
claims brought against asbestos defendants.
- Information derived from actuarial calculations we made in the fourth
quarter of 1998 in connection with these negotiations, which helped us to
frame, define and quantify this liability. These calculations were made
using, among other things, current information regarding our claims and
settlement experience (which reflected our decision to resolve an
increased number of these claims by settlement), recent and historic
claims and settlement experience of selected other companies and
information obtained from the insurers.
Based on this information, we concluded that certain claims that previously
were considered as only reasonably possible of assertion were now probable of
assertion, increasing the number of assumed claims to approximately three times
the number assumed in prior periods. As a result of this reassessment, we
increased our liability for asbestos-related claims to $1,278 million at
December 31, 1998.
During 1998, we paid $1,407 million of premiums for excess of loss
reinsurance agreements and excess insurance policies, consisting of $529 million
for the excess of loss reinsurance agreements for sales practices claims and
excess mortality losses and $878 million for the excess insurance policies for
asbestos-related claims.
We obtained the excess of loss reinsurance agreements to provide
reinsurance with respect to sales practices claims made on or prior to December
31, 1999 and for certain mortality losses in 1999. These reinsurance agreements
have a maximum aggregate limit of $650 million, with a maximum sublimit of $550
million for losses for sales practices claims. This coverage is in excess of an
aggregate self-insured retention of $385 million with respect to sales practices
claims and $506 million, plus our statutory policy reserves released upon the
death of insureds, with respect to life mortality losses. At December 31, 1999,
the subject losses under the reinsurance agreements due to sales practices
claims and related counsel fees from the time
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Metropolitan Life Insurance Company entered into the reinsurance agreements did
not exceed that self-insured retention. The maximum sublimit of $550 million for
sales practices claims was within a range of losses that management believed
were reasonably possible at December 31, 1998. Each excess of loss reinsurance
agreement for sales practices claims and mortality losses contains an experience
fund, which provides for payments to us at the commutation date if experience is
favorable at such date. We account for the aggregate excess of loss reinsurance
agreements as reinsurance; however, if deposit accounting were applied, the
effect on our consolidated financial statements in 1998, 1999 and 2000 would not
be significant.
Under reinsurance accounting, the excess of the liability recorded for
sales practices losses recoverable under the agreements of $550 million over the
premium paid of $529 million results in a deferred gain of $21 million which is
being amortized into income over the settlement period from January 1999 through
April 2000. Under deposit accounting, the premium would be recorded as an other
asset rather than as an expense, and the reinsurance loss recoverable and the
deferred gain would not have been recorded. Because the agreements also contain
an experience fund which increases with the passage of time, the increase in the
experience fund in 1999 and 2000 under deposit accounting would be recognized as
interest income in an amount approximately equal to the deferred gain that will
be amortized into income under reinsurance accounting.
The excess insurance policies for asbestos-related claims provide for
recovery of losses of up to $1,500 million, which is in excess of a $400 million
self-insured retention ($878 million of which was recorded as a recoverable at
December 31, 1999 and 1998). The asbestos-related policies are also subject to
annual and per-claim sublimits. Amounts are recoverable under the policies
annually with respect to claims paid during the prior calendar year. Although
amounts paid in any given year that are recoverable under the policies will be
reflected as a reduction in our operating cash flows for that year, management
believes that the payments will not have a material adverse effect on our
liquidity. Each asbestos-related policy contains an experience fund and a
reference fund that provides for payments to us at the commutation date if
experience under the policy to such date has been favorable, or pro rata
reductions from time to time in the loss reimbursements to us if the cumulative
return on the reference fund is less than the return specified in the experience
fund.
We believe that the excess of loss reinsurance agreements should provide
coverage for a portion of the multidistrict sales practices settlement described
above, although we have yet to file a claim under those agreements. The increase
in liabilities for death benefits and policy adjustments and the cash payments
to be made under the settlement should be substantially offset by amounts
recoverable under those agreements, as well as amounts provided in our
consolidated financial statements, and accordingly we do not believe that they
will have a material adverse effect on our business, results of operations,
financial position or cash flows in future periods.
We believe adequate provision has been made in our consolidated financial
statements for all reasonably probable and estimable losses for sales practices
and asbestos-related claims.
A purported class action suit involving policyholders in 32 states has been
filed in a Rhode Island state court against Metropolitan Life Insurance
Company's subsidiary, Metropolitan Property and Casualty Insurance Company, with
respect to claims by policyholders for the alleged diminished value of
automobiles after accident-related repairs. A similar "diminished value"
allegation was made recently in a Texas Deceptive Trade Practices Act letter and
lawsuit which involve a Metropolitan Property and Casualty Insurance Company
policyholder. A purported class action has been filed against Metropolitan
Property and Casualty Insurance Company and its subsidiary, Metropolitan
Casualty Insurance Company, in Florida by a policyholder alleging breach of
contract and unfair trade practices with respect to Metropolitan Casualty
Insurance Company allowing the use of parts not made by the original
manufacturer to repair damaged automobiles. These suits are in the early stages
of litigation and Metropolitan
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Property and Casualty Insurance Company and Metropolitan Casualty Insurance
Company intend to vigorously defend themselves against these suits. Similar
suits have been filed against several other personal lines property and casualty
insurers.
The U. S., the Commonwealth of Puerto Rico and various hotels and
individuals have sued MetLife Capital Corporation, a former subsidiary of
Metropolitan Life Insurance Company, seeking damages for clean up costs, natural
resource damages, personal injuries and lost profits and taxes based upon, among
other things, a release of oil from a barge which was being towed by the M/V
Emily S. In connection with the sale of MetLife Capital, we acquired MetLife
Capital's potential liability with respect to the M/V Emily S lawsuit. MetLife
Capital had entered into a sale and leaseback financing arrangement with respect
to the M/V Emily S. The plaintiffs have taken the position that MetLife Capital,
as the owner of record of the M/V Emily S, is responsible for all damages caused
by the barge, including the oil spill. The governments of the U. S. and Puerto
Rico have claimed damages in excess of $150 million. At a mediation, the action
brought by the U. S. and Puerto Rico was conditionally settled, provided that
the governments have access to additional sums from a fund contributed to by oil
companies to help remediate oil spills. We can provide no assurance that this
action will be settled in this manner.
Three putative class actions have been filed by Conning shareholders
alleging that Metropolitan Life Insurance Company's announced offer to purchase
the publicly-held Conning shares is inadequate and constitutes a breach of
fiduciary duty. We believe the actions are without merit, and expect that they
will not materially affect our offer to purchase the shares.
A civil complaint challenging the fairness of the plan of reorganization
and the adequacy and accuracy of its disclosures to policyholders regarding the
plan has been filed in New York Supreme Court for Kings County on behalf of an
alleged class consisting of the policyholders of Metropolitan Life Insurance
Company who should have membership benefits in Metropolitan Life Insurance
Company and were and are eligible to receive notice, vote and receive
consideration in the demutualization. The complaint seeks to enjoin or rescind
the plan and seeks other relief. The defendants named in the complaint are
Metropolitan Life Insurance Company, the individual members of its board of
directors and MetLife, Inc. We believe that the allegations made in the
complaint are wholly without merit, and intend to vigorously contest the
complaint.
Various litigation, claims and assessments against us, in addition to those
discussed above and those otherwise provided for in our consolidated financial
statements, have arisen in the course of our business, including, but not
limited to, in connection with our activities as an insurer, employer, investor,
investment advisor and taxpayer. Further, state insurance regulatory authorities
and other federal and state authorities regularly make inquiries and conduct
investigations concerning our compliance with applicable insurance and other
laws and regulations.
In some of the matters referred to above, very large and/or indeterminate
amounts, including punitive and treble damages, are sought. While it is not
feasible to predict or determine the ultimate outcome of all pending
investigations and legal proceedings or provide reasonable ranges of potential
losses, it is the opinion of our management that their outcomes, after
consideration of available insurance and reinsurance and the provisions made in
our consolidated financial statements, are not likely to have a material adverse
effect on our consolidated financial condition. However, given the large and/or
indeterminate amounts sought in certain of these matters and the inherent
unpredictability of litigation, it is possible that an adverse outcome in
certain matters could, from time to time, have a material adverse effect on our
operating results or cash flows in particular quarterly or annual periods.
PROPERTIES
One Madison Avenue in New York, New York, serves as our headquarters, and
it, along with the adjacent MetLife Tower, contains approximately 1.1 million
rentable square feet, most of which we occupy. In addition to this property, we
own 24 other buildings in the U.S. that we use
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in the operation of our business. These buildings contain approximately 5.5
million rentable square feet and are in the following states: Florida, Illinois,
Massachusetts, Minnesota, Missouri, New York, New Jersey, Ohio, Oklahoma,
Pennsylvania, Rhode Island and Texas. We also lease space in approximately 1,000
other locations throughout the U.S., and these leased facilities consist of
approximately 7.6 million rentable square feet. Approximately 56% of these
leases are occupied as sales offices for Individual Business, and we use the
balance for our other business activities. We also own several buildings outside
the U.S., comprising more than 48,000 rentable square feet. We lease
approximately 367,000 rentable square feet in various locations outside the U.S.
We believe that our properties are suitable and adequate for our current and
anticipated business operations.
TRADEMARKS
We have a worldwide trademark portfolio that we consider important in the
marketing of our products and services, including, among others, the trademarks
"MetLife" and the use of the Peanuts(TM) characters. We have the exclusive right
to use the Peanuts(TM) characters in the area of financial services and health
care services in the U.S. and some foreign countries under an advertising and
premium agreement with United Feature Syndicate. The agreement with United
Feature Syndicate expires on December 31, 2002. We believe that our rights in
our trademarks are adequately protected.
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MANAGEMENT
Set forth below is information regarding the directors and executive
officers of MetLife, Inc. and Metropolitan Life Insurance Company.
<TABLE>
<CAPTION>
NAME AGE(1) POSITION
- ---- ------ --------
<S> <C> <C>
Robert H. Benmosche......... 55 Chairman of the Board, President, Chief Executive
Officer and Director
Curtis H. Barnette.......... 65 Director
Gerald Clark................ 56 Vice-Chairman of the Board, Chief Investment Officer
and Director
Joan Ganz Cooney............ 70 Director
Burton A. Dole, Jr.......... 62 Director
James R. Houghton........... 63 Director
Harry P. Kamen.............. 66 Director
Helene L. Kaplan............ 66 Director
Charles M. Leighton......... 64 Director
Allen E. Murray............. 70 Director
Stewart G. Nagler........... 57 Vice-Chairman of the Board, Chief Financial Officer
and Director
John J. Phelan, Jr.......... 68 Director
Hugh B. Price............... 58 Director
Robert G. Schwartz.......... 71 Director
Ruth J. Simmons............. 54 Director
William C. Steere, Jr....... 63 Director
Gary A. Beller.............. 61 Senior Executive Vice-President and General Counsel
James M. Benson............. 53 President, Individual Business; Chairman of the
Board, Chief Executive Officer and President, New
England Life Insurance Company
C. Robert Henrikson......... 52 President, Institutional Business
Richard A. Liddy............ 64 Senior Executive Vice-President
Catherine A. Rein........... 57 Senior Executive Vice-President; President and Chief
Executive Officer of Metropolitan Property and
Casualty Insurance Company
William J. Toppeta.......... 51 President, Client Services and Chief Administrative
Officer
John H. Tweedie............. 54 Senior Executive Vice-President
Lisa M. Weber............... 38 Executive Vice-President
Judy E. Weiss............... 47 Executive Vice-President and Chief Actuary
</TABLE>
- ---------------
(1) At February 29, 2000.
Set forth below is biographical information for the directors and executive
officers of MetLife, Inc. and Metropolitan Life Insurance Company:
Robert H. Benmosche has been a director of MetLife, Inc. since August 1999
and a director of Metropolitan Life Insurance Company since 1997. Mr. Benmosche
has been Chairman of the Board, President and Chief Executive Officer of
MetLife, Inc. since September 1999. He has been Chairman of the Board, President
and Chief Executive Officer of Metropolitan Life Insurance Company since July
1998, was President and Chief Operating Officer from November 1997 to June 1998,
and was Executive Vice-President from September 1995 to October 1997.
Previously, he was Executive Vice-President of PaineWebber Group Incorporated
from 1989 to 1995.
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<PAGE> 180
Curtis H. Barnette has been a director of MetLife, Inc. since August 1999
and a director of Metropolitan Life Insurance Company since 1994. Mr. Barnette
has been Chairman of the Board and Chief Executive Officer of Bethlehem Steel
Corporation since November 1992. He is a director of Owens Corning Incorporated.
Gerald Clark has been a director of MetLife, Inc. since August 1999 and a
director of Metropolitan Life Insurance Company since 1997. Mr. Clark has been
Vice-Chairman of the Board and Chief Investment Officer of MetLife, Inc. since
September 1999. He has been Vice-Chairman of the Board and Chief Investment
Officer of Metropolitan Life Insurance Company since July 1998, was Senior
Executive Vice-President and Chief Investment Officer from December 1995 to July
1998, and was Executive Vice-President and Chief Investment Officer from
September 1992 to December 1995. Mr. Clark is a director of Credit Suisse Group.
Joan Ganz Cooney has been a director of MetLife, Inc. since August 1999 and
a director of Metropolitan Life Insurance Company since 1980. Ms. Cooney has
been Chairman of the Executive Committee of Children's Television Workshop since
1990. Ms. Cooney is a director of Johnson & Johnson Inc.
Burton A. Dole, Jr. has been a director of MetLife, Inc. since August 1999
and a director of Metropolitan Life Insurance Company since 1996. Mr. Dole was
Chairman of the Board of Nellcor Puritan Bennett, Incorporated from 1995 until
his retirement in 1997. He had been the Chairman of the Board, President and
Chief Executive Officer of Puritan Bennett, Incorporated from 1986 to 1995 and
the President and Chief Executive Officer of Puritan Bennett, Incorporated from
1980 to 1986.
James R. Houghton has been a director of MetLife, Inc. since August 1999
and a director of Metropolitan Life Insurance Company since 1975. Mr. Houghton
has been Chairman of the Board Emeritus of Corning Incorporated since 1996. He
was the Chairman of the Board of Corning Incorporated from 1983 until his
retirement in 1996. Mr. Houghton is a director of Corning Incorporated, Exxon
Mobil Corporation and J.P. Morgan & Co. Incorporated.
Harry P. Kamen has been a director of MetLife, Inc. since August 1999 and a
director of Metropolitan Life Insurance Company since 1992. He was the Chairman
of the Board and Chief Executive Officer of Metropolitan Life Insurance Company
from April 1993 until his retirement in July 1998 and, in addition, was its
President from December 1995 to November 1997. Mr. Kamen is a director of Banco
Santander Central Hispano SA (Spain), Bethlehem Steel Corporation, the National
Association of Securities Dealers, Inc., Nvest Corporation, a subsidiary of
Metropolitan Life Insurance Company, and Pfizer, Inc.
Helene L. Kaplan has been a director of MetLife, Inc. since August 1999 and
a director of Metropolitan Life Insurance Company since 1987. Ms. Kaplan is of
counsel to the law firm of Skadden, Arps, Slate, Meagher & Flom LLP. Ms. Kaplan
is a director of Bell Atlantic Corporation, The Chase Manhattan Corporation, The
May Department Stores Company and Exxon Mobil Corporation.
Charles M. Leighton has been a director of MetLife, Inc. since August 1999
and a director of Metropolitan Life Insurance Company since 1996. Mr. Leighton
was the Chairman of the Board and Chief Executive Officer of the CML Group, Inc.
from 1969 until his retirement in March 1998. CML Group, Inc. filed a voluntary
petition under Chapter 11 of the United States Bankruptcy Code in December 1998.
Mr. Leighton is a director of Nvest Corporation, a subsidiary of Metropolitan
Life Insurance Company.
Allen E. Murray has been a director of MetLife, Inc. since August 1999 and
a director of Metropolitan Life Insurance Company since 1983. Mr. Murray was
Chairman of the Board, President and Chief Executive Officer of Mobil
Corporation from February 1986 until March 1993, and was Chairman of the Board
and Chief Executive Officer from March 1993 until his retirement
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in March 1994. Mr. Murray is a director of Morgan Stanley Dean Witter & Co. and
Minnesota Mining & Manufacturing Company.
Stewart G. Nagler has been a director of MetLife, Inc. since August 1999
and a director of Metropolitan Life Insurance Company since 1997. Mr. Nagler has
been Vice-Chairman of the Board and Chief Financial Officer of MetLife, Inc.
since September 1999. He has been Vice-Chairman of the Board and Chief Financial
Officer of Metropolitan Life Insurance Company since July 1998, and was its
Senior Executive Vice-President and Chief Financial Officer from April 1993 to
July 1998.
John J. Phelan, Jr. has been a director of MetLife, Inc. since August 1999
and a director of Metropolitan Life Insurance Company since 1985. Mr. Phelan has
been a senior advisor to the Boston Consulting Group since 1992. Prior to that
time, Mr. Phelan was Chairman and Chief Executive Officer of the New York Stock
Exchange. Mr. Phelan is a director of Eastman Kodak Company and Merrill Lynch &
Co., Inc.
Hugh B. Price has been a director of MetLife, Inc. since August 1999 and a
director of Metropolitan Life Insurance Company since 1994. Mr. Price has been
President and Chief Executive Officer of the National Urban League, Inc. since
1994. Mr. Price is a director of Sears, Roebuck and Co. and Bell Atlantic
Corporation.
Robert G. Schwartz has been a director of MetLife, Inc. since August 1999
and a director of Metropolitan Life Insurance Company since 1980. Mr. Schwartz
was Chairman of the Board, President and Chief Executive Officer of Metropolitan
Life Insurance Company from September 1989 until his retirement in March 1993.
Mr. Schwartz is a director of COMSAT Corporation, Consolidated Edison Company of
New York, Inc., Lowe's Companies, Inc. and Potlatch Corporation. Mr. Schwartz
will be retiring from the Boards of Directors of MetLife, Inc. and Metropolitan
Life Insurance Company effective on March 31, 2000, after his 72nd birthday.
Ruth J. Simmons has been a director of MetLife, Inc. since August 1999 and
a director of Metropolitan Life Insurance Company since 1995. Dr. Simmons has
been President of Smith College since 1995. Prior to that time, she was
Vice-Provost of Princeton University from 1992 to 1995. Dr. Simmons is a
director of Goldman, Sachs & Co., Pfizer Inc. and Texas Instruments, Inc.
William C. Steere, Jr. has been a director of MetLife, Inc. since August
1999 and a director of Metropolitan Life Insurance Company since 1997. Mr.
Steere has been Chairman of the Board and Chief Executive Officer of Pfizer Inc.
since 1992. Mr. Steere is a director of Dow Jones & Company, Inc., Minerals
Technologies, Inc. and Texaco Inc.
Gary A. Beller has been Senior Executive Vice-President and General Counsel
of MetLife, Inc. since September 1999 and of Metropolitan Life Insurance Company
since February 1998. He was Executive Vice-President and General Counsel of
Metropolitan Life Insurance Company from August 1996 to January 1998. Mr. Beller
served as Executive Vice-President and Chief Legal Officer from November 1994 to
July 1996.
James M. Benson has been President of Individual Business of MetLife, Inc.
since September 1999 and of Individual Business of Metropolitan Life Insurance
Company since May 1999. He has been Chairman of the Board of New England Life
Insurance Company since May 1998, Chief Executive Officer since January 1998,
and President since June 1997. He was Chief Operating Officer of New England
Life Insurance Company from June 1997 to December 1997. Mr. Benson was the
President and Chief Operating Officer of The Equitable Companies Incorporated
from February 1996 to May 1997, and was President of The Equitable Life
Assurance Society of the United States from February 1994 to May 1997, Chief
Executive Officer from February 1996 to May 1997, and Chief Operating Officer
from February 1994 to February 1996.
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C. Robert Henrikson has been President of Institutional Business of
MetLife, Inc. since September 1999 and of Institutional Business of Metropolitan
Life Insurance Company since May 1999. He was Senior Executive Vice-President,
Institutional Business of Metropolitan Life Insurance Company, from December
1997 to May 1999, Executive Vice-President, Institutional Business, from January
1996 to December 1997, Executive Vice-President, Pensions, from January 1995 to
January 1996, and Senior Vice-President, Pensions, from January 1991 to January
1995.
Richard A. Liddy has been Senior Executive Vice-President of MetLife, Inc.
and of Metropolitan Life Insurance Company since February 2000. He has been
Chairman of GenAmerica Corporation since January 1997. Prior to that time he
served in various executive capacities at General American Life Insurance
Company. Mr. Liddy is a director of Reinsurance Group of America, Inc., Conning
Corporation, Brown Shoe Company, Ralston Purina Company, Energizer Holdings,
Inc. and Ameren Corporation.
Catherine A. Rein has been Senior Executive Vice-President of MetLife, Inc.
since September 1999 and President and Chief Executive Officer of Metropolitan
Property and Casualty Insurance Company since March 1999. She has been Senior
Executive Vice-President of Metropolitan Life Insurance Company since February
1998 and was Executive Vice-President from October 1989 to February 1998. Ms.
Rein is a director of Corning Incorporated, The Bank of New York Company, Inc.
and GPU, Inc.
William J. Toppeta has been President of Client Services and Chief
Administrative Officer of MetLife, Inc. since September 1999 and President of
Client Services and Chief Administrative Officer of Metropolitan Life Insurance
Company since May 1999. He was Senior Executive Vice-President, Head of Client
Services, of Metropolitan Life Insurance Company from March 1999 to May 1999,
Senior Executive Vice-President, Individual Business, from February 1998 to
March 1999, Executive Vice-President, Individual Business, from July 1996 to
February 1998, Senior Vice-President from October 1995 to July 1996 and
President and Chief Executive Officer, Canadian Operations, from January 1994 to
October 1995.
John H. Tweedie has been Senior Executive Vice-President of MetLife, Inc.
since September 1999 and Senior Executive Vice-President, Finance and
International, of Metropolitan Life Insurance Company since March 1999. He was
Senior Executive Vice-President of Metropolitan Life Insurance Company from May
1998 to March 1999 and Executive Vice-President from January 1994 to April 1998.
Lisa M. Weber has been Executive Vice-President of MetLife, Inc. and
Metropolitan Life Insurance Company since December 1999 and head of Human
Resources since March 1998. She was Senior Vice-President of MetLife, Inc. from
September 1999 to November 1999 and Senior Vice-President of Metropolitan Life
Insurance Company from March 1998 to November 1999. Previously, she was Senior
Vice-President of Human Resources of PaineWebber Group Incorporated, where she
was employed for ten years.
Judy E. Weiss has been Executive Vice-President and Chief Actuary of
MetLife, Inc. since September 1999 and of Metropolitan Life Insurance Company
since February 1998. She was Senior Vice-President and Chief Actuary of
Metropolitan Life Insurance Company from June 1996 to February 1998 and Senior
Vice-President from May 1991 to June 1996.
INFORMATION ABOUT THE BOARD OF DIRECTORS OF METLIFE, INC.
RESPONSIBILITIES AND COMPOSITION OF THE BOARD
The business of MetLife, Inc. is managed under the direction of its board
of directors. The board currently consists of 16 directors, a majority of whom
are Outside Directors. An "Outside Director" of MetLife, Inc. is a director who
is not an officer or employee of MetLife, Inc. or of any
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entity controlling, controlled by or under common control with MetLife, Inc.,
and is not the beneficial owner of a controlling interest in the voting stock of
MetLife, Inc. or of any such entity.
MetLife, Inc.'s certificate of incorporation provides that the directors
will be divided into three classes, as nearly equal in number as possible, with
the term of office of each class to be three years. The classes serve staggered
terms, such that the term of office of one class of directors expires each year.
BOARD COMMITTEES
There are five standing committees of MetLife, Inc.'s board of directors
that perform essential functions of the Board. The responsibilities of the
standing committees are summarized below. Only Outside Directors may be members
of the Audit, Compensation and Nominating and Corporate Governance committees.
From time to time, the board, in its discretion, may form other committees. Not
less than one-third of the members of any board committee, including the
standing committees, may consist of Outside Directors.
THE EXECUTIVE COMMITTEE
The Executive Committee, except as otherwise provided in MetLife, Inc.'s
certificate of incorporation, in the intervals between meetings of the board of
directors, will have and may exercise the powers and authority of the board of
directors in the management of the property, affairs and business of MetLife,
Inc., including the power to declare dividends.
The Executive Committee currently consists of the following seven members:
Robert H. Benmosche, Chairman; James R. Houghton; Harry P. Kamen; Helene L.
Kaplan; Charles M. Leighton; Allen E. Murray; and John J. Phelan, Jr.
THE AUDIT COMMITTEE
The Audit Committee, except as otherwise provided in any resolution of the
board of directors, will have and may exercise the authority of the board of
directors:
- to recommend to the board of directors the selection of MetLife, Inc.'s
independent certified public accountants;
- to review the scope, plans and results relating to the internal and
external audits of MetLife, Inc. and its financial statements;
- to review the financial condition of MetLife, Inc.;
- to monitor and evaluate the integrity of MetLife, Inc.'s financial
reporting processes and procedures;
- to assess the significant business and financial risks and exposures of
MetLife, Inc. and to evaluate the adequacy of its internal controls in
connection with such risks and exposures, including, but not limited to,
accounting and audit controls over cash, securities, receipts,
disbursements and other financial transactions; and
- to review MetLife, Inc.'s policies on ethical business conduct and
monitor its compliance with those policies.
The Audit Committee currently consists of the following six members: James R.
Houghton, Chairman; Curtis H. Barnette; Burton A. Dole, Jr.; John J. Phelan,
Jr.; Hugh B. Price; and William C. Steere, Jr.
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THE COMPENSATION COMMITTEE
The Compensation Committee, except as otherwise provided in any resolution
of the board of directors, will have and may exercise all the authority of the
board of directors with respect to compensation, benefits and personnel
administration of MetLife, Inc.'s employees, and:
- will nominate persons for election or appointment by the board of
directors of all principal officers (as determined by the Committee) and
such other officers as the Committee may determine to elect or appoint as
officers;
- will evaluate the performance and recommend to the board of directors the
compensation of such principal officers and such other officers as the
Committee may determine;
- may elect or appoint officers as provided in MetLife, Inc.'s by-laws;
- may recommend to the board of directors any plan to issue options for the
purchase of shares of the stock of MetLife, Inc. to its officers or
employees and those of its subsidiaries; and
- will administer the MetLife, Inc. 2000 Stock Incentive Plan.
The Compensation Committee currently consists of the following seven
members: Allen E. Murray, Chairman; Curtis H. Barnette; Joan Ganz Cooney; James
R. Houghton; Charles M. Leighton; Ruth J. Simmons; and William C. Steere, Jr.
THE NOMINATING AND CORPORATE GOVERNANCE COMMITTEE
The Nominating and Corporate Governance Committee, except as otherwise
provided in any resolution of the board of directors:
- will make recommendations to the board of directors with respect to
electing directors and filling vacancies on the Board;
- will review and make recommendations to the board of directors with
respect to the organization, structure, size, composition and operation
of the board and its committees, including, but not limited to, the
compensation for non-employee directors;
- may recommend to the board of directors any plan to issue options for the
purchase of shares of the stock of MetLife, Inc. to its non-employee
directors;
- will administer the MetLife, Inc. 2000 Directors Stock Plan; and
- will review and make recommendations with respect to other corporate
governance matters and matters that relate to the status of MetLife, Inc.
as a publicly-traded company.
The Nominating and Corporate Governance Committee currently consists of the
following seven members: Helene L. Kaplan, Chairman; Curtis H. Barnette; James
R. Houghton; Harry P. Kamen; Allen E. Murray; John J. Phelan, Jr.; and William
C. Steere, Jr.
THE CORPORATE SOCIAL RESPONSIBILITY COMMITTEE
The Corporate Social Responsibility Committee, except as otherwise provided
in any resolution of the board of directors, will exercise general supervision
of MetLife, Inc.'s charitable contributions, public benefit programs and other
corporate responsibility matters.
The Corporate Social Responsibility Committee currently consists of the
following six members: Joan Ganz Cooney, Chairman; Gerald Clark; Burton A. Dole,
Jr.; Helene L. Kaplan; Stewart G. Nagler; and Hugh B. Price.
COMPENSATION OF DIRECTORS
In 1999, Outside Directors received an annual retainer fee of $50,000. At
January 1, 2000, the annual retainer increased to $60,000. Each chairman of a
board committee who is an Outside Director receives an additional $5,000 annual
retainer. Outside Directors are paid attendance fees
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of $2,000 on days that they attend one or two board or committee meetings held
on the same day. If they attend more than two meetings on a single day, they are
paid an additional $1,000 for each other meeting they attend on that day.
Directors may defer the receipt of the payment of all or a portion of their
retainer and attendance fees.
MetLife provides $200,000 of life insurance to each Outside Director.
MetLife will recover the premiums for each policy upon the death of the Outside
Director. The cost to MetLife of providing this life insurance is nominal.
MetLife also provides each of the Outside Directors with business travel
accident coverage while traveling on MetLife business. The Outside Directors are
eligible to participate in MetLife's Long-Term Care Insurance Program on a fully
contributory basis.
Outside Directors elected prior to October 1, 1999 participate in a
charitable gift program under which each Outside Director is able to recommend
one or more charitable or educational institutions to receive, in the aggregate,
a $1 million contribution from MetLife in the name of the Outside Director. In
connection with this program, MetLife purchased and pays the premiums on life
insurance policies covering such Outside Directors. The death benefits under the
policies will be paid to MetLife. The cost to MetLife of providing this program
is not significant. Outside Directors elected on or after October 1, 1999 are
not eligible to participate in this program.
Under the MetLife, Inc. 2000 Directors Stock Plan, the Nominating and
Corporate Governance Committee may determine that up to one-half of an Outside
Director's retainer and attendance fees be paid in common stock. The Directors
Stock Plan also provides that the Nominating and Corporate Governance Committee
may, with the board's approval, grant non-qualified stock options to the Outside
Directors to purchase shares of MetLife, Inc. common stock at a price no less
than the fair market value of a share of common stock on the grant date of the
stock option. Any options granted before the fifth anniversary of the effective
date of the plan of reorganization will replace all or any portion of the
Outside Directors' fees otherwise payable in cash. No stock options may be
granted and no stock may be issued under the Directors Stock Plan in lieu of
Outside Directors' fees before the first anniversary of the effective date of
the plan of reorganization. Up to a maximum of 500,000 shares may be issued
under the Directors Stock Plan in lieu of fees and no more than 0.05% of the
shares outstanding immediately after the effective date of the plan of
reorganization may be issued with respect to stock options under the Directors
Stock Plan.
Common stock paid in lieu of fees under the Directors Stock Plan may not be
sold prior to the second anniversary of the effective date of the plan of
reorganization. Stock options granted under the Directors Stock Plan will
generally be exercisable on the date of grant, but in no event exercised before
the second anniversary of the effective date of the plan of reorganization.
Outside Directors may elect to receive all or a portion of their retainer and
attendance fees that would otherwise be paid in cash with respect to services
rendered after the second anniversary of the effective date of the plan of
reorganization in the form of common stock. In addition, an Outside Director may
elect to defer receipt of any shares issuable under the terms of the Directors
Stock Plan in lieu of their retainer and attendance fees and any dividends
payable on the shares, until after he or she is no longer a director of MetLife,
Inc.
The board of directors may terminate, modify or amend the Directors Stock
Plan at any time, subject, in certain instances, to shareholder approval, and
prior to the fifth anniversary of the effective date of the plan of
reorganization, the approval of the New York Superintendent of Insurance. Unless
terminated earlier by action of the board of directors, the 2000 Directors Stock
Plan will continue in effect until no more shares are available for issuance
pursuant to it.
Metropolitan Life Insurance Company entered into an agreement with Harry P.
Kamen pursuant to which he served as a consultant from July 1, 1998 to June 30,
1999 for a fee of $500,000. Upon the expiration of that agreement by its terms,
a new agreement between Metropolitan Life Insurance Company and Mr. Kamen became
effective pursuant to which
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Mr. Kamen serves as a consultant for the one-year period of July 1, 1999 to June
30, 2000. Mr. Kamen will be paid for services rendered under the agreement up to
an aggregate amount of $50,000. Pursuant to the agreement, Metropolitan Life
Insurance Company provides Mr. Kamen, at no charge to him, an office and
secretarial support, as well as a car for use in connection with the services
rendered under the agreement.
MANAGEMENT COMPENSATION
EXECUTIVE COMPENSATION
Since the formation of MetLife, Inc., in August 1999, none of its officers
or other personnel has received any compensation from MetLife, Inc. All
compensation has been paid by Metropolitan Life Insurance Company or New England
Financial. It is expected that after the demutualization, all employees of
MetLife, Inc., including the executive officers, will continue to be paid only
by Metropolitan Life Insurance Company or its subsidiary, as applicable, with an
allocation of their compensation to be made for services rendered to MetLife,
Inc. MetLife, Inc. will pay the amount of such allocation to Metropolitan Life
Insurance Company or its subsidiary, as applicable, pursuant to a cost
allocation agreement.
The information set forth below describes the components of the total
compensation of the Chief Executive Officer and the four other most highly
compensated executive officers of Metropolitan Life Insurance Company and
MetLife, Inc. for services rendered during the fiscal year ended December 31,
1999 ("Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
--------------------------------------------- ------------
OTHER ANNUAL LTIP(2) ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) COMPENSATION PAYOUTS COMPENSATION
- --------------------------- ---- ------ -------- ------------ ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Robert H. Benmosche...... 1999 $1,000,000 $2,714,200 -- $3,422,200 $225,143(3)
Chairman of the Board,
President and Chief
Executive Officer
Stewart G. Nagler........ 1999 630,000 1,100,000 -- 2,387,000 133,741(3)
Vice-Chairman of the Board
and Chief Financial Officer
Gerald Clark............. 1999 630,000 900,000 -- 2,387,000 138,986(3)
Vice-Chairman of the Board
and Chief Investment
Officer
James M. Benson.......... 1999 600,000 900,000 737,549(5) 1,800,000 38,130(4)
President, Individual
Business; Chairman of the
Board, Chief Executive
Officer and President, New
England Life Insurance
Company
C. Robert Henrikson...... 1999 500,000 875,000 -- 1,743,000 92,543(3)
President, Institutional
Business
</TABLE>
- ---------------
(1) Actual annual incentive awards based on 1999 performance were paid in the
first quarter of 2000. For all Named Executive Officers, other than Mr.
Benson, such award was paid pursuant to the MetLife Annual Variable
Incentive Plan. Mr. Benson's award was paid pursuant to The New England
Short-Term Incentive Plan.
(2) Long-term compensation plan payouts to all Named Executive Officers for
services performed during the three-year performance period 1997-1999 were
made in the first
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quarter of 2000. For all Named Executive Officers, other than Mr. Benson,
such payouts were made pursuant to the MetLife Long-Term Performance
Compensation Plan. Mr. Benson's payout was made pursuant to the New England
Financial Long-Term Incentive Plan.
(3) Includes: MetLife contributions to the Savings and Investment Plan for
Employees of MetLife and Participating Affiliates of $6,400 for each of the
above named individuals; MetLife contributions to, or with respect to, the
Auxiliary Savings and Investment Plan as follows: Mr. Benmosche: $87,077;
Mr. Nagler: $54,240; Mr. Clark: $58,240; and Mr. Henrikson: $40,640;
payments representing the dollar value of the benefit of the portion of
split dollar life insurance premiums paid by MetLife as follows: Mr.
Benmosche: $131,666; Mr. Nagler: $73,101; Mr. Clark: $74,346; and Mr.
Henrikson: $45,503.
(4) Includes: company contributions to The New England 401(k) Plan and Trust of
$8,200; $29,660 to The New England Life Insurance Company Select Employees
Supplemental 401(k) Plan and $270 representing the premium paid by New
England Life Insurance Company with respect to term life insurance covering
Mr. Benson.
(5) Amount paid on Mr. Benson's behalf pursuant to The New England Financial
Relocation Policy.
LONG-TERM INCENTIVE PLAN AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
PERFORMANCE ESTIMATED FUTURE PAYOUTS UNDER NON-STOCK
OR OTHER PRICE-BASED PLANS
PERIOD ----------------------------------------
UNTIL ESTIMATED
MATURATION THRESHOLD TARGET MAXIMUM
NAME OR PAYOUT PAYMENT PAYMENT(A) PAYMENT
- ---- ----------- --------- ---------- -------
<S> <C> <C> <C> <C>
Robert H. Benmosche..................... 1999-2001 $0 $2,500,000 $5,000,000
Stewart G. Nagler....................... 1999-2001 0 1,260,000 2,520,000
Gerald Clark............................ 1999-2001 0 1,260,000 2,520,000
James M. Benson......................... 1999-2001 0 1,200,000 2,400,000
C. Robert Henrikson..................... 1999-2001 0 975,000 1,950,000
</TABLE>
- ---------------
(a) Estimated target payments under the MetLife Long-Term Performance
Compensation Plan for all Named Executive Officers other than Mr. Benson,
whose payment is made pursuant to the New England Financial Long-Term
Incentive Plan. Actual target payments will be based on the average of the
year-end annual base salaries over the three-year performance period, except
in the case of Mr. Benson, whose target will remain at $1,200,000,
regardless of changes in his annual base salary.
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METLIFE RETIREMENT PLAN INFORMATION
The following table shows the estimated annual retirement benefits payable
at normal retirement age (generally 65) to a person retiring with the indicated
final average pay and years of credited service on a 30% joint and survivor
basis, if married, and on a straight life annuity basis with a 5-year guarantee,
if single, under the Metropolitan Life Retirement Plan for United States
Employees ("Retirement Plan"), as supplemented by the Metropolitan Life
Supplemental Retirement Benefit Plan ("Supplemental Retirement Plan"), each as
described below. Except for Mr. Benson, each of the Named Executive Officers
participates in the Retirement Plan and the Supplemental Retirement Plan. Mr.
Benson participates in separate New England Financial plans.
ESTIMATED ANNUAL BENEFITS AT RETIREMENT
WITH INDICATED YEARS OF CREDITED SERVICE
<TABLE>
<CAPTION>
FINAL
AVERAGE PAY 5 YEARS 10 YEARS 15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS 40 YEARS
- ----------- ------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 500,000 $ 41,400 $ 82,900 $124,300 $165,800 $ 207,200 $ 248,700 $ 290,100 $ 302,600
750,000 62,700 125,400 188,100 250,800 313,500 376,200 438,900 457,600
1,000,000 83,900 167,900 251,800 335,800 419,700 503,700 587,600 612,600
1,250,000 105,200 210,400 315,600 420,800 526,000 631,200 736,400 767,600
1,500,000 126,400 252,900 379,300 505,800 632,200 758,700 885,100 922,600
1,750,000 147,700 295,400 443,100 590,800 738,500 886,200 1,033,900 1,077,600
2,000,000 168,900 337,900 506,800 675,800 844,700 1,013,700 1,182,600 1,232,600
2,250,000 190,200 380,400 570,600 760,800 951,000 1,141,200 1,331,400 1,387,600
2,500,000 211,400 422,900 634,300 845,800 1,057,200 1,268,700 1,480,100 1,542,600
</TABLE>
The annual retirement benefit under the Retirement Plan and the
Supplemental Retirement Plan is generally equal to the sum of (a)(i) a
percentage of an executive's "final average compensation" up to his or her
"covered compensation" (i.e., the average of the social security taxable wage
base for the 35 years up to the date the executive attains social security
retirement age), plus (ii) a percentage of the executive's "final average
compensation" in excess of his or her "covered compensation", and the sum
thereof times (iii) years of "credited service" not exceeding 35 years, and (b)
a percentage of "final average compensation" multiplied by years of "credited
service" in excess of 35 years. "Final average compensation" is defined as the
highest average "annual compensation" of an executive for any 60 consecutive
months in the 120 months of service prior to the executive's retirement. "Annual
Compensation" used to determine the retirement benefit under the Retirement Plan
and the Supplemental Retirement Plan consists of "annual basic compensation"
which includes annual base salary and "annual variable incentive compensation"
which includes payments under the annual variable incentive plan. Such
"compensation" is generally the same as the compensation reflected in the
"salary" and "bonus" columns of the Summary Compensation Table. The Supplemental
Retirement Plan is designed to provide benefits which eligible employees would
have received under the Retirement Plan but for limits applicable under the
Retirement Plan. Benefits payable under the Retirement Plan and the Supplemental
Retirement Plan are not subject to reduction for social security benefits or
other offset amounts.
At December 31, 1999 (assuming retirement as of such date), the estimated
"final average compensation" under the Retirement Plan and the Supplemental
Retirement Plan is $1,581,710 for Mr. Benmosche, $1,281,350 for Mr. Nagler,
$1,258,000 for Mr. Clark and $904,980 for Mr. Henrikson. The estimated years of
credited service under the Retirement Plan and the Supplemental Retirement Plan
as of such date is four years for Mr. Benmosche, 37 years for Mr. Nagler, 31
years for Mr. Clark and 27 years for Mr. Henrikson.
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NEW ENGLAND RETIREMENT PLAN INFORMATION
The following table shows the estimated annual retirement benefits payable
at normal retirement age (generally 65) to a person retiring with the indicated
final average pay and years of credited service on a straight life annuity basis
under The New England Retirement Plan and Trust, as supplemented by The New
England Life Insurance Company Supplemental Retirement Plan and The New England
Life Insurance Company Select Employees Supplemental Retirement Plan, each as
described below.
ESTIMATED ANNUAL BENEFITS AT RETIREMENT
WITH INDICATED YEARS OF CREDITED SERVICE
<TABLE>
<CAPTION>
FINAL
AVERAGE PAY 5 YEARS 10 YEARS 15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS 40 YEARS
----------- ------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 500,000 $ 48,300 $ 96,600 $144,800 $193,100 $ 241,400 $ 253,900 $ 253,900 $ 253,900
750,000 73,300 146,600 219,800 293,100 366,400 385,200 385,200 385,200
1,000,000 98,300 196,600 294,800 393,100 491,400 516,400 516,400 516,400
1,250,000 123,300 246,600 369,800 493,100 616,400 647,700 647,700 647,700
1,500,000 148,300 296,600 444,800 593,100 741,400 778,900 778,900 778,900
1,750,000 173,300 346,600 519,800 693,100 866,400 910,200 910,200 910,200
2,000,000 198,300 396,600 594,800 793,100 991,400 1,041,400 1,041,400 1,041,400
2,250,000 223,300 446,600 669,800 893,100 1,116,400 1,172,700 1,172,700 1,172,700
2,500,000 248,300 496,600 744,800 993,100 1,241,400 1,303,900 1,303,900 1,303,900
</TABLE>
The annual benefit under The New England Retirement Plan and Trust, The New
England Life Insurance Company Supplemental Retirement Plan and The New England
Life Insurance Company Select Employees Supplemental Retirement Plan is
generally equal to the sum of (a) the product of a percentage of an executive's
"final average compensation" times years of service up to 25 and (b) the product
of a percentage of an executive's "final average compensation" for years 26 to
30 times such years of service, less (c) the product of a percentage of an
executive's age 65 social security benefit times years of service up to 25 years
of service. "Final average compensation" is defined as the highest five years of
eligible compensation of an executive during the last ten years of service prior
to the executive's retirement. "Annual Compensation" used to determine the
retirement benefit under The New England Retirement Plan and Trust, The New
England Life Insurance Company Supplemental Retirement Plan and The New England
Life Insurance Company Select Employees Supplemental Retirement Plan consists of
salary paid to an executive. Such Annual Compensation is generally the same as
the compensation reflected in the "salary" and "bonus" columns of the Summary
Compensation Table. The New England Life Insurance Company Supplemental
Retirement Plan and The New England Life Insurance Company Select Employees
Supplemental Retirement Plan are designed to provide benefits which eligible
employees would have received under The New England Retirement Plan and Trust
but for limits applicable under The New England Retirement Plan and Trust. The
estimated "final average pay" for Mr. Benson under The New England Retirement
Plan and Trust, The New England Life Insurance Company Supplemental Retirement
Plan and The New England Life Insurance Company Select Employees Supplemental
Retirement Plan at December 31, 1999 (assuming retirement at such date) is
$1,419,800 and the estimated years of credited service under such Plans at such
date is 2 years. In addition, Mr. Benson's employment agreement provides for an
enhanced retirement benefit of $400,000 vesting in equal annual installments
over ten years and payable at age 62 as a 20-year continuous and certain
annuity. At December 31, 1999, Mr. Benson was vested as to 20% of this benefit,
or $80,000 per annum. In the event of a termination by New England Life
Insurance Company "without cause" or by Mr. Benson for "good reason" (as each
such term is defined in the agreement), the enhanced retirement benefit will
retroactively vest at double the above rate.
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LONG-TERM INCENTIVE COMPENSATION PLANS
METLIFE LONG-TERM PERFORMANCE COMPENSATION PLAN. All officers at the level
of senior vice-president and above and select vice-presidents are eligible to
participate in the MetLife Long-Term Performance Compensation Plan ("Long-Term
Plan"). The Long-Term Plan is a three-year plan with a new plan period beginning
each January 1. Under the Long-Term Plan, performance objectives for the
enterprise are established at the beginning of each three-year performance
period and may include specific objectives for earnings and return on equity, as
well as management performance against select strategic objectives. At the end
of the performance period, the performance of MetLife is judged against the set
objectives, with some results compared relatively to the results of other
companies in the insurance and financial service industries. Actual performance,
expressed as a percentage, may range from 0% to 200%. This percentage is
multiplied by the participants' total incentive opportunities to establish the
aggregate incentive fund for distribution. Individual awards are recommended by
management and are reflective of the participant's individual performance and
relative contribution to the long-range results of MetLife. Senior management
approves all awards before they are submitted to the Compensation Committee of
the board, which is comprised of Outside Directors, and to the full board for
approval. Any award under the Long-Term Plan in each performance period will
become payable only upon approval of the board in its discretion and will be
paid in the year immediately following the end of each performance period.
NEW ENGLAND FINANCIAL LONG-TERM INCENTIVE PLAN. From 1997 through 1999,
New England Financial maintained a substantially similar long-term incentive
plan for the benefit of certain of its officers, under which any amounts payable
are determined based on the performance of New England Financial and the
individual's contribution to its success.
The personnel committee awards certain of its officers "growth units" that
measure value creation over a three-year performance cycle based on growth in
equity computed pursuant to generally accepted accounting principles and the
present value of future profits on in-force business. At the end of the
three-year performance cycle, the growth in value of the "growth units" is
determined by New England Financial's board and paid in cash to each participant
still employed with New England Financial.
In 2000, New England Financial adopted a long-term incentive plan identical
to the MetLife Long-Term Plan.
Each of the Named Executive Officers participates in the MetLife Long-Term
Plan, except Mr. Benson who participates in The New England Financial Long-Term
Incentive Plan. See "-- Management Compensation -- Long-Term Incentive Plan
Awards in Last Fiscal Year".
SHORT-TERM INCENTIVE PLANS
METLIFE ANNUAL VARIABLE INCENTIVE PLAN. Persons exempt from the Fair Labor
Standards Act who are not participating in an alternative annual incentive plan
are eligible to participate in the Annual Variable Incentive Plan ("Annual
Incentive Plan"). Under the Annual Incentive Plan, a formula including
performance objectives for operating earnings and return on equity is
established at the beginning of each calendar year to determine the maximum
aggregate incentive pool for distribution under the Annual Incentive Plan. The
actual incentive pool will be established at the end of each year based on the
actual operating earnings relative to return on equity target by using the
formula. Eighty percent of this pool is distributed based on corporate results,
while 20% is distributed based on business unit performance. In all incentive
award determinations, individual performance is a significant factor in the
manager's determination of the amount of an individual's actual final incentive
award. Final approval of individual incentive awards rests with senior
management. Awards for certain senior officers (executive vice-president and
above) are submitted to the Compensation Committee of the board, comprised of
Outside Directors, and to the full board for approval and endorsement. Awards
are payable in
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<PAGE> 191
cash as soon as practicable after individual award amounts have been approved.
There is no maximum on individual awards, but there is no guarantee an
individual will receive an award. The total of all individual awards may not
exceed the maximum aggregate incentive pool. Each of the Named Executive
Officers participates in the MetLife Annual Incentive Plan, except Mr. Benson,
who participates in the New England Short-Term Incentive Plan.
THE NEW ENGLAND SHORT-TERM INCENTIVE PLAN. In 1999, New England Financial
maintained a substantially similar short-term executive incentive plan ("The New
England Short-Term Incentive Plan") for the benefit of certain of its officers,
under which any amounts payable are determined based on the performance of New
England Financial and the individual's contribution to its success. Under The
New England Short-Term Incentive Plan, in determining the amounts available for
incentive payments, key considerations include financial results and growth
compared to target and business plan, together with non-financial objectives and
judgment of the Personnel Committee, and results are compared with the results
of other insurance and financial services companies. Specific percentages are
established under The New England Short-Term Incentive Plan with respect to the
portion of the award that is based on business unit performance, and such
performance is an important consideration in determining an individual's award.
The maximum award payable to any given individual under The New England
Short-Term Incentive Plan is capped at 200% of the target award amount. In 2000,
New England Financial adopted a short-term incentive plan identical to the
MetLife Annual Incentive Plan.
METLIFE, INC. 2000 STOCK INCENTIVE PLAN
The Compensation Committee of the board of directors of MetLife, Inc. will
administer the MetLife, Inc. 2000 Stock Incentive Plan ("Stock Incentive Plan").
Under the Stock Incentive Plan, the Compensation Committee may from time to time
grant stock options for the purchase of common stock to officers (including
officers who are also directors), employees and insurance agents of MetLife,
Inc. and its subsidiaries, provided that the Compensation Committee may not
grant any stock or stock options prior to the first anniversary of the effective
date of the plan of reorganization. The Compensation Committee may, in its
discretion, delegate its authority and power under the Stock Incentive Plan to
MetLife, Inc.'s Chief Executive Officer with respect to individuals who are
below the rank of Senior Vice-President. Such delegation of authority is limited
to 1.5% of the total number of shares authorized for issuance under the Stock
Incentive Plan, and no individual may receive more than 5% of the shares of the
Chief Executive Officer's total authorization in any twelve-month period.
The maximum number of shares issuable under the Stock Incentive Plan is 5%
of the shares outstanding immediately after the effective date of the plan of
reorganization, reduced by the shares issuable pursuant to options granted under
the MetLife, Inc. 2000 Directors Stock Plan. The maximum number of shares which
may be subject to awards under the Stock Incentive Plan may not exceed 60% of
the shares available under the Stock Incentive Plan prior to the second
anniversary of the effective date of the plan of reorganization or 80% of the
shares available under the Stock Incentive Plan prior to the third anniversary
of the effective date of the plan of reorganization. No participant in the Stock
Incentive Plan may be granted, during any five-year period, options in respect
of more than 5% of the shares available for issuance under the Stock Incentive
Plan. The shares to be issued under the Stock Incentive Plan may be authorized
but unissued shares or treasury shares. Upon the occurrence of certain events
that affect the capitalization of MetLife, Inc., appropriate adjustments will be
made in the number of shares that may be issued under the Stock Incentive Plan
in the future and in the number of shares and the exercise price under
outstanding grants made before the event. If any grant is for any reason
canceled, terminated or otherwise settled without the issuance of some or all of
the shares of common stock subject to the grant, such shares will be available
for future grants.
The board of directors of MetLife, Inc. may terminate, modify or amend
(subject, in some cases, to the approval of its stockholders and, prior to the
fifth anniversary of the effective date
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of the plan of reorganization, to the approval of the New York Superintendent of
Insurance) the Stock Incentive Plan at any time, but such termination,
modification or amendment may not adversely affect any stock option then
outstanding under the Stock Incentive Plan without the consent of the recipient
thereof. The Stock Incentive Plan will continue in effect until it is terminated
by the board of directors or until no more shares are available for issuance,
but stock options granted prior to such date will continue in effect until they
expire in accordance with their terms.
The Compensation Committee may grant nonqualified stock options
("Nonqualified Stock Options") and stock options qualifying as incentive stock
options ("ISOs") under the Internal Revenue Code of 1986, as amended. The
exercise price per share of common stock subject to either a Nonqualified Stock
Option or an ISO will be not less than the fair market value (as defined in the
Stock Incentive Plan) of such share on the date of grant of such option. To
exercise an option, a holder may pay the exercise price as permitted by the
Compensation Committee (1) in cash, (2) by delivering on the date of exercise
other shares of common stock owned by the holder, (3) through an arrangement
with a broker approved by MetLife, Inc. for the payment of the exercise price
with the proceeds of the sale of shares of common stock owned by the holder, or
(4) by a combination of the foregoing. Options generally may not be transferred
by the grantee, except in the event of death. The Compensation Committee may, in
its discretion, permit the transfer of Nonqualified Stock Options by gift or
domestic relations order to the participant's immediate family members.
Unless otherwise specified, each option will become exercisable on a
cumulative basis in three approximately equal installments on each of the first
three anniversaries of the date of grant thereof, provided, that in no event
will any option be or become exercisable prior to the second anniversary of the
effective date of the plan of reorganization. In addition, the Compensation
Committee may establish longer periods of service or performance-based criteria
at the time of the grant. The term of each option will be fixed by the
Compensation Committee but may not be more than ten years from its date of
grant.
Any option granted to an insurance agent will comply with the provisions of
Section 4228 of the New York Insurance Law and any regulations thereunder.
In the event of the termination of service of a grantee by reason of death,
any options previously granted to such grantee will become immediately
exercisable in full and may be exercised by the grantee's designated beneficiary
at any time prior to the expiration of the term of the options or within three
years following the grantee's death, whichever occurs first (or such shorter
time as the Compensation Committee may determine at the time of grant).
In the event of the termination of service of a grantee by reason of
disability or approved retirement (as defined in the Stock Incentive Plan), any
option previously granted to such grantee will continue to vest as if the
grantee's service had not terminated. A grantee may exercise any vested option
in full for a period of three years following termination of employment (or such
shorter period as the Compensation Committee shall determine at the time of
grant) or, if earlier, the expiration of the term of the option. In the event of
the termination of service of a grantee for cause (as defined in the Stock
Incentive Plan), the grantee will forfeit any outstanding options. In the event
of the termination of service of a grantee in connection with a divestiture of a
business unit or subsidiary or similar transaction, the Compensation Committee
may provide that all or some outstanding options will continue to become
exercisable and may be exercised at any time prior to the expiration of the term
of the options or within three years following the grantee's termination of
service (or such shorter time as the Compensation Committee may determine at or
following the time of grant) or, if earlier, the expiration of the term of the
option. In general, in the event of the termination of service of a grantee for
any reason other than in connection with certain divestitures of a subsidiary or
business unit, for disability, death, approved retirement or cause, any options
granted to such grantee exercisable
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at the date of termination will remain exercisable for a period of 30 days (or,
if earlier, the expiration of the term of the options).
Upon a change of control (as defined in the Stock Incentive Plan), each
option then outstanding will become fully exercisable regardless of the exercise
schedule otherwise applicable. In connection with such change of control, the
Compensation Committee may, in its discretion, require that, upon the change of
control, each such option be canceled in exchange for a payment in an amount
equal to the excess, if any, of the change of control price (as defined in the
Stock Incentive Plan) over the exercise price of the option. In addition, no
cancellation, acceleration of exercisability, cash settlement or other payment
for options will occur upon a change of control if the Compensation Committee
determines in good faith that an alternate award (as defined in the Stock
Incentive Plan) will be issued by the acquiror in the change of control.
FEDERAL INCOME TAX ASPECTS
The following is a brief summary of the federal income tax consequences of
awards under the Stock Incentive Plan based on the federal income tax laws in
effect on the date hereof. This summary is not intended to be exhaustive and
does not describe state or local tax consequences.
No taxable income is realized by the grantee upon the grant or exercise of
an ISO. If a grantee does not sell the stock received upon the exercise of an
ISO ("ISO Shares") for at least two years from the date of grant and one year
from the date of exercise, when the ISO Shares are sold any gain or loss
realized will be treated as long-term capital gain or loss. In such
circumstances, no deduction will be allowed to the grantee's employer for
federal income tax purposes.
If ISO Shares are disposed of prior to the expiration of the holding
periods described above, the grantee generally will realize ordinary income at
that time equal to the lesser of the excess of the fair market value of the
shares at exercise over the price paid for such ISO Shares or the actual gain on
the disposition. The grantee's employer will generally be entitled to deduct any
such recognized amount. Any further gain or loss realized by the grantee will be
taxed as short-term or long-term capital gain or loss. Subject to certain
exceptions for disability or death, if an ISO is exercised more than three
months following the termination of the grantee's employment, the ISO will
generally be taxed as a Nonqualified Stock Option.
No income is realized by the grantee at the time a Nonqualified Stock
Option is granted. Generally upon exercise of a Nonqualified Stock Option, the
grantee will realize ordinary income in an amount equal to the difference
between the price paid for the shares and the fair market value of the shares on
the date of exercise. The grantee's employer will generally be entitled to a tax
deduction in the same amount and at the same time as the grantee recognizes
ordinary income. Any appreciation or depreciation after the date of exercise
will be treated as either short-term or long-term capital gain or loss,
depending upon the length of time that the grantee has held the shares.
EMPLOYMENT-RELATED AGREEMENTS
Metropolitan Life Insurance Company has entered into employment
continuation agreements with several of its key executives, including each of
the Named Executive Officers, except Mr. Benson. These agreements, the
provisions of which only become effective upon the occurrence of a change of
control or a potential change of control (as defined in such agreements), are
intended generally to preserve for the covered executives the same duties,
responsibilities and compensation opportunities for a period of three years
following a change of control as were in effect prior to such an event.
Accordingly, after the occurrence of such a change of control event, the
agreements provide for certain minimum levels with respect to a covered
executive's base salary, incentive compensation opportunities and participation
in employee benefit plans. These agreements also generally assure the covered
executive that he
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or she will not incur a significant change in the other terms and conditions of
his or her employment. If the successor management does not honor these
assurances, a covered executive may terminate employment for "good reason". In
such case, or in the event that, after these agreements become effective, the
executive's employment is terminated without "cause", the executive will receive
certain termination benefits, including a lump sum severance payment equal to
three times the sum of the executive's:
- base salary;
- average annual bonus award over the preceding three years; and
- average long-term incentive award over the preceding three years (reduced
by the value conveyed to the executive in the change of control under any
equity compensation awards).
Notwithstanding the foregoing, the amount of any such termination benefits
will be reduced, to the extent necessary, so that no amount payable to such
executives will fail to be deductible by Metropolitan Life Insurance Company
(or, in the case of the executives, be subject to a special excise tax) under
the so-called "golden parachute" provisions of the Internal Revenue Code of
1986, as amended.
In addition, Messrs. Benmosche, Nagler and Clark may also generally elect
to terminate employment voluntarily, during the 30-day period beginning six
months after the date on which a change of control occurs, and receive the same
termination benefits they would receive had such executive's employment
terminated without cause.
New England Life Insurance Company has entered into an employment agreement
with Mr. Benson, which expires on June 16, 2000, pursuant to which Mr. Benson
serves as its Chief Executive Officer. Under the agreement, Mr. Benson is
entitled to a minimum base salary and participation in the New England Financial
annual and long-term incentive plans described above. The agreement also
provides Mr. Benson with an enhanced retirement benefit of $400,000 vesting in
equal annual installments over ten years and payable at age 62 as a 20-year life
annuity. At December 31, 1999, Mr. Benson had vested as to 20% of this benefit,
or $80,000 per annum.
In the event that Mr. Benson's employment is terminated by New England Life
Insurance Company "without cause" or by Mr. Benson for "good reason" (as each
such term is defined in the agreement), Mr. Benson will receive severance
benefits equal to two times the sum of his annual base salary and his target
annual bonus for the year of termination, as well as the earned and unpaid
salary and the award payable for any long-term incentive period then in effect
and an annual bonus for the year of termination, in each case pro-rated to the
date of his termination. In addition, the enhanced retirement benefit will
retroactively vest at double the above rate. Except in the event that Mr. Benson
terminates his employment voluntarily without good reason or his employment is
terminated for cause, he and his spouse will be eligible to receive the same
retiree medical benefits generally made available to MetLife executives, except
that any service requirement to obtain such benefits will be waived and such
benefits will be secondary in all circumstances to any other coverage that Mr.
Benson or his spouse may be eligible to receive.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Helene L. Kaplan, a director of MetLife, Inc. and Metropolitan Life
Insurance Company and the chairman of the Nominating and Compensation Committee
of Metropolitan Life Insurance Company in 1999, is of counsel to Skadden, Arps,
Slate, Meagher & Flom LLP. Skadden, Arps, Slate, Meagher & Flom LLP has in the
past performed, and continues to perform, legal services for Metropolitan Life
Insurance Company and its affiliates.
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OWNERSHIP OF COMMON STOCK
The following table sets forth certain information regarding the beneficial
ownership of MetLife, Inc.'s common stock as of the effective date of the plan
of reorganization by:
- each person who we believe will own beneficially more than 5% of the
outstanding shares of MetLife, Inc.'s common stock;
- each director and each Named Executive Officer; and
- all of our directors and Named Executive Officers as a group.
The number of shares of common stock beneficially owned by each director and
executive officer is based upon an estimate of the number of shares each
director and Named Executive Officer and certain persons and entities affiliated
with each director and Named Executive Officer will receive as eligible
policyholders pursuant to the plan of reorganization. The plan of reorganization
provides that for the first five years after the plan effective date, officers,
directors and employees of Metropolitan Life Insurance Company, MetLife, Inc.
and their affiliates, including their family members and their spouses, may not
acquire common stock in any manner except through the following acquisitions:
- officers, directors and employees who are eligible policyholders may
receive common stock (to be held in the trust) in exchange for their
policyholders' membership interests under the plan of reorganization;
- officers and directors and their spouses and family members may purchase
common stock through the purchase and sale program (if eligible) or in
open market purchases through a broker or dealer registered with the
Securities and Exchange Commission beginning two years after the plan
effective date;
- other employees and their spouses and family members may purchase common
stock through the purchase and sale program (if eligible) or in open
market purchases through a registered broker or dealer on or after the
plan effective date; and
- subject to certain limitations as to both the amount and timing of the
acquisition of stock, officers, directors, employees and insurance agents
may acquire common stock (or interests in common stock) under one or more
of the MetLife, Inc. 2000 Stock Incentive Plan, the MetLife, Inc. 2000
Directors Stock Plan and specified other savings and investment plans,
incentive compensation plans and deferred compensation plans.
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See "Management -- Management Compensation -- MetLife, Inc. 2000 Stock
Incentive Plan" and "Management -- Information about the Board of Directors of
MetLife, Inc. -- Compensation of Directors". No person will own more than 5% of
the outstanding shares of common stock, other than the MetLife Policyholder
Trust, as a result of the shares distributed pursuant to the plan of
reorganization. Except as noted below, each holder listed below will have sole
investment and voting power with respect to the shares beneficially owned by the
holder. The number of shares of common stock beneficially owned by the trust is
based on our preliminary calculation of the allocation of consideration to be
distributed under the plan of reorganization and assumptions described under
"Pro Forma Consolidated Financial Information".
<TABLE>
<CAPTION>
NUMBER OF SHARES
TO BE
NAME BENEFICIALLY OWNED
- ---- ------------------
<S> <C>
MetLife Policyholder Trust.................................. 493,476,118(1)
Robert H. Benmosche......................................... *
Curtis H. Barnette.......................................... *
Gerald Clark................................................ *
Joan Ganz Cooney............................................ *
Burton A. Dole, Jr. ........................................ *
James R. Houghton........................................... *
Harry P. Kamen.............................................. *
Helene L. Kaplan............................................ *
Charles M. Leighton......................................... *
Allen E. Murray............................................. *
Stewart G. Nagler........................................... *
John J. Phelan, Jr. ........................................ *
Hugh B. Price............................................... *
Robert G. Schwartz.......................................... *
Ruth J. Simmons............................................. *
William C. Steere, Jr....................................... *
Gary A. Beller.............................................. *
James M. Benson............................................. *
C. Robert Henrikson......................................... *
Catherine A. Rein........................................... *
William J. Toppeta.......................................... *
John H. Tweedie............................................. *
Lisa M. Weber............................................... *
Judy E. Weiss............................................... *
Board of directors of MetLife, Inc., but not in each
director's individual capacity............................ 493,476,118(1)
All directors and Named Executive Officers as a group....... * (2)
</TABLE>
- ---------------
* Number of shares represents less than one percent of the number of shares of
common stock expected to be outstanding on the effective date of the plan.
(1) The board of directors of MetLife, Inc., but not in each director's
individual capacity, is deemed to beneficially own the shares of common
stock held by the MetLife Policyholder Trust because the board will direct
the voting of these shares on certain matters submitted to a vote of
stockholders. See "The Demutualization -- Establishment and Operation of the
MetLife Policyholder Trust". The amount shown does not include shares
beneficially owned by a director in the director's individual capacity.
(2) Does not include shares of common stock held by the MetLife Policyholder
Trust beneficially owned by the board of directors, other than in each
director's individual capacity.
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COMMON STOCK ELIGIBLE FOR FUTURE SALE
The MetLife Policyholder Trust will hold 493,476,118 shares of common stock
on behalf of the approximately 9 million eligible policyholders that we estimate
will become beneficiaries of the trust in the demutualization. The trust
provides that a trust beneficiary may sell the beneficiary's allocated shares of
MetLife, Inc.'s common stock through the purchase and sale program, subject to
certain limitations. Sales may be made at any time beginning on the later of (1)
termination of any stabilization arrangements and trading restrictions in
connection with the initial public offering or (2) the closing of all
underwriters' over-allotment options which have been exercised and the
expiration of all unexercised options. We expect that these sales may begin
within 30 days after the effective date of the plan of reorganization. In
addition, beginning one year after that effective date, trust beneficiaries may
also withdraw all (but not less than all) of their allocated shares of MetLife,
Inc.'s common stock from the trust and hold or dispose of their shares. Shares
withdrawn from the trust will be issued in book-entry form as uncertificated
shares, to the extent permitted by applicable law, unless a trust beneficiary
requests a certificate for the shares. See "The Demutualization -- Establishment
and Operation of the MetLife Policyholder Trust" for a description of the
purchase and sale program and its limitations. Counsel has advised us that those
beneficiaries who are not "affiliates" of MetLife, Inc. within the meaning of
Rule 144 under the Securities Act of 1933, as amended, may resell their shares
in the purchase and sale program or otherwise without registration under that
Securities Act and without compliance with the time, volume, manner of sale and
other limitations set forth in Rule 144. Substantially all of the shares of
MetLife, Inc.'s common stock allocated in the demutualization to policyholders
that will be beneficiaries of the trust will be allocated to non-affiliates of
MetLife, Inc. Accordingly, most trust beneficiaries may freely transfer such
shares, without limitations, through the purchase and sale program. In addition
to the shares issued in the demutualization, the shares of common stock sold in
the initial public offering and the shares issued upon settlement of the units
will be freely transferable without restriction in the public market, except to
the extent that those shares are acquired by affiliates of MetLife, Inc. and are
therefore subject to restrictions under Rule 144.
Banco Santander Central Hispano, S.A. and Credit Suisse Group have agreed
in principle that they or their respective affiliates will purchase from us in
the aggregate not less than 14,900,000 shares nor more than 73,000,000 shares of
our common stock in private placements that will close concurrently with the
initial public offering and the offering of equity security units described
below. We will determine at the time of the pricing of the initial public
offering whether to sell any shares to these purchasers in excess of the minimum
amount. Any shares in excess of the minimum amount that we determine not to sell
to these investors may increase the number of shares available for sale to the
general public under this prospectus. The maximum number of shares that each
investor, individually, and the investors, in the aggregate, could be obligated
to purchase in the private placements represents approximately 4.9% and 9.8%,
respectively, of the total number of shares of our common stock to be
outstanding upon consummation of the initial public offering and the private
placements. We expect each of these purchasers to enter into an agreement with
us that provides that any shares purchased by it will be restricted, subject to
certain limited exceptions, from sale or transfer for a period of one year after
the initial public offering, except for sales to affiliates or pursuant to a
tender or exchange offer recommended by our board of directors. In addition, we
expect each purchaser to agree that it will not, without our consent, increase
its ownership of voting securities above 4.9% of the outstanding shares, seek to
obtain board representation, solicit proxies in opposition to management or take
certain other actions for five years. Although these investors will receive
common stock which has not been registered under the Securities Act, they will
also receive registration rights with respect to such stock, which rights are
not exercisable until one year after the closing of the initial public offering.
Pursuant to these registration rights, the purchasers will be able to have their
shares of common stock registered for resale under the Securities Act at various
times in the future. In addition, the purchasers will be able to participate,
subject to specified limitations, in registrations effected by us for our own
account or others. The private placements are subject to the negotiation of
definitive documentation.
Sales of substantial amounts of MetLife, Inc. common stock, or the
perception that such sales could occur, could adversely affect prevailing market
prices for our common stock.
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DESCRIPTION OF THE EQUITY SECURITY UNITS
THE UNITS
Concurrently with the closings of the initial public offering and the
planned private placements, we and MetLife Capital Trust I, a Delaware statutory
business trust wholly-owned by us, are selling 20,000,000 % equity security
units for a total gross offering of $1,000 million, plus up to an additional
$150 million if the underwriters' options to purchase additional units are
exercised in full. Each unit will initially consist of:
- a purchase contract under which the holder agrees to purchase, for $50,
shares of our common stock on , 2003. The number of shares
the holder will receive will be determined by the settlement rate
described below, based on the average trading price of our common stock
at that time; and
- beneficial ownership of a capital security of MetLife Capital Trust I,
with a stated liquidation amount of $50. The capital security will
initially be pledged to secure the holder's obligations under the
purchase contract.
THE CAPITAL SECURITIES
The capital securities, and the common securities issued to MetLife, Inc.,
represent undivided beneficial ownership interests in the assets of MetLife
Capital Trust I. These assets consist solely of debentures issued by us to the
trust. The debentures will have an interest rate and principal amount that are
the same as the distribution rate and stated liquidation amount of the capital
securities.
Distributions on the capital securities will accrue from the date the
capital securities are issued, and, subject to the distribution deferral
provisions described below, they will be paid quarterly in arrears on each
, , and , commencing
, 2000. The initial annual distribution rate on the capital
securities will be %. The interest rate on the debentures, and therefore
the distribution rate on the capital securities, will be reset for the quarterly
payments payable on and after , 2003 to the rate, determined by
the reset agent, that will be sufficient to cause the then current aggregate
market value of the capital securities to be equal to 100.5% of the remarketing
value. If the reset rate cannot be established prior to , 2003,
the distribution rate will not be reset and will continue to be the initial
annual rate of % until a reset rate can be established on a later
remarketing date.
We can, on one or more occasions, defer the interest payments due on the
debentures for up to five years, unless an event of default under the debentures
has occurred and is continuing. However, we cannot defer interest payments
beyond the maturity date of the debentures, which is , 2005. If
we defer interest payments on the debentures, the trust will also defer
distributions on the capital securities. During any deferral period,
distributions will continue to accumulate quarterly at the initial annual rate
of % of the stated liquidation amount of $50 per capital security through
and including , 2003, and at the reset rate on the capital
securities after that date. Also, the deferred distributions will themselves
accumulate additional distributions at the deferred rate, to the extent
permitted by law. During any period in which we defer interest payments on the
debentures, in general we cannot:
- declare or pay any dividend or distribution on our capital stock;
- redeem, purchase, acquire or make a liquidation payment on any of our
capital stock;
- make any interest, principal or premium payment on, or repurchase or
redeem, any of our debt securities that rank equally with or junior to
the debentures; or
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<PAGE> 199
- make any payment on any guarantee of the debt securities of any of our
subsidiaries if the guarantee ranks equal or junior to the debentures.
REMARKETING
Through a remarketing, the capital securities of holders of units, other
than those electing not to participate in the remarketing, will be sold and the
proceeds used to purchase treasury securities, which will be pledged to secure
the unitholders' obligations under the purchase contracts. Cash payments
received on the pledged treasury securities will be used to satisfy the
unitholders' obligations to purchase our common stock on , 2003.
Unless a holder elects not to participate in the remarketing by delivering
treasury securities to secure its obligations under the purchase contract, the
capital securities will be remarketed on the remarketing date, which is the
third business day immediately preceding , 2003.
SETTLEMENT
The settlement rate is the number of newly issued shares of our common
stock that we are obligated to sell and the holders are obligated to buy upon
settlement of a purchase contract on , 2003. The settlement rate
for each purchase contract will be as follows, subject to adjustment under
specified circumstances:
- if the applicable market value of our common stock is equal to or greater
than $ , the settlement rate will be shares of our common
stock per purchase contract;
- if the applicable market value of our common stock is less than $
but greater than $ , the settlement rate will be equal to $50
divided by the applicable market value of our common stock per purchase
contract; and
- if the applicable market value of our common stock is less than or equal
to $ , the settlement rate will be shares of our common stock
per purchase contract.
In addition to the remarketing, the holder's obligations under the purchase
contract may be satisfied:
- if the holder has elected not to participate in the remarketing by
delivering treasury securities to secure its obligations under the
purchase contract, and in certain other circumstances, through the
application of the cash payments received on the treasury securities;
- through the early delivery of cash to the purchase contract agent in the
manner described in the purchase contracts; and
- if we are involved in a merger or consolidation prior to the stock
purchase date in which at least 30% of the consideration for our common
stock consists of cash or cash equivalents, through an early settlement
as described in the purchase contracts.
In addition, the purchase contracts, our related rights and obligations and
those of the holders of the units, including their obligations to purchase
common stock, will automatically terminate upon the occurrence of particular
events of our bankruptcy, insolvency or reorganization. Upon termination, the
capital securities or treasury securities pledged to secure the holder's
obligations under the purchase contract will be released and distributed to the
holder.
MATURITY
The capital securities do not have a stated maturity. However, the
debentures issued by us to the trust will mature on , 2005. Upon
redemption of the debentures on that date,
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the trust will redeem the capital securities at their stated liquidation amounts
plus any accrued and unpaid distributions.
We, as the holder of all the common securities of the trust, have the right
at any time to dissolve the trust. If we dissolve the trust, holders of capital
securities will receive, after satisfaction of liabilities of creditors of the
trust, debentures having a principal amount equal to the stated liquidation
amount of the capital securities they hold. In such event, the capital
securities will no longer be outstanding, and a normal unit that had included
capital securities would thereafter consist of a debenture with a principal
amount equal to the stated amount of the normal unit and the related purchase
contract.
GUARANTEE
MetLife, Inc. will irrevocably guarantee, on a senior and unsecured basis,
the payment in full of the following:
- distributions on the capital securities to the extent of available trust
funds; and
- the stated liquidation amount of the capital securities to the extent of
available trust funds.
The guarantee will be unsecured and will rank equally in right of payment
to all of our other senior unsecured debt.
LISTING
The units have been approved for listing on the New York Stock Exchange
under the symbol "MIU", subject to official notice of issuance.
ACCOUNTING TREATMENT
The financial statements of MetLife Capital Trust I will be consolidated in
our financial statements, with the capital securities shown on our consolidated
balance sheet under the caption "Company-obligated mandatorily redeemable
securities of subsidiary trust holding solely debentures of Parent". The
proceeds from the units will be allocated to the underlying purchase contracts
and capital securities based on their relative fair values at the offering date.
The forward contracts will be reported in additional paid-in capital and
subsequent changes in fair value will not be recognized. The notes to our
consolidated financial statements will disclose that the sole asset of the trust
will be the debentures. Distributions on the capital securities will be reported
as a charge to minority interest in our consolidated statements of income,
whether paid or accrued.
The purchase contracts are forward transactions in our common stock. Upon
settlement of a purchase contract, we will receive $50 on that purchase contract
and will issue the requisite number of shares of MetLife, Inc. common stock. The
$50 we receive will be credited to shareholders' equity and allocated between
the common stock and additional paid-in-capital accounts.
Before the issuance of shares of our common stock upon settlement of the
purchase contracts, the equity security units 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 earnings
per share for any period is deemed to be increased by the excess, if any, of the
number of shares issuable 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 that period, using the proceeds receivable upon settlement.
Consequently, we anticipate that 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 $ per share.
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DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of MetLife, Inc. consists of 3,000,000,000
shares of common stock and 200,000,000 shares of preferred stock.
COMMON STOCK
Holders of our common stock are entitled to receive such dividends as may
from time to time be declared by our board of directors out of funds legally
available therefor. See "Dividend Policy". Holders of our common stock are
entitled to one vote per share on all matters on which the holders of common
stock are entitled to vote and do not have any cumulative voting rights. Holders
of our common stock have no preemptive, conversion, redemption or sinking fund
rights. In the event of a liquidation, dissolution or winding up of MetLife,
Inc., holders of our common stock are entitled to share equally and ratably in
our assets, if any, remaining after the payment of all liabilities of MetLife,
Inc. and the liquidation preference of any outstanding class or series of
preferred stock. The outstanding shares of our common stock are, and the shares
of common stock issued by us in the demutualization, the initial public offering
and the private placements and upon settlement of the purchase contracts
comprising the equity security units, when issued, will be fully paid and
nonassessable. The rights and privileges of holders of our common stock are
subject to any series of preferred stock that we may issue in the future, as
described below.
PREFERRED STOCK
Our board of directors has the authority to issue preferred stock in one or
more series and to fix the number of shares constituting any such series and the
voting rights, designations, powers, preferences and qualifications, limitations
and restrictions of the shares constituting any series, without any further vote
or action by stockholders. The issuance of preferred stock by our board of
directors could adversely affect the rights of holders of common stock.
We will authorize shares of Series A Junior Participating Preferred Stock
for issuance in connection with our stockholder rights plan. See "-- Stockholder
Rights Plan".
CERTAIN PROVISIONS IN OUR CERTIFICATE OF INCORPORATION AND BY-LAWS AND IN
DELAWARE AND NEW YORK LAW
A number of provisions of our certificate of incorporation and by-laws deal
with matters of corporate governance and rights of stockholders. The following
discussion is a general summary of selected provisions of our certificate of
incorporation and by-laws and regulatory provisions that might be deemed to have
a potential "anti-takeover" effect. These provisions may have the effect of
discouraging a future takeover attempt which is not approved by our board of
directors but which individual stockholders may deem to be in their best
interests or in which stockholders may receive a substantial premium for their
shares over then current market prices. As a result, stockholders who might
desire to participate in such a transaction may not have an opportunity to do
so. Such provisions will also render the removal of the incumbent board of
directors or management more difficult. Some provisions of the Delaware General
Corporation Law and the New York Insurance Law may also have an antitakeover
effect. The following description of selected provisions of our certificate of
incorporation and by-laws and selected provisions of the Delaware General
Corporation Law and the New York Insurance Law is necessarily general and
reference should be made in each case to our certificate of incorporation and
by-laws, which are filed as exhibits to our registration statement of which this
prospectus forms a part, and to the provisions of those laws. See "Additional
Information" for information on where to obtain a copy of our certificate of
incorporation and by-laws.
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UNISSUED SHARES OF CAPITAL STOCK
COMMON STOCK. Based upon the assumptions described under "Pro Forma
Consolidated Financial Information", we currently plan to issue an estimated
179,000,000 shares of our authorized common stock in the initial public
offering, 73,000,000 shares of our common stock in the planned private
placements and 493,476,118 shares of common stock in the demutualization. This
information does not include shares of our common stock issuable upon the
settlement of the purchase contracts comprising equity security units offered
concurrently with this offering. The remaining shares of authorized and unissued
common stock will be available for future issuance without additional
stockholder approval. While the authorized but unissued shares are not designed
to deter or prevent a change of control, under some circumstances we could use
the authorized but unissued shares to create voting impediments or to frustrate
persons seeking to effect a takeover or otherwise gain control by, for example,
issuing those shares in private placements to purchasers who might side with our
board of directors in opposing a hostile takeover bid.
PREFERRED STOCK. Our board of directors has the authority to issue
preferred stock in one or more series and to fix the number of shares
constituting any such series and the designations, powers, preferences,
limitations and relative rights, including dividend rights, dividend rate,
voting rights, terms of redemption, redemption price or prices, conversion
rights and liquidation preferences of the shares constituting any series,
without any further vote or action by stockholders. The existence of authorized
but unissued preferred stock could reduce our attractiveness as a target for an
unsolicited takeover bid since we could, for example, issue shares of the
preferred stock to parties who might oppose such a takeover bid or issue shares
of the preferred stock containing terms the potential acquiror may find
unattractive. This may have the effect of delaying or preventing a change of
control, may discourage bids for our common stock at a premium over the market
price of our common stock, and may adversely affect the market price of, and the
voting and other rights of the holders of, our common stock. See "-- Stockholder
Rights Plan" for a description of our Series A Junior Participating Preferred
Stock.
CLASSIFIED BOARD OF DIRECTORS AND REMOVAL OF DIRECTORS
Pursuant to our certificate of incorporation, the directors are divided
into three classes, as nearly equal in number as possible, with each class
having a term of three years. The classes serve staggered terms, such that the
term of one class of directors expires each year. Any effort to obtain control
of our board of directors by causing the election of a majority of the board may
require more time than would be required without a staggered election structure.
Our certificate of incorporation also provides that, subject to the rights of
the holders of any class of preferred stock, directors may be removed only for
cause at a meeting of stockholders by a vote of a majority of the shares then
entitled to vote. This provision may have the effect of slowing or impeding a
change in membership of our board of directors that would effect a change of
control.
EXERCISE OF DUTIES BY BOARD OF DIRECTORS
Our certificate of incorporation provides that while the MetLife
Policyholder Trust is in existence, each MetLife, Inc. director is required, in
exercising his or her duties as a director, to take the interests of the trust
beneficiaries into account as if they were holders of the shares of common stock
held in the trust, except to the extent that any such director determines, based
on advice of counsel, that to do so would violate his or her duties as a
director under Delaware law.
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RESTRICTION ON MAXIMUM NUMBER OF DIRECTORS AND FILLING OF VACANCIES ON OUR
BOARD OF DIRECTORS
Pursuant to our by-laws and subject to the rights of the holders of any
class of preferred stock, the number of directors may be fixed and increased or
decreased from time to time by resolution of the board of directors, but the
board of directors will at no time consist of fewer than three directors.
Subject to the rights of the holders of any class of preferred stock,
stockholders can only remove a director for cause by a vote of a majority of the
shares entitled to vote, in which case the vacancy caused by such removal may be
filled at such meeting by the stockholders entitled to vote for the election of
the director so removed. Any vacancy on the board of directors, including a
vacancy resulting from an increase in the number of directors or resulting from
a removal for cause where the stockholders have not filled the vacancy, subject
to the rights of the holders of any class of preferred stock, may be filled by a
majority of the directors then in office, although less than a quorum. If the
vacancy is not so filled, it will be filled by the stockholders at the next
annual meeting of stockholders. The stockholders are not permitted to fill
vacancies between annual meetings, except where the vacancy resulted from a
removal for cause. These provisions give incumbent directors significant
authority that may have the effect of limiting the ability of stockholders to
effect a change in management.
ADVANCE NOTICE REQUIREMENTS FOR NOMINATION OF DIRECTORS AND PRESENTATION OF
NEW BUSINESS AT MEETINGS OF STOCKHOLDERS; ACTION BY WRITTEN CONSENT
Our by-laws provide for advance notice requirements for stockholder
proposals and nominations for director. In addition, pursuant to the provisions
of both the certificate of incorporation and the by-laws, action may not be
taken by written consent of stockholders; rather, any action taken by the
stockholders must be effected at a duly called meeting. Moreover, the
stockholders do not have the power to call a special meeting. Only the chief
executive officer or the secretary pursuant to a board resolution or, under some
circumstances, the president or a director who also is an officer, may call a
special meeting. These provisions make it more procedurally difficult for a
stockholder to place a proposal or nomination on the meeting agenda and prohibit
a stockholder from taking action without a meeting, and therefore may reduce the
likelihood that a stockholder will seek to take independent action to replace
directors or with respect to other matters that are not supported by management
for stockholder vote.
LIMITATIONS ON DIRECTOR LIABILITY
Our certificate of incorporation contains a provision that is designed to
limit the directors' liability to the extent permitted by the Delaware General
Corporation Law and any amendments to that law. Specifically, directors will not
be held liable to MetLife, Inc. or our stockholders for an act or omission in
their capacity as a director, except for liability as a result of:
- a breach of the duty of loyalty to MetLife, Inc. or our stockholders;
- acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- payment of an improper dividend or improper repurchase of our stock under
Section 174 of the Delaware General Corporation Law; or
- actions or omissions pursuant to which the director received an improper
personal benefit.
The principal effect of the limitation on liability provision is that a
stockholder is unable to prosecute an action for monetary damages against a
director of MetLife, Inc. unless the stockholder can demonstrate one of the
specified bases for liability. This provision, however, does not eliminate or
limit director liability arising in connection with causes of action brought
under the federal securities laws. Our certificate of incorporation also does
not eliminate the directors' duty of care. The inclusion of the limitation on
liability provision in the certificate may,
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however, discourage or deter stockholders or management from bringing a lawsuit
against directors for a breach of their fiduciary duties, even though such an
action, if successful, might otherwise have benefited MetLife, Inc. and its
stockholders. This provision should not affect the availability of equitable
remedies such as injunction or rescission based upon a director's breach of the
duty of care.
Our by-laws also provide that we indemnify our directors and officers to
the fullest extent permitted by Delaware law. We are required to indemnify our
directors and officers for all judgments, fines, settlements, legal fees and
other expenses reasonably incurred in connection with pending or threatened
legal proceedings because of the director's or officer's position with us or
another entity, including Metropolitan Life Insurance Company, that the director
or officer serves at our request, subject to certain conditions, and to advance
funds to our directors and officers to enable them to defend against such
proceedings. To receive indemnification, the director or officer must succeed in
the legal proceeding or act in good faith and in a manner reasonably believed to
be in or not opposed to the best interests of MetLife, Inc. and, with respect to
any criminal action or proceeding, in a manner he or she reasonably believed to
be lawful.
SUPERMAJORITY VOTING REQUIREMENT FOR AMENDMENT OF CERTAIN PROVISIONS OF THE
CERTIFICATE OF INCORPORATION AND BY-LAWS
Some of the provisions of our certificate of incorporation, including those
that authorize the board of directors to create stockholder rights plans, that
set forth the duties, election and exculpation from liability of directors and
that prohibit stockholders from actions by written consent, may not be amended,
altered, changed or repealed unless the amendment is approved by the vote of
holders of 75% of the then outstanding shares entitled to vote at an election of
directors. This requirement exceeds the majority vote of the outstanding stock
that would otherwise be required by the Delaware General Corporation Law for the
repeal or amendment of such provisions of the certificate of incorporation. Our
by-laws may be amended, altered or repealed by the board of directors or by the
vote of holders of 75% of the then outstanding shares entitled to vote in the
election of directors. These provisions make it more difficult for any person to
remove or amend any provisions that have an antitakeover effect.
BUSINESS COMBINATION STATUTE
In addition, as a Delaware corporation, MetLife, Inc. is subject to Section
203 of the Delaware General Corporation Law, unless it elects in its certificate
of incorporation not to be governed by the provisions of Section 203. We have
not made that election. Section 203 can affect the ability of an "interested
stockholder" of MetLife, Inc. to engage in certain business combinations,
including mergers, consolidations or acquisitions of additional shares of
MetLife, Inc., for a period of three years following the time that the
stockholder becomes an "interested stockholder". An "interested stockholder" is
defined to mean any person owning directly or indirectly 15% or more of the
outstanding voting stock of a corporation. The provisions of Section 203 are not
applicable in some circumstances, including those in which (1) the business
combination or transaction which results in the stockholder becoming an
"interested stockholder" is approved by the corporation's board of directors
prior to the time the stockholder becomes an "interested stockholder" or (2) the
"interested stockholder", upon consummation of such transaction, owns at least
85% of the voting stock of the corporation outstanding prior to such
transaction.
RESTRICTIONS ON ACQUISITIONS OF SECURITIES
Section 7312 of the New York Insurance Law provides that, for a period of
five years after the distribution of consideration pursuant to the plan of
reorganization is completed, no person may directly or indirectly offer to
acquire or acquire in any manner the beneficial ownership
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(defined as the power to vote or dispose of, or to direct the voting or
disposition of, a security) of 5% or more of any class of voting security (which
term includes our common stock) of MetLife, Inc. without the prior approval of
the New York Superintendent of Insurance. Pursuant to Section 7312, voting
securities acquired in excess of the 5% threshold without such prior approval
will be deemed non-voting.
The insurance laws and regulations of New York, the jurisdiction in which
our principal insurance subsidiary, Metropolitan Life Insurance Company, is
organized, may delay or impede a business combination involving us. In addition
to the limitations described in the immediately preceding paragraph, the New
York Insurance Law prohibits any person from acquiring control of MetLife, Inc.,
and thus indirect control of Metropolitan Life Insurance Company, without the
prior approval of the New York Superintendent of Insurance. That law presumes
that control exists where any person, directly or indirectly, owns, controls,
holds the power to vote or holds proxies representing 10% or more of our
outstanding voting stock, unless the New York Superintendent, upon application,
determines otherwise. Even persons who do not acquire beneficial ownership of
more than 10% of the outstanding shares of MetLife, Inc.'s common stock may be
deemed to have acquired such control, if the New York Superintendent determines
that such persons, directly or indirectly, exercise a controlling influence over
our management and policies. Therefore, any person seeking to acquire a
controlling interest in MetLife, Inc. would face regulatory obstacles which may
delay, deter or prevent an acquisition that stockholders might consider in their
best interests.
The insurance holding company law and other insurance laws of many states
also regulate changes of control (generally presumed upon acquisitions of 10% or
more of voting securities) of insurance holding companies, such as MetLife, Inc.
STOCKHOLDER RIGHTS PLAN
Our board of directors has adopted a stockholder rights plan under which
each outstanding share of our common stock issued between the date on which
MetLife, Inc. enters into the underwriting agreement for the initial public
offering and the distribution date (as described below) will be coupled with a
stockholder right. Initially, the stockholder rights will be attached to the
certificates representing outstanding shares of common stock, and no separate
rights certificates will be distributed. Each right will entitle the holder to
purchase one one-hundredth of a share of our Series A Junior Participating
Preferred Stock. Each one one-hundredth of a share of Series A Junior
Participating Preferred Stock will have economic and voting terms equivalent to
one share of MetLife, Inc.'s common stock. Until it is exercised, the right
itself will not entitle the holder thereof to any rights as a stockholder,
including the right to receive dividends or to vote at stockholder meetings. The
description and terms of the rights are set forth in a rights agreement ("Rights
Agreement") to be entered into between MetLife, Inc. and ChaseMellon Shareholder
Services, L.L.C., as rights agent. Although the material provisions of the
Rights Agreement have been accurately summarized, the statements below
concerning the Rights Agreement are not necessarily complete, and in each
instance reference is made to the form of Rights Agreement itself, a copy of
which has been filed as an exhibit to the Registration Statement of which this
prospectus forms a part. Each statement is qualified in its entirety by such
reference.
Stockholder rights are not exercisable until the distribution date, and
will expire at the close of business on the tenth anniversary of the date on
which the initial public offering price is determined, unless earlier redeemed
or exchanged by us. A distribution date would occur upon the earlier of:
- the tenth day after the first public announcement or communication to us
that a person or group of affiliated or associated persons (referred to
as an acquiring person) has
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acquired beneficial ownership of 10% or more of our outstanding common stock
(the date of such announcement or communication is referred to as the stock
acquisition time); or
- the tenth business day after the commencement or announcement of the
intention to commence a tender offer or exchange offer that would result
in a person or group becoming an acquiring person.
If any person becomes an acquiring person, each holder of a stockholder right
will be entitled to exercise the right and receive, instead of Series A Junior
Participating Preferred Stock, common stock (or, in certain circumstances, cash,
a reduction in purchase price, property or other securities of MetLife, Inc.)
having a value equal to two times the purchase price of the stockholder right.
All stockholder rights that are beneficially owned by an acquiring person or its
transferee will become null and void.
If at any time after a public announcement has been made or MetLife, Inc.
has received notice that a person has become an acquiring person, (1) MetLife,
Inc. is acquired in a merger or other business combination or (2) 50% or more of
MetLife, Inc.'s assets, cash flow or earning power is sold or transferred, each
holder of a stockholder right (except rights which previously have been voided
as set forth above) will have the right to receive, upon exercise, common stock
of the acquiring company having a value equal to two times the purchase price of
the right.
The purchase price payable, the number of one one-hundredths of a share of
Series A Junior Participating Preferred Stock or other securities or property
issuable upon exercise of rights and the number of rights outstanding, are
subject to adjustment from time to time to prevent dilution. With certain
exceptions, no adjustment in the purchase price or the number of shares of
Series A Junior Participating Preferred Stock issuable upon exercise of a
stockholder right will be required until the cumulative adjustment would require
an increase or decrease of at least one percent in the purchase price or number
of shares for which a right is exercisable.
At any time until the earlier of (1) the stock acquisition time or (2) the
final expiration date of the Rights Agreement, we may redeem all the stockholder
rights at a price of $0.01 per right. At any time after a person has become an
acquiring person and prior to the acquisition by such person of 50% or more of
the outstanding shares of our common stock, we may exchange the stockholder
rights, in whole or in part, at an exchange ratio of one share of common stock,
or one one-hundredth of a share of Series A Junior Participating Preferred Stock
(or of a share of a class or series of preferred stock having equivalent rights,
preferences and privileges), per right.
The stockholder rights plan is designed to protect stockholders in the
event of unsolicited offers to acquire MetLife, Inc. and other coercive takeover
tactics which, in the opinion of its board of directors, could impair its
ability to represent stockholder interests. The provisions of the stockholder
rights plan may render an unsolicited takeover more difficult or less likely to
occur or may prevent such a takeover, even though such takeover may offer our
stockholders the opportunity to sell their stock at a price above the prevailing
market rate and may be favored by a majority of our stockholders.
METLIFE POLICYHOLDER TRUST
Under the plan of reorganization, we will establish the MetLife
Policyholder Trust to hold the shares of common stock allocated to eligible
policyholders under the plan. 493,476,118 shares of common stock, or 66.2% of
the total number of shares expected to be outstanding based upon an initial
public offering price of $14.00 per share, will be issued to the trust on the
effective date of the plan, to be held on behalf of approximately nine million
eligible policyholders. Because of the number of shares held by the trust and
the voting provisions of the trust, the trust may affect the outcome of matters
brought to a stockholder vote.
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The trustee will generally vote all of the shares of common stock held in
the trust in accordance with the recommendations given by our board of directors
to our stockholders or, if the board gives no such recommendation, as directed
by the board, except on votes regarding certain fundamental corporate actions.
As a result of the voting provisions of the trust, our board of directors will
effectively be able to control votes on all matters submitted to a vote of
stockholders, excluding those fundamental corporate actions described below, so
long as the trust holds a substantial number of shares of our common stock.
If the vote relates to fundamental corporate actions specified in the
trust, the trustee will solicit instructions from the beneficiaries and vote all
shares held in the trust in proportion to the instructions it receives, which
would give disproportionate weight to the instructions actually given by trust
beneficiaries. These actions include:
- an election or removal of directors in which a stockholder has properly
nominated one or more candidates in opposition to a nominee or nominees
of our board of directors or a vote on a stockholder's proposal to oppose
a board nominee for director, remove a director for cause or fill a
vacancy caused by the removal of a director by stockholders, subject to
certain conditions;
- a merger or consolidation, a sale, lease or exchange of all or
substantially all of the assets, or a recapitalization or dissolution of,
MetLife, Inc., in each case requiring a vote of our stockholders under
applicable Delaware law;
- any transaction that would result in an exchange or conversion of shares
of common stock held by the trust for cash, securities or other property;
- issuances of common stock during the first year after the effective date
of the plan at a price materially less than the then prevailing market
price of our common stock, if a vote of stockholders is required to
approve the issuance under Delaware law, other than issuances in an
underwritten public offering or pursuant to an employee benefit plan;
- for the first year after the effective date of the plan, any matter that
requires a supermajority vote of stockholders under Delaware law or our
certificate of incorporation or by-laws, and any amendment to our
certificate of incorporation or by-laws that is submitted for approval to
our stockholders; and
- any proposal requiring our board of directors to amend or redeem the
rights under our stockholder rights plan, other than a proposal with
respect to which we have received advice of nationally-recognized legal
counsel to the effect that the proposal is not a proper subject for
stockholder action under Delaware law.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is ChaseMellon
Shareholder Services, L.L.C.
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UNDERWRITING
Credit Suisse First Boston Corporation, Goldman, Sachs & Co., Banc of
America Securities LLC, Donaldson, Lufkin and Jenrette Securities Corporation,
Lehman Brothers Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Morgan
Stanley & Co. Incorporated, Salomon Smith Barney Inc., Conning & Company,
Fox-Pitt, Kelton Inc., J.P. Morgan Securities Inc., Santander Investment
Securities Inc., Utendahl Capital Partners, L.P. and Warburg Dillon Read LLC are
acting as representatives for the U.S. underwriters named below, with respect to
the shares of common stock being offered in the U.S. offering.
<TABLE>
<CAPTION>
U.S. UNDERWRITERS NUMBER OF SHARES
- ----------------- ----------------
<S> <C>
Credit Suisse First Boston Corporation......................
Goldman, Sachs & Co. .......................................
Banc of America Securities LLC..............................
Donaldson, Lufkin and Jenrette Securities Corporation.......
Lehman Brothers Inc. .......................................
Merrill Lynch, Pierce, Fenner & Smith Incorporated..........
Morgan Stanley & Co. Incorporated...........................
Salomon Smith Barney Inc. ..................................
Conning & Company...........................................
Fox-Pitt, Kelton Inc. ......................................
J.P. Morgan Securities Inc. ................................
Santander Investment Securities Inc. .......................
Utendahl Capital Partners, L.P. ............................
Warburg Dillon Read LLC.....................................
Total....................................................... 152,150,000
</TABLE>
Credit Suisse First Boston (Europe) Limited, Goldman Sachs International, Bank
of America International Limited, Donaldson, Lufkin and Jenrette International,
Lehman Brothers International (Europe), Merrill Lynch International, Morgan
Stanley & Co. International Limited, Salomon Brothers International Limited,
BSCH Bolsa, Sociedad de Valores, S.A., Credit Lyonnais Securities, Fox-Pitt,
Kelton N.V., J.P. Morgan Securities Ltd. and UBS AG, acting through its division
Warburg Dillon Read are acting as representatives for the international
underwriters named below, with respect to the shares being offered in the
international offering.
<TABLE>
<CAPTION>
INTERNATIONAL UNDERWRITERS NUMBER OF SHARES
- -------------------------- ----------------
<S> <C>
Credit Suisse First Boston (Europe) Limited.................
Goldman Sachs International.................................
Bank of America International Limited.......................
Donaldson, Lufkin and Jenrette International................
Lehman Brothers International (Europe)......................
Merrill Lynch International.................................
Morgan Stanley & Co. International Limited..................
Salomon Brothers International Limited......................
BSCH Bolsa, Sociedad de Valores, S.A. ......................
Credit Lyonnais Securities..................................
Fox-Pitt, Kelton N.V. ......................................
J.P. Morgan Securities Ltd. ................................
UBS AG, acting through its division, Warburg Dillon Read....
Total....................................................... 26,850,000
</TABLE>
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Each of the U.S. and international underwriters have agreed to purchase the
number of shares of common stock set forth above opposite its name. Their
obligations are subject to certain conditions to be contained in a U.S.
underwriting agreement dated , 2000, and an international underwriting
agreement dated , 2000.
The terms and conditions of both the U.S. offering and the international
offering are the same and the sale of shares of common stock in both offerings
are conditioned on each other. Each of the offerings is conditioned on the
consummation of the demutualization, the consummation of the offering of the
equity security units and the consummation of the private placements. References
in this prospectus to the "underwriters" refer to both the U.S. underwriters and
the international underwriters.
If the U.S. underwriters sell more shares than the total number set forth
in the applicable table above, the U.S. underwriters have an option to buy up to
an additional 22,822,500 shares of common stock from MetLife to cover such
sales. They may exercise that option for 30 days following the date of this
offering. If any shares are purchased pursuant to this option, the U.S.
underwriters will severally purchase shares in approximately the same proportion
as set forth in the applicable table above. We have granted the international
underwriters a similar option to purchase up to an additional 4,027,500 shares
of common stock.
The following table summarizes the compensation and estimated expenses we
will pay.
<TABLE>
<CAPTION>
PER SHARE TOTAL
-------------------------------- --------------------------------
WITHOUT WITH WITHOUT WITH
OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Underwriting Discounts paid by
us............................. $ $ $ $
Expenses payable by us........... $ $ $ $
</TABLE>
Shares sold by the underwriters will be offered to the public at the
initial public offering price set forth on the cover page of this prospectus.
Any shares sold by the underwriters to securities dealers may be sold at a
discount of up to $ per share from the initial public offering price. Any
such securities dealers may resell any shares purchased from the underwriters to
certain other brokers or dealers at a discount of up to $ per share from the
initial public offering price. After the initial public offering, the
representatives of the underwriters may change the offering price and the other
selling terms.
The underwriters for both of the offerings have entered into an agreement
in which they agree to restrictions on where and to whom they and any dealer
purchasing from them may offer shares of common stock as a part of the
distribution of the shares. The underwriters also have agreed that they may sell
shares of common stock among each of the underwriting groups.
In this respect, each U.S. underwriter has agreed that, as part of its
distribution of the common stock and subject to permitted exceptions, it has not
offered or sold, and will not offer or sell, directly or indirectly, any shares
of common stock or distribute any prospectus relating to the common stock to any
person outside the United States and Canada or to any other dealer who does not
so agree. Each international underwriter has agreed that, as part of its
distribution of the common stock and subject to permitted exceptions, it has not
offered, and will not offer or sell, directly or indirectly, any shares of
common stock or distribute any prospectus relating to the common stock in the
United States or Canada or to any other dealer who does not so agree. The
foregoing limitations do not apply to stabilization transactions or to
transactions between the U.S. and international underwriters. As used herein,
"United States" means the United States of America (including the States and the
District of Columbia), its territories, possessions and other areas subject to
its jurisdiction, "Canada" means Canada, its provinces, territories, possessions
and other areas subject to its jurisdiction, and an offer or sale shall be in
the United States or Canada if it is made to (i) any individual resident in the
United States or Canada or (ii) any corporation, partnership, pension,
profit-sharing or other trust or entity (including any such entity
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acting as an investment adviser with discretionary authority) whose office most
directly involved with the purchase is located in the United States or Canada.
We agreed that during the period beginning from , 2000 and
continuing to and including the date 180 days after the date of this prospectus,
we will not offer, sell, contract to sell or otherwise dispose of, except as
provided under the U.S. and international underwriting agreements and except for
the issuance of common stock pursuant to the private placements and to the
MetLife Policyholder Trust pursuant to the plan of reorganization, any common
stock or any of our securities that are substantially similar to our common
stock, including but not limited to any securities that are convertible into or
exchangeable for, or represent the right to receive, shares of our common stock
or any such substantially similar securities (other than the equity security
units to be offered and sold concurrently with the initial public offering and
other than pursuant to employee stock option plans existing on the date of the
U.S. and international underwriting agreements), without the prior written
consent of Credit Suisse First Boston Corporation and Goldman, Sachs & Co. In
addition, Banco Santander Central Hispano, S.A. and Credit Suisse Group have
agreed in principle with us that they will not, without our prior written
consent, sell the shares of our common stock that they or their affiliates
purchase in the private placements for at least one year after the initial
public offering.
Prior to the offerings, there has been no public market for our common
stock. The initial public offering price will be negotiated among MetLife, Inc.,
Metropolitan Life Insurance Company and the representatives of the underwriters.
Among the factors to be considered in determining the initial public offering
price of our common stock, in addition to prevailing market conditions, will be
our historical performance, estimates of our business potential and earnings
prospects, an assessment of our management and the consideration of the above
factors in relation to market valuation of companies in related businesses. In
addition, the final terms of the offering, including the initial public offering
price, will be subject to the approval of the New York Superintendent of
Insurance.
Our common stock has been approved for listing on the New York Stock
Exchange under the symbol "MET", subject to official notice of issuance. In
order to meet the requirements for listing our common stock on the NYSE, the
underwriters have undertaken to sell lots of 100 or more shares to a minimum of
2,000 beneficial holders.
The underwriters may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation M
under the Securities Exchange Act of 1934 (the "Exchange Act").
- Over-allotment involves syndicate sales in excess of the offering size,
which creates a syndicate short position.
- Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.
- Syndicate covering transactions involve purchases of the common stock in
the open market after the distribution has been completed in order to
cover syndicate short positions.
- Penalty bids permit the underwriters to reclaim a selling concession from
a syndicate member when the common stock originally sold by such
syndicate member is purchased in a stabilizing transaction or a syndicate
covering transaction to cover syndicate short positions.
These stabilizing transactions, syndicate covering transactions and penalty bids
may cause the price of our common stock to be higher than it would otherwise be
in the absence of such transactions. These transactions may be effected on the
New York Stock Exchange, in the over-the-counter market or otherwise, and if
continued, may be discontinued at any time.
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Each of the underwriters severally represents and agrees that:
- It has not offered or sold and prior to the date six months after the
date of issuance of the common stock will not offer or sell any common
stock to persons in the United Kingdom, except to persons whose ordinary
activities involve them in acquiring, holding, managing or disposing of
investments (as principal or agent) for the purposes of their businesses
or otherwise in circumstances which have not resulted and will not result
in an offer to the public in the United Kingdom within the meaning of the
Public Offers of Securities Regulations 1995;
- It has complied, and will comply with, all applicable provisions of the
Financial Services Act of 1986 with respect to anything done by it in
relation to the common stock in, from or otherwise involving the United
Kingdom; and
- It has only issued or passed on and will only issue and pass on in the
United Kingdom any document received by it in connection with the issue
of the common stock to a person who is of a kind described in Article
11(3) of the Financial Services Act 1986 (Investment Advertisements)
(Exemptions) Order 1996, as amended, or is a person to whom such document
may otherwise lawfully be issued or passed on.
The underwriters may not confirm sales to discretionary accounts without
the prior written approval of the customer.
A prospectus in electronic format may be made available on the websites
maintained by one or more of the underwriters participating in this offering.
The representatives may agree to allocate a number of shares to underwriters for
sale to their online brokerage account holders. Internet distributions will be
allocated by the underwriters that will make internet distributions on the same
basis as other allocations.
Other than the prospectus in electronic format, the information contained
on any underwriter's website and any information contained on any other website
maintained by an underwriter is not part of this prospectus or the registration
statement of which this prospectus forms a part, have not been approved or
endorsed by us or any underwriter in its capacity as an underwriter and should
not be relied upon by investors.
MetLife, Inc. and Metropolitan Life Insurance Company have agreed to
indemnify the several underwriters against liabilities under the Securities Act
of 1933, as amended, or to contribute to payments that the underwriters may be
required to make in respect thereof.
Certain of the underwriters or their affiliates have provided from time to
time, and expect to provide in the future, investment banking, financial
advisory and other related services to us and our affiliates, for which they
have received and may continue to receive customary fees and commissions. We and
the underwriters and our respective affiliates, also participate together from
time to time in investing activities. The joint-lead managing underwriters,
Credit Suisse First Boston Corporation and Goldman, Sachs & Co., are currently
acting as financial advisors to us in connection with the demutualization. In
addition, we have engaged Merrill Lynch & Co. to render a fairness opinion to
our board of directors in connection with the demutualization. In this regard,
we have agreed to indemnify each of them against certain liabilities, including
liabilities under the Securities Act. In addition, Credit Suisse First Boston
Corporation and Goldman, Sachs & Co. may, as principal or agent, assist in the
sale of shares of our common stock on behalf of large trust beneficiaries who
elect to sell shares (if certain volume limitations are exceeded) under the
purchase and sale program established by the plan of reorganization.
Other relationships we have with certain underwriters include the
following:
- Some of our directors are members of the boards of directors of certain
of the underwriters or their affiliates. See "Management" for a
description of these directorships.
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- We own approximately 3% or less of the outstanding common stock of
certain subsidiaries of Banco Santander Central Hispano, S.A. and Credit
Suisse Group, certain of which are co-managers of the initial public
offering or the offering of the equity security units. We operate in
Spain and Portugal through joint venture arrangements with Banco
Santander Central Hispano, S.A., the indirect parent of Santander
Investment Securities Inc. and BSCH Bolsa, Sociedad de Valores, S.A.,
which are acting as co-managers in the initial public offering. One of
our officers is a member of the investment committee of Credit Suisse
First Boston International Equity Partners, L.P. We are a limited partner
of certain limited partnerships affiliated with Credit Suisse First
Boston Corporation.
- Our subsidiary Conning & Company will act as a co-manager of the initial
public offering.
- Certain of the underwriters also maintain arrangements with us relating
to the lease of office buildings.
In addition to the foregoing, Banco Santander Central Hispano, S.A. and
Credit Suisse Group have agreed in principle that they or their respective
affiliates will purchase from us in the aggregate not less than 14,900,000
shares, nor more than 73,000,000 shares, of our common stock in private
placements that will close concurrently with the initial public offering and the
offering of equity security units. We will determine at the time of the pricing
of the initial public offering whether to sell any shares to these purchasers in
excess of the minimum amount. Any shares in excess of the minimum amount that we
determine not to sell to these investors may increase the number of shares
available for sale to the general public. The maximum number of shares that each
investor, individually, and the investors, in the aggregate, could be obligated
to purchase in the private placements represents approximately 4.9% and 9.8%,
respectively, of the total number of shares of our common stock to be
outstanding upon consummation of the initial public offering and the private
placements. The investors would purchase these shares directly from us at the
initial public offering price. We expect each of these purchasers to enter into
an agreement with us that provides that any shares purchased by it will be
restricted from sale or transfer for a period of one year after the initial
public offering, except for sales to affiliates or pursuant to a tender or
exchange offer recommended by our board of directors, and that it will not,
without our consent, increase its ownership of voting securities above 4.9% of
the outstanding shares, seek to obtain board representation, solicit proxies in
opposition to management or take certain other actions for five years.
In connection with this offering, Goldman, Sachs & Co. has agreed to act as
a "qualified independent underwriter" under Rule 2720 of the NASD Conduct Rules
and the initial public offering price will not be higher than the price
recommended by Goldman, Sachs & Co. In its role as qualified independent
underwriter, Goldman, Sachs & Co. has participated in due diligence
investigations and in the preparation of this prospectus and the registration
statement of which this prospectus forms a part.
Rule 312(g) of the New York Stock Exchange effectively prohibits our
subsidiary, Conning & Company, and its affiliates, following the initial public
offering, from effecting any transaction (except on an unsolicited basis) for
the account of any customer in, or making any recommendation with respect to,
our common stock.
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VALIDITY OF COMMON STOCK
The validity of the shares of common stock offered hereby will be passed
upon for MetLife, Inc. by Debevoise & Plimpton, and for the underwriters by
Skadden, Arps, Slate, Meagher & Flom LLP. Helene L. Kaplan, a director of
MetLife, Inc. and Metropolitan Life Insurance Company and the Chairman of the
Nominating and Compensation Committee of Metropolitan Life Insurance Company in
1999, is of counsel to Skadden, Arps, Slate, Meagher & Flom LLP. Skadden, Arps,
Slate, Meagher & Flom LLP has in the past performed, and continues to perform,
legal services for Metropolitan Life Insurance Company and our affiliates.
EXPERTS
The consolidated financial statements of Metropolitan Life Insurance
Company and its subsidiaries at December 31, 1999 and 1998, and for each of the
three years in the period ended December 31, 1999 and the balance sheet of
MetLife, Inc. as of February 11, 2000 included in this prospectus have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
reports appearing herein and have been so included in reliance upon the reports
of such firm given upon their authority as experts in accounting and auditing.
We have retained PricewaterhouseCoopers LLP to advise us in connection with
actuarial matters involved in the development of the plan of reorganization and
the establishment and operation of the closed block. The opinion of Kenneth
Beck, a consulting actuary associated with PricewaterhouseCoopers LLP, dated
November 16, 1999, which is subject to the limitations described within the
opinion, is included as Annex A of this prospectus in reliance upon his
authority as an expert in actuarial matters generally and in the application of
actuarial concepts to insurance matters.
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a Registration
Statement on Form S-1 (together with all amendments, exhibits, schedules and
supplements thereto, "Registration Statement"), under the Securities Act of
1933, as amended and the rules and regulations thereunder, for the registration
of the common stock offered hereby. This prospectus, which forms a part of the
Registration Statement, does not contain all of the information set forth in the
Registration Statement, certain parts of which have been omitted as permitted by
rules and regulations of the Securities and Exchange Commission. For further
information with respect to MetLife, Inc. and the common stock offered hereby,
please see the Registration Statement. Statements made in this prospectus as to
the contents of any contract, agreement or other document referred to including,
but not limited to, the certificate of incorporation and by-laws of MetLife,
Inc., are not necessarily complete. With respect to statements made as to each
such contract, agreement or other document filed as an exhibit to the
Registration Statement, please refer to the exhibit for a more complete
description of the matter involved, and each such statement will be deemed
qualified in its entirety by such reference. The Registration Statement may be
inspected and copied at the Securities and Exchange Commission's Public
Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. The public may
obtain information on the operation of the Public Reference Room by calling the
Securities and Exchange Commission at 1-800-SEC-0330. The Securities and
Exchange Commission maintains an Internet site, http://www.sec.gov, that
contains reports, proxy and information statements and other information
regarding issuers that file electronically with the Securities and Exchange
Commission.
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As a result of this initial public offering of common stock and the
offering of equity security units, we will become subject to the informational
requirements of the Securities Exchange Act of 1934, as amended. We will fulfill
our obligations with respect to such requirements by filing periodic reports and
other information with the Securities and Exchange Commission. We intend to
furnish our stockholders with annual reports containing consolidated financial
statements audited by an independent public accounting firm.
Our common stock has been approved for listing on the New York Stock
Exchange, subject to official notice of issuance. Upon such listing, copies of
the Registration Statement, including all exhibits thereto, and periodic
reports, proxy statements and other information will be available for inspection
at the offices of the New York Stock Exchange, Inc., 20 Broad Street, New York,
New York 10005.
212
<PAGE> 215
GLOSSARY
The following Glossary includes definitions of certain insurance terms.
Each term defined in this Glossary is printed in boldface type the first time it
appears in this prospectus.
ACCOUNT VALUE.............. The amount of money held under a contract in either
a general account or separate account of an insurer
to support policyholder liabilities.
ADMITTED ASSETS............ Assets which are included in an insurer's statutory
financial statements to measure POLICYHOLDER
SURPLUS as determined in accordance with state
insurance laws.
ANNUAL STATEMENT........... The report filed annually with state insurance
regulatory authorities that contains financial and
other information on a calendar year basis and is
prepared in accordance with statutory accounting
practices. The form of the Annual Statement is
prescribed by the NAIC.
ANNUITY.................... A contract that pays or permits the election of a
periodic income benefit for the life of a person,
the lives of two or more persons for a specific
period of time, or a combination thereof.
CASH VALUE................. The amount of cash available to a policyholder on
the surrender of or withdrawal from a life
insurance policy or annuity contract.
CATASTROPHE................ An event that produces pretax losses before
reinsurance in excess of $25 million involving
multiple first-party policyholders. Common
catastrophe events include hurricanes, earthquakes,
tornadoes, wind and hail storms, fires and
explosions.
CEDE, CEDED or CEDING...... The reinsurance of all or a portion of an insurer's
risk with another insurer.
COMBINED RATIO............. A property and casualty term, meaning the sum of
the loss ratio and the expense ratio. A combined
ratio below 100 generally indicates profitable
underwriting. A combined ratio over 100 generally
indicates unprofitable underwriting.
DIVIDEND SCALES............ The actuarial formulas used by life insurers to
determine amounts payable as dividends on
participating policies based on experience factors
relating to, among other things, investment
results, mortality, lapse rates, expenses, premium
taxes and policy loan interest and utilization
rates.
EXPENSE RATIO.............. The ratio of a property and casualty insurer's
operating expenses to net premiums earned.
FIRST-YEAR PREMIUMS AND
DEPOSITS................. The amount of premiums on insurance policies sold
plus the amount of deposits on variable and
universal life policies sold or additional premiums
or deposits from conversions received over the
specified period. This figure does not reflect
policies that lapse in their first year.
GENERAL ACCOUNT............ The aggregate of a life insurer's assets, other
than those allocated to separate accounts.
GUARANTEED INTEREST
CONTRACTS (GICS)......... Group annuity contracts that guarantee a return on
principal and a stated interest rate for a
specified period of time.
IN FORCE................... A policy that is shown on records to be in force on
a given date and that has not matured by death or
otherwise or been surrendered or otherwise
terminated.
G-1
<PAGE> 216
LOSS ADJUSTMENT EXPENSES
(LAE).................... The expenses of settling property and casualty
claims, including legal and other fees and general
expenses.
LOSS RATIO................. The ratio of incurred losses and LAE to earned
premiums.
MORBIDITY.................. Incidence rates and duration of disability used in
pricing and computing liabilities for disability
insurance. Morbidity varies by such parameters as
age, gender and duration since disability.
MORTALITY.................. Rates of death, varying by such parameters as age,
gender and health, used in pricing and computing
liabilities for future policyholder benefits for
life and annuity products, which contain
significant mortality risk.
NATIONAL ASSOCIATION OF
INSURANCE COMMISSIONERS
(NAIC)................... The National Association of Insurance
Commissioners, a national association of state
insurance regulators that sets guidelines for
statutory policies, procedures and reporting for
insurers.
NET SALES CREDITS.......... An industry measure of agent productivity. Net
sales credits are the annualized first-year
commissions, which vary by product, paid to agents
and other sales representatives.
NON-ADMITTED ASSETS........ Certain assets or portions thereof which are not
permitted to be reported as ADMITTED ASSETS in an
insurer's Annual Statement. As a result, certain
assets which normally would be accorded value in
the financial statements of non-insurance
corporations are accorded no value and thus reduce
the reported statutory policyholder surplus of the
insurer.
PARTICIPATING POLICY....... Policies or annuity contracts under which the owner
is eligible to share in the divisible surplus of
the insurer through policyholder dividends, whether
or not such dividends are currently payable. For
purposes of the plan, participating policies also
include policies or annuity contracts that are not
by their terms non-participating and certain
supplementary contracts.
PERSISTENCY................ Measurement of the percentage of insurance policies
remaining in force from year to year, as measured
by premiums.
POLICYHOLDER SURPLUS....... The excess of admitted assets over liabilities, in
each case under statutory accounting practices.
PREMIUMS................... Payments and considerations received on insurance
policies issued or reinsured by an insurer. Under
GAAP, premiums on universal life and other
investment-type contracts are not accounted for as
revenues.
RISK-BASED CAPITAL (RBC)... Risk-based capital, which is the regulatory
targeted surplus level based on the relationship of
statutory capital and surplus, with certain
adjustments, to the sum of stated percentages of
each element of a specified list of company risk
exposures.
REINSURANCE................ The acceptance by one or more insurers of a portion
of risk underwritten by another insurer that has
directly written the coverage in return for a
portion of the premium related thereto. The legal
rights of the insured generally are not affected by
the reinsurance transaction, and the insurer
issuing the insurance contract remains liable to
the insured for payment of policy benefits.
G-2
<PAGE> 217
SEPARATE ACCOUNTS.......... Investment accounts maintained by an insurer to
which funds have been allocated for certain
policies under provisions of relevant state
insurance laws. The investments in each separate
account are maintained separately from those in
other separate accounts and an insurer's general
account and generally are not subject to the
general liabilities of the insurer. The investment
results of the separate account assets generally
pass through to the separate account policyholders
and contractholders, less management fees, so that
an insurer bears limited or no investment risk on
such assets.
STATUTORY ACCOUNTING
PRACTICES................ Those accounting practices prescribed or permitted
by an insurer's domiciliary state insurance
regulator for purposes of financial reporting to
the insurance regulator.
STATUTORY RESERVES......... Monetary amounts established by state insurance law
that an insurer must have available to provide for
future obligations with respect to all policies.
Statutory reserves are liabilities on the balance
sheet of financial statements prepared in
conformity with statutory accounting practices.
STATUTORY SURPLUS.......... The excess of admitted assets over statutory
liabilities as shown on an insurer's statutory
financial statements.
SURRENDER CHARGE........... The fee charged to a policyholder when a life
insurance policy or annuity is surrendered for its
cash value prior to the end of the surrender charge
period. Such charge is intended to recover all or a
portion of policy acquisition costs and act as a
deterrent to early surrender. Surrender charges
typically decrease over a set period of time as a
percentage of the ACCOUNT VALUE.
UNDERWRITING............... The process of examining, accepting or rejecting
insurance risks, and classifying those accepted, in
order to charge an appropriate premium for each
accepted risk.
G-3
<PAGE> 218
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
METLIFE, INC.
Independent Auditors' Report................................ F-2
Balance Sheet at February 11, 2000.......................... F-3
Notes to Balance Sheet...................................... F-4
METROPOLITAN LIFE INSURANCE COMPANY
Independent Auditors' Report................................ F-7
Consolidated Statements of Income for the years ended
December 31, 1999, 1998 and 1997.......................... F-8
Consolidated Balance Sheets at December 31, 1999 and 1998... F-9
Consolidated Statements of Equity for the years ended
December 31, 1999, 1998 and 1997.......................... F-10
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997.......................... F-11
Notes to Consolidated Financial Statements.................. F-12
</TABLE>
F-1
<PAGE> 219
INDEPENDENT AUDITORS' REPORT
The Board of Directors of MetLife, Inc.:
We have audited the accompanying balance sheet of MetLife, Inc. (the
"Company") as of February 11, 2000. This financial statement is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, such balance sheet presents fairly, in all material
respects, the financial position of MetLife, Inc. at February 11, 2000 in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
New York, New York
February 11, 2000
F-2
<PAGE> 220
METLIFE, INC.
BALANCE SHEET
FEBRUARY 11, 2000
<TABLE>
<S> <C>
ASSETS
Cash and cash equivalents................................. $100
====
EQUITY
Preferred stock, par value $.01 per share; 200,000,000
shares authorized; none issued......................... $ --
Series A Junior Participating Preferred Stock............. --
Common stock, par value $.01 per share; 3,000,000,000
shares authorized; 100 shares issued and outstanding... 1
Additional paid-in capital................................ 99
----
$100
====
</TABLE>
See accompanying notes to balance sheet.
F-3
<PAGE> 221
METLIFE, INC.
NOTES TO BALANCE SHEET
1. BUSINESS
MetLife, Inc. was incorporated on August 10, 1999, under the laws of
Delaware and is a wholly-owned subsidiary of Metropolitan Life Insurance Company
("Metropolitan Life") for the purpose of becoming the parent holding company of
Metropolitan Life under a plan of reorganization, as amended (the "plan of
demutualization"), whereby Metropolitan Life will convert from a mutual life
insurance company to a stock life insurance company.
MetLife, Inc. has had no operations since its formation. The only cash
transaction has been the receipt of $100 in connection with the issuance of 100
shares of common stock to Metropolitan Life.
2. PLAN OF REORGANIZATION
On September 28, 1999, the board of directors of Metropolitan Life adopted,
pursuant to the New York Insurance Law, a plan of reorganization, and
subsequently adopted amendments to the plan, pursuant to which Metropolitan Life
proposes to convert from a mutual life insurance company to a stock life
insurance company and become a wholly-owned subsidiary of MetLife, Inc. The plan
was approved by Metropolitan Life's voting policyholders on February 7, 2000.
The plan will become effective at such time as the New York Superintendent of
Insurance ("Superintendent") approves it based on finding, among other things,
that the plan is fair and equitable to policyholders. The plan requires an
initial public offering of common stock and permits other capital raising
transactions on the effective date of the plan.
3. DIVIDEND RESTRICTIONS
Assuming the plan of demutualization becomes effective, MetLife, Inc.'s
ability to meet its cash requirements and pay dividends depends on the receipt
of dividends and other payments from Metropolitan Life. Metropolitan Life will
be restricted as to the amounts it may pay as dividends to MetLife, Inc. Under
the New York Insurance Law, the Superintendent has broad discretion to determine
whether the financial condition of a stock life insurance company would support
the payment of dividends to its shareholders. The New York Insurance Department
has established informal guidelines for the Superintendent's determination which
focus upon, among other things, the overall financial condition and
profitability of the insurer under statutory accounting practices.
4. STOCK INCENTIVE PLAN
On October 20, 1999, MetLife, Inc. adopted the MetLife, Inc. 2000 stock
incentive plan (the "plan"). Under the plan, options granted may be either
non-qualified stock options or incentive stock options qualifying under the
Internal Revenue Code of 1986, as amended. The maximum number of shares issuable
under the plan is equal to 5% of the shares outstanding immediately after the
effective date of the plan of reorganization, reduced by the shares issued
pursuant to options granted under the MetLife, Inc. 2000 directors stock plan.
The maximum number of shares which may be subject to awards under the plan may
not exceed 60% of the shares available under the plan prior to the second
anniversary of the effective date of the plan of reorganization or 80% of the
shares available under the plan prior to the third anniversary of the effective
date of the plan of reorganization. No participant in the plan may be granted,
during any five-year period, options in respect of more than 5% of the shares
available for issuance under the plan. The shares to be issued under the plan
may be authorized, but unissued shares or treasury shares. The exercise price
per share of common stock subject to either a non-qualified stock option or an
incentive stock option will not be less than the fair market value of such
F-4
<PAGE> 222
METLIFE, INC.
NOTES TO BALANCE SHEET -- (CONTINUED)
shares on the date of grant. Upon the occurrence of certain events that affect
the capitalization of MetLife, Inc., appropriate adjustments will be made in the
number of shares that may be issued under the plan in the future and in the
number of shares and the exercise price under outstanding grants made before the
event. If any grant is for any reason canceled, terminated or otherwise settled
without the issuance of some or all the shares of common stock subject to the
grant, such shares will be available for future grants. At February 11, 2000,
there were no options granted or outstanding relating to the plan.
5. DIRECTORS STOCK PLAN
On October 20, 1999, MetLife, Inc. also adopted the MetLife, Inc. 2000
directors stock plan (the "director's plan"). Under the director's plan, up to
one-half of an outside director's retainer and attendance fees can be paid in
common stock. The director's plan also provides that, with board approval,
outside directors can be granted non-qualified stock options to purchase shares
of MetLife, Inc. common stock at a price no less than the fair market value of a
share of common stock on the grant date of the stock option. Up to a maximum of
500,000 shares may be issued under the director's plan in lieu of fees and no
more than .05% of the shares outstanding immediately after the effective date of
the plan of reorganization may be issued with respect to stock options under the
directors plan. Common stock paid in lieu of fees under the director's plan may
not be sold prior to the second anniversary of the effective date of the plan of
reorganization. Stock options granted under the director's plan will generally
be exercisable on the date of grant, but in no event exercised before the second
anniversary of the effective date of the plan of reorganization. Outside
directors may elect to receive all or a portion of their retainer and attendance
fees that would otherwise be paid in cash with respect to services rendered
after the second anniversary of the effective date of the plan of reorganization
in the form of common stock. In addition, an outside director may elect to defer
receipt of any shares issuable under the terms of the directors plan in lieu of
their retainer and attendance fees and any dividends payable on the shares,
until he or she is no longer a director of MetLife, Inc. At February 11, 2000
there were no options granted or outstanding relating to this plan.
6. STOCKHOLDER RIGHTS PLAN
On September 29, 1999, MetLife, Inc. also approved a stockholder rights
plan (the "rights plan"). Under the rights plan, each outstanding share of
common stock issued between the entry into the underwriting agreement for the
initial public offering and the distribution date (as defined in the rights
plan) will be coupled with a stockholder right. Each right will entitle the
holder to purchase one one-hundredth of a share of Series A Junior Participating
Preferred Stock. Each one one-hundredth of a share of Series A Junior
Participating Preferred Stock will have economic and voting terms equivalent to
one share of common stock. Until it is exercised, the right itself will not
entitle the holder thereof to any rights as a stockholder, including the right
to receive dividends or to vote at stockholder meetings. Stockholder rights are
not exercisable until the distribution date, and will expire at the close of
business on the tenth anniversary of the date on which the initial public
offering price is determined, unless earlier redeemed or exchanged by MetLife,
Inc.
7. COMMITMENTS AND CONTINGENCIES
The New York Superintendent held a public hearing relating to the plan of
demutualization on January 24, 2000. At the public hearing, some policyholders
and others raised objections to certain aspects of the plan. These objections
alleged, among other things, that the plan was not fair and equitable to
policyholders of Metropolitan Life. In addition, a civil complaint challenging
F-5
<PAGE> 223
METLIFE, INC.
NOTES TO BALANCE SHEET -- (CONTINUED)
the fairness of the plan and the adequacy and accuracy of the disclosures to
policyholders regarding the plan has been filed in New York Supreme Court for
Kings County on behalf of the alleged class consisting of the policyholders of
Metropolitan Life who should have membership benefits in Metropolitan Life and
were and are eligible to receive notice, vote and receive consideration in the
demutualization. The complaint seeks to enjoin or rescind the plan and seeks
other relief. The defendants named in the compliant are Metropolitan Life, the
individual members of its board of directors, and MetLife, Inc. The management
of Metropolitan Life and MetLife, Inc. believe that the allegations made in the
compliant are wholly without merit, and intend to vigorously contest the
complaint.
F-6
<PAGE> 224
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Policyholders of
Metropolitan Life Insurance Company:
We have audited the accompanying consolidated balance sheets of
Metropolitan Life Insurance Company and subsidiaries (the "Company") as of
December 31, 1999 and 1998, and the related consolidated statements of income,
equity and cash flows for each of the three years in the period ended December
31, 1999. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the consolidated financial position of Metropolitan Life
Insurance Company and subsidiaries at December 31, 1999 and 1998, and the
consolidated results of their operations and their consolidated cash flows for
each of the three years in the period ended December 31, 1999 in conformity with
generally accepted accounting principles.
Deloitte & Touche LLP
New York, New York
February 7, 2000
F-7
<PAGE> 225
METROPOLITAN LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN MILLIONS)
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
REVENUES
Premiums.................................................... $12,088 $11,503 $11,278
Universal life and investment-type product policy fees...... 1,438 1,360 1,418
Net investment income....................................... 9,816 10,228 9,491
Other revenues.............................................. 2,154 1,994 1,491
Net realized investment gains (losses) (net of amounts
allocable to other accounts of $(67), $608 and $231,
respectively)............................................. (70) 2,021 787
------- ------- -------
25,426 27,106 24,465
------- ------- -------
EXPENSES
Policyholder benefits and claims (excludes amounts directly
related to net realized investment gains (losses) of
$(21), $368 and $161, respectively)....................... 13,105 12,638 12,403
Interest credited to policyholder account balances.......... 2,441 2,711 2,878
Policyholder dividends...................................... 1,690 1,651 1,742
Other expenses (excludes amounts directly related to net
realized investment gains (losses) of $(46), $240 and $70,
respectively)............................................. 6,755 8,019 5,771
------- ------- -------
23,991 25,019 22,794
------- ------- -------
Income before provision for income taxes and extraordinary
item...................................................... 1,435 2,087 1,671
Provision for income taxes.................................. 593 740 468
------- ------- -------
Income before extraordinary item............................ 842 1,347 1,203
Extraordinary item -- demutualization expense............... 225 4 --
------- ------- -------
Net income.................................................. $ 617 $ 1,343 $ 1,203
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE> 226
METROPOLITAN LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
(IN MILLIONS)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
ASSETS
Investments:
Fixed maturities available-for-sale, at fair value........ $ 96,981 $100,767
Equity securities, at fair value.......................... 2,006 2,340
Mortgage loans on real estate............................. 19,739 16,827
Real estate and real estate joint ventures................ 5,649 6,287
Policy loans.............................................. 5,598 5,600
Other limited partnership interests....................... 1,331 1,047
Short-term investments.................................... 3,055 1,369
Other invested assets..................................... 1,501 1,484
-------- --------
135,860 135,721
Cash and cash equivalents................................... 2,789 3,301
Accrued investment income................................... 1,725 1,994
Premiums and other receivables.............................. 6,681 5,972
Deferred policy acquisition costs........................... 8,492 6,538
Deferred income taxes....................................... 603 --
Other....................................................... 4,141 3,752
Separate account assets..................................... 64,941 58,068
-------- --------
$225,232 $215,346
======== ========
LIABILITIES AND EQUITY
Liabilities:
Future policy benefits...................................... $ 73,582 $ 72,701
Policyholder account balances............................... 45,901 46,494
Other policyholder funds.................................... 4,498 4,061
Policyholder dividends payable.............................. 974 947
Short-term debt............................................. 4,208 3,585
Long-term debt.............................................. 2,514 2,903
Current income taxes payable................................ 548 403
Deferred income taxes payable............................... -- 545
Other....................................................... 14,376 10,772
Separate account liabilities................................ 64,941 58,068
-------- --------
211,542 200,479
-------- --------
Commitments and contingencies (Note 9)
Equity:
Retained earnings........................................... 14,100 13,483
Accumulated other comprehensive income (loss)............... (410) 1,384
-------- --------
13,690 14,867
-------- --------
$225,232 $215,346
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-9
<PAGE> 227
METROPOLITAN LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN MILLIONS)
<TABLE>
<CAPTION>
ACCUMULATED OTHER
COMPREHENSIVE INCOME (LOSS)
-----------------------------------------
NET FOREIGN MINIMUM
UNREALIZED CURRENCY PENSION
COMPREHENSIVE RETAINED INVESTMENT TRANSLATION LIABILITY
TOTAL INCOME (LOSS) EARNINGS GAINS (LOSSES) ADJUSTMENT ADJUSTMENT
----- ------------- -------- -------------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997....... $11,983 $10,937 $ 1,028 $ 18 $ --
Comprehensive income:
Net income..................... 1,203 $ 1,203 1,203
-------
Other comprehensive income:
Unrealized investment gains,
net of related offsets,
reclassification
adjustments and income
taxes...................... 870 870
Foreign currency translation
adjustments................ (49) (49)
-------
Other comprehensive income... 821 821
-------
Comprehensive income........... $ 2,024
=======
------- ------- ------- ----- ----
Balance at December 31, 1997..... 14,007 12,140 1,898 (31) --
Comprehensive income:
Net income..................... 1,343 $ 1,343 1,343
-------
Other comprehensive loss:
Unrealized investment losses,
net of related offsets,
reclassification
adjustments and income
taxes...................... (358) (358)
Foreign currency translation
adjustments................ (113) (113)
Minimum pension liability
adjustment................. (12) (12)
-------
Other comprehensive loss..... (483) (483)
-------
Comprehensive income........... $ 860
=======
------- ------- ------- ----- ----
Balance at December 31, 1998..... 14,867 13,483 1,540 (144) (12)
Comprehensive loss:
Net income..................... 617 $ 617 617
-------
Other comprehensive loss:
Unrealized investment losses,
net of related offsets,
reclassification
adjustments and income
taxes...................... (1,837) (1,837)
Foreign currency translation
adjustments................ 50 50
Minimum pension liability
adjustment................. (7) (7)
-------
Other comprehensive loss..... (1,794) (1,794)
-------
Comprehensive loss............. $(1,177)
=======
------- ------- ------- ----- ----
Balance at December 31, 1999..... $13,690 $14,100 $ (297) $ (94) $(19)
======= ======= ======= ===== ====
</TABLE>
See accompanying notes to consolidated financial statements.
F-10
<PAGE> 228
METROPOLITAN LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN MILLIONS)
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.................................................. $ 617 $ 1,343 $ 1,203
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization expenses.................. 173 56 (36)
(Gains) losses from sales of investments and businesses,
net................................................... 137 (2,629) (1,018)
Change in undistributed income of real estate joint
ventures and other limited partnership interests...... (322) (91) 157
Interest credited to policyholder account balances...... 2,441 2,711 2,878
Universal life and investment-type product policy
fees.................................................. (1,438) (1,360) (1,418)
Change in accrued investment income..................... 269 (181) (215)
Change in premiums and other receivables................ (619) (2,681) (792)
Change in deferred policy acquisition costs, net........ (389) (188) (159)
Change in insurance related liabilities................. 2,248 1,481 2,364
Change in income taxes payable.......................... 22 251 (99)
Change in other liabilities............................. 857 2,390 (206)
Other, net.............................................. (131) (260) 213
-------- -------- --------
Net cash provided by operating activities................... 3,865 842 2,872
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Sales, maturities and repayments of:
Fixed maturities........................................ 73,120 57,857 75,346
Equity securities....................................... 760 3,085 1,821
Mortgage loans on real estate........................... 1,992 2,296 2,784
Real estate and real estate joint ventures.............. 1,062 1,122 2,046
Other limited partnership interests..................... 469 146 166
Purchases of:
Fixed maturities........................................ (72,253) (67,543) (76,603)
Equity securities....................................... (410) (854) (2,121)
Mortgage loans on real estate........................... (4,395) (2,610) (4,119)
Real estate and real estate joint ventures.............. (341) (423) (624)
Other limited partnership interests..................... (465) (723) (338)
Net change in short-term investments...................... (1,577) (761) 63
Net change in policy loans................................ 2 133 17
Purchase of businesses, net of cash received.............. (2,972) -- (430)
Proceeds from sales of businesses......................... -- 7,372 135
Net change in investment collateral....................... 2,692 3,769 --
Other, net................................................ (73) (183) 191
-------- -------- --------
Net cash provided by (used in) investing activities......... (2,389) 2,683 (1,666)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Policyholder account balances:
Deposits................................................ 18,428 19,361 16,061
Withdrawals............................................. (20,650) (21,706) (18,831)
Short-term debt, net...................................... 623 (1,002) 1,265
Long-term debt issued..................................... 44 693 989
Long-term debt repaid..................................... (433) (481) (104)
-------- -------- --------
Net cash used in financing activities....................... (1,988) (3,135) (620)
-------- -------- --------
Change in cash and cash equivalents......................... (512) 390 586
Cash and cash equivalents, beginning of year................ 3,301 2,911 2,325
-------- -------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR...................... $ 2,789 $ 3,301 $ 2,911
======== ======== ========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest.................................................. $ 388 $ 367 $ 422
======== ======== ========
Income taxes.............................................. $ 587 $ 579 $ 589
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-11
<PAGE> 229
METROPOLITAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS ARE IN MILLIONS UNLESS OTHERWISE STATED.)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
Metropolitan Life Insurance Company ("MetLife") and its subsidiaries (the
"Company") is a leading provider of insurance and financial services to a broad
section of institutional and individual customers. The Company offers life
insurance, annuities and mutual funds to individuals and group insurance and
retirement and savings products and services to corporations and other
institutions.
PLAN OF REORGANIZATION
On September 28, 1999, the board of directors of MetLife adopted, pursuant
to the New York Insurance Law, a plan of reorganization, and subsequently
adopted amendments to the plan, pursuant to which MetLife proposes to convert
from a mutual life insurance company to a stock life insurance company and
become a wholly-owned subsidiary of MetLife, Inc. The plan was approved by
MetLife's voting policyholders on February 7, 2000. The plan will become
effective at such time as the New York Superintendent of Insurance
("Superintendent") approves it based on finding, among other things, that the
plan is fair and equitable to policyholders. The plan requires an initial public
offering of common stock and provides for other capital raising transactions on
the effective date of the plan.
On the date the plan of reorganization becomes effective, each
policyholder's membership interest will be extinguished and each eligible
policyholder will be entitled to receive, in exchange for that interest, trust
interests representing shares of common stock of MetLife, Inc. to be held in a
trust, cash or an adjustment to their policy values in the form of policy
credits, as provided in the plan. In addition, when MetLife demutualizes,
MetLife's Canadian branch will make cash payments to holders of certain policies
transferred to Clarica Life Insurance Company ("Clarica Life") in connection
with the sale of a substantial portion of MetLife's Canadian operations in 1998.
See Note 9.
The plan of reorganization requires that MetLife establish and operate a
closed block for the benefit of holders of certain individual life insurance
policies of MetLife. Assets will be allocated to the closed block in an amount
that is expected to produce cash flows which, together with anticipated revenue
from the policies included in the closed block, are reasonably expected to be
sufficient to support obligations and liabilities relating to these policies,
including, but not limited to, provisions for the payment of claims and certain
expenses and taxes, and for the continuation of policyholder dividend scales in
effect for 1999, if the experience underlying such dividend scales continues,
and for appropriate adjustments in such scales if the experience changes. The
closed block assets, the cash flows generated by the closed block assets and the
anticipated revenues from the policies in the closed block will benefit only the
holders of these policies included in the closed block. To the extent that, over
time, cash flows from the assets allocated to the closed block and claims and
other experience relating to the closed block are, in the aggregate, more or
less favorable than assumed in establishing the closed block, total dividends
paid to the closed block policyholders in the future may be greater than or less
than which would have been paid to these policyholders if the policyholder
dividend scales in effect for 1999 had been continued. Any cash flows in excess
of amounts assumed will be available for distribution over time to closed block
policyholders and will not be available to stockholders. The closed block will
continue in effect until the last policy in the closed block is no longer in
force.
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METROPOLITAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The accounting principles to account for the participating policies
included in the closed block will be those used prior to the date of the
demutualization. However, a policyholder dividend obligation will be established
for earnings that will be paid to policyholders as additional dividends in the
amounts described below, unless these earnings are offset by future unfavorable
experience in the closed block. Although all of the cash flows of the closed
block are for the benefit of closed block policyholders, the excess of closed
block liabilities over closed block assets at the effective date will represent
the estimated maximum future contributions from the closed block expected to be
reported in income as the contribution from the closed block after income taxes.
The contribution from the closed block will be recognized in income over the
period the policies and contracts in the closed block remain in force.
Management believes that over time the actual cumulative contributions from the
closed block will approximately equal the expected cumulative contributions, due
to the effect of dividend changes. If, over the period the closed block remains
in existence, the actual cumulative contribution from the closed block is
greater than the expected cumulative contribution from the closed block, the
expected cumulative contribution will be recognized in income with the excess
recorded as a policyholder dividend obligation, because the excess of the actual
cumulative contribution from the closed block over the expected cumulative
contribution will be paid to closed block policyholders as additional
policyholder dividends unless offset by future unfavorable experience of the
closed block. If over such period, the actual cumulative contribution from the
closed block is less than the expected cumulative contribution from the closed
block, the actual contribution will be recognized in income. However, dividends
in the future may be changed, which would be intended to increase future actual
contribution until the actual contribution equal the expected cumulative
contribution.
BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles ("GAAP"). The New York
State Insurance Department (the "Department") recognizes only statutory
accounting practices for determining and reporting the financial condition and
results of operations of an insurance company for determining solvency under the
New York Insurance Law. No consideration is given by the Department to financial
statements prepared in accordance with GAAP in making such determination.
The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the dates of
the financial statements and the reported amounts of revenues and expenses
during the reporting periods. The most significant estimates include those used
in determining deferred policy acquisition costs, investment allowances and the
liability for future policyholder benefits. Actual results could differ from
those estimates.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
MetLife and its subsidiaries, partnerships and joint ventures in which MetLife
has a majority voting interest or general partner interest with limited removal
rights by limited partners. All material intercompany accounts and transactions
have been eliminated.
The Company accounts for its investments in real estate joint ventures and
other limited partnership interests in which it does not have a controlling
interest, but more than a minimal interest, under the equity method of
accounting.
Minority interest related to consolidated entities included in other
liabilities was $245 and $274 at December 31, 1999 and 1998, respectively.
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METROPOLITAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Certain amounts in the prior years' consolidated financial statements have
been reclassified to conform with the 1999 presentation.
INVESTMENTS
The Company's fixed maturity and equity securities are classified as
available-for-sale and are reported at their estimated fair value. Unrealized
investment gains and losses on securities are recorded as a separate component
of other comprehensive income (loss), net of policyholder related amounts and
deferred income taxes. The cost of fixed maturity and equity securities is
adjusted for impairments in value deemed to be other than temporary. These
adjustments are recorded as realized losses on investments. Realized gains and
losses on sales of securities are determined on a specific identification basis.
All security transactions are recorded on a trade date basis.
Mortgage loans on real estate are stated at amortized cost, net of
valuation allowances. Valuation allowances are established for the excess
carrying value of the mortgage loan over its estimated fair value when it is
probable that, based upon current information and events, the Company will be
unable to collect all amounts due under the contractual terms of the loan
agreement. Valuation allowances are based upon the present value of expected
future cash flows discounted at the loan's original effective interest rate or
the collateral value if the loan is collateral dependent. Interest income earned
on impaired loans is accrued on the net carrying value amount of the loan based
on the loan's effective interest rate.
Real estate, including related improvements, is stated at cost less
accumulated depreciation. Depreciation is provided on a straight-line basis over
the estimated useful life of the asset (typically 20 to 40 years). Cost is
adjusted for impairment whenever events or changes in circumstances indicate the
carrying amount of the asset may not be recoverable. Impaired real estate is
written down to estimated fair value with the impairment loss being included in
realized losses on investments. Impairment losses are based upon the estimated
fair value of real estate, which is generally computed using the present value
of expected future cash flows from the real estate discounted at a rate
commensurate with the underlying risks. Real estate acquired in satisfaction of
debt is recorded at estimated fair value at the date of foreclosure. Valuation
allowances on real estate held-for-sale are computed using the lower of
depreciated cost or estimated fair value, net of disposition costs.
Policy loans are stated at unpaid principal balances.
Short-term investments are stated at amortized cost, which approximates
fair value.
DERIVATIVE INSTRUMENTS
The Company uses derivative instruments to manage market risk through one
of four principal risk management strategies: the hedging of invested assets,
liabilities, portfolios of assets or liabilities and anticipated transactions.
The Company's derivative strategy employs a variety of instruments including
financial futures, financial forwards, interest rate and foreign currency swaps,
floors, foreign exchange contracts, caps and options.
The Company's derivative program is monitored by senior management. The
Company's risk of loss is typically limited to the fair value of its derivative
instruments and not to the notional or contractual amounts of these derivatives.
Risk arises from changes in the fair value of the underlying instruments and,
with respect to over-the-counter transactions, from the possible inability of
counterparties to meet the terms of the contracts. The Company has strict
policies regarding the financial stability and credit standing of its major
counterparties.
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METROPOLITAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company's derivative instruments are designated as hedges and are
highly correlated to the underlying risk at contract inception. The Company
monitors the effectiveness of its hedges throughout the contract term using an
offset ratio of 80 to 125 percent as its minimum acceptable threshold for hedge
effectiveness. Derivative instruments that lose their effectiveness are marked
to market through net investment income.
Gains or losses on financial futures contracts entered into in anticipation
of investment transactions are deferred and, at the time of the ultimate
investment purchase or disposition, recorded as an adjustment to the basis of
the purchased assets or to the proceeds on disposition. Gains or losses on
financial futures used in asset risk management are deferred and amortized into
net investment income over the remaining term of the investment. Gains or losses
on financial futures used in portfolio risk management are deferred and
amortized into net investment income or policyholder benefits over the remaining
life of the hedged sector of the underlying portfolio.
Financial forward contracts that are entered into to purchase securities
are marked to fair value through other comprehensive income (loss), similar to
the accounting for the investment security. Such contracts are accounted for at
settlement by recording the purchase of the specified securities at the
contracted value. Gains or losses resulting from the termination of forward
contracts are recognized immediately as a component of net investment income.
Interest rate and certain foreign currency swaps involve the periodic
exchange of payments without the exchange of underlying principal or notional
amounts. Net receipts or payments are accrued and recognized over the term of
the swap agreement as an adjustment to net investment income or other expense.
Gains or losses resulting from swap terminations are amortized over the
remaining term of the underlying asset or liability. Gains and losses on swaps
and certain foreign forward exchange contracts entered into in anticipation of
investment transactions are deferred and, at the time of the ultimate investment
purchase or disposition, reflected as an adjustment to the basis of the
purchased assets or to the proceeds of disposition. In the event the asset or
liability underlying a swap is disposed of, the swap position is closed
immediately and any gain or loss is recorded as an adjustment to the proceeds
from disposition.
The Company periodically enters into collars, which consist of purchased
put and written call options, to lock in unrealized gains on equity securities.
Collars are marked to market through other comprehensive income (loss), similar
to the accounting for the underlying equity securities. Purchased interest rate
caps and floors are used to offset the risk of interest rate changes related to
insurance liabilities. Premiums paid on floors, caps and options are split into
two components, time value and intrinsic value. Time value is amortized over the
life of the applicable derivative instrument. The intrinsic value and any gains
or losses relating to these derivative instruments adjust the basis of the
underlying asset or liability and are recognized as a component of net
investment income over the term of the underlying asset or liability being
hedged as an adjustment to the yield.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
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METROPOLITAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Property, equipment and leasehold improvements, which are included in other
assets, are stated at cost, less accumulated depreciation and amortization.
Depreciation is determined using either the straight-line or
sum-of-the-years-digits method over the estimated useful lives of the assets.
Estimated lives range from 20 to 40 years for real estate and 5 to 15 years for
all other property and equipment. Accumulated depreciation of property and
equipment and accumulated amortization on leasehold improvements was $1,130 and
$1,098 at December 31, 1999 and 1998, respectively. Related depreciation and
amortization expense was $103, $116 and $103 for the years ended December 31,
1999, 1998 and 1997, respectively.
DEFERRED POLICY ACQUISITION COSTS
The costs of acquiring new insurance business that vary with, and are
primarily related to, the production of new business are deferred. Such costs,
which consist principally of commissions, agency and policy issue expenses, are
amortized with interest over the expected life of the contract for participating
traditional life, universal life and investment-type products. Generally,
deferred policy acquisition costs are amortized in proportion to the present
value of estimated gross margins or profits from investment, mortality, expense
margins and surrender charges. Interest rates are based on rates in effect at
the inception of the contracts. Actual gross margins or profits can vary from
management's estimates resulting in increases or decreases in the rate of
amortization. Management periodically updates these estimates and evaluates the
recoverability of deferred policy acquisition costs. When appropriate,
management revises its assumptions of the estimated gross margins or profits of
these contracts, and the cumulative amortization is re-estimated and adjusted by
a cumulative charge or credit to current operations.
Deferred policy acquisition costs for non-participating traditional life,
non-medical health and annuity policies with life contingencies are amortized in
proportion to anticipated premiums. Assumptions as to anticipated premiums are
made at the date of policy issuance and are consistently applied during the
lives of the contracts. Deviations from estimated experience are included in
operations when they occur. For these contracts, the amortization period is
typically the estimated life of the policy.
Deferred policy acquisition costs related to internally replaced contracts
are expensed at date of replacement.
Deferred policy acquisition costs for property and casualty insurance
contracts, which are primarily comprised of commissions and certain underwriting
expenses, are deferred and amortized on a pro rata basis over the applicable
contract term or reinsurance treaty.
On September 28, 1999, the Company's Board of Directors adopted a plan of
reorganization. Consequently, in the fourth quarter of 1999, the Company was
able to commit to state insurance regulatory authorities that it would establish
investment sub-segments to further align investments with the traditional
individual life business of the Individual segment. As a result, future
dividends for the traditional individual life business will be determined based
on the results of the new investment sub-segments. Additionally, estimated
future gross margins used to determine amortization of deferred policy
acquisition costs and the amount of unrealized investment gains and losses
relating to these products are based on investments in the new sub-segments.
Using the investments in the sub-segments to determine estimated gross margins
and unrealized investment gains and losses increased 1999 amortization of
deferred policy acquisition costs by $56 (net of income taxes of $32) and
decreased other comprehensive loss in 1999 by $123 (net of income taxes of $70).
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METROPOLITAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Information regarding deferred policy acquisition costs is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Balance at January 1.................................. $ 6,538 $6,436 $7,227
Capitalized during the year........................... 1,160 1,025 1,000
------- ------ ------
Total............................................ 7,698 7,461 8,227
------- ------ ------
Amortization allocated to:
Net realized investment gains (losses).............. (46) 240 70
Unrealized investment gains (losses)................ (1,628) (216) 727
Other expenses...................................... 862 587 771
------- ------ ------
Total amortization............................... (812) 611 1,568
------- ------ ------
Dispositions and other................................ (18) (312) (223)
------- ------ ------
Balance at December 31................................ $ 8,492 $6,538 $6,436
======= ====== ======
</TABLE>
Amortization of deferred policy acquisition costs is allocated to (1)
realized investment gains and losses to provide consolidated statement of income
information regarding the impact of such gains and losses on the amount of the
amortization, (2) unrealized investment gains and losses to provide information
regarding the amount of deferred policy acquisition costs that would have been
amortized if such gains and losses had been realized and (3) other expenses to
provide amounts related to the gross margins or profits originating from
transactions other than investment gains and losses.
Realized investment gains and losses related to certain products have a
direct impact on the amortization of deferred policy acquisition costs.
Presenting realized investment gains and losses net of related amortization of
deferred policy acquisition costs provides information useful in evaluating the
operating performance of the Company. This presentation may not be comparable to
presentations made by other insurers.
INTANGIBLE ASSETS
The excess of cost over the fair value of net assets acquired ("goodwill")
and other intangible assets, including the value of business acquired, are
included in other assets. Goodwill is amortized on a straight-line basis over a
period ranging from 10 to 30 years. The Company continually reviews goodwill to
assess recoverability from future operations using undiscounted cash flows.
Impairments are recognized in operating results if a permanent diminution in
value is deemed to have occurred. Other intangible assets are amortized over the
expected policy or contract duration in relation to the present value of
estimated gross profits from such policies and contracts.
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METROPOLITAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
GOODWILL OTHER INTANGIBLE ASSETS
-------------------- --------------------------
1999 1998 1997 1999 1998 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
YEARS ENDED DECEMBER 31
Net Balance at January 1.............. $404 $359 $136 $1,006 $1,055 $ 767
Acquisitions.......................... 237 67 240 156 39 355
Amortization.......................... (30) (22) (17) (114) (88) (67)
---- ---- ---- ------ ------ ------
Net Balance at December 31............ $611 $404 $359 $1,048 $1,006 $1,055
==== ==== ==== ====== ====== ======
DECEMBER 31
Accumulated amortization.............. $118 $ 88 $ 392 $ 278
==== ==== ====== ======
</TABLE>
FUTURE POLICY BENEFITS AND POLICYHOLDER ACCOUNT BALANCES
Future policy benefit liabilities for participating traditional life
insurance policies are equal to the aggregate of (a) net level premium reserves
for death and endowment policy benefits (calculated based upon the nonforfeiture
interest rate, ranging from 3% to 10%, and mortality rates guaranteed in
calculating the cash surrender values described in such contracts), (b) the
liability for terminal dividends and (c) premium deficiency reserves, which are
established when the liabilities for future policy benefits plus the present
value of expected future gross premiums are insufficient to provide for expected
future policy benefits and expenses after deferred policy acquisition costs are
written off.
Future policy benefit liabilities for traditional annuities are equal to
accumulated contractholder fund balances during the accumulation period and the
present value of expected future payments after annuitization. Interest rates
used in establishing such liabilities range from 3% to 8%. Future policy benefit
liabilities for non-medical health insurance are calculated using the net level
premium method and assumptions as to future morbidity, withdrawals and interest,
which provide a margin for adverse deviation. Interest rates used in
establishing such liabilities range from 3% to 10%. Future policy benefit
liabilities for disabled lives are estimated using the present value of benefits
method and experience assumptions as to claim terminations, expenses and
interest. Interest rates used in establishing such liabilities range from 3% to
10%.
Policyholder account balances for universal life and investment-type
contracts are equal to the policy account values, which consist of an
accumulation of gross premium payments plus credited interest, ranging from 2%
to 17%, less expenses, mortality charges and withdrawals.
The liability for unpaid claims and claim expenses for property and
casualty insurance represents the amount estimated for claims that have been
reported but not settled and claims incurred but not reported. Liabilities for
unpaid claims are estimated based upon the Company's historical experience and
other actuarial assumptions that consider the effects of current developments,
anticipated trends and risk management programs. Revisions of these estimates
are included in operations in the year such refinements are made.
RECOGNITION OF INSURANCE REVENUE AND RELATED BENEFITS
Premiums related to traditional life and annuity policies with life
contingencies are recognized as revenues when due. Benefits and expenses are
provided against such revenues to recognize profits over the estimated lives of
the policies. When premiums are due over a significantly shorter period than the
period over which benefits are provided, any excess profit is deferred and
recognized into operations in a constant relationship to insurance in-force or,
for annuities, the amount of expected future policy benefit payments.
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METROPOLITAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Premiums related to non-medical health contracts are recognized on a pro
rata basis over the applicable contract term.
Premiums related to universal life and investment-type products are
credited to policyholder account balances. Revenues from such contracts consist
of amounts assessed against policyholder account balances for mortality, policy
administration and surrender charges. Amounts that are charged to operations
include interest credited and benefit claims incurred in excess of related
policyholder account balances.
Premiums related to property and casualty contracts are recognized as
revenue on a pro rata basis over the applicable contract term. Unearned premiums
are included in other liabilities.
DIVIDENDS TO POLICYHOLDERS
Dividends to policyholders are determined annually by the board of
directors. The aggregate amount of policyholders' dividends is related to actual
interest, mortality, morbidity and expense experience for the year, as well as
management's judgment as to the appropriate level of statutory surplus to be
retained by MetLife and its insurance subsidiaries.
DIVIDEND RESTRICTIONS
MetLife, when it converts from a mutual life insurance company to a stock
life insurance company, may be restricted as to the amounts it may pay as
dividends to MetLife, Inc. Under the New York Insurance Law, the Superintendent
has broad discretion to determine whether the financial condition of a stock
life insurance company would support the payment of dividends to its
shareholders. The Department has established informal guidelines for the
Superintendent's determinations which focus upon, among other things, the
overall financial condition and profitability of the insurer under statutory
accounting practices.
PARTICIPATING BUSINESS
Participating business represented approximately 19% and 21% of the
Company's life insurance in-force, and 84% and 81% of the number of life
insurance policies in-force, at December 31, 1999 and 1998, respectively.
Participating policies represented approximately 42% and 44%, 39% and 40%, and
41% and 41% of gross and net life insurance premiums for the years ended
December 31, 1999, 1998 and 1997, respectively.
INCOME TAXES
MetLife and its includable life insurance and non-life insurance
subsidiaries file a consolidated U.S. federal income tax return in accordance
with the provisions of the Internal Revenue Code, as amended (the "Code"). Under
the Code, the amount of federal income tax expense incurred by mutual life
insurance companies includes an equity tax calculated based upon a prescribed
formula that incorporates a differential earnings rate between stock and mutual
life insurance companies. MetLife will not be subject to the equity tax when it
converts to a stock life insurance company. The future tax consequences of
temporary differences between financial reporting and tax bases of assets and
liabilities are measured at the balance sheet dates and are recorded as deferred
income tax assets and liabilities.
REINSURANCE
The Company has reinsured certain of its life insurance and property and
casualty insurance contracts with other insurance companies under various
agreements. Amounts due from
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METROPOLITAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
reinsurers are estimated based upon assumptions consistent with those used in
establishing the liabilities related to the underlying reinsured contracts.
Policy and contract liabilities are reported gross of reinsurance credits.
Deferred policy acquisition costs are reduced by amounts recovered under
reinsurance contracts. Amounts received from reinsurers for policy
administration are reported in other revenues.
SEPARATE ACCOUNTS
Separate accounts are established in conformity with insurance laws and are
generally not chargeable with liabilities that arise from any other business of
the Company. Separate account assets are subject to general account claims only
to the extent the value of such assets exceeds the separate account liabilities.
Investments (stated at estimated fair value) and liabilities of the separate
accounts are reported separately as assets and liabilities. Deposits to separate
accounts, investment income and realized and unrealized gains and losses on the
investments of the separate accounts accrue directly to contractholders and,
accordingly, are not reflected in the Company's consolidated statements of
income and cash flows. Mortality, policy administration and surrender charges to
all separate accounts are included in revenues. See Note 6.
FOREIGN CURRENCY TRANSLATION
Balance sheet accounts of foreign operations are translated at the exchange
rates in effect at each year-end and income and expense accounts are translated
at the average rates of exchange prevailing during the year. The local
currencies of foreign operations are the functional currencies unless the local
economy is highly inflationary. Translation adjustments are charged or credited
directly to other comprehensive income (loss). Gains and losses from foreign
currency transactions are reported in other expenses and were insignificant for
all years presented.
EXTRAORDINARY ITEM -- DEMUTUALIZATION EXPENSE
The accompanying consolidated statements of income include extraordinary
charges of $225 (net of income taxes of $35) and $4 (net of income taxes of $2)
for the years ended December 31, 1999 and 1998, respectively, related to costs
associated with the demutualization.
APPLICATION OF ACCOUNTING PRONOUNCEMENTS
Effective January 1, 1999, the Company adopted Statement of Position
("SOP") 98-5, Reporting on the Costs of Start-Up Activities ("SOP 98-5"). SOP
98-5 broadly defines start-up activities. SOP 98-5 requires costs of start-up
activities and organization costs to be expensed as incurred. Adoption of SOP
98-5 did not have a material effect on the Company's consolidated financial
statements.
Effective January 1, 1999, the Company adopted SOP 98-1, Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use ("SOP 98-1").
SOP 98-1 provides guidance for determining when an entity should capitalize or
expense external and internal costs of computer software developed or obtained
for internal use. Adoption of the provisions of SOP 98-1 had the effect of
increasing other assets by $82 at December 31, 1999.
Effective January 1, 1999, the Company adopted SOP 97-3, Accounting for
Insurance and Other Enterprises for Insurance Related Assessments ("SOP 97-3").
SOP 97-3 provides guidance on accounting by insurance and other enterprises for
assessments related to insurance activities including recognition, measurement
and disclosure of guaranty fund and other insurance related
F-20
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METROPOLITAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
assessments. Adoption of SOP 97-3 did not have a material effect on the
Company's consolidated financial statements.
In 1998, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 125, Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities ("SFAS 125") which were
deferred by SFAS 127, Deferral of the Effective Date of Certain Provisions of
FASB Statement No. 125. The deferred provisions provide accounting and reporting
standards related to repurchase agreements, dollar rolls, securities lending and
similar transactions. Adoption of the provisions had the effect of increasing
assets and liabilities by $3,769 at December 31, 1998 and increasing other
revenues and other expenses by $266 for the year ended December 31, 1998.
During 1997, the Company changed to the retrospective interest method of
accounting for investment income on structured notes in accordance with Emerging
Issues Task Force Consensus No. 96-12, Recognition of Interest Income and
Balance Sheet Classification of Structured Notes. This accounting change
increased 1997 net investment income by $175, which included an immaterial
amount related to prior years.
In June 1999, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 137, Accounting for Derivative Instruments
and Hedging Activities -- Deferral of the Effective Date of FASB Statement No.
133 ("SFAS 137"). SFAS 137 defers the provisions of Statement of Financial
Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging
Activities ("SFAS 133") until January 1, 2001. SFAS 133 requires, among other
things, that all derivatives be recognized in the consolidated balance sheets as
either assets or liabilities and measured at fair value. The corresponding
derivative gains and losses should be reported based upon the hedge
relationship, if such a relationship exists. Changes in the fair value of
derivatives that are not designated as hedges or that do not meet the hedge
accounting criteria in SFAS 133 are required to be reported in income. The
Company is in the process of quantifying the impact of SFAS 133 on its
consolidated financial statements.
In October 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 98-7, Accounting for Insurance
and Reinsurance Contracts That Do Not Transfer Insurance Risk ("SOP 98-7"). SOP
98-7 provides guidance on the method of accounting for insurance and reinsurance
contracts that do not transfer insurance risk, defined in the SOP as the deposit
method. SOP 98-7 classifies insurance and reinsurance contracts for which the
deposit method is appropriate into those that 1) transfer only significant
timing risk, 2) transfer only significant underwriting risk, 3) transfer neither
significant timing or underwriting risk and 4) have an indeterminate risk. The
Company is required to adopt SOP 98-7 as of January 1, 2000. Adoption of SOP
98-7 is not expected to have a material effect on the Company's consolidated
financial statements.
F-21
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METROPOLITAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. INVESTMENTS
The components of net investment income were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Fixed maturities.................................... $ 6,766 $ 6,563 $ 6,445
Equity securities................................... 40 78 50
Mortgage loans on real estate....................... 1,479 1,572 1,684
Real estate and real estate joint ventures.......... 1,426 1,529 1,718
Policy loans........................................ 340 387 368
Other limited partnership interests................. 199 196 302
Cash, cash equivalents and short-term investments... 173 187 169
Other............................................... 501 841 368
------- ------- -------
10,924 11,353 11,104
Less: Investment expenses........................... 1,108 1,125 1,613
------- ------- -------
$ 9,816 $10,228 $ 9,491
======= ======= =======
</TABLE>
Net realized investment gains (losses), including changes in valuation
allowances, were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Fixed maturities........................................ $(538) $ 573 $ 118
Equity securities....................................... 99 994 224
Mortgage loans on real estate........................... 28 23 56
Real estate and real estate joint ventures.............. 265 424 446
Other limited partnership interests..................... 33 13 12
Sales of businesses..................................... -- 531 139
Other................................................... (24) 71 23
----- ------ ------
(137) 2,629 1,018
Amounts allocable to:
Future policy benefit loss recognition................ -- (272) (126)
Deferred policy acquisition costs..................... 46 (240) (70)
Participating contracts............................... 21 (96) (35)
----- ------ ------
$ (70) $2,021 $ 787
===== ====== ======
</TABLE>
Realized investment gains (losses) have been reduced by (1) additions to
future policy benefits resulting from the need to establish additional
liabilities due to the recognition of investment gains, (2) deferred policy
acquisition cost amortization to the extent that such amortization results from
realized investment gains and losses, and (3) additions to participating
contractholder accounts when amounts equal to such investment gains and losses
are credited to the contractholders' accounts. This presentation may not be
comparable to presentations made by other insurers.
F-22
<PAGE> 240
METROPOLITAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of net unrealized investment gains (losses), included in
accumulated other comprehensive income (loss), were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Fixed maturities.................................... $(1,828) $ 4,809 $ 4,766
Equity securities................................... 875 832 1,605
Other invested assets............................... 165 154 294
------- ------- -------
(788) 5,795 6,665
------- ------- -------
Amounts allocable to:
Future policy benefit loss recognition............ (249) (2,248) (2,189)
Deferred policy acquisition costs................. 697 (931) (1,147)
Participating contracts........................... (118) (212) (312)
Deferred income taxes............................... 161 (864) (1,119)
------- ------- -------
491 (4,255) (4,767)
------- ------- -------
$ (297) $ 1,540 $ 1,898
======= ======= =======
</TABLE>
The changes in net unrealized investment gains (losses) were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Balance at January 1.................................. $ 1,540 $1,898 $1,028
Unrealized investment gains (losses) during the
year................................................ (6,583) (870) 3,402
Unrealized investment (gains) losses relating to:
Future policy benefit loss recognition.............. 1,999 (59) (970)
Deferred policy acquisition costs................... 1,628 216 (727)
Participating contracts............................. 94 100 (303)
Deferred income taxes................................. 1,025 255 (532)
------- ------ ------
Balance at December 31................................ $ (297) $1,540 $1,898
======= ====== ======
Net change in unrealized investment gains (losses).... $(1,837) $ (358) $ 870
======= ====== ======
</TABLE>
F-23
<PAGE> 241
METROPOLITAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FIXED MATURITIES AND EQUITY SECURITIES
Fixed maturities and equity securities at December 31, 1999 were as
follows:
<TABLE>
<CAPTION>
COST OR GROSS UNREALIZED
AMORTIZED ---------------- ESTIMATED
COST GAIN LOSS FAIR VALUE
--------- ---- ---- ----------
<S> <C> <C> <C> <C>
Fixed Maturities:
Bonds:
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies.......... $ 5,990 $ 456 $ 147 $ 6,299
States and political subdivisions.... 1,583 4 45 1,542
Foreign governments.................. 4,090 210 94 4,206
Corporate............................ 47,505 585 1,913 46,177
Mortgage and asset-backed
securities......................... 27,396 112 847 26,661
Other................................ 12,235 313 462 12,086
------- ------ ------ -------
98,799 1,680 3,508 96,971
Redeemable preferred stocks............. 10 -- -- 10
------- ------ ------ -------
$98,809 $1,680 $3,508 $96,981
======= ====== ====== =======
Equity Securities:
Common stocks........................... $ 980 $ 921 $ 35 $ 1,866
Nonredeemable preferred stocks.......... 151 -- 11 140
------- ------ ------ -------
$ 1,131 $ 921 $ 46 $ 2,006
======= ====== ====== =======
</TABLE>
Fixed maturities and equity securities at December 31, 1998 were as
follows:
<TABLE>
<CAPTION>
COST OR GROSS UNREALIZED
AMORTIZED ----------------- ESTIMATED
COST GAIN LOSS FAIR VALUE
--------- ---- ---- ----------
<S> <C> <C> <C> <C>
Fixed Maturities:
Bonds:
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies.......... $ 6,640 $1,117 $ 10 $ 7,747
States and political subdivisions.... 597 26 -- 623
Foreign governments.................. 3,435 254 88 3,601
Corporate............................ 46,377 2,471 260 48,588
Mortgage and asset-backed
securities......................... 26,456 569 46 26,979
Other................................ 12,438 1,069 293 13,214
------- ------ ---- --------
95,943 5,506 697 100,752
Redeemable preferred stocks............. 15 -- -- 15
------- ------ ---- --------
$95,958 $5,506 $697 $100,767
======= ====== ==== ========
Equity Securities:
Common stocks........................... $ 1,286 $ 923 $ 77 $ 2,132
Nonredeemable preferred stocks.......... 222 4 18 208
------- ------ ---- --------
$ 1,508 $ 927 $ 95 $ 2,340
======= ====== ==== ========
</TABLE>
F-24
<PAGE> 242
METROPOLITAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company held foreign currency derivatives with notional amounts of
$4,002 and $716 to hedge the exchange rate risk associated with foreign bonds at
December 31, 1999 and 1998, respectively. The Company also held options with
fair values of $(11) to hedge the market value of common stocks at December 31,
1998.
At December 31, 1999, fixed maturities held by the Company that were below
investment grade or not rated by an independent rating agency had an estimated
fair value of $8,813. At December 31, 1999, non-income producing fixed
maturities were insignificant.
The amortized cost and estimated fair value of bonds at December 31, 1999,
by contractual maturity date, are shown below:
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
COST FAIR VALUE
--------- ----------
<S> <C> <C>
Due in one year or less............................... $ 3,180 $ 3,217
Due after one year through five years................. 18,152 18,061
Due after five years through ten years................ 23,755 23,114
Due after ten years................................... 26,316 25,918
------- -------
71,403 70,310
Mortgage and asset-backed securities.................. 27,396 26,661
------- -------
$98,799 $96,971
======= =======
</TABLE>
Fixed maturities not due at a single maturity date have been included in
the above table in the year of final maturity. Actual maturities may differ from
contractual maturities due to the exercise of prepayment options.
Sales of securities were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Securities classified as available-for-sale:
Proceeds.......................................... $59,852 $46,913 $69,275
Gross realized gains.............................. $ 605 $ 2,053 $ 965
Gross realized losses............................. $ 911 $ 486 $ 627
Fixed maturities classified as held-to-maturity:
Proceeds.......................................... $ -- $ -- $ 352
Gross realized gains.............................. $ -- $ -- $ 5
Gross realized losses............................. $ -- $ -- $ 1
</TABLE>
Gross realized losses above exclude writedowns recorded during 1999 for
permanently impaired available-for-sale securities of $133.
During 1997, fixed maturities with an amortized cost of $11,682 were
transferred from held-to-maturity to available-for-sale. Other comprehensive
income at the date of reclassification was increased by $198 excluding the
effects of deferred income taxes and policyholder related amounts.
Excluding investments in U.S. governments and agencies, the Company is not
exposed to any significant concentration of credit risk in its fixed maturities
portfolio.
F-25
<PAGE> 243
METROPOLITAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SECURITIES LENDING PROGRAM
The Company participates in securities lending programs whereby large
blocks of securities, which are returnable to the Company on short notice and
included in investments, are loaned to third parties, primarily major brokerage
firms. The Company requires a minimum of 102% of the fair value of the loaned
securities to be separately maintained as collateral for the loans. Securities
with a cost or amortized cost of $6,458 and $4,005 and estimated fair value of
$6,391 and $4,552 were on loan under the program at December 31, 1999 and 1998,
respectively. The Company was liable for cash collateral under its control of
$6,461 and $3,769 at December 31, 1999 and 1998, respectively. This liability is
included in other liabilities. Security collateral on deposit from securities
borrowers is returnable to them on short notice and is not reflected in the
consolidated financial statements.
STATUTORY DEPOSITS
The Company had investment assets on deposit with regulatory agencies of
$476 and $466 at December 31, 1999 and 1998, respectively.
MORTGAGE LOANS ON REAL ESTATE
Mortgage loans were categorized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------
1999 1998
------------------ ------------------
AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ -------
<S> <C> <C> <C> <C>
Commercial mortgage loans.................. $14,931 75% $12,503 74%
Agricultural mortgage loans................ 4,816 24% 4,256 25%
Residential mortgage loans................. 82 1% 241 1%
------- --- ------- ---
19,829 100% 17,000 100%
=== ===
Less: Valuation allowances................. 90 173
------- -------
$19,739 $16,827
======= =======
</TABLE>
Mortgage loans on real estate are collateralized by properties primarily
located throughout the United States. At December 31, 1999, approximately 16%,
8% and 8% of the properties were located in California, New York and Florida,
respectively. Generally, the Company (as the lender) requires that a minimum of
one-fourth of the purchase price of the underlying real estate be paid by the
borrower.
Certain of the Company's real estate joint ventures have mortgage loans
with the Company. The carrying values of such mortgages were $547 and $606 at
December 31, 1999 and 1998, respectively.
F-26
<PAGE> 244
METROPOLITAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Changes in mortgage loan valuation allowances were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Balance at January 1................................. $ 173 $ 289 $ 469
Additions............................................ 40 40 61
Deductions for writedowns and dispositions........... (123) (130) (241)
Deductions for disposition of affiliates............. -- (26) --
----- ----- -----
Balance at December 31............................... $ 90 $ 173 $ 289
===== ===== =====
</TABLE>
A portion of the Company's mortgage loans on real estate was impaired and
consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1999 1998
---- ----
<S> <C> <C>
Impaired mortgage loans with valuation allowances.......... $540 $ 823
Impaired mortgage loans without valuation allowances....... 437 375
---- ------
977 1,198
Less: Valuation allowances................................. 83 149
---- ------
$894 $1,049
==== ======
</TABLE>
The average investment in impaired mortgage loans on real estate was
$1,134, $1,282 and $1,680 for the years ended December 31, 1999, 1998 and 1997,
respectively. Interest income on impaired mortgages was $101, $109 and $110 for
the years ended December 31, 1999, 1998 and 1997, respectively.
The investment in restructured mortgage loans on real estate was $980 and
$1,140 at December 31, 1999 and 1998, respectively. Interest income of $80, $74
and $91 was recognized on restructured loans for the years ended December 31,
1999, 1998 and 1997, respectively. Gross interest income that would have been
recorded in accordance with the original terms of such loans amounted to $92,
$87 and $116 for the years ended December 31, 1999, 1998 and 1997, respectively.
Mortgage loans on real estate with scheduled payments of 60 days (90 days
for agriculture mortgages) or more past due or in foreclosure had an amortized
cost of $44 and $65 at December 31, 1999 and 1998, respectively.
F-27
<PAGE> 245
METROPOLITAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
REAL ESTATE AND REAL ESTATE JOINT VENTURES
Real estate and real estate joint ventures consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1999 1998
---- ----
<S> <C> <C>
Real estate and real estate joint ventures
held-for-investment....................................... $5,440 $6,301
Impairments................................................. (289) (408)
------ ------
5,151 5,893
------ ------
Real estate and real estate joint ventures held-for-sale.... 719 546
Impairments................................................. (187) (119)
Valuation allowance......................................... (34) (33)
------ ------
498 394
------ ------
$5,649 $6,287
====== ======
</TABLE>
Accumulated depreciation on real estate was $2,235 and $2,065 at December
31, 1999 and 1998, respectively. Related depreciation expense was $247, $282 and
$338 for the years ended December 31, 1999, 1998 and 1997, respectively.
Real estate and real estate joint ventures were categorized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1999 1998
----------------- -----------------
AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ -------
<S> <C> <C> <C> <C>
Office........................................ $3,846 68% $4,265 68%
Retail........................................ 587 10% 640 10%
Apartments.................................... 474 8% 418 7%
Land.......................................... 258 5% 313 5%
Agriculture................................... 96 2% 195 3%
Other......................................... 388 7% 456 7%
------ --- ------ ---
$5,649 100% $6,287 100%
====== === ====== ===
</TABLE>
The Company's real estate holdings are primarily located throughout the
United States. At December 31, 1999, approximately 25%, 24% and 10% of the
Company's real estate holdings were located in New York, California and Texas,
respectively.
Changes in real estate and real estate joint ventures held-for-sale
valuation allowance were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Balance at January 1....................................... $ 33 $110 $ 661
Additions charged (credited) to operations................. 36 (5) (76)
Deductions for writedowns and dispositions................. (35) (72) (475)
---- ---- -----
Balance at December 31..................................... $ 34 $ 33 $ 110
==== ==== =====
</TABLE>
Investment income related to impaired real estate and real estate joint
ventures held-for-investment was $61, $105 and $28 for the years ended December
31, 1999, 1998 and 1997, respectively. Investment income related to real estate
and real estate joint ventures held-for-sale
F-28
<PAGE> 246
METROPOLITAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
was $14, $3 and $11 for the years ended December 31, 1999, 1998 and 1997,
respectively. The carrying value of non-income producing real estate and real
estate joint ventures was $22 and $1 at December 31, 1999 and 1998,
respectively.
The Company owned real estate acquired in satisfaction of debt of $47 and
$154 at December 31, 1999 and 1998, respectively.
Real estate of $37, $69 and $151 was acquired in satisfaction of debt
during the years ended December 31, 1999, 1998 and 1997, respectively.
LEVERAGED LEASES
Leveraged leases, included in other invested assets, consisted of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1999 1998
---- ----
<S> <C> <C>
Investment............................................... $1,016 $1,067
Estimated residual values................................ 559 607
------ ------
1,575 1,674
Unearned income.......................................... (417) (471)
------ ------
$1,158 $1,203
====== ======
</TABLE>
The investment amounts set forth above are generally due in monthly
installments. The payment periods generally range from four to 15 years, but in
certain circumstances are as long as 30 years. Average yields range from 7% to
12%. These receivables are generally collateralized by the related property.
3. DERIVATIVE INSTRUMENTS
The table below provides a summary of the carrying value, notional amount
and current market or fair value of derivative financial instruments (other than
equity options) held at December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
------------------------------------------ ------------------------------------------
CURRENT MARKET CURRENT MARKET
OR FAIR VALUE OR FAIR VALUE
CARRYING NOTIONAL -------------------- CARRYING NOTIONAL --------------------
VALUE AMOUNT ASSETS LIABILITIES VALUE AMOUNT ASSETS LIABILITIES
-------- -------- ------ ----------- -------- -------- ------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Financial futures.................. $ 27 $ 3,140 $37 $ 10 $ 3 $ 2,190 $ 8 $ 6
Foreign exchange contracts......... -- -- -- -- -- 136 -- 2
Interest rate swaps................ (32) 1,316 11 40 (9) 1,621 17 50
Foreign currency swaps............. -- 4,002 26 103 (1) 580 3 62
Caps............................... 1 12,376 3 -- -- 8,391 -- --
---- ------- --- ---- --- ------- --- ----
Total contractual commitments...... $ (4) $20,834 $77 $153 $(7) $12,918 $28 $120
==== ======= === ==== === ======= === ====
</TABLE>
F-29
<PAGE> 247
METROPOLITAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following is a reconciliation of the notional amounts by derivative
type and strategy at December 31, 1999 and 1998:
<TABLE>
<CAPTION>
DECEMBER 31, 1998 TERMINATIONS/ DECEMBER 31, 1999
NOTIONAL AMOUNT ADDITIONS MATURITIES NOTIONAL AMOUNT
----------------- --------- ------------- -----------------
<S> <C> <C> <C> <C>
BY DERIVATIVE TYPE
Financial futures................... $ 2,190 $18,259 $17,309 $ 3,140
Foreign exchange contracts.......... 136 702 838 --
Interest rate swaps................. 1,621 429 734 1,316
Foreign currency swaps.............. 580 3,501 79 4,002
Caps................................ 8,391 5,860 1,875 12,376
------- ------- ------- -------
Total contractual commitments....... $12,918 $28,751 $20,835 $20,834
======= ======= ======= =======
BY STRATEGY
Liability hedging................... $ 8,741 $ 5,865 $ 2,035 $12,571
Invested asset hedging.............. 864 4,288 937 4,215
Portfolio hedging................... 2,830 13,920 14,729 2,021
Anticipated transaction hedging..... 483 4,678 3,134 2,027
------- ------- ------- -------
Total contractual commitments....... $12,918 $28,751 $20,835 $20,834
======= ======= ======= =======
</TABLE>
The following table presents the notional amounts of derivative financial
instruments by maturity at December 31, 1999:
<TABLE>
<CAPTION>
REMAINING LIFE
-------------------------------------------------------------------
ONE YEAR AFTER ONE YEAR AFTER FIVE YEARS
OR LESS THROUGH FIVE YEARS THROUGH TEN YEARS AFTER TEN YEARS TOTAL
-------- ------------------ ----------------- --------------- -----
<S> <C> <C> <C> <C> <C>
Financial futures......... $3,140 $ -- $ -- $ -- $ 3,140
Interest rate swaps....... 833 483 -- -- 1,316
Foreign currency swaps.... 7 3,371 503 121 4,002
Caps...................... 3,426 8,930 20 -- 12,376
------ ------- ---- ---- -------
Total contractual
commitments............. $7,406 $12,784 $523 $121 $20,834
====== ======= ==== ==== =======
</TABLE>
In addition to the derivative instruments above, the Company uses equity
option contracts as invested asset hedges. There were ninety-two thousand equity
option contracts outstanding with a carrying value of $(11) and a market value
of $(11) at December 31, 1998.
4. FAIR VALUE INFORMATION
The estimated fair values of financial instruments have been determined by
using available market information and the valuation methodologies described
below. Considerable judgment is often required in interpreting market data to
develop estimates of fair value. Accordingly, the estimates presented herein may
not necessarily be indicative of amounts that could be realized in a current
market exchange. The use of different assumptions or valuation methodologies may
have a material effect on the estimated fair value amounts.
F-30
<PAGE> 248
METROPOLITAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Amounts related to the Company's financial instruments were as follows:
<TABLE>
<CAPTION>
NOTIONAL CARRYING ESTIMATED
DECEMBER 31, 1999 AMOUNT VALUE FAIR VALUE
- ----------------- -------- -------- ----------
<S> <C> <C> <C>
Assets:
Fixed maturities.................................. $96,981 $96,981
Equity securities................................. 2,006 2,006
Mortgage loans on real estate..................... 19,739 19,452
Policy loans...................................... 5,598 5,618
Short-term investments............................ 3,055 3,055
Cash and cash equivalents......................... 2,789 2,789
Mortgage loan commitments......................... $465 -- (7)
Liabilities:
Policyholder account balances..................... 37,170 36,893
Short-term debt................................... 4,208 4,208
Long-term debt.................................... 2,514 2,466
Investment collateral............................. 6,451 6,451
</TABLE>
<TABLE>
<CAPTION>
NOTIONAL CARRYING ESTIMATED
DECEMBER 31, 1998 AMOUNT VALUE FAIR VALUE
- ----------------- -------- -------- ----------
<S> <C> <C> <C>
Assets:
Fixed maturities................................. $100,767 $100,767
Equity securities................................ 2,340 2,340
Mortgage loans on real estate.................... 16,827 17,793
Policy loans..................................... 5,600 6,143
Short-term investments........................... 1,369 1,369
Cash and cash equivalents........................ 3,301 3,301
Mortgage loan commitments........................ $472 -- 14
Liabilities:
Policyholder account balances.................... 37,448 37,664
Short-term debt.................................. 3,585 3,585
Long-term debt................................... 2,903 3,006
Investment collateral............................ 3,769 3,769
</TABLE>
The methods and assumptions used to estimate the fair values of financial
instruments are summarized as follows:
FIXED MATURITIES AND EQUITY SECURITIES
The fair value of fixed maturities and equity securities are based upon
quotations published by applicable stock exchanges or received from other
reliable sources. For securities in which the market values were not readily
available, fair values were estimated using quoted market prices of comparable
investments.
MORTGAGE LOANS ON REAL ESTATE AND MORTGAGE LOAN COMMITMENTS
Fair values for mortgage loans on real estate are estimated by discounting
expected future cash flows, using current interest rates for similar loans with
similar credit risk. For mortgage loan commitments, the estimated fair value is
the net premium or discount of the commitments.
F-31
<PAGE> 249
METROPOLITAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
POLICY LOANS
Fair values for policy loans are estimated by discounting expected future
cash flows using U.S. treasury rates to approximate interest rates and the
Company's past experiences to project patterns of loan accrual and repayment
characteristics.
CASH AND CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
The carrying values for cash and cash equivalents and short-term
investments approximated fair market values due to the short-term maturities of
these instruments.
POLICYHOLDER ACCOUNT BALANCES
The fair value of policyholder account balances are estimated by
discounting expected future cash flows, based on interest rates currently being
offered for similar contracts with maturities consistent with those remaining
for the agreements being valued.
SHORT-TERM AND LONG-TERM DEBT AND INVESTMENT COLLATERAL
The fair values of short-term and long-term debt and investment collateral
are determined by discounting expected future cash flows, using risk rates
currently available for debt with similar terms and remaining maturities.
DERIVATIVE INSTRUMENTS
The fair value of derivative instruments, including financial futures,
financial forwards, interest rate and foreign currency swaps, floors, foreign
exchange contracts, caps and options are based upon quotations obtained from
dealers or other reliable sources. See Note 3 for derivative fair value
disclosures.
5. EMPLOYEE BENEFIT PLANS
PENSION BENEFIT AND OTHER BENEFIT PLANS
The Company is both the sponsor and administrator of defined benefit
pension plans covering all eligible employees and sales representatives of
MetLife and certain of its subsidiaries. Retirement benefits are based upon
years of credited service and final average earnings history.
The Company also provides certain postemployment benefits and certain
postretirement health care and life insurance benefits for retired employees
through insurance contracts. Substantially all of the Company's employees may,
in accordance with the plans applicable to the
F-32
<PAGE> 250
METROPOLITAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
postretirement benefits, become eligible for these benefits if they attain
retirement age, with sufficient service, while working for the Company.
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
PENSION BENEFITS OTHER BENEFITS
---------------- ----------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Change in projected benefit obligation:
Projected benefit obligation at beginning of year.... $3,920 $3,573 $1,708 $1,763
Service cost....................................... 100 90 28 31
Interest cost...................................... 271 257 107 114
Actuarial (gains) losses........................... (260) 212 (281) (74)
Divestitures, curtailments and terminations........ (22) 24 10 (13)
Change in benefits................................. -- 12 -- --
Benefits paid........................................ (272) (248) (89) (113)
------ ------ ------ ------
Projected benefit obligation at end of year.......... 3,737 3,920 1,483 1,708
------ ------ ------ ------
Change in plan assets:
Contract value of plan assets at beginning of year... 4,403 4,056 1,123 1,004
Actuarial return on plan assets.................... 575 680 141 171
Employer contribution.............................. 20 15 24 61
Benefits paid...................................... (272) (248) (89) (113)
Other payments..................................... -- (100) -- --
------ ------ ------ ------
Contract value of plan assets at end of year......... 4,726 4,403 1,199 1,123
------ ------ ------ ------
Over (under) funded.................................. 989 483 (284) (585)
------ ------ ------ ------
Unrecognized net asset at transition................. (66) (98) -- --
Unrecognized net actuarial gains..................... (564) (78) (487) (322)
Unrecognized prior service cost...................... 127 145 (2) (2)
------ ------ ------ ------
Prepaid (accrued) benefit cost....................... $ 486 $ 452 $ (773) $ (909)
====== ====== ====== ======
Qualified plan prepaid pension cost.................. $ 632 $ 568 $ -- $ --
Non-qualified plan accrued pension cost.............. (146) (116) -- --
------ ------ ------ ------
Prepaid benefit cost................................. $ 486 $ 452 $ -- $ --
====== ====== ====== ======
</TABLE>
The aggregate projected benefit obligation and aggregate contract value of
plan assets for the pension plans were as follows:
<TABLE>
<CAPTION>
NON-QUALIFIED
QUALIFIED PLAN PLAN TOTAL
---------------- -------------- ----------------
1999 1998 1999 1998 1999 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Aggregate projected benefit
obligation...................... $3,482 $3,697 $ 255 $ 223 $3,737 $3,920
Aggregate contract value of plan
assets (principally Company
contracts)...................... 4,726 4,403 -- -- 4,726 4,403
------ ------ ----- ----- ------ ------
Over (under) funded............... $1,244 $ 706 $(255) $(223) $ 989 $ 483
====== ====== ===== ===== ====== ======
</TABLE>
F-33
<PAGE> 251
METROPOLITAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The assumptions used in determining the aggregate projected benefit
obligation and aggregate contract value for the pension and other benefits were
as follows:
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
---------------------------- -----------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average assumptions at
December 31,
Discount rate....................... 6.25% - 7.75% 6.5% - 7.25% 6% - 7.75% 7%
Expected rate of return on plan
assets............................ 8% - 10.5% 8.5% - 10.5% 6% - 9% 7.25% - 9%
Rate of compensation increase....... 4.5% - 8.5% 4.5% - 8.5% N/A N/A
</TABLE>
The assumed health care cost trend rates used in measuring the accumulated
nonpension postretirement benefit obligation were 6.5% for pre-Medicare eligible
claims and 6% for Medicare eligible claims in both 1999 and 1998.
Assumed health care cost trend rates may have a significant effect on the
amounts reported for health care plans. A one-percentage point change in assumed
health care cost trend rates would have the following effects:
<TABLE>
<CAPTION>
ONE PERCENT ONE PERCENT
INCREASE DECREASE
----------- -----------
<S> <C> <C>
Effect on total of service and interest cost components.... $ 14 $ 11
Effect of accumulated postretirement benefit obligation.... $134 $111
</TABLE>
The components of periodic benefit costs were as follows:
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
--------------------- ------------------
1999 1998 1997 1999 1998 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Service cost............................... $ 100 $ 90 $ 74 $ 28 $ 31 $ 30
Interest cost.............................. 271 257 247 107 114 122
Expected return on plan assets............. (363) (337) (324) (89) (79) (66)
Amortization of prior actuarial gains...... (6) (11) (5) (11) (13) (4)
Curtailment (credit) cost.................. (17) (10) -- 10 4 --
----- ----- ----- ---- ---- ----
Net periodic benefit cost (credit)......... $ (15) $ (11) $ (8) $ 45 $ 57 $ 82
===== ===== ===== ==== ==== ====
</TABLE>
SAVINGS AND INVESTMENT PLANS
The Company sponsors savings and investment plans for substantially all
employees under which the Company matches a portion of employee contributions.
The Company contributed $45, $43 and $44 for the years ended December 31, 1999,
1998 and 1997, respectively.
6. SEPARATE ACCOUNTS
Separate accounts reflect two categories of risk assumption: non-guaranteed
separate accounts totaling $47,618 and $39,490 at December 31, 1999 and 1998,
respectively, for which the policyholder assumes the investment risk, and
guaranteed separate accounts totaling $17,323 and $18,578 at December 31, 1999
and 1998, respectively, for which MetLife contractually guarantees either a
minimum return or account value to the policyholder.
F-34
<PAGE> 252
METROPOLITAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Fees charged to the separate accounts by the Company (including mortality
charges, policy administration fees and surrender charges) are reflected in the
Company's revenues as universal life and investment-type product policy fees and
totaled $485, $413 and $287 for the years ended December 31, 1999, 1998 and
1997, respectively. Guaranteed separate accounts consisted primarily of Met
Managed Guaranteed Interest Contracts and participating close out contracts. The
average interest rates credited on these contracts were 6.5% and 7% at December
31, 1999 and 1998, respectively. The assets that support these liabilities were
comprised of $16,874 and $16,639 in fixed maturities at December 31, 1999 and
1998, respectively. The portfolios are segregated from other investments and are
managed to minimize liquidity and interest rate risk. In order to minimize the
risk of disintermediation associated with early withdrawals, these investment
products carry a graded surrender charge as well as a market value adjustment.
7. DEBT
Debt consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1999 1998
---- ----
<S> <C> <C>
MetLife:
6.300% surplus notes due 2003.......................... $ 397 $ 397
7.000% surplus notes due 2005.......................... 249 249
7.700% surplus notes due 2015.......................... 198 198
7.450% surplus notes due 2023.......................... 296 296
7.785% surplus notes due 2024.......................... 148 148
7.800% surplus notes due 2025.......................... 248 248
Other.................................................... 130 207
------ ------
1,666 1,743
------ ------
Investment related:
Floating rate debt, interest based on LIBOR............ -- 212
Exchangeable debt, interest rates ranging from 4.90% to
5.80%, due 2001 and 2002............................ 369 371
------ ------
369 583
------ ------
Total MetLife............................................ 2,035 2,326
------ ------
Nvest:
7.060% senior notes due 2003........................... 110 110
7.290% senior notes due 2007........................... 160 160
------ ------
270 270
------ ------
Other Affiliated Companies:
Fixed rate notes, interest rates ranging from 6.96% to
8.51%, maturity dates ranging from 2000 to 2008..... 170 179
Other.................................................. 39 128
------ ------
209 307
------ ------
Total long-term debt..................................... 2,514 2,903
Total short-term debt.................................... 4,208 3,585
------ ------
$6,722 $6,488
====== ======
</TABLE>
F-35
<PAGE> 253
METROPOLITAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Short-term debt consisted of commercial paper with a weighted average
interest rate of 6.05% and 5.31% and a weighted average maturity of 74 and 44
days at December 31, 1999 and 1998, respectively.
The Company maintains unsecured credit facilities aggregating $7,000
(five-year facility of $1,000 expiring in April 2003; 364-day facility of $1,000
expiring in April 2000; 364-day facility of $5,000 expiring in September 2000).
Both $1,000 facilities bear interest at LIBOR plus 20 basis points. The $5,000
facility bears interest at various rates under specified borrowing scenarios.
The facilities can be used for general corporate purposes and also provide
backup for the Company's commercial paper program. At December 31, 1999, there
were no outstanding borrowings under any of the facilities.
Payments of interest and principal on the surplus notes, subordinated to
all other indebtedness, may be made only with the prior approval of the
Superintendent. Subject to the prior approval of the Superintendent, the 7.45%
surplus notes may be redeemed, in whole or in part, at the election of the
Company at any time on or after November 1, 2003.
Each issue of investment related debt is payable in cash or by delivery of
an underlying security owned by the Company. The amount payable at maturity of
the debt is greater than the principal of the debt if the market value of the
underlying security appreciates above certain levels at the date of debt
repayment as compared to the market value of the underlying security at the date
of debt issuance.
The aggregate maturities of long-term debt are $93 in 2000, $194 in 2001,
$210 in 2002, $415 in 2003, $126 in 2004 and $1,477 thereafter.
Interest expense related to the Company's outstanding indebtedness was
$358, $333 and $344 for the years ended December 31, 1999, 1998 and 1997,
respectively.
8. ACQUISITIONS AND DISPOSITIONS
In 1999 and 1997, respectively, the Company acquired assets of $4,832 and
$3,777 and assumed liabilities of $1,860 and $3,347 through the acquisition of
certain insurance and non-insurance operations. The aggregate purchase prices
were allocated to the assets and liabilities acquired based on their estimated
fair values.
During 1998, the Company sold MetLife Capital Holdings, Inc. (a commercial
financing company) and a substantial portion of its Canadian and Mexican
insurance operations, which resulted in a realized investment gain of $531.
During 1997, the Company sold its United Kingdom insurance operations, which
resulted in a realized investment gain of $139. Such sales caused a reduction in
assets of $10,663 and $4,342 and liabilities of $3,691 and $4,207 in 1998 and
1997, respectively.
See Note 16 for information regarding the Company's acquisition of
GenAmerica Corporation.
9. COMMITMENTS AND CONTINGENCIES
LITIGATION
The Company is currently a defendant in approximately 500 lawsuits raising
allegations of improper marketing and sales of individual life insurance
policies or annuities. These lawsuits are generally referred to as "sales
practices claims".
F-36
<PAGE> 254
METROPOLITAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On December 28, 1999, after a fairness hearing, the United States District
Court for the Western District of Pennsylvania approved a class action
settlement resolving a multidistrict litigation proceeding involving alleged
sales practices claims. The settlement class includes most of the owners of
permanent life insurance policies and annuity contracts or certificates issued
pursuant to individual sales in the United States by Metropolitan Life Insurance
Company, Metropolitan Insurance and Annuity Company or Metropolitan Tower Life
Insurance Company between January 1, 1982 and December 31, 1997. This class
includes owners of approximately six million in-force or terminated insurance
policies and approximately one million in-force or terminated annuity contracts
or certificates.
In addition to dismissing the consolidated class actions, the District
Court's order also bars sales practices claims by class members for sales by the
defendant insurers during the class period, effectively resolving all pending
class actions against these insurers. The defendants are in the process of
having these claims dismissed.
Under the terms of the order, only those class members who excluded
themselves from the settlement may continue an existing, or start a new, sales
practices lawsuit against Metropolitan Life Insurance Company, Metropolitan
Insurance and Annuity Company or Metropolitan Tower Life Insurance Company for
sales that occurred during the class period. Approximately 20,000 class members
elected to exclude themselves from the settlement. Over 400 of the approximately
500 lawsuits noted above are brought by individuals who elected to exclude
themselves from the settlement.
The settlement provides three forms of relief. General relief, in the form
of free death benefits, is provided automatically to class members who did not
exclude themselves from the settlement or who did not elect the claim evaluation
procedures set forth in the settlement. The claim evaluation procedures permit a
class member to have a claim evaluated by a third party under procedures set
forth in the settlement. Claim awards made under the claim evaluation procedures
will be in the form of policy adjustments, free death benefits or, in some
instances, cash payments. In addition, class members who have or had an
ownership interest in specified policies will also automatically receive
deferred acquisition cost tax relief in the form of free death benefits. The
settlement fixes the aggregate amounts that are available under each form of
relief.
The Company expects that the total cost of the settlement will be
approximately $957. This amount is equal to the amount of the increase in
liabilities for the death benefits and policy adjustments and the present value
of expected cash payments to be provided to included class members, as well as
attorneys' fees and expenses and estimated other administrative costs, but does
not include the cost of litigation with policyholders who are excluded from the
settlement. The Company believes that the cost of the settlement will be
substantially covered by available reinsurance and the provisions made in its
consolidated financial statements, and thus will not have a material adverse
effect on its business, results of operations or financial position. The Company
has not yet made a claim under those reinsurance agreements and, although there
is a risk that the carriers will refuse coverage for all or part of the claim,
the Company believes this is very unlikely to occur. The Company believes it has
made adequate provision in its consolidated financial statements for all
probable losses for sales practices claims, including litigation costs involving
policyholders who are excluded from the settlement.
The class action settlement does not resolve nine purported or certified
class actions currently pending against New England Mutual Life Insurance
Company with which the Company merged in 1996. Eight of those actions have been
consolidated as a multidistrict proceeding for pre-trial purposes in the United
States District Court in Massachusetts. That Court certified a mandatory class
as to those claims. Following an appeal of that certification, the United States
F-37
<PAGE> 255
METROPOLITAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Court of Appeals remanded the case to the District Court for further
consideration. The Company is negotiating a settlement with class counsel.
The class action settlement also does not resolve three putative sales
practices class action lawsuits which have been brought against General American
Life Insurance Company. These lawsuits have been consolidated in a single
proceeding in the United States District Court for the Eastern District of
Missouri. General American Life Insurance Company and counsel for plaintiffs
have negotiated a settlement in principle of this consolidated proceeding.
General American Life Insurance Company has not reached agreement with
plaintiffs' counsel on the attorneys' fees to be paid. However, negotiations are
ongoing.
In addition, the class action settlement does not resolve two putative
class actions involving sales practices claims filed against Metropolitan Life
Insurance Company in Canada. The class action settlement also does not resolve a
certified class action with conditionally certified subclasses against
Metropolitan Life Insurance Company, Metropolitan Insurance and Annuity Company,
Metropolitan Tower Life Insurance Company and various individual defendants
alleging improper sales abroad. That lawsuit is pending in a New York federal
court.
In the past, the Company has resolved some individual sales practices
claims through settlement, dispositive motion or, in a few instances, trial.
Most of the current cases seek substantial damages, including in some cases
punitive and treble damages and attorneys' fees. Additional litigation relating
to the Company's marketing and sales of individual life insurance may be
commenced in the future.
Regulatory authorities in a small number of states, including both
insurance departments and one state attorney general, as well as the National
Association of Securities Dealers, Inc., have ongoing investigations or
inquiries relating to the Company's sales of individual life insurance policies
or annuities, including investigations of alleged improper replacement
transactions and alleged improper sales of insurance with inaccurate or
inadequate disclosures as to the period for which premiums would be payable.
Over the past several years, the Company has resolved a number of investigations
by other regulatory authorities for monetary payments and certain other relief,
and may continue to do so in the future.
MetLife is also a defendant in numerous lawsuits seeking compensatory and
punitive damages for personal injuries allegedly caused by exposure to asbestos
or asbestos-containing products. MetLife has never engaged in the business of
manufacturing, producing, distributing or selling asbestos or
asbestos-containing products. Rather, these lawsuits, currently numbering in the
thousands, have principally been based upon allegations relating to certain
research, publication and other activities of one or more of MetLife's employees
during the period from the 1920s through approximately the 1950s and alleging
that MetLife learned or should have learned of certain health risks posed by
asbestos and, among other things, improperly publicized or failed to disclose
those health risks. Legal theories asserted against MetLife have included
negligence, intentional tort claims and conspiracy claims concerning the health
risks associated with asbestos. While MetLife believes it has meritorious
defenses to these claims, and has not suffered any adverse judgments in respect
of these claims, most of the cases have been resolved by settlements. MetLife
intends to continue to exercise its best judgment regarding settlement or
defense of such cases. The number of such cases that may be brought or the
aggregate amount of any liability that MetLife may ultimately incur is
uncertain.
Significant portions of amounts paid in settlement of such cases have been
funded with proceeds from a previously resolved dispute with MetLife's primary,
umbrella and first level excess liability insurance carriers. MetLife is
presently in litigation with several of its excess
F-38
<PAGE> 256
METROPOLITAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
liability insurers regarding amounts payable under its policies with respect to
coverage for these claims. The trial court has granted summary judgment to these
insurers. MetLife has appealed. There can be no assurances regarding the outcome
of this litigation or the amount and timing of recoveries, if any, from these
excess liability insurers. MetLife's asbestos-related litigation with these
insurers should have no effect on recoveries under the excess insurance policies
described below.
The Company has recorded, in other expenses, charges of $499 ($317
after-tax), $1,895 ($1,203 after-tax) and $300 ($190 after-tax) for the years
ended December 31, 1999, 1998 and 1997, respectively, for sales practices claims
and claims for personal injuries caused by exposure to asbestos or
asbestos-containing products. The 1999 charge was principally related to the
settlement of the multidistrict litigation proceeding involving alleged improper
sales practices, accruals for sales practices claims not covered by the
settlement and other legal costs. The 1998 charge was comprised of $925 and $970
for sales practices claims and asbestos-related claims, respectively. The
Company recorded the charges for sales practices claims based on preliminary
settlement discussions and the settlement history of other insurers.
Prior to the fourth quarter of 1998, the Company established a liability
for asbestos-related claims based on settlement costs for claims that the
Company had settled, estimates of settlement costs for claims pending against
the Company and an estimate of settlement costs for unasserted claims. The
amount for unasserted claims was based on management's estimate of unasserted
claims that would be probable of assertion. A liability is not established for
claims which management believes are only reasonably possible of assertion.
Based on this process, the accrual for asbestos-related claims at December 31,
1997 was $386. Potential liabilities for asbestos-related claims are not easily
quantified, due to the nature of the allegations against the Company, which are
not related to the business of manufacturing, producing, distributing or selling
asbestos or asbestos-containing products, adding to the uncertainty as to the
number of claims that may be brought against the Company.
During 1998, the Company decided to pursue the purchase of excess insurance
to limit its exposure to asbestos-related claims. In connection with the
negotiations with the casualty insurers to obtain this insurance, the Company
obtained information that caused management to reassess the accruals for
asbestos-related claims. This information included:
- Information from the insurers regarding the asbestos-related claims
experience of other insureds, which indicated that the number of claims
that were probable of assertion against the Company in the future was
significantly greater than it had assumed in its accruals. The number of
claims brought against the Company is generally a reflection of the
number of asbestos-related claims brought against asbestos defendants
generally and the percentage of those claims in which the Company is
included as a defendant. The information provided to the Company relating
to other insureds indicated that the Company had been included as a
defendant for a significant percentage of total asbestos-related claims
and that it may be included in a larger percentage of claims in the
future, because of greater awareness of asbestos litigation generally by
potential plaintiffs and plaintiffs' lawyers and because of the
bankruptcy and reorganization or the exhaustion of insurance coverage of
other asbestos defendants; and that, although volatile, there was an
upward trend in the number of total claims brought against asbestos
defendants.
- Information derived from actuarial calculations the Company made in the
fourth quarter of 1998 in connection with these negotiations, which
helped to frame, define and quantify this liability. These calculations
were made using, among other things, current information regarding the
Company's claims and settlement experience (which reflected the
F-39
<PAGE> 257
METROPOLITAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company's decision to resolve an increased number of these claims by
settlement), recent and historic claims and settlement experience of
selected other companies and information obtained from the insurers.
Based on this information, the Company concluded that certain claims that
previously were considered as only reasonably possible of assertion were now
probable of assertion, increasing the number of assumed claims to approximately
three times the number assumed in prior periods. As a result of this
reassessment, the Company increased its liability for asbestos-related claims to
$1,278 at December 31, 1998.
During 1998, the Company paid $1,407 of premiums for excess of loss
reinsurance agreements and excess insurance policies, consisting of $529 for the
excess of loss reinsurance agreements for sales practices claims and excess
mortality losses and $878 for the excess insurance policies for asbestos-related
claims.
The Company obtained the excess of loss reinsurance agreements to provide
reinsurance with respect to sales practices claims made on or prior to December
31, 1999 and for certain mortality losses in 1999. These reinsurance agreements
have a maximum aggregate limit of $650, with a maximum sublimit of $550 for
losses for sales practices claims. This coverage is in excess of an aggregate
self-insured retention of $385 with respect to sales practices claims and $506,
plus the Company's statutory policy reserves released upon the death of
insureds, with respect to life mortality losses. At December 31, 1999, the
subject losses under the reinsurance agreements due to sales practices claims
and related counsel fees from the time the Company entered into the reinsurance
agreements did not exceed that self-insured retention. The maximum sublimit of
$550 for sales practices claims was within a range of losses that management
believed were reasonably possible at December 31, 1998. Each excess of loss
reinsurance agreement for sales practices claims and mortality losses contains
an experience fund, which provides for payments to the Company at the
commutation date if experience is favorable at such date. The Company accounts
for the aggregate excess of loss reinsurance agreements as reinsurance; however,
if deposit accounting were applied, the effect on the Company's consolidated
financial statements in 1998, 1999 and 2000 would not be significant.
Under reinsurance accounting, the excess of the liability recorded for
sales practices losses recoverable under the agreements of $550 over the premium
paid of $529 results in a deferred gain of $21 which is being amortized into
income over the settlement period from January 1999 through April 2000. Under
deposit accounting, the premium would be recorded as an other asset rather than
as an expense, and the reinsurance loss recoverable and the deferred gain would
not have been recorded. Because the agreements also contain an experience fund
which increases with the passage of time, the increase in the experience fund in
1999 and 2000 under deposit accounting would be recognized as interest income in
an amount approximately equal to the deferred gain that will be amortized into
income under reinsurance accounting.
The excess insurance policies for asbestos-related claims provide for
recovery of losses up to $1,500, which is in excess of a $400 self-insured
retention ($878 of which was recorded as a recoverable at December 31, 1999 and
1998). The asbestos-related policies are also subject to annual and per-claim
sublimits. Amounts are recoverable under the policies annually with respect to
claims paid during the prior calendar year. Although amounts paid in any given
year that are recoverable under the policies will be reflected as a reduction in
the Company's operating cash flows for that year, management believes that the
payments will not have a material adverse effect on the Company's liquidity.
Each asbestos-related policy contains an experience fund and a reference fund
that provides for payments to the Company at the commutation date if experience
under the policy to such date has been favorable, or pro rata reductions from
time to
F-40
<PAGE> 258
METROPOLITAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
time in the loss reimbursements to the Company if the cumulative return on the
reference fund is less than the return specified in the experience fund.
A purported class action suit involving policyholders in 32 states has been
filed in a Rhode Island state court against MetLife's subsidiary, Metropolitan
Property and Casualty Insurance Company, with respect to claims by policyholders
for the alleged diminished value of automobiles after accident-related repairs.
A similar "diminished value" allegation was made recently in a Texas Deceptive
Trade Practices Act letter and lawsuit which involve a Metropolitan Property and
Casualty Company policyholder. A purported class action has been filed against
Metropolitan Property and Casualty Insurance Company and its subsidiary,
Metropolitan Casualty Insurance Company, in Florida by a policyholder alleging
breach of contract and unfair trade practices with respect to Metropolitan
Casualty Insurance Company allowing the use of parts not made by the original
manufacturer to repair damaged automobiles. These suits are in the early stages
of litigation and Metropolitan Property and Casualty Insurance Company and
Metropolitan Casualty Insurance Company intend to vigorously defend themselves
against these suits. Similar suits have been filed against several other
personal lines property and casualty insurers.
The United States, the Commonwealth of Puerto Rico and various hotels and
individuals have sued MetLife Capital Corporation, a former subsidiary of the
Company, seeking damages for clean up costs, natural resource damages, personal
injuries and lost profits and taxes based upon, among other things, a release of
oil from a barge which was being towed by the M/V Emily S. In connection with
the sale of MetLife Capital, the Company acquired MetLife Capital's potential
liability with respect to the M/V Emily S lawsuit. MetLife Capital had entered
into a sale and leaseback financing arrangement with respect to the M/V Emily S.
The plaintiffs have taken the position that MetLife Capital, as the owner of
record of the M/V Emily S, is responsible for all damages caused by the barge,
including the oil spill. The governments of the United States and Puerto Rico
have claimed damages in excess of $150. At a mediation, the action brought by
the United States and Puerto Rico was conditionally settled, provided that the
governments have access to additional sums from a fund contributed to by oil
companies to help remediate oil spills. The Company can provide no assurance
that this action will be settled in this manner.
Three putative class actions have been filed by Conning Corporation
shareholders alleging that the Company's announced offer to purchase the
publicly-held Conning shares is inadequate and constitutes a breach of fiduciary
duty (see Note 16). The Company believes the actions are without merit, and
expects that they will not materially affect its offer to purchase the shares.
A civil complaint challenging the fairness of the plan of reorganization
and the adequacy and accuracy of the disclosures to policyholders regarding the
plan has been filed in New York Supreme Court for Kings County on behalf of an
alleged class consisting of the policyholders of MetLife who should have
membership benefits in MetLife and were and are eligible to receive notice, vote
and receive consideration in the demutualization. The complaint seeks to enjoin
or rescind the plan and seeks other relief. The defendants named in the
complaint are MetLife and the individual members of its board of directors and
MetLife, Inc. MetLife believes that the allegations made in the complaint are
wholly without merit, and intends to vigorously contest the complaint.
Various litigation, claims and assessments against the Company, in addition
to those discussed above and those otherwise provided for in the Company's
consolidated financial statements, have arisen in the course of the Company's
business, including, but not limited to, in connection with its activities as an
insurer, employer, investor, investment advisor and taxpayer. Further, state
insurance regulatory authorities and other Federal and state authorities
regularly
F-41
<PAGE> 259
METROPOLITAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
make inquiries and conduct investigations concerning the Company's compliance
with applicable insurance and other laws and regulations.
In some of the matters referred to above, very large and/or indeterminate
amounts, including punitive and treble damages, are sought. While it is not
feasible to predict or determine the ultimate outcome of all pending
investigations and legal proceedings or provide reasonable ranges of potential
losses, it is the opinion of the Company's management that their outcomes, after
consideration of available insurance and reinsurance and the provisions made in
the Company's consolidated financial statements, are not likely to have a
material adverse effect on the Company's consolidated financial position.
However, given the large and/or indeterminate amounts sought in certain of these
matters and the inherent unpredictability of litigation, it is possible that an
adverse outcome in certain matters could, from time to time, have a material
adverse effect on the Company's operating results or cash flows in particular
quarterly or annual periods.
TRANSFERRED CANADIAN POLICIES
In July 1998, MetLife sold a substantial portion of its Canadian operations
to Clarica Life. As part of that sale, a large block of policies in effect with
MetLife in Canada were transferred to Clarica Life, and the holders of the
transferred Canadian policies became policyholders of Clarica Life. Those
transferred policyholders are no longer policyholders of MetLife and, therefore,
are not entitled to compensation under the plan of reorganization. However, as a
result of a commitment made in connection with obtaining Canadian regulatory
approval of that sale, if MetLife demutualizes, its Canadian branch will make
cash payments to those who are, or are deemed to be, holders of those
transferred Canadian policies. The payments, which will be recorded in other
expenses in the same period as the effective date of the plan, will be
determined in a manner that is consistent with the treatment of, and fair and
equitable to, eligible policyholders of MetLife. The amount of the payment is
dependent upon the initial public offering price of common stock to be issued on
the effective date of the plan of demutualization.
YEAR 2000
The Year 2000 issue was the result of the widespread use of computer
programs written using two digits (rather than four) to define the applicable
year. Such programming was a common industry practice designed to avoid the
significant costs associated with additional mainframe capacity necessary to
accommodate a four-digit field. As a result, any of the Company's computer
systems that have time-sensitive software may recognize a date using "00" as the
year 1900 rather than the year 2000. This could result in major system failures
or miscalculations. The Company has conducted a comprehensive review of its
computer systems to identify the systems that could be affected by the Year 2000
issue and has implemented a plan to resolve the issue. There can be no
assurances that the Year 2000 plan of the Company or that of its vendors or
third parties have resolved all Year 2000 issues. Further, there can be no
assurance that there will not be any future system failure or that such failure,
if any, will not have a material impact on the operations of the Company.
LEASES
In accordance with industry practice, certain of the Company's income from
lease agreements with retail tenants is contingent upon the level of the
tenants' sales revenues. Additionally, the Company, as lessee, has entered into
various lease and sublease agreements
F-42
<PAGE> 260
METROPOLITAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
for office space, data processing and other equipment. Future minimum rental and
subrental income and minimum gross rental payments relating to these lease
agreements were as follows:
<TABLE>
<CAPTION>
GROSS
RENTAL SUBLEASE RENTAL
INCOME INCOME PAYMENTS
------ -------- --------
<S> <C> <C> <C>
2000......................................... $ 817 $13 $156
2001......................................... 740 12 135
2002......................................... 689 11 111
2003......................................... 612 9 90
2004......................................... 542 9 69
Thereafter................................... 2,032 27 299
</TABLE>
10. INCOME TAXES
The provision for income taxes was as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Current:
Federal................................................... $643 $668 $370
State and local........................................... 24 60 10
Foreign................................................... 4 99 26
---- ---- ----
671 827 406
---- ---- ----
Deferred:
Federal................................................... (78) (25) 28
State and local........................................... 2 (8) 9
Foreign................................................... (2) (54) 25
---- ---- ----
(78) (87) 62
---- ---- ----
Provision for income taxes.................................. $593 $740 $468
==== ==== ====
</TABLE>
Reconciliations of the income tax provision at the U.S. statutory rate to
the provision for income taxes as reported were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Tax provision at U.S. statutory rate........................ $502 $730 $585
Tax effect of:
Tax exempt investment income.............................. (39) (40) (30)
Surplus tax............................................... 125 18 (40)
State and local income taxes.............................. 18 31 15
Tax credits............................................... (5) (25) (15)
Prior year taxes.......................................... (31) 4 (2)
Sale of businesses........................................ -- (19) (41)
Other, net................................................ 23 41 (4)
---- ---- ----
Provision for income taxes.................................. $593 $740 $468
==== ==== ====
</TABLE>
F-43
<PAGE> 261
METROPOLITAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred income taxes represent the tax effect of the differences between
the book and tax basis of assets and liabilities. Net deferred income tax assets
and liabilities consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1999 1998
---- ----
<S> <C> <C>
Deferred income tax assets:
Policyholder liabilities and receivables............... $3,042 $3,108
Net operating losses................................... 72 22
Net unrealized investment losses....................... 161 --
Employee benefits...................................... 192 174
Litigation related..................................... 468 312
Other.................................................. 242 158
------ ------
4,177 3,774
Less: Valuation allowance.............................. 72 21
------ ------
4,105 3,753
------ ------
Deferred income tax liabilities:
Investments............................................ 1,472 1,529
Deferred policy acquisition costs...................... 1,967 1,887
Net unrealized investment gains........................ -- 864
Other.................................................. 63 18
------ ------
3,502 4,298
------ ------
Net deferred income tax asset (liability)................ $ 603 $ (545)
====== ======
</TABLE>
Foreign net operating loss carryforwards generated deferred income tax
benefits of $72 and $21 at December 31, 1999 and 1998, respectively. The Company
has recorded a valuation allowance related to these tax benefits. The valuation
allowance reflects management's assessment, based on available information, that
it is more likely than not that the deferred income tax asset for foreign net
operating loss carryforwards will not be realized. The benefit will be
recognized when management believes that it is more likely than not that the
portion of the deferred income tax asset is realizable.
The Company has been audited by the Internal Revenue Service for the years
through and including 1993. The Company is being audited for the years 1994,
1995 and 1996. The Company believes that any adjustments that might be required
for open years will not have a material effect on the Company's consolidated
financial statements.
11. REINSURANCE
The Company assumes and cedes insurance with other insurance companies. The
Company continually evaluates the financial condition of its reinsurers and
monitors concentration of credit risk in an effort to minimize its exposure to
significant losses from reinsurer insolvencies. The Company is contingently
liable with respect to ceded reinsurance should any reinsurer be unable to meet
its obligations under these agreements. The amounts in the consolidated
statements of income are presented net of reinsurance ceded.
The Company's life insurance operations participate in reinsurance in order
to limit losses, minimize exposure to large risks and to provide additional
capacity for future growth. During
F-44
<PAGE> 262
METROPOLITAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1998, the Company began reinsuring, under yearly renewal term policies, 90
percent of the mortality risk on universal life policies issued after 1983. The
Company also reinsures 90 percent of the mortality risk on term life insurance
policies issued after 1995 under yearly renewal term policies and coinsures 100
percent of the mortality risk in excess of $25 and $35 on single and joint
survivorship policies, respectively.
During 1997, the Company obtained a 100 percent coinsurance policy to
provide coverage for contractual payments generated by certain portions of the
Company's non-life contingency long-term guaranteed interest contracts and
structured settlement lump sum contracts issued during the periods 1991 through
1993. The policy was amended in 1998 to include structured settlement lump sum
payments issued during the period 1983 through 1990, 1994 and 1995. Reinsurance
recoverables under the contract, which has been accounted for as a financing
transaction, were $1,372 and $1,374 at December 31, 1999 and 1998, respectively.
See Note 9 for information regarding certain excess of loss reinsurance
agreements providing coverage for risks associated primarily with sales
practices claims.
The Company has exposure to catastrophes, which are an inherent risk of the
property and casualty insurance business and could contribute to material
fluctuations in the Company's results of operations. The Company uses excess of
loss and quota share reinsurance arrangements to limit its maximum loss, provide
greater diversification of risk and minimize exposure to larger risks. The
Company's reinsurance program is designed to limit a catastrophe loss to no more
than 10% of the Auto & Home segment's statutory surplus.
The effects of reinsurance were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Direct premiums..................................... $13,249 $12,763 $12,728
Reinsurance assumed................................. 484 409 360
Reinsurance ceded................................... (1,645) (1,669) (1,810)
------- ------- -------
Net premiums........................................ $12,088 $11,503 $11,278
======= ======= =======
Reinsurance recoveries netted against policyholder
benefits.......................................... $ 1,626 $ 1,744 $ 1,648
======= ======= =======
</TABLE>
The effects of reinsurance with GenAmerica Corporation ("GenAmerica") were
as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Premiums ceded to GenAmerica.............................. $108 $113 $61
==== ==== ===
Reinsurance recoveries from GenAmerica netted against
policyholder benefits................................... $ 74 $ 28 $24
==== ==== ===
</TABLE>
Reinsurance recoverables, included in other receivables, were $2,898 and
$3,134 at December 31, 1999 and 1998, respectively, of which $5 and $5,
respectively, were recoverable from GenAmerica. Reinsurance and ceded
commissions payables, included in other liabilities, were $148 and $105 at
December 31, 1999 and 1998, respectively.
F-45
<PAGE> 263
METROPOLITAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following provides an analysis of the activity in the liability for
benefits relating to property and casualty and group accident and non-medical
health policies and contracts:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Balance at January 1................................ $ 3,320 $ 3,655 $ 3,345
Reinsurance recoverables.......................... (233) (229) (215)
------- ------- -------
Net balance at January 1............................ 3,087 3,426 3,130
------- ------- -------
Acquisition of business............................. 204 -- --
------- ------- -------
Incurred related to:
Current year...................................... 3,129 2,726 2,855
Prior years....................................... (16) (245) 88
------- ------- -------
3,113 2,481 2,943
------- ------- -------
Paid related to:
Current year...................................... (2,128) (1,967) (1,832)
Prior years....................................... (759) (853) (815)
------- ------- -------
(2,887) (2,820) (2,647)
------- ------- -------
Balance at December 31.............................. 3,517 3,087 3,426
Add: Reinsurance recoverables..................... 272 233 229
------- ------- -------
Balance at December 31.............................. $ 3,789 $ 3,320 $ 3,655
======= ======= =======
</TABLE>
12. OTHER EXPENSES
Other expenses were comprised of the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Compensation........................................ $ 2,590 $ 2,478 $ 2,078
Commissions......................................... 937 902 766
Interest and debt issue costs....................... 405 379 453
Amortization of policy acquisition costs (excludes
amortization of $(46), $240 and $70, respectively,
related to realized investment gains and
(losses))......................................... 862 587 771
Capitalization of policy acquisition costs.......... (1,160) (1,025) (1,000)
Rent, net of sublease income........................ 239 155 179
Minority interest................................... 55 67 56
Restructuring charge................................ -- 81 --
Other............................................... 2,827 4,395 2,468
------- ------- -------
$ 6,755 $ 8,019 $ 5,771
======= ======= =======
</TABLE>
During 1998, the Company recorded charges of $81 to restructure
headquarters operations and consolidate certain agencies and other operations.
These costs have been fully paid at December 31, 1999.
F-46
<PAGE> 264
METROPOLITAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. STATUTORY FINANCIAL INFORMATION
The reconciliations of MetLife's statutory surplus and net change in
statutory surplus, determined in accordance with accounting practices prescribed
or permitted by insurance regulatory authorities, with equity and net income
determined in conformity with generally accepted accounting principles were as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1999 1998
---- ----
<S> <C> <C>
Statutory surplus........................................... $ 7,630 $ 7,388
GAAP adjustments for:
Future policy benefits and policyholder account
balances............................................... (4,167) (6,830)
Deferred policy acquisition costs......................... 8,381 6,560
Deferred income taxes..................................... 886 (190)
Valuation of investments.................................. (2,102) 3,981
Statutory asset valuation reserves........................ 3,189 3,381
Statutory interest maintenance reserves................... 1,114 1,486
Surplus notes............................................. (1,602) (1,595)
Other, net................................................ 361 686
------- -------
Equity...................................................... $13,690 $14,867
======= =======
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net change in statutory surplus......................... $ 242 $ 10 $ 227
GAAP adjustments for:
Future policy benefits and policyholder account
balances........................................... 556 127 (38)
Deferred policy acquisition costs..................... 379 224 149
Deferred income taxes................................. 154 234 62
Valuation of investments.............................. 473 1,158 (387)
Statutory asset valuation reserves.................... (226) (461) 1,136
Statutory interest maintenance reserves............... (368) 312 53
Other, net............................................ (593) (261) 1
----- ------ ------
Net income.............................................. $ 617 $1,343 $1,203
===== ====== ======
</TABLE>
F-47
<PAGE> 265
METROPOLITAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. OTHER COMPREHENSIVE INCOME (LOSS)
The following table sets forth the reclassification adjustments required
for the years ended December 31, 1999, 1998 and 1997 to avoid double-counting in
other comprehensive income (loss) items that are included as part of net income
for the current year that have been reported as a part of other comprehensive
income (loss) in the current or prior year:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Holding (losses) gains on investments arising during the
year...................................................... $(6,314) $ 1,493 $ 4,257
Income tax effect of holding gains or losses................ 2,262 (617) (1,615)
Transfer of securities from held-to-maturity to
available-for-sale:
Holding gains on investments.............................. -- -- 198
Income tax effect......................................... -- -- (75)
Reclassification adjustments:
Realized holding (gains) losses included in current year
net income............................................. 38 (2,013) (844)
Amortization of premium and discount on investments....... (307) (350) (209)
Realized holding (losses) gains allocated to other
policyholder amounts................................... (67) 608 231
Income tax effect......................................... 120 729 312
Allocation of holding losses (gains) on investments relating
to other policyholder amounts............................. 3,788 (351) (2,231)
Income tax effect of allocation of holding gains and losses
to other policyholder amounts............................. (1,357) 143 846
------- ------- -------
Net unrealized investment (losses) gains.................... (1,837) (358) 870
------- ------- -------
Foreign currency translation adjustments arising during the
year...................................................... 50 (115) (46)
Reclassification adjustment for sale of investment in
foreign operation......................................... -- 2 (3)
------- ------- -------
Foreign currency translation adjustment..................... 50 (113) (49)
------- ------- -------
Minimum pension liability adjustment........................ (7) (12) --
------- ------- -------
Other comprehensive income (loss)........................... $(1,794) $ (483) $ 821
======= ======= =======
</TABLE>
15. BUSINESS SEGMENT INFORMATION
The Company provides insurance and financial services to customers in the
United States, Canada, Central America, South America, Europe and Asia. The
Company's business is divided into six segments: Individual, Institutional, Auto
& Home, International, Asset Management and Corporate. These segments are
managed separately because they either provide different products and services,
require different strategies or have different technology requirements.
Individual offers a wide variety of individual insurance and investment
products, including life insurance, annuities and mutual funds. Institutional
offers a broad range of group insurance and retirement and savings products and
services, including group life insurance, non-medical health insurance such as
short and long-term disability, long-term care and dental insurance and other
insurance products and services. Auto & Home provides insurance coverages
including private passenger automobile, homeowners and personal excess liability
insurance. International provides life insurance, accident and health insurance,
annuities and retirement and savings
F-48
<PAGE> 266
METROPOLITAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
products to both individuals and groups, and auto and homeowners coverage to
individuals. Asset Management provides a broad variety of asset management
products and services to individuals and institutions such as mutual funds for
savings and retirement needs, commercial real estate advisory and management
services, and institutional and retail investment management. Through its
Corporate segment, the Company reports items that are not allocated to any of
the business segments.
Set forth in the tables below is certain financial information with respect
to the Company's operating segments for the years ended December 31, 1999, 1998
and 1997. The accounting policies of the segments are the same as those
described in the summary of significant accounting policies, except for the
method of capital allocation. The Company allocates capital to each segment
based upon an internal capital allocation system that allows the Company to more
effectively manage its capital. The Company has divested operations that did not
meet targeted rates of return, including its commercial leasing business
(Corporate segment) and substantial portions of its Canadian operations
(International segment), and insurance operations in the United Kingdom
(International segment). The Company evaluates the performance of each operating
segment based upon income or loss from operations before provision for income
taxes and non-recurring items (e.g. items of unusual or infrequent nature). The
Company allocates non-recurring items (primarily consisting of sales practices
claims and claims for personal injuries caused by exposure to asbestos or
asbestos-containing products) and prior to its sale in 1998, the results of
MetLife Capital Holdings, Inc. to the Corporate segment.
<TABLE>
<CAPTION>
AUTO
AT OR FOR THE YEAR ENDED & ASSET CONSOLIDATION/
DECEMBER 31, 1999 INDIVIDUAL INSTITUTIONAL HOME INTERNATIONAL MANAGEMENT CORPORATE ELIMINATION TOTAL
- ------------------------ ---------- ------------- ---- ------------- ---------- --------- -------------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Premiums................ $ 4,289 $ 5,525 $1,751 $ 523 $ -- $ -- $ -- $ 12,088
Universal life and
investment-type
product policy fees... 888 502 -- 48 -- -- -- 1,438
Net investment income... 5,346 3,755 103 206 80 605 (279) 9,816
Other revenues.......... 558 629 21 12 803 59 72 2,154
Net realized investment
gains (losses)........ (14) (31) 1 1 -- (41) 14 (70)
Policyholder benefits
and claims............ 4,625 6,712 1,301 463 -- -- 4 13,105
Interest credited to
policyholder account
balances.............. 1,359 1,030 -- 52 -- -- -- 2,441
Policyholder
dividends............. 1,509 159 -- 22 -- -- -- 1,690
Other expenses.......... 2,719 1,589 514 248 795 1,031 (141) 6,755
Income (loss) before
provision for income
taxes and
extraordinary item.... 855 890 61 5 88 (408) (56) 1,435
Income (loss) after
provision for income
taxes before
extraordinary item.... 555 567 56 21 51 (358) (50) 842
Total assets............ 109,401 88,127 4,443 4,381 1,036 19,834 (1,990) 225,232
Deferred policy
acquisition costs..... 8,049 106 93 244 -- -- -- 8,492
Separate account
assets................ 28,828 35,236 -- 877 -- -- -- 64,941
Policyholder
liabilities........... 72,956 47,781 2,318 2,187 -- 6 (293) 124,955
Separate account
liabilities........... 28,828 35,236 -- 877 -- -- -- 64,941
</TABLE>
F-49
<PAGE> 267
METROPOLITAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
AUTO
AT OR FOR THE YEAR ENDED & ASSET CONSOLIDATION/
DECEMBER 31, 1998 INDIVIDUAL INSTITUTIONAL HOME INTERNATIONAL MANAGEMENT CORPORATE ELIMINATION TOTAL
- ------------------------ ---------- ------------- ---- ------------- ---------- --------- -------------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Premiums................ $ 4,323 $ 5,159 $1,403 $ 618 $ -- $ -- $ -- $ 11,503
Universal life and
investment-type
product policy fees... 817 475 -- 68 -- -- -- 1,360
Net investment income... 5,480 3,885 81 343 75 682 (318) 10,228
Other revenues.......... 474 575 36 33 817 111 (52) 1,994
Net realized investment
gains................. 659 557 122 117 -- 679 (113) 2,021
Policyholder benefits
and claims............ 4,606 6,416 1,029 597 -- (10) -- 12,638
Interest credited to
policyholder account
balances.............. 1,423 1,199 -- 89 -- -- -- 2,711
Policyholder
dividends............. 1,445 142 -- 64 -- -- -- 1,651
Other expenses.......... 2,577 1,613 386 352 799 2,601 (309) 8,019
Income (loss) before
provision for income
taxes and
extraordinary item.... 1,702 1,281 227 77 93 (1,119) (174) 2,087
Income (loss) after
provision for income
taxes before
extraordinary item.... 1,069 846 161 56 49 (691) (143) 1,347
Total assets............ 103,614 88,741 2,763 3,432 1,164 20,852 (5,220) 215,346
Deferred policy
acquisition costs..... 6,194 82 57 205 -- -- -- 6,538
Separate account
assets................ 23,013 35,029 -- 26 -- -- -- 58,068
Policyholder
liabilities........... 71,571 49,406 1,477 2,043 -- 1 (295) 124,203
Separate account
liabilities........... 23,013 35,029 -- 26 -- -- -- 58,068
</TABLE>
<TABLE>
<CAPTION>
AUTO
AT OR FOR THE YEAR ENDED & ASSET CONSOLIDATION/
DECEMBER 31, 1997 INDIVIDUAL INSTITUTIONAL HOME INTERNATIONAL MANAGEMENT CORPORATE ELIMINATION TOTAL
- ------------------------ ---------- ------------- ---- ------------- ---------- --------- -------------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Premiums................. $ 4,327 $ 4,689 $1,354 $ 908 $ -- $ -- $ -- $ 11,278
Universal life and
investment-type product
policy fees............ 855 426 -- 137 -- -- -- 1,418
Net investment income.... 4,754 3,754 71 504 78 700 (370) 9,491
Other revenues........... 338 357 25 54 682 19 16 1,491
Net realized investment
gains.................. 356 45 9 142 -- 326 (91) 787
Policyholder benefits and
claims................. 4,597 5,934 1,003 869 -- -- -- 12,403
Interest credited to
policyholder account
balances............... 1,422 1,319 -- 137 -- -- -- 2,878
Policyholder dividends... 1,340 305 -- 97 -- -- -- 1,742
Other expenses........... 2,394 1,178 351 497 679 966 (294) 5,771
Income before provision
for income taxes....... 877 535 105 145 81 79 (151) 1,671
Income after provision
for income taxes....... 599 339 74 126 45 163 (143) 1,203
Total assets............. 95,323 83,473 2,542 7,412 1,136 18,641 (5,745) 202,782
Deferred policy
acquisition costs...... 5,912 40 56 428 -- -- -- 6,436
Separate account assets.. 17,345 30,473 -- 520 -- -- -- 48,338
Policyholder
liabilities............ 70,686 49,547 1,509 5,615 -- 1 -- 127,358
Separate account
liabilities............ 17,345 30,473 -- 520 -- -- -- 48,338
</TABLE>
F-50
<PAGE> 268
METROPOLITAN LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Individual segment includes an equity ownership interest in Nvest
Companies, L.P. ("Nvest") under the equity method of accounting. Nvest has been
included within the Asset Management segment due to the types of products and
strategies employed by the entity. The individual segment's equity in earnings
of Nvest, which is included in net investment income, was $48, $49 and $45 for
the years ended December 31, 1999, 1998 and 1997, respectively. The investment
in Nvest was $196, $252 and $216 at December 31, 1999, 1998 and 1997,
respectively.
Net investment income and net realized investment gains are based upon the
actual results of each segment's specifically identifiable asset portfolio.
Other costs and operating costs were allocated to each of the segments based
upon: (1) a review of the nature of such costs, (2) time studies analyzing the
amount of employee compensation costs incurred by each segment, and (3) cost
estimates included in the Company's product pricing.
The consolidation/elimination column includes the elimination of all
intersegment amounts and the Individual segment's ownership interest in Nvest.
The principal component of the intersegment amounts related to intersegment
loans, which bore interest at rates commensurate with related borrowings.
Revenues derived from any customer did not exceed 10% of consolidated
revenues. Revenues from U.S. operations were $24,637, $25,643 and $22,664 for
the years ended December 31, 1999, 1998 and 1997, respectively, which
represented 97%, 96% and 93%, respectively, of consolidated revenues.
16. SUBSEQUENT EVENTS
On January 6, 2000, the Company acquired GenAmerica for $1.2 billion. In
connection with this acquisition, the Company incurred $900 of short-term debt.
GenAmerica is a holding company which includes General American Life Insurance
Company, 48.3% of the outstanding shares of Reinsurance Group of America ("RGA")
common stock, a provider of reinsurance, and 61.0% of the outstanding shares of
Conning Corporation common stock, an asset manager. On January 18, 2000, the
Company announced that it had proposed to acquire all of the outstanding shares
of Conning common stock not already owned by it for $10.50 per share in cash, or
approximately $55. At December 31, 1999, the Company owned 9.6% of the
outstanding shares of RGA common stock which were acquired on November 24, 1999
for $125. Subsequent to the GenAmerica acquisition, the Company owned 57.9% of
the outstanding shares of RGA common stock. Total assets, revenues and net loss
of GenAmerica were $23,594, $3,916 and $(174), respectively, at or for the year
ended December 31, 1999.
As part of the acquisition agreement, in September 1999 the Company assumed
$5,752 of General American Life funding agreements and received cash of $1,926
and investment assets with a market value of $3,826. In October 1999, as part of
the assumption arrangement, the holders of General American Life funding
agreements aggregating $5,136 elected to have the Company redeem the funding
agreements for cash. General American Life agreed to pay the Company a fee of
$120 in connection with the assumption of the funding agreements. The fee will
be considered as part of the purchase price to be allocated to the fair value of
assets and liabilities acquired. The Company also agreed to make a capital
contribution of $120 to General American Life after the completion of the
acquisition.
At the date of the acquisition agreement, the Company and GenAmerica were
parties to a number of reinsurance agreements. In addition, as part of the
acquisition, the Company entered into agreements effective as of July 25, 1999,
which coinsured new and certain existing business of General American Life and
some of its affiliates. See Note 11.
F-51
<PAGE> 269
ANNEX
A
<TABLE>
<S> <C>
[PRICEWATERHOUSECOOPERS LOGO]
PRICEWATERHOUSECOOPERS LLP
600 Lee Road
Wayne PA 19087
Telephone (610) 993 3864
Direct Fax (610) 993 3900
</TABLE>
November 16, 1999
The Board of Directors
The Metropolitan Life Insurance Company
One Madison Avenue
New York, NY 10010-3690
Re: Plan of Reorganization of the Metropolitan Life Insurance Company
(MetLife), dated, September 28, 1999 as amended and restated on November
16, 1999
STATEMENT OF ACTUARIAL OPINION
QUALIFICATIONS
I, Kenneth M. Beck, a Principal with the firm of PricewaterhouseCoopers LLP
(PwC) and a member of the American Academy of Actuaries, am qualified under the
Academy's Qualification Standards to render the opinions set forth herein. This
opinion is provided pursuant to the Engagement Letter between PwC and MetLife
dated January 1, 1998. MetLife's Plan of Reorganization is carried out under
Section 7312 of the New York Insurance Law. This opinion is not a legal opinion
regarding the Plan, and does not address the overall fairness of the Plan.
Rather, it reflects the application of actuarial concepts and standards of
practice to the requirements set forth in Section 7312.
RELIANCE
I and other PwC staff acting under my direction received from MetLife extensive
information concerning MetLife's past and present financial experience and the
characteristics of its policies. In all cases, we were provided with the
information we required. We relied on the accuracy and completeness of the data
and assumptions supplied by MetLife and did not independently verify that
information. Where possible, the information was reviewed for general
reasonableness and in certain circumstances the data was reconfirmed with
MetLife.
Certain information was provided to me under the direction of MetLife's
Executive Vice President and Chief Actuary, Judy Weiss, F.S.A., M.A.A.A.
Information included:
a) expected future cash flows from assets held by MetLife; and
b) MetLife's experience underlying its 1999 dividend scales.
I relied on the completeness and accuracy of the data provided by Ms. Weiss.
My opinion depends upon the substantial accuracy of the information described
above that was provided by MetLife (the "MetLife Data").
PROCESS
In all cases, I and other PwC staff acting under my direction either derived the
results on which my opinions rest or reviewed derivations carried out by MetLife
employees.
A-1
<PAGE> 270
Board of Directors Page 2
MetLife Actuarial Opinion November 16, 1999
- --------------------------------------------------------------------------------
OPINION #1
In my opinion, the plan for allocation of consideration to Eligible
Policyholders (as defined in the Plan) as set forth in Article VII of the Plan
of Reorganization is fair and equitable to MetLife policyholders as required by
Section 7312 of the New York Insurance Law.
DISCUSSION
The distribution described in Article VII of the Plan takes into account the
ratio of the positive sum of the estimated past and future contributions to
MetLife surplus, if any, of each participating Policy and Contract owned by each
Eligible Policyholder to the total of all such positive sums.
Most of the consideration to be distributed to policyholders is allocated on
this basis. Under Section 7312 of the New York Insurance Law, there is no
specific guidance given for the allocation of consideration in a "Method Four"
reorganization, but policyholder contributions are specifically identified as an
acceptable approach to allocation of consideration under other methods of
reorganization within this section of the law. In addition, the contribution
method is recognized in the actuarial literature as an appropriate method. I
therefore find that the use of "actuarial contribution" as the principal basis
underlying the allocation of consideration is fair and equitable.
The distribution to policyholders also takes into account, to a lesser extent,
the fact that policyholders have intangible membership rights that are
independent of their actuarial contributions. Each Eligible Policyholder
(participating or non-participating) is, under the Plan, allocated a fixed
number of shares of common stock without regard to the contribution of that
policyholder or of the class or classes in which policies held by the
policyholder happen to reside. Under the Plan, the percentage of the total
consideration that is allocated in this manner is significantly less than that
allocated in proportion to positive contributions, which is appropriate as well
as consistent with the approach used in previous demutualizations.
OPINION #2
The Closed Block is described in Article VIII of the MetLife Plan of
Reorganization (the "Plan"). In my opinion:
1. The objective of the Closed Block as being for the exclusive benefit of the
policies included therein for policyholder dividend purposes only as set
forth in Article VIII of the Plan is consistent with Section 7312 of the New
York Insurance Law.
2. The operations of the Closed Block as set forth in Article VIII of the Plan
and described in the Closed Block Memorandum, including the determination of
the required initial funding and the manner in which cash flows are charged
and credited to the Closed Block, are consistent with the objectives of the
Closed Block.
3. MetLife's assets (Closed Block funding) set aside as of December 31, 1998
(including subsequent adjustments as provided for in the Closed Block
Memorandum), to establish the Closed Block, as set forth in Article VIII of
the Plan (including the Closed Block Memorandum), are adequate because they
are expected to produce cash flows which, together with anticipated revenues
from the Closed Block Business, is reasonably expected to be sufficient to
support the Closed Block Business including, but not limited to, provisions
for payment of claims and certain expenses and taxes, and to provide for
continuation of dividend scales payable in 1999, if the experience underlying
such scales continues.
A-2
<PAGE> 271
Board of Directors Page 3
MetLife Actuarial Opinion November 16, 1999
- --------------------------------------------------------------------------------
4. The Plan is consistent with the objective of the Closed Block as it provides
a vehicle for MetLife's management to make appropriate adjustments to future
dividend scales, where necessary, if the underlying experience changes from
the experience underlying such dividend scales.
DISCUSSION
As to (1) above, Section 7312 of the New York Insurance Law provides for a
Mutual Life Insurance Company to convert to a Stock Life Insurance Company using
one of four "methods" as outlined in the law. MetLife is converting to a stock
company using Method Four. Method Four within Section 7312 does not contain
specific language that addresses the establishment of a Closed Block. Methods
One and Two of Section 7312 both contain language that address the establishment
of a Closed Block. The establishment of a Closed Block by MetLife, as set forth
in Article VIII of the Plan, is consistent with (a) the objectives and
guidelines contained in Methods One and Two of Section 7312, (b) with prior
demutualizations of mutual life insurance companies domiciled in New York and,
(c) current Actuarial Standards of Practice.
As to (2) above, my opinion is based on my findings that those matters are
consistent with the objective of the Closed Block. I have specifically
considered that the cash flow items to be charged against or credited to the
Closed Block as set forth in Article VIII of the Plan (including the Closed
Block Memorandum), have been incorporated on a consistent basis in the
determination of the Closed Block funding amount.
As to (3) above, the Closed Block was funded as of January 1, 1999 (including a
planned final adjustment after the Effective Date of the conversion), based on a
projection as of that date. The opinion above rests in part on that projection,
which extends over the future life of all policies assigned to the Closed Block.
That projection, which is based on the experience underlying the 1999 Dividend
Scale and on the cash flows expected from assets allocable to the Closed Block,
indicates that the assets, together with anticipated revenues from the Closed
Block Business, are reasonably expected to be sufficient to provide for the
continuation of that scale if the experience is unchanged.
As to (4) above, the criteria set forth in Article VIII of the Plan for
modifying the dividend scales if the experience changes (from that underlying
the 1999 Dividend Scale) are such that, if followed, the Closed Block
policyholders will be treated in a manner consistent with the contribution
principle for dividend determination. The operation of the Closed Block as set
forth in Article VIII is consistent with actuarial practices as described in
Actuarial Standard of Practice #15.
Sincerely,
/s/ Kenneth M. Beck
Kenneth M. Beck, F.S.A., M.A.A.A.
Principal for PricewaterhouseCoopers LLP
KMB/eam
Sincerely,
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
A-3
<PAGE> 272
[MetLife Logo]
<PAGE> 273
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN
OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
[MetLife SNOOPY LOGO]
ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS
SUBJECT TO COMPLETION. DATED MARCH 9, 2000.
179,000,000 SHARES
[METLIFE LOGO]
COMMON STOCK
------------------------
This is an initial public offering of shares of common stock of MetLife,
Inc. The offering is being made in connection with the reorganization of
Metropolitan Life Insurance Company from a mutual life insurance company to a
stock life insurance company in a process known as a demutualization.
26,850,000 shares of common stock are initially being offered outside the
United States and Canada by the international underwriters and 152,150,000
shares are initially being concurrently offered in the United States and Canada
by the U.S. underwriters. The offering price and underwriting discount for both
offerings are identical.
In addition to these shares, in connection with the demutualization we will
issue 493,476,118 shares of our common stock to a trust for the benefit of
policyholders of Metropolitan Life Insurance Company. In addition, we expect to
issue concurrently with this offering up to 73,000,000 shares of our common
stock to Banco Santander Central Hispano, S.A. and Credit Suisse Group or their
respective affiliates in private placements at a price per share equal to the
initial public offering price.
Prior to this offering, there has been no public market for our common
stock. We anticipate that the initial public offering price per share will be
between $13.00 and $15.00. Our common stock has been approved for listing on the
New York Stock Exchange under the symbol "MET", subject to official notice of
issuance.
Concurrently with this offering, we and a trust we own are offering
20,000,000 % equity security units for an aggregate offering of $1 billion,
plus up to an additional $150 million if the underwriters' options to purchase
additional units are exercised in full, by means of a separate prospectus. Each
unit consists of (a) a contract to purchase shares of our common stock and (b) a
% capital security of MetLife Capital Trust I, a Delaware business trust
wholly-owned by us.
INVESTING IN THE COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING
ON PAGE 18.
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -----
<S> <C> <C>
Initial public offering price............................... $ $
Underwriting discount....................................... $ $
Proceeds, before expenses, to MetLife, Inc. ................ $ $
</TABLE>
To the extent that the underwriters sell more than 179,000,000 shares of
common stock, the underwriters have the option to purchase up to an additional
26,850,000 shares from us at the initial public offering price less the
underwriting discount.
Delivery of the shares of common stock will be made on or about
, 2000.
None of the Securities and Exchange Commission, any state securities
commission, the New York Superintendent of Insurance or any other regulatory
body has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
Joint Bookrunners
CREDIT SUISSE FIRST BOSTON GOLDMAN SACHS INTERNATIONAL
BANK OF AMERICA INTERNATIONAL LIMITED
DONALDSON, LUFKIN AND JENRETTE
LEHMAN BROTHERS
MERRILL LYNCH INTERNATIONAL
MORGAN STANLEY DEAN WITTER
SALOMON SMITH BARNEY INTERNATIONAL
<TABLE>
<S> <C> <C>
CREDIT LYONNAIS SECURITIES FOX-PITT, KELTON J.P. MORGAN SECURITIES LTD.
SANTANDER CENTRAL HISPANO INVESTMENT WARBURG DILLON READ
</TABLE>
Prospectus dated , 2000.
<PAGE> 274
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses expected to be incurred in
connection with the issuance and distribution of common stock registered hereby,
all of which expenses, except for the SEC registration fee, the New York Stock
Exchange listing fee and the NASD filing fee, are estimates:
<TABLE>
<CAPTION>
DESCRIPTION AMOUNT
- ----------- ------
<S> <C>
SEC registration fee........................................ $1,810,781
New York Stock Exchange listing fee and expenses............ *
NASD filing fee............................................. 30,500
Blue Sky fees and expenses (including legal fees)........... *
Printing and engraving expenses............................. *
Legal fees and expenses (other than Blue Sky)............... *
Accounting fees and expenses................................ *
Transfer Agent and Registrar's fees......................... *
Miscellaneous............................................... *
----------
TOTAL............................................. $ *
==========
</TABLE>
- ---------------
* To be furnished by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Our directors and officers may be indemnified against liabilities, fines,
penalties and claims imposed upon or asserted against them as provided in the
Delaware General Corporation Law and our Amended and Restated Certificate of
Incorporation and Amended and Restated By-Laws. Such indemnification covers all
costs and expenses incurred by a director or officer in his capacity as such.
The Board of Directors, by a majority vote of a quorum of disinterested
directors or, under certain circumstances, independent counsel appointed by the
Board of Directors, must determine that the director or officer seeking
indemnification was not guilty of willful misconduct or a knowing violation of
the criminal law. In addition, the Delaware General Corporation Law and our
Amended and Restated Certificate of Incorporation may, under certain
circumstances, eliminate the liability of directors and officers in a
stockholder or derivative proceeding.
If the person involved is not a director or officer of MetLife, Inc., the
Board of Directors may cause MetLife, Inc. to indemnify, to the same extent
allowed for our directors and officers, such person who was or is a party to a
proceeding by reason of the fact that he is or was our employee or agent, or is
or was serving at our request as director, officer, employee or agent of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise.
We have in force and effect policies insuring our directors and officers
against losses which they or any of them will become legally obligated to pay by
reason of any actual or alleged error or misstatement or misleading statement or
act or omission or neglect or breach of duty by the directors and officers in
the discharge of their duties, individually or collectively, or any matter
claimed against them solely by reason of their being directors or officers. Such
coverage is limited by the specific terms and provisions of the insurance
policies.
Pursuant to the underwriting agreements, in the forms filed as exhibits to
this Registration Statement, the underwriters will agree to indemnify directors
and officers of MetLife, Inc. and
II-1
<PAGE> 275
persons controlling MetLife, Inc., within the meaning of the Securities Act of
1933, as amended (the "Act"), against certain liabilities that might arise out
of or are based upon certain information furnished to us by any such
underwriter.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Upon the effective date of the plan of reorganization, MetLife, Inc. will
distribute approximately 493,476,118 shares of common stock to the MetLife
Policyholder Trust for the benefit of eligible policyholders in the
demutualization. Exemption from registration under the Act for such distribution
will be claimed under Section 3(a)(10) of the Act based on the New York
Superintendent of Insurance's approval of the plan of reorganization. Banco
Santander Central Hispano, S.A. and Credit Suisse Group have agreed in principle
that they or their respective affiliates will purchase from us in the aggregate
not less than 14,900,000 shares nor more than 73,000,000 shares of our common
stock in private placements exempt from the registration requirements under the
Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits. See Exhibit Index following the signature pages to this
amendment to the Registration Statement.
(b) Financial Statement Schedules.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................ II-3
Schedule I -- Summary of Investments -- Other Than
Investments In Affiliates at December 31, 1999............ II-4
Schedule III -- Supplementary Insurance Information for the
years ended December 31, 1999, 1998 and 1997.............. II-5
Schedule IV -- Reinsurance for the years ended December 31,
1999, 1998 and 1997....................................... II-6
</TABLE>
II-2
<PAGE> 276
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Policyholders of
Metropolitan Life Insurance Company:
We have audited the consolidated financial statements of Metropolitan Life
Insurance Company and subsidiaries (the "Company") as of December 31, 1999 and
1998, and the related consolidated statements of income, equity and cash flows
for each of the three years in the period ended December 31, 1999, and have
issued our report thereon dated February 7, 2000; such consolidated financial
statements and report are included in the Prospectus which is a part of this
Registration Statement of MetLife, Inc. on Form S-1. Our audits also included
the consolidated financial statement schedules of the Company, listed in Item
16(b). These consolidated financial statement schedules are the responsibility
of the Company's management. Our responsibility is to express an opinion based
on our audits. In our opinion, such consolidated financial statement schedules,
when considered in relation to the basic consolidated financial statements taken
as a whole, present fairly in all material respects the information set forth
therein.
Deloitte & Touche LLP
New York, New York
February 7, 2000
II-3
<PAGE> 277
METROPOLITAN LIFE INSURANCE COMPANY
SCHEDULE I
SUMMARY OF INVESTMENTS -- OTHER THAN INVESTMENTS IN AFFILIATES
AT DECEMBER 31, 1999
(IN MILLIONS)
<TABLE>
<CAPTION>
AMOUNT AT
ESTIMATED WHICH SHOWN ON
TYPE OF INVESTMENT COST (A) FAIR VALUE BALANCE SHEET
- ------------------ -------- ---------- --------------
<S> <C> <C> <C>
Fixed maturities:
Bonds:
United States Government and government agencies
and authorities............................... $ 5,990 $6,299 $ 6,299
States, municipalities and political
subdivisions.................................. 1,583 1,542 1,542
Foreign governments............................. 4,090 4,206 4,206
Public utilities................................ 6,798 6,602 6,602
Convertibles and bonds with warrants attached... -- -- --
All other corporate bonds....................... 40,707 39,575 39,575
Mortgage and asset-backed securities............... 27,396 26,661 26,661
International...................................... 12,235 12,086 12,086
Redeemable preferred stocks........................ 10 10 10
-------- ------ --------
Total fixed maturities.......................... 98,809 96,981 96,981
Equity securities:
Common stocks:
Public utilities................................ 7 13 13
Banks, trust and insurance companies............ 132 331 331
Industrial, miscellaneous and all other......... 841 1,522 1,522
Nonredeemable preferred stocks..................... 151 140 140
-------- ------ --------
Total equity securities......................... 1,131 2,006 2,006
Mortgage loans on real estate........................ 19,829 19,452 19,739
Policy loans......................................... 5,598 5,618 5,598
Real estate and real estate joint ventures........... 5,602 -- 5,602
Real estate acquired in satisfaction of debt......... 47 -- 47
Limited partnership interests........................ 1,331 -- 1,331
Short-term investments............................... 3,055 3,055 3,055
Other invested assets................................ 1,501 -- 1,501
-------- ------ --------
TOTAL INVESTMENTS............................... $136,903 $135,860
======== ====== ========
</TABLE>
- ---------------
(A) Cost for fixed maturities and mortgage loans on real estate represents
original cost, reduced by repayments and writedowns and adjusted for
amortization of premiums or accretion of discount; for equity securities,
cost represents original cost; for real estate, cost represents original
cost reduced by writedowns and adjusted for depreciation; for real estate
joint ventures and limited partnership interests, cost represents original
cost adjusted for equity in earnings and distributions and reduced for
writedowns.
II-4
<PAGE> 278
METROPOLITAN LIFE INSURANCE COMPANY
SCHEDULE III
SUPPLEMENTARY INSURANCE INFORMATION
AT AND FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN MILLIONS)
<TABLE>
<CAPTION>
DEFERRED POLICY FUTURE POLICY POLICYHOLDER POLICYHOLDER
ACQUISITION BENEFITS AND OTHER ACCOUNT DIVIDENDS UNEARNED
SEGMENT COSTS POLICYHOLDER FUNDS BALANCES PAYABLE REVENUE
- ------- --------------- --------------------- ----------------- ------------------- ---------
<S> <C> <C> <C> <C> <C>
1999
Individual................. $8,049 $44,962 $27,280 $714 $799
Institutional.............. 106 29,895 17,627 259 6
Auto & Home................ 93 2,318 -- -- --
International.............. 244 1,192 994 1 15
Asset Management........... -- -- -- -- --
Corporate.................. -- 6 -- -- --
Consolidation/Elimination... -- (293) -- -- --
------ ------- ------- ---- ----
$8,492 $78,080 $45,901 $974 $820
====== ======= ======= ==== ====
1998
Individual................. $6,194 $43,775 $27,109 $687 $749
Institutional.............. 82 30,905 18,253 248 5
Auto & Home................ 57 1,477 -- -- --
International.............. 205 899 1,132 12 8
Asset Management........... -- -- -- -- --
Corporate.................. -- 1 -- -- --
Consolidation/Elimination... -- (295) -- -- --
------ ------- ------- ---- ----
$6,538 $76,762 $46,494 $947 $762
====== ======= ======= ==== ====
1997
Individual................. $5,912 $42,836 $27,222 $628 $562
Institutional.............. 40 30,039 19,167 341 4
Auto & Home................ 56 1,509 -- -- --
International.............. 428 3,461 2,154 -- 3
Asset Management........... -- -- -- -- --
Corporate.................. -- 1 -- -- --
Consolidation/Elimination... -- -- -- -- --
------ ------- ------- ---- ----
$6,436 $77,846 $48,543 $969 $569
====== ======= ======= ==== ====
<CAPTION>
PREMIUM REVENUE
SEGMENT AND POLICY CHARGES
- ------- ------------------
<S> <C>
1999
Individual................. $ 5,177
Institutional.............. 6,027
Auto & Home................ 1,751
International.............. 571
Asset Management........... --
Corporate.................. --
Consolidation/Elimination.. --
-------
$13,526
=======
1998
Individual................. $ 5,140
Institutional.............. 5,634
Auto & Home................ 1,403
International.............. 686
Asset Management........... --
Corporate.................. --
Consolidation/Elimination.. --
-------
$12,863
=======
1997
Individual................. $ 5,182
Institutional.............. 5,115
Auto & Home................ 1,354
International.............. 1,045
Asset Management........... --
Corporate.................. --
Consolidation/Elimination.. --
-------
$12,696
=======
</TABLE>
<TABLE>
<CAPTION>
AMORTIZATION OF
AMORTIZATION OF DEFERRED POLICY
DEFERRED POLICY ACQUISITION COSTS
ACQUISITION COSTS CHARGED AGAINST NET OTHER
INVESTMENT POLICYHOLDER BENEFITS CHARGED TO REALIZED INVESTMENT OPERATING
SEGMENT INCOME, NET AND INTEREST CREDITED OTHER EXPENSES GAINS (LOSSES) EXPENSES
- ------- --------------- --------------------- ----------------- ------------------- ---------
<S> <C> <C> <C> <C> <C>
1999
Individual................. $ 5,346 $ 5,984 $613 $ (46) $3,616
Institutional.............. 3,755 7,742 17 -- 1,730
Auto & Home................ 103 1,301 213 -- 301
International.............. 206 515 19 -- 251
Asset Management........... 80 -- -- -- 795
Corporate.................. 605 -- -- -- 1,031
Consolidation/Elimination... (279) 4 -- -- (141)
------- ------- ---- ----- ------
$ 9,816 $15,546 $862 $ (46) $7,583
======= ======= ==== ===== ======
1998
Individual................. $ 5,480 $ 6,029 $364 $ 240 $3,657
Institutional.............. 3,885 7,615 9 -- 1,747
Auto & Home................ 81 1,029 166 -- 220
International.............. 343 686 48 -- 368
Asset Management........... 75 -- -- -- 799
Corporate.................. 682 (10) -- -- 2,601
Consolidation/Elimination... (318) -- -- -- (309)
------- ------- ---- ----- ------
$10,228 $15,349 $587 $ 240 $9,083
======= ======= ==== ===== ======
1997
Individual................. $ 4,754 $ 6,019 $546 $ 61 $3,166
Institutional.............. 3,754 7,253 3 -- 1,502
Auto & Home................ 71 1,003 166 -- 185
International.............. 504 1,006 56 9 538
Asset Management........... 78 -- -- -- 679
Corporate.................. 700 -- -- -- 966
Consolidation/Elimination... (370) -- -- -- (294)
------- ------- ---- ----- ------
$ 9,491 $15,281 $771 $ 70 $6,742
======= ======= ==== ===== ======
<CAPTION>
PREMIUMS WRITTEN
SEGMENT (EXCLUDING LIFE)
- ------- ------------------
<S> <C>
1999
Individual................. $ N/A
Institutional.............. N/A
Auto & Home................ 2,109
International.............. 64
Asset Management........... N/A
Corporate.................. N/A
Consolidation/Elimination.. N/A
------
$2,173
======
1998
Individual................. $ N/A
Institutional.............. N/A
Auto & Home................ 1,422
International.............. 44
Asset Management........... N/A
Corporate.................. N/A
Consolidation/Elimination.. N/A
------
$1,466
======
1997
Individual................. $ N/A
Institutional.............. N/A
Auto & Home................ 1,359
International.............. 12
Asset Management........... N/A
Corporate.................. N/A
Consolidation/Elimination.. N/A
------
$1,371
======
</TABLE>
II-5
<PAGE> 279
METROPOLITAN LIFE INSURANCE COMPANY
SCHEDULE IV
REINSURANCE
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN MILLIONS)
<TABLE>
<CAPTION>
PERCENTAGE
CEDED TO ASSUMED OF AMOUNT
GROSS OTHER FROM OTHER NET ASSUMED
AMOUNT COMPANIES COMPANIES AMOUNT TO NET
---------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED
DECEMBER 31, 1999
Life insurance in force..................... $1,743,945 $217,358 $12,168 $1,538,755 0.8%
========== ======== ======= ========== ====
INSURANCE PREMIUMS
Life insurance.......................... $ 9,503 $ 1,269 $ 217 $ 8,451 2.6%
Accident and health insurance........... 2,102 323 48 1,827 2.6%
Property and casualty insurance......... 1,644 53 219 1,810 12.1%
---------- -------- ------- ---------- ----
TOTAL INSURANCE PREMIUMS............. $ 13,249 $ 1,645 $ 484 $ 12,088 4.0%
========== ======== ======= ========== ====
FOR THE YEAR ENDED
DECEMBER 31, 1998
Life insurance in force..................... $1,652,179 $167,941 $11,435 $1,495,673 0.8%
========== ======== ======= ========== ====
INSURANCE PREMIUMS
Life insurance.......................... $ 9,572 $ 1,281 $ 313 $ 8,604 3.6%
Accident and health insurance........... 1,718 301 53 1,470 3.6%
Property and casualty insurance......... 1,473 87 43 1,429 3.0%
---------- -------- ------- ---------- ----
TOTAL INSURANCE PREMIUMS............. $ 12,763 $ 1,669 $ 409 $ 11,503 3.6%
========== ======== ======= ========== ====
FOR THE YEAR ENDED
DECEMBER 31, 1997
Life insurance in force..................... $1,699,690 $ 49,452 $17,748 $1,667,986 1.1%
========== ======== ======= ========== ====
INSURANCE PREMIUMS
Life insurance.......................... $ 9,556 $ 1,210 $ 227 $ 8,573 2.6%
Accident and health insurance........... 1,753 497 83 1,339 6.2%
Property and casualty insurance......... 1,419 103 50 1,366 3.7%
---------- -------- ------- ---------- ----
TOTAL INSURANCE PREMIUMS............. $ 12,728 $ 1,810 $ 360 $ 11,278 3.2%
========== ======== ======= ========== ====
</TABLE>
II-6
<PAGE> 280
All schedules, other than those listed above, are omitted because the
information is not required or because the information is included in the
Consolidated Financial Statements or Notes thereto.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(a) To provide to the underwriters at the closing specified in the
underwriting agreements, certificates in such denominations and registered
in such names as required by the underwriters to permit prompt delivery to
each purchaser.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended ("Act") may be permitted to directors,
officers and controlling persons of the registrant pursuant to the
foregoing provisions, or otherwise, the registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in
the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(c) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(d) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
II-7
<PAGE> 281
SIGNATURES
Pursuant to the requirements of the Act, the registrant has duly caused
this registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in New York, New York on March 9, 2000.
MetLife, Inc.
By: /s/ ROBERT H. BENMOSCHE
------------------------------------
Name: Robert H. Benmosche
Title: Chairman, President and
Chief Executive Officer
II-8
<PAGE> 282
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
this amendment to the registration statement of MetLife, Inc. has been signed by
the following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Chairman, President, Chief Executive March 9, 2000
- --------------------------------------------- Officer and Director
Robert H. Benmosche
* Director March 9, 2000
- ---------------------------------------------
Curtis H. Barnette
* Vice-Chairman, Chief Investment March 9, 2000
- --------------------------------------------- Officer and Director
Gerald Clark
* Director March 9, 2000
- ---------------------------------------------
Joan Ganz Cooney
* Director March 9, 2000
- ---------------------------------------------
Burton A. Dole, Jr.
* Director March 9, 2000
- ---------------------------------------------
James R. Houghton
* Director March 9, 2000
- ---------------------------------------------
Harry P. Kamen
* Director March 9, 2000
- ---------------------------------------------
Helene L. Kaplan
* Director March 9, 2000
- ---------------------------------------------
Charles M. Leighton
* Director March 9, 2000
- ---------------------------------------------
Allen E. Murray
* Vice-Chairman, Chief Financial Officer March 9, 2000
- --------------------------------------------- and Director
Stewart G. Nagler
* Director March 9, 2000
- ---------------------------------------------
John J. Phelan, Jr.
</TABLE>
II-9
<PAGE> 283
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Director March 9, 2000
- ---------------------------------------------
Hugh B. Price
* Director March 9, 2000
- ---------------------------------------------
Robert G. Schwartz
* Director March 9, 2000
- ---------------------------------------------
Ruth J. Simmons
* Director March 9, 2000
- ---------------------------------------------
William C. Steere, Jr.
By /s/ ROBERT H. BENMOSCHE
- --------------------------------------------
Attorney-in-fact
</TABLE>
II-10
<PAGE> 284
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
1.1 Form of Underwriting Agreement*
2.1 Plan of Reorganization+
3.1 Form of Amended and Restated Certificate of Incorporation of
MetLife, Inc.+
3.2 Form of Amended and Restated By-Laws of MetLife, Inc.+
4.1 Form of Certificate for Common Stock, par value $0.01 per
share
5.1 Opinion of Debevoise & Plimpton
10.1 MetLife Deferred Compensation Plan 2000 for Senior Officers
10.2 MetLife Deferred Compensation Plan 2000 for Officers
10.3 Form of Employment Continuation Agreement with Messrs.
Benmosche, Nagler and Clark+
10.4 Form of Employment Continuation Agreement with Mr. Henrikson
and other executive officers+
10.5 Employment Continuation Agreement with Mr. Benson*
10.6 Form of Stockholder Rights Agreement+
10.7 MetLife, Inc. 2000 Stock Incentive Plan+
10.8 MetLife, Inc. 2000 Directors Stock Plan+
10.9 Employment Continuation Agreement with Ms. Rein*
10.10 Employment Continuation Agreement between Ms. Rein and
Metropolitan Property and Casualty Insurance Company,
dated March 3, 2000
10.11 Employment Agreement between New England Life Insurance
Company and James M. Benson, dated June 16, 1997
10.12 Policyholder Trust Agreement+
10.13 Restatement of the Excess Asbestos Indemnity Insurance
Policy, dated as of December 31, 1998, between Stockwood
Reinsurance Company, Ltd. and Metropolitan Life Insurance
Company
10.14 Restatement of the Excess Asbestos Indemnity Insurance
Policy, dated as of December 31, 1998, between European
Reinsurance Corporation of America and Metropolitan Life
Insurance Company
10.15 Restatement of the Aggregate Excess of Loss Reinsurance
Agreement, dated as of December 31, 1998, between
Stockwood Reinsurance Company, Ltd. and Metropolitan Life
Insurance Company
10.16 Restatement of the Excess Asbestos Indemnity Insurance
Policy, dated as of December 31, 1998, between Granite
State Insurance Company and Metropolitan Life Insurance
Company
10.17 Restatement of the Aggregate Excess of Loss Reinsurance
Agreement, dated as of December 31, 1998, between American
International Life Assurance Company of New York and
Metropolitan Life Insurance Company
10.18 Five-Year Credit Agreement, dated as of April 27, 1998, and
as amended as of April 26, 1999, among Metropolitan Life
Insurance Company, MetLife Funding, Inc. and the other
parties signatory thereto
10.19 364-Day Credit Agreement, dated as of April 27, 1998, as
amended and restated as of April 26, 1999, among
Metropolitan Life Insurance Company, MetLife Funding, Inc.
and the other parties signatory thereto
10.20 364-Day Credit Agreement, dated as of September 29, 1999,
among Metropolitan Life Insurance Company, MetLife
Funding, Inc. and the other parties signatory thereto
10.21 Stipulation of Settlement*
10.22 Consulting Agreement with Harry P. Kamen, effective July 1,
1999
10.23 Consulting Agreement with Harry P. Kamen, effective July 1,
1998
10.24 Metropolitan Life Insurance Company Long Term Performance
Compensation Plan (for performance periods starting on or
after January 1, 2000)
</TABLE>
<PAGE> 285
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
10.25 Metropolitan Life Insurance Company Long Term Performance
Compensation Plan (for performance periods starting on or
after January 1, 1999)
10.26 Metropolitan Life Insurance Company Long Term Performance
Compensation Plan (for performance periods starting on or
after January 1, 1998)
10.27 Metropolitan Life Insurance Company Long Term Performance
Compensation Plan (for performance periods starting on or
after January 1, 1997)
10.28 Metropolitan Life Insurance Company Annual Variable
Incentive Plan (for performance periods starting on or
after January 1, 2000)
10.29 The New Metropolitan Life Auxiliary Retirement Benefits
Plan, as amended and restated, effective January 1, 1996
10.30 The New Metropolitan Life Supplemental Auxiliary Retirement
Benefits Plan, effective January 1, 1996, and Amendment
thereto
10.31 Metropolitan Life Auxiliary Savings and Investment Plan,
restated effective through August 15, 1998
10.32 Metropolitan Life Supplemental Auxiliary Savings and
Investment Plan (as amended and restated as of September
1, 1998) and Amendment thereto
10.33 Supplemental Auxiliary Savings and Investment Plan of
Participating Metropolitan Affiliates, effective January
1, 1996
10.34 Metropolitan Life Supplemental Retirement Benefits Plan and
Amendment thereto, effective January 1, 1995
10.35 New England Financial Annual Variable Incentive Plan (for
performance periods starting on or after January 1, 2000)
10.36 New England Financial Long Term Performance Compensation
Plan (for performance periods starting on or after January
1, 2000)
10.37 New England Life Insurance Company Select Employees
Supplemental 401(k) Plan, as amended and restated
effective January 1, 2000*
10.38 New England Life Insurance Company Supplemental Retirement
Plan, as amended and restated effective January 1, 2000
10.39 The New England Life Insurance Company Select Employees
Supplemental Retirement Plan, as amended and restated
effective January 1, 2000
10.40 The New England Life Insurance Company Senior Executive
Nonqualified Elective Deferral Plan, effective January 1,
1998
10.41 New England Financial Long Term Performance Compensation
Plan (for each of the three-year performance periods
commencing on January 1, 1997, 1998 and 1999,
respectively)
21.1 Subsidiaries of the Registrant
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of PricewaterhouseCoopers LLP+
23.3 Consent of Debevoise & Plimpton (included in Exhibit 5.1)
24.1 Powers of Attorney+
27.1 Financial Data Schedule+
</TABLE>
- ---------------
* To be filed by amendment.
+ Previously filed.
<PAGE> 1
EXHIBIT 4.1
Number
ML
--------
METLIFE(R)
COMMON STOCK COMMON STOCK
PAR VALUE $0.01 PAR VALUE $0.01
INCORPORATED UNDER THE LAWS [PHOTO] SHARES
OF THE STATE OF DELAWARE METLIFE, INC.
CUSIP 59156R 10 8
SEE REVERSE FOR CERTAIN
DEFINITIONS AND
RESTRICTIONS
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK OF
METLIFE, INC. TRANSFERABLE ON THE BOOKS OF THE CORPORATION BY THE HOLDER HEREOF
IN PERSON OR BY DULY AUTHORIZED ATTORNEY UPON SURRENDER OF THIS CERTIFICATE
PROPERLY ENDORSED. THIS CERTIFICATE AND THE SHARES REPRESENTED HEREBY ARE ISSUED
AND SHALL BE SUBJECT TO ALL OF THE PROVISIONS OF THE CERTIFICATE OF
INCORPORATION AND BY-LAWS OF THE CORPORATION EACH AS FROM TIME TO TIME AMENDED,
TO ALL OF WHICH THE HOLDER BY ACCEPTANCE HEREOF ASSENTS. THIS CERTIFICATE IS NOT
VALID UNTIL COUNTERSIGNED AND REGISTERED BY THE TRANSFER AGENT AND REGISTRAR.
WITNESS THE FACSIMILE SEAL OF THE CORPORATION AND THE FACSIMILE SIGNATURES
OF ITS DULY AUTHORIZED OFFICERS.
DATED:
Countersigned and Registered:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
Transfer Agent and Registrar
By: Norma Cianfaglione
Authorized signature
[SEAL]
Robert H. Benmosche
Chairman of the Board and
Chief Executive Officer
William J. Wheeler
Treasurer
<PAGE> 2
METLIFE(R)
This certificate also evidences and entitles the holder hereof to certain
Rights as set forth in a Rights Agreement between the Corporation and
ChaseMellon Shareholder Services, L.L.C., as Rights Agent (the "Rights
Agreement"), the terms of which are hereby incorporated herein by reference and
a copy of which is on file at the principal executive offices of the
Corporation. Under certain circumstances, as set forth in the Rights Agreement,
such Rights will be evidenced by separate certificates and will no longer be
evidenced by this certificate. The Corporation will mail to the holder of this
certificate a copy of the Rights Agreement (as in effect on the date of
mailing) without charge promptly after receipt of a written request therefor.
Under certain circumstances set forth in the Rights Agreement, Rights
beneficially owned by an Acquiring Person, or any Associate or Affiliate thereof
(as such terms are defined in the Rights Agreement), whether currently held by
or on behalf of such Person or by any subsequent holder, may become null and
void.
The Corporation will furnish without charge to each shareholder who so
requests a copy of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of shares or
series thereof, and the qualifications, limitations, or restrictions of such
preferences and/or rights.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT - Custodian
------ -------
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right
of survivorship and not as under Uniform Gifts to Minor
tenants in common Act
-----------------------
(State)
Additional abbreviations may also be used though not in the above list.
For value received, hereby sell, assign and transfer unto
-------------
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- --------------------------------------
- ------------------------------------------------------------------------------
Please print or typewrite name and address including postal zip code of assignee
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Shares
- -----------------------------------------------------------------------
represented by the within Certificate, and do hereby irrevocably constitute
and appoint
-------------------------------------------------------------------
Attorney to transfer the said shares on the books of the within-named
Corporation with full power of substitution in the premises.
Dated:
------------------------------------ ------------------------------------
Signature
------------------------------------
Signature
NOTICE: The signature to this
assignment must correspond with the
name as written upon the face of the
Certificate, in every particular,
without alteration or enlargement,
or any change whatever.
Signature(s) Guaranteed:
By
THE SIGNATURE(S) SHOULD BE GUARANTEED
BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN
ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM), PURSUANT
TO S.E.C. RULE 17Ad-15.
<PAGE> 1
Exhibit 5.1
EXHIBIT 5 OPINION ON
VALIDITY AND LEGALITY OF SECURITIES
[LETTERHEAD OF DEBEVOISE & PLIMPTON]
March 8, 2000
MetLife, Inc.
One Madison Ave.
New York, NY 10010-3690
MetLife, Inc.
Registration Statement on Form S-1
----------------------------------
Dear Sirs or Madams:
We have acted as counsel to MetLife, Inc., a Delaware corporation (the
"Registrant"), in connection with a Registration Statement on Form S-1 (File
No. 333-91517) (the "Registration Statement") filed by the Registrant with the
Securities and Exchange Commission (the "Commission") pursuant to the
Securities Act of 1933, as amended (the "Act"), relating to an offering (the
"Offering") of shares of the Registrant's Common Stock, par value $.01 per
share (the "Common Stock"), by the Registrant (such shares of Common Stock,
including any shares that may be sold upon exercise of underwriters'
over-allotment options and any additional shares that may be registered in
accordance with Rule 462(b) under the Act for sale in the Offering, the
"Shares").
<PAGE> 2
MetLife, Inc. 2 March 8, 2000
In so acting, we have examined and relied upon the originals, or copies
certified or otherwise identified to our satisfaction, of such records,
documents, certificates and other instruments as in our judgment are necessary
or appropriate to enable us to render the opinion expressed below.
We are of the opinion that upon issuance and delivery against payment
therefore in accordance with the terms of the underwriting agreement (a form of
which is filed as Exhibit 1.1 to the Registration Statement), the Shares are
duly authorized, validly issued, fully paid and non-assessable under the laws
of the State of Delaware.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement, to the reference to our firm under the caption "Legal
Matters" in the Prospectus forming a part thereof and to the incorporation by
reference of this opinion and consent as exhibits to any registration statement
filed in accordance with Rule 462(b) under the Act relating to the Offering. In
giving such consent, we do not thereby concede that we are within the category
of persons whose consent is required under Section 7 of the Act or the rules
and regulations of the Commission thereunder.
Very truly yours,
/s/ Debevoise & Plimpton
------------------------
<PAGE> 1
Exhibit 10.1
===============================================================================
METLIFE DEFERRED COMPENSATION PLAN 2000
For Senior Officers
[METLIFE LOGO]
<PAGE> 2
===============================================================================
DEFERRED COMPENSATION
PLAN FOR SENIOR OFFICERS
The MetLife Deferred Compensation Plan for Senior Officers provides you with
the opportunity to defer receipt of a portion of your compensation to a later
date, reducing gross income in the year of the deferral for purposes of federal
and most state income taxes. The Deferred Compensation Plan is administered by
a Plan Committee composed of the Senior Vice President of Human Resources, the
Senior Vice President of Tax and the Vice President of Employee Benefits. This
booklet will serve as the plan document.
QUESTIONS?
MetLife Specialized Benefit Resources
Pauline King
Phone: (732) 602-4733
Fax: (732) 602-6455
E-mail: [email protected]
<PAGE> 3
===============================================================================
ELIGIBILITY
Senior Officers (as defined by the Plan Committee) of MetLife and
designated subsidiaries are eligible to participate in the Deferred
Compensation Plan for Senior Officers. Senior Officers appointed during a
Plan year will be eligible to defer future base salary for the remainder of
the Plan year, provided they elect to do so within 30 days of appointment.
If you choose to participate, deferral will begin on January 1 of each
year.
ELIGIBLE COMPENSATION
Up to 33% of Annual Cash Compensation (consisting of base salary and any
annual incentive programs*) may be deferred. The Company reserves the right
to restrict the amount of deferral so that it does not exceed limits
imposed by New York State Insurance law. The deferral of base salary may be
expressed as either a dollar amount or a percentage, but the deferral of
any incentive payment may be expressed only as a percentage. The minimum
amount that may be deferred is 5% of Annual Cash Compensation, but not less
than $5,000.
FICA, Medicare, and any other taxes which are due in the year deferred
amounts would have otherwise been payable will be paid from your other
compensation.
*Annual incentive programs include the Annual Variable Incentive Plan,
Corporate Investments Incentive Plan, Real Estate Investments Incentive
Plan, Agricultural Investments Incentive Plan, Individual Regional
Executive Plan and Institutional Regional Executive Plan. Payments from
the Long Term Performance Compensation Plan are not deferrable.
2.
<PAGE> 4
===============================================================================
MAKING A
DEFERRAL ELECTION
To designate a deferral, a Deferral Election Form must be
completed and submitted by the due date on the election form,
indicating the deferred amounts. This due date will be prior
to the year in which the deferred amounts would have been
otherwise paid.
Deferral of base salary amounts will begin with the first
January payroll period and end with the last December payroll
period in the year following the deferral election.
IN ADDITION TO INDICATING THE AMOUNT TO BE DEFERRED, YOU MUST
ALSO DECIDE:
- THE INVESTMENT OPTION - Deferred amounts will not be
actually invested in the funds selected, but earnings
(gains or losses) will be credited to participant's
accounts in accordance with the performance of the fund
selected. Investment choices may be changed up to six
times per year, according to the instructions on page 4.
- THE DISTRIBUTION DATE - This cannot be less than three
years after the year of deferral. Once you have designated
a distribution date, this decision cannot be changed,
except as otherwise provided in the Plan.
- THE DISTRIBUTION METHOD OR HOW THE DEFERRED AMOUNT IS TO
BE PAID - Payment may be in a single lump sum, or over
five, ten or fifteen years in annual installments. Once
you have designated a distribution method, this decision
cannot be changed, except as otherwise provided in the
Plan.
3.
<PAGE> 5
================================================================================
DEFERRED COMPENSATION ACCOUNTS
An account will be established for each participant in the Deferred
Compensation Plan. These accounts are unfunded, meaning any amounts
credited to the accounts will be solely for record-keeping purposes and
will not be considered to be held in trust or in escrow or in any way
vested to the participant.
The maintenance of such account will not give you any right or security
interest in any asset of MetLife. All amounts in such account remain
subject to the claims of the general creditors of MetLife.
The amount deferred will be credited to the deferral account at the end of
each payroll period in which the funds would otherwise have been paid. The
amounts deferred will accrue earnings based on the performance of the
particular investment vehicle(s) of your choice.
PARTICIPANTS MAY CHOOSE AMONG THE FOLLOWING INVESTMENT FUND OPTIONS:
--------------------------------------------------------------------
-- MetLife SIP Fixed Income Fund
-- Loomis Sayles Bond Fund
-- MetLife SIP Common Stock Index Fund
-- Oakmark Fund
-- MetLife SIP Small Company Stock Fund
-- Oakmark International Portfolio
See page 5 for information about the investment options, including
investment objectives.
Investment choices may be changed by the participant up to six times each
year, by contacting Pauline King of MetLife Specialized Benefit Resources
at (732) 602-4733. The changes will be made as of the business day your
written request is received, if received before 4 p.m. ET or as of the next
business day, if received after 4 p.m. ET. You will receive a confirmation
letter within two weeks.
4.
<PAGE> 6
================================================================================
FUND OBJECTIVES
Following are brief descriptions of the investment objectives of each of the
funds:
1. METLIFE SIP FIXED INCOME FUND
This portfolio seeks to achieve the highest possible current income
consistent with the preservation of capital and predictable growth through a
guaranteed interest rate by investing in Guaranteed Investment Contracts or
similar contracts.
2. LOOMIS SAYLES BOND FUND
This portfolio seeks to achieve high total return through current income
and capital appreciation, by investing primarily in debt securities including
convertibles. At least 65% of its total assets will normally be invested in
bonds. Up to 35% of its assets may be invested in securities of below
investment-grade quality, and up to 20% of assets may be invested in preferred
stocks.
3. METLIFE SIP COMMON STOCK INDEX FUND
This portfolio seeks long-term growth of capital and income, with minimal
transaction costs. The portfolio seeks to approximate the performance of the
Standard & Poor's 500 Composite Stock Price Index by investing in the stocks of
companies which are included in the index.
4. OAKMARK FUND
This portfolio seeks to achieve high total return through long-term growth
of capital appreciation by investing primarily in equity securities. Up to 25%
of its total assets may be invested in securities of non-U.S. issuers, but no
more than 5% of assets are expected to be invested in emerging markets.
5. METLIFE SIP SMALL COMPANY STOCK FUND
This portfolio seeks to achieve high total return through long-term growth
of capital appreciation by investing in the stocks of small U.S. companies with
strong growth potential.
6. OAKMARK INTERNATIONAL PORTFOLIO
This portfolio seeks to achieve high total return through long-term growth
of capital appreciation by investing in the stocks of international equity
securities of mature markets, less developed markets, and in selected emerging
markets. There are no limits on the geographic asset distribution. At least 65%
of its total assets will normally be invested in non-U.S. issuers.
5.
<PAGE> 7
================================================================================
DISTRIBUTIONS
PAYMENT DESIGNATION
Payment will begin in January or July coincident with or next following the
date specified at the time of your election. The form of payment will be made
according to the option elected for each year's deferred funds. Regardless of
the option elected, payment will be made in a single lump sum if employment
terminates prior to retirement eligibility under the MetLife Retirement Plan or
upon your death. No loans can be taken.
Payments are subject to such deductions as may be required in accordance with
all federal, state, and local tax laws and regulations.
In the event that you die while annual installments are in progress, the
balance of your Deferred Compensation Account will immediately become due and
payable in one lump sum to your designated beneficiary.
HARDSHIP EXCEPTIONS
In the case of extreme hardship, contributions to the Plan may be discontinued
and/or payments may be made from your account at the discretion of the Plan
Committee. If contributions are to be discontinued or payment made, the amount
involved cannot exceed the funds required to satisfy the financial consequences
of the hardship.
Extreme hardship includes any unforeseeable or extraordinary occurrence or
event caused by an event beyond the control of the participant or beneficiary,
such as illness, disability, accident, or family problems resulting in a
participant's financial need that cannot be met from other assets or normal
sources of income.
ACCELERATED DISTRIBUTION EXCEPTIONS
You may elect to receive an immediate lump sum distribution without a hardship,
but you must withdraw the full account balance for all years in which you made
deferrals under the Plan and there will be a 10% penalty forfeited to the
Company. In addition, funds received pursuant to such distribution will be
deemed to be taxable income. Future deferrals under the Plan will not be
permitted until the Plan year commencing at least three years after the date of
the distribution.
6.
<PAGE> 8
============================================================
NONASSIGNABILITY AND
BENEFICIARY DESIGNATIONS
NONASSIGNABILITY
Neither the participant nor any designated beneficiary shall have any right to
sell, assign, transfer or commute any rights under this Plan.
BENEFICIARY DESIGNATIONS
You may designate an individual, a trustee or your estate as beneficiary and you
may change your beneficiary at any time. A beneficiary designation will be valid
as of the date the written request is received. If there is no valid beneficiary
designation, or if no designated beneficiary survives the participant, the
account balance at your death shall be paid as soon as practicable to your
surviving spouse, and in the event you are not married at death, to your estate.
NOTE: MetLife may terminate or amend the Plan at any time, provided, however,
that no such amendment or termination shall impair any rights which have accrued
under the Plan.
7.
<PAGE> 9
================================================================================
QUESTIONS AND
ANSWERS
WHAT ARE THE DIFFERENCES BETWEEN THE DEFERRED COMPENSATION PLAN (DCP) AND A
401(k) PLAN SUCH AS THE SAVINGS AND INVESTMENT LOAN (SIP)?
A 401(k) plan is a "qualified plan" -this means that it is qualified under the
Internal Revenue Code. Under a 401(k) plan, participants can defer income,
subject to certain limits. The chief limitations of 401(k) plans are the
various Internal Revenue Code-imposed caps on the amount that can be deferred.
The chief advantages of the DCP are the substantially greater deferral
opportunities it can offer. The chief disadvantage is that it does not offer
the security of a qualified plan which is afforded full ERISA protection.
Participation in the DCP does not affect your ability to participate in SIP. If
eligible, you can participate in either or both plans.
I AM CONSIDERING DEFERRING $10,000 UNDER THE DEFERRED COMPENSATION PLAN FOR
SENIOR OFFICERS. WHAT ARE THE ADVANTAGES OF THIS DEFERRAL VERSUS AFTER-TAX
INVESTMENT?
Assume you defer $10,000 in 2000, requesting a distribution in 2005, combined
federal and state income tax rates remain level at 45% and the value of the
deferral increases at 10% per year. (For the purpose of this example, the 1.45%
Medicare tax withholding is ignored.)
<TABLE>
<CAPTION>
==========================================================================================
DEFERRED COMPENSATION PLAN AFTER-TAX INVESTMENT
YEAR VALUE TAXES NET VALUE VALUE TAXES NET VALUE
==========================================================================================
<S> <C> <C> <C> <C> <C> <C>
2000 (Year of Deferral) $10,000 $0 $10,000 $10,000 $4,500 $5,500
2001 $11,000 $0 $11,000 $ 6,050 $0 $6,050
2002 $12,100 $0 $12,100 $ 6,655 $0 $6,655
2003 $13,310 $0 $13,310 $ 7,321 $0 $7,321
2004 $14,641 $0 $14,641 $ 8,053 $0 $8,053
2005 (Year of Distribution) $16,105 $7,247 $ 8,858 $ 8,858 $1,511* $7,347
</TABLE>
Tax rates may vary and are subject to change. MetLife recommends that you speak
to your tax advisor before making an election under this Plan.
* Assumes investment in a deferred annuity with no penalty at withdrawal.
WHY DO I HAVE TO MADE A DEFERRAL ELECTION BEFORE I KNOW WHAT I WILL BE PAID?
The Internal Revenue Service ("IRS") requires that an irrevocable election to
defer income be made before the income is actually earned. Since your election
will remain in effect for an entire plan year, you may want to be conservative
in your deferral amount.
<PAGE> 10
==========================================================================
WHAT WOULD HAPPEN TO MY DEFERRALS IN THE EVENT METLIFE BECOMES INSOLVENT?
In the unlikely event of MetLife's insolvency, Plan participants would be
viewed as general creditors and their claims for their deferrals would be
treated in the manner and sequence stipulated by New York State Insurance Law.
WHEN AM I TAXED ON DEFERRED COMPENSATION OR EARNINGS THEREON?
Under current law, for federal (and most state) income tax purposes you will
not be taxed until you actually receive this money. Some states and localities
do not exclude deferred compensation from current taxation (check with your tax
advisor to find out if this is the case in your state). Note, however, that
your deferrals are subject to current Social Security (FICA) taxes.
ARE DISTRIBUTIONS ELIGIBLE TO BE ROLLED OVER INTO AN IRA?
No. Because this is not a tax-qualified plan under the Internal Revenue Code,
you cannot roll your distributions over into an IRA or to another employer's
qualified plan when you leave MetLife. When electing a Plan distribution, we
encourage you to seek professional tax advice to determine the best course of
action for your financial circumstances.
WILL PAYMENT TO MY BENEFICIARIES BE INCLUDED IN MY GROSS ESTATE FOR FEDERAL
ESTATE TAX PURPOSES?
Yes. The present value of your deferral account balances at the time of your
death will be included. If, however, your beneficiary is your spouse and the
payments qualify for the estate tax marital deduction, in effect these amounts
will not give rise to federal estate taxes.
IS MY DEFERRAL INCLUDED IN THE SOCIAL SECURITY WAGE BASE?
Yes. Deferrals are subject to withholding for Social Security (FICA) taxes in
the year of the deferral until the annual taxable wage base under the Social
Security provision is reached. There is no maximum annual taxable wage base for
the hospital insurance tax provision of FICA (the "Medicare tax"). Required
withholdings for FICA shall be made from your other compensation.
WILL I PAY SOCIAL SECURITY TAXES WHEN I TAKE MY DISTRIBUTION?
No. Because Social Security taxes were taken into account at the time the
deferrals were made, you owe no additional Social Security taxes when
distributions are made. Distributions of deferred amounts will not affect
receipt of Social Security benefits.
9.
<PAGE> 11
================================================================================
HOW WILL MY DEFERRALS AFFECT MY OTHER BENEFITS?
LIFE INSURANCE FOR YOU, SURVIVOR BENEFIT, SHORT TERM DISABILITY AND LONG TERM
DISABILITY
Your pay used to calculate benefits for these Plans will be calculated based on
pre-deferral amounts.
COMPENSATION CONTINUANCE PLAN
Deferrals will continue to be taken from your pay during periods of short
illness absence in which you are paid under the Company's Compensation
Continuance Plan.
RETIREMENT PLAN
Your final average pay will be based on annual base compensation and incentive
payments, not receipts. That is, the calculation will be based on the
pre-deferral amounts.
SAVINGS AND INVESTMENT PLAN (SIP)
If you are participating in the Savings and Investment Plan (SIP), the
Company's 4% match will be allocated as follows:
<TABLE>
<CAPTION>
COMPENSATION SIP (QUALIFIED PLAN) AUXILIARY SIP AUXILIARY SIP FOR DEFERRALS
- ------------ -------------------- ------------------------- ---------------------------
<S> <C> <C> <C>
Non-Deferred Compensation:
Up to $170,000* X
Non-Deferred Compensation
in Excess of $170,000* X
Deferred Compensation X
</TABLE>
FOR EXAMPLE:
<TABLE>
<S> <C>
Annual Cash Compensation $300,000
Amount of Deferral $ 60,000
--------
Non-Deferred Compensation $240,000
</TABLE>
The 4% SIP match would be allocated to the participant's accounts as follows:
<TABLE>
<CAPTION>
COMPENSATION SIP (QUALIFIED PLAN) AUXILIARY SIP AUXILIARY SIP FOR DEFERRALS
- ------------ -------------------- -------------------------- ---------------------------
<S> <C> <C> <C>
Non-Deferred Compensation: $6,800
Up to $170,000* 4% of $170,000
Non-Deferred Compensation $2,800
in Excess of $170,000* 4% of ($240,000 - $170,000)
Deferred Compensation $2,400
4% of $60,000
</TABLE>
* Maximum compensation limit under the Internal Revenue Code (IRC) for Qualified
Plans, indexed from time to time, is currently $170,000. Note that the Company
matching contribution for Auxiliary SIP is subject to FICA tax as well.
10.
<PAGE> 12
===============================================================================
HOW ARE PLAN PAYMENTS TO ME OR MY BENEFICIARIES TREATED FOR INCOME TAX PURPOSES?
For federal tax purposes, generally, payments are taxed as ordinary income when
received and are subject to income tax withholding at the rate applicable in the
year received. For deferrals that are excluded from state and local taxable
income at the time the deferrals are made, payments are taxed as ordinary
income when received.
For deferral payments made while you are an active employee, MetLife uses a flat
income tax withholding rate.
HOW DOES METLIFE FUND THE DEFERRED COMPENSATION ACCOUNTS?
The deferred compensation accounts established for each participant are
unfunded. The accounts established are solely for record-keeping purposes.
MetLife has established a RabbiTrust for the Plan, but the existence of this
trust in no way guarantees payment to the participant.
Deferred amounts remain subject to claims of the Company's general creditors.
HOW WILL EARNINGS BE CREDITED TO MY ACCOUNT?
The investment options you select are used solely as a device for crediting
investment returns to your account; your deferrals will not actually be invested
in the investment options. Your investment returns will "mirror" the actual
performance of the investment options you choose and performance will be
measured on a daily basis. Your deferrals are subject to investment risk. As
with any investment, if the returns on the funds you choose are positive, your
account balance will grow. If the returns are negative, your account balance
will diminish.
CAN I HAVE MY DEFERRALS UNDER EXISTING INDIVIDUAL DEFERRED COMPENSATION
AGREEMENTS WITH METLIFE CREDITED WITH THE INVESTMENT PERFORMANCE OF THE FUNDS
OFFERED IN THE DEFFERED COMPENSATION PLAN FOR SENIOR OFFICERS?
If you want to have some or all of your existing individual deferrals credited
with the investment performance of the funds offered in the Deferred
Compensation Plan for Senior Officers, you must contact Pauline King of
MetLife's Specialized Benefit Resources at (732) 602-4733 to obtain an
Investment Preference Form. The changes will be made as of the business day
your written request is received, if received before 4 p.m. ET or as of the
next business day, if received after 4 p.m. ET. You will receive a confirmation
letter within two weeks.
11.
<PAGE> 13
================================================================================
NOTES
<PAGE> 14
METLIFE
Metropolitan Life Insurance Company
One Madison Avenue, New York, New York 10010
18000224958 (1199) Printed in U.S.A.
<PAGE> 1
Exhibit 10.2
MetLife Deferred Compensation Plan 2000
For Officers
[MetLife Logo]
<PAGE> 2
================================================================================
DEFERRED COMPENSATION
PLAN FOR OFFICERS
The MetLife Deferred Compensation Plan for Officers provides you with the
opportunity to defer receipt of a portion of your annual incentive payment
to a later date, reducing gross income in the year of the deferral for
purposes of federal and most state income taxes. The Deferred Compensation
Plan is administered by a Plan Committee composed of the Senior Vice
President of Human Resources, the Senior Vice President of Tax and the Vice
President of Employee Benefits. This booklet will serve as the plan
document.
QUESTIONS?
METLIFE SPECIALIZED BENEFIT RESOURCES
PAULINE KING
PHONE: (732) 602-4733
FAX: (732) 602-6455
E-MAIL: [email protected]
1.
<PAGE> 3
ELIGIBILITY
Officers of MetLife and designated subsidiaries (other than those Officers who
are eligible to participate in the "Deferred Compensation Plan for Senior
Officers") are eligible to participate in the Deferred Compensation Plan for
Officers. Officers appointed during a Plan year will be eligible to participate
for the next Plan year.
ELIGIBLE COMPENSATION
You may defer any or all of your annual incentive payment payable under any
annual incentive programs subject to an overall limit of 33% of total Annual
Cash Compensation.* MetLife reserves the right to limit or discontinue
acceptance of contributions to this Plan at any time if necessary or desirable
in MetLife's discretion to maintain compliance with any applicable law or to
preserve MetLife's ability to offer this Plan without registration of the Plan
as a security with the United States Securities and Exchange Commission. The
deferral of any incentive payment may be expressed as a percentage or dollar
amount. The minimum amount that may be deferred is 5% but not less than $5,000.
FICA, Medicare, and any other taxes which are due in the year deferred amounts
would have otherwise been payable will be paid from your other compensation.
*Annual incentive programs include the Annual Variable Incentive Plan,
Corporate Investments Incentive Plan, Real Estate Investments Incentive Plan,
Agricultural Investment Plan, Individual Regional Executive Plan and
Institutional Regional Executive Plan. Payments from the Long Term Performance
Compensation Plan are not deferrable.
2.
<PAGE> 4
MAKING A
DEFERRAL ELECTION
To designate a deferral, a Deferral Election Form must be completed and
submitted by the due date on the election form, indicating the deferred amounts.
This due date will be prior to the year in which the deferred amounts would have
been otherwise paid.
In addition to indicating the amount to be deferred, you must also decide:
* The investment option -- Deferred amounts will not be actually invested in the
funds selected, but earnings (gains or losses) will be credited to participant's
accounts in accordance with the performance of the fund selected. Investment
choices may be changed up to six times per year, according to the instructions
on page 4.
* The distribution date -- This cannot be less than three years after the year
of deferral. Once you have designated a distribution date, this decision cannot
be change, except as otherwise provided in the Plan.
* The distribution method or how the deferred amount is to be paid -- Payment
may be in a single lump sum, or over five, ten or fifteen years in annual
installments. Once you have designated a distribution method, this decision
cannot be changed, except as otherwise provided in the Plan.
3
<PAGE> 5
===============================================================================
DEFERRED COMPENSATION
ACCOUNTS
An account will be established for each participant in the Deferred
Compensation Plan. These accounts are unfunded, meaning any amounts credited to
the accounts will be solely for record-keeping purposes and will not be
considered to be held in trust or in escrow or in any way vested to the
participant.
The maintenance of such account will not give you any right or security
interest in any asset of MetLife. All amounts in such account remain subject to
the claims of the general creditors of MetLife.
The amount deferred will be credited to the deferral account at the end of each
payroll period in which the funds would otherwise have been paid. The amounts
deferred will accrue earnings based on the performance of the particular
investment vehicle(s) of your choice.
PARTICIPANTS MAY CHOOSE AMONG THE FOLLOWING INVESTMENT FUND OPTIONS:
- --------------------------------------------------------------------
- - MetLife SIP Fixed Income Fund
- - Loomis Sayles Bond Fund
- - MetLife SIP Common Stock Index Fund
- - Oakmark Fund
- - MetLife SIP Small Company Stock Fund
- - Oakmark International Portfolio
See page 5 for information about the investment options including investment
objectives.
Investment choices may be changed by the participant up to six times each year,
by contacting Pauline King of MetLife Specialized Benefit Resources at
(732)602-4733. The changes will be made as of the business day your written
request is received, if received before 4 p.m. ET or as of the next business
day, if received after 4 p.m. ET. You will receive a confirmation letter within
two weeks.
4.
<PAGE> 6
===============================================================================
FUND OBJECTIVES
Following are brief descriptions of the investment objectives of each of the
funds:
1. METLIFE SIP FIXED INCOME FUND
This portfolio seeks to achieve the highest possible current income
consistent with the preservation of capital and predictable growth through
a guaranteed interest rate by investing in Guaranteed Investment Contracts
or similar contracts.
2. LOOMIS SAYLES BOND FUND
This portfolio seeks to achieve high total return through current income
and capital appreciation, by investing primarily in debt securities
including convertibles. At least 65% of its total assets will normally be
invested in bonds. Up to 35% of its assets may be invested in securities of
below investment-grade quality, and up to 20% of assets may be invested in
preferred stocks.
3. METLIFE SIP COMMON STOCK INDEX FUND
This portfolio seeks long-term growth of capital and income, with minimal
transaction costs. The portfolio seeks to approximate the performance of
the Standard & Poor's 500 Composite Stock Price Index by investing in the
stocks of companies which are included in the index.
4. OAKMARK FUND
This portfolio seeks to achieve high total return through long-term growth
of capital appreciation by investing primarily in equity securities. Up to
25% of its total assets may be invested in securities of non-U.S. issuers,
but no more than 5% of assets are expected to be invested in emerging
markets.
5. METLIFE SIP SMALL COMPANY STOCK FUND
This portfolio seeks to achieve high total return through long-term growth
of capital appreciation by investing in the stocks of small U.S. companies
with strong growth potential.
6. OAKMARK INTERNATIONAL PORTFOLIO
This portfolio seeks to achieve high total return through long-term growth
of capital appreciation by investing in the stocks of international equity
securities of mature markets, less developed markets, and in selected
emerging markets. There are no limits on the geographic asset distribution.
At least 65% of its total assets will normally be invested in non-U.S.
issuers.
5.
<PAGE> 7
================================================================================
DISTRIBUTIONS
PAYMENT DESIGNATION
Payment will begin in January or July coincident with or next following the
date specified at the time of your election. The form of payment will be made
according to the option elected for each year's deferred funds. Regardless of
the option elected, payment will be made in a single lump sum if employment
terminates prior to retirement eligibility under the MetLife Retirement Plan or
upon your death. No loans can be taken.
Payments are subject to such deductions as may be required in accordance with
all federal, state, and local tax laws and regulations.
In the event that you die while annual installments are in progress, the
balance of your Deferred Compensation Account will immediately become due and
payable in one lump sum to your designated beneficiary.
HARDSHIP EXCEPTIONS
In the case of extreme hardship, contributions to the Plan may be discontinued
and/or payments may be made from your account at the discretion of the Plan
Committee. If contributions are to be discontinued or payment made, the amount
involved cannot exceed the funds required to satisfy the financial consequences
of the hardship.
Extreme hardship includes any unforeseeable or extraordinary occurrence or
event caused by an event beyond the control of the participant or beneficiary,
such as illness, disability, accident, or family problems resulting in a
participant's financial need that cannot be met from other assets or normal
sources of income.
ACCELERATED DISTRIBUTION EXCEPTIONS
You may elect to receive an immediate lump sum distribution without a hardship,
but you must withdraw the full account balance for all years in which you made
deferrals under the Plan and there will be a 10% penalty forfeited to the
Company. In addition, funds received pursuant to such distribution will be
deemed to be taxable income. Future deferrals under the Plan will not be
permitted until the Plan year commencing at least three years after the date of
the distribution.
6.
<PAGE> 8
==============================================================================
NONASSIGNABILITY AND
BENEFICIARY DESIGNATIONS
NONASSIGNABILITY
Neither the participant nor any designated beneficiary shall have any right to
sell, assign, transfer or commute any rights under this Plan.
BENEFICIARY DESIGNATIONS
You may designate an individual, a trustee or your estate as beneficiary and
you may change your beneficiary at any time. A beneficiary designation will be
valid as of the date the written request is received. If there is no valid
beneficiary designation, or if no designated beneficiary survives the
participant, the account balance at your death shall be paid as soon as
practicable to your surviving spouse, and in the event you are not married at
death, to your estate.
NOTE: MetLife may terminate or amend the Plan at any time, provided, however,
that no such amendment or termination shall impair any rights which have
accrued under the Plan.
7.
<PAGE> 9
================================================================================
QUESTIONS AND
ANSWERS
WHAT ARE THE DIFFERENCES BETWEEN THE DEFERRED COMPENSATION
PLAN (DCP) AND A 401(k) PLAN SUCH AS THE SAVINGS AND
INVESTMENT PLAN (SIP)?
A 401(k) plan is a "qualified plan" -- this means that it is
qualified under the Internal Revenue Code. Under a 401(k)
plan, participants can defer income, subject to certain
limits. The chief limitations of 401(k) plans are the various
Internal Revenue Code-imposed caps on the amount that can be
deferred.
The chief advantages of the DCP are the substantially greater
deferral opportunities it can offer. The chief disadvantage is
that it does not offer the security of a qualified plan which
is afforded full ERISA protection.
Participation in the DCP does not affect your ability to
participate in SIP. If eligible, you can participate in
either or both plans.
I AM CONSIDERING DEFERRING $10,000 UNDER THE DEFERRED
COMPENSATION PLAN FOR OFFICERS. WHAT ARE THE ADVANTAGES OF
THIS DEFERRAL VERSUS AFTER-TAX INVESTMENT?
Assume you defer $10,000 in 2000, requesting a distribution
in 2005, combined federal and state income tax rates remain
level at 45% and the value of the deferral increases at 10%
per year. (For the purpose of this example, the 1.45%
Medicare tax withholding is ignored.)
<TABLE>
<CAPTION>
DEFERRED COMPENSATION PLAN AFTER-TAX INVESTMENT
-------------------------- ---------------------------
YEAR VALUE TAXES NET VALUE VALUE TAXES NET VALUE
---- ------- ------ --------- -------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
2000 (Year of Deferral) $10,000 $ 0 $10,000 $10,000 $4,500 $5,500
2001 $11,000 $ 0 $11,000 $ 6,050 $ 0 $6,050
2002 $12,100 $ 0 $12,100 $ 6,655 $ 0 $6,655
2003 $13,310 $ 0 $13,310 $ 7,321 $ 0 $7,321
2004 $14,641 $ 0 $14,641 $ 8,053 $ 0 $8,053
2005 (Year of Distribution) $16,105 $7,247 $ 8,858 $ 8,858 $1,511* $7,347
</TABLE>
Tax rates may vary and are subject to change. MetLife
recommends that you speak to your tax advisor before making
an election under this Plan.
* Assumes investment in a deferred annuity with no penalty at
withdrawal.
WHY DO I HAVE TO MAKE A DEFERRAL ELECTION BEFORE I KNOW WHAT
I WILL BE PAID?
The Internal Revenue Service ("IRS") requires that an
irrevocable election to defer income be made before the income
is actually earned. Since your election will remain in effect
for an entire plan year, you may want to be conservative in
your deferral amount.
8.
<PAGE> 10
================================================================================
WHAT WOULD HAPPEN TO MY DEFERRALS IN THE EVENT METLIFE BECOMES INSOLVENT?
In the unlikely event of MetLife's insolvency, Plan participants would be
viewed as general creditors and their claims for their deferrals would be
treated in the manner and sequence stipulated by New York State Insurance Law.
WHEN AM I TAXED ON DEFERRED COMPENSATION OR EARNINGS THEREON?
Under current law, for federal (and most state) income tax purposes you will
not be taxed until you actually receive this money. Some states and localities
do not exclude deferred compensation from current taxation (check with your tax
advisor to find out if this is the case in your state). Note, however, that
your deferrals are subject to current Social Security (FICA) taxes.
ARE DISTRIBUTIONS ELIGIBLE TO BE ROLLED OVER INTO AN IRA?
No. Because this is not a tax-qualified plan under the Internal Revenue Code,
you cannot roll your distributions over into an IRA or to another employer's
qualified plan when you leave MetLife. When electing a Plan distribution, we
encourage you to seek professional tax advice to determine the best course of
action for your financial circumstances.
WILL PAYMENT TO MY BENEFICIARIES BE INCLUDED IN MY GROSS ESTATE FOR FEDERAL
ESTATE TAX PURPOSES?
Yes. The present value of your deferral accounts at the time of your death will
be included. If, however, your beneficiary is your spouse and the payments
qualify for the estate tax marital deduction, in effect these amounts will not
give rise to federal estate taxes.
IS MY DEFERRAL INCLUDED IN THE SOCIAL SECURITY WAGE BASE?
Yes. Deferrals are subject to withholding for Social Security (FICA) taxes in
the year of the deferral until the annual taxable wage base under the Social
Security provision is reached. There is no maximum annual taxable wage base for
the hospital insurance tax provision of FICA (the "Medicare tax"). Required
withholdings for FICA shall be made from your other compensation.
WILL I PAY SOCIAL SECURITY TAXES WHEN I TAKE MY DISTRIBUTION?
No. Because Social Security taxes were taken into account at the time the
deferrals were made, you owe no additional Social Security taxes when
distributions are made. Distributions of deferred amounts will not affect
receipt of Social Security benefits.
9.
<PAGE> 11
========================================================================
HOW WILL MY DEFERRALS AFFECT MY OTHER BENEFITS?
LIFE INSURANCE FOR YOU, SURVIVOR BENEFIT, SHORT TERM DISABILITY AND LONG TERM
DISABILITY
Your pay used to calculate benefits for these Plans will be calculated based on
pre-deferral amounts.
COMPENSATION CONTINUANCE PLAN
Deferrals will continue to be taken from your pay during periods of short
illness absence in which you are paid under the Company's Compensation
Continuance Plan.
RETIREMENT PLAN
Your final average pay will be based on annual base compensation and incentive
payments, not receipts. That is, calculation will be based on the pre-deferral
amounts.
SAVINGS AND INVESTMENT PLAN (SIP)
If you are participating in the Savings and Investment Plan (SIP), the
Company's 4% match will be allocated as follows:
<TABLE>
<CAPTION>
==================================================================================================
COMPENSATION SIP (QUALIFIED PLAN) AUXILIARY SIP AUXILIARY SIP FOR DEFERRALS
==================================================================================================
<S> <C> <C> <C>
NON-DEFERRED COMPENSATION:
UP TO $170,000* X
NON-DEFERRED COMPENSATION
IN EXCESS OF $170,000* X
DEFERRED
COMPENSATION X
- ---------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FOR EXAMPLE:
<S> <C>
Annual Cash Compensation $300,000
Amount of Deferral $ 60,000
- ----------------------------------------------
Non-Deferred Compensation $240,000
</TABLE>
The 4% SIP match would be allocated to the participant's accounts as follows:
<TABLE>
<CAPTION>
=======================================================================================================
COMPENSATION SIP (QUALIFIED PLAN) AUXILIARY SIP AUXILIARY SIP FOR DEFERRALS
<S> <C> <C> <C>
NON-DEFERRED COMPENSATION: $6,800
UP TO $170,000* 4% of $170,000
NON-DEFERRED COMPENSATION $2,800
IN EXCESS OF $170,000* 4% of ($240,000-$170,000)
DEFERRED $2,400
COMPENSATION 4% of $60,000
- -------------------------------------------------------------------------------------------------------
</TABLE>
*Maximum compensation limit under the Internal Revenue Code (IRC) for Qualified
plans, indexed from time to time, is currently $170,000. Note that the Company
matching contribution for Auxiliary SIP is subject to FICA tax as well.
10.
<PAGE> 12
HOW ARE PLAN PAYMENTS TO ME OR MY BENEFICIARIES TREATED FOR INCOME TAX PURPOSES?
For federal tax purposes, generally, payments are taxed as ordinary income when
received and are subject to income tax withholding at the rate applicable in the
year received. For deferrals that are excluded from state and local taxable
income at the time the deferrals are made, payments are taxed as ordinary income
when received.
For deferral payments made while you are an active employee, MetLife uses a
flat income tax withholding rate.
HOW DOES METLIFE FUND THE DEFERRED COMPENSATION ACCOUNTS?
The deferred compensation accounts established for each participant are
unfunded. The accounts established are solely for record-keeping purposes.
MetLife has established a Rabbi Trust for the Plan, but the existence of this
trust in no way guarantees payment to the participant.
Deferred amounts remain subject to claims of the Company's general creditors.
HOW WILL EARNINGS BE CREDITED TO MY ACCOUNT?
The investment options you select are used solely as a device for crediting
investment returns to your account; your deferrals will not actually be invested
in the investment options. Your investment returns will "mirror" the actual
performance of the investment options you choose and performance will be
measured on a daily basis. Your deferrals are subject to investment risk. As
with any investment, if the returns on the funds you choose are positive, your
account balance will grow. If the returns are negative, your account balance
will diminish.
CAN I HAVE MY DEFERRALS UNDER EXISTING INDIVIDUAL DEFERRED COMPENSATION
AGREEMENTS WITH METLIFE CREDITED WITH THE INVESTMENT PERFORMANCE OF THE FUNDS
OFFERED IN THE DEFERRED COMPENSATION PLAN FOR OFFICERS?
If you want to have some or all of your existing individual deferrals credited
with the investment performance of the funds offered in the Deferred
Compensation Plan for Officers, you must contact Pauline King of MetLife's
Specialized Benefit Resources at (732) 602-4733 to obtain an Investment
Preference Form. The changes will be made as of the business day your written
request is received, if received before 4p.m. ET or as of the next business day
if received after 4p.m. ET. You will receive a confirmation letter within two
weeks.
11.
<PAGE> 13
METLIFE
METROPOLITAN LIFE INSURANCE COMPANY
ONE MADISON AVENUE, NEW YORK, NEW YORK 10010
<PAGE> 1
EXHIBIT 10.10
CATHERINE A. REIN
EMPLOYMENT CONTINUATION AGREEMENT
MARCH 3, 2000
METROPOLITAN PROPERTY AND CASUALTY INSURANCE COMPANY
<PAGE> 2
EMPLOYMENT CONTINUATION AGREEMENT
THIS AGREEMENT between METROPOLITAN PROPERTY AND CASUALTY
INSURANCE COMPANY, a Rhode Island corporation (the "Company"), and Catherine A.
Rein (the "Executive"), dated as of this 3rd day of March, 2000.
W I T N E S S E T H :
WHEREAS, Executive has assumed a critical position with the
Company;
WHEREAS, the Company believes that, in the event that either
it or its parent corporation, Metropolitan Life Insurance Company ("MetLife"),
is confronted with a situation that could result in a change in ownership or
control of the Company or MetLife, continuity of management at the Company will
be essential to the ability of the Company or MetLife, as the case may be, to
evaluate and respond to such situation;
WHEREAS, the Company understands that any such situation will
present significant concerns for the Executive with respect to her financial and
job security;
WHEREAS, the Company desires to assure itself of the
Executive's services during the period in which it or MetLife is confronting
such a situation, and to provide the Executive certain financial assurances to
enable the Executive to perform the responsibilities of her position without
undue distraction;
WHEREAS, to achieve these objectives, the Company and the
Executive desire to enter into an agreement providing the Company and the
Executive with certain rights and obligations upon the occurrence of a MetLife
Change of Control, a Potential MetLife Change of Control or a Company Change of
Control (as each such term is defined in Section 2 hereof);
NOW, THEREFORE, in consideration of the premises and mutual
covenants herein contained, it is hereby agreed by and between the Company and
the Executive as follows:
1. Operation of Agreement. (a) Term. The initial term of this
Agreement shall commence on the date hereof and continue until the third
anniversary of the date hereof. Thereafter, this Agreement will automatically
renew for successive and consecutive additional three year periods following the
end of its initial term and any extended term, unless the Company or the
Executive gives the other party written notice
<PAGE> 3
at least 180 days prior to the date the term hereof would otherwise renew that
it or she does not want the term to be so extended; provided, however, that, the
Company may not deliver a notice of nonrenewal after (i) a Potential MetLife
Change of Control (as is defined in Section 2(b) hereof) unless the Board of
Directors of MetLife (the "MetLife Board") has adopted a Nullification
Resolution (as defined in Section 2(b) hereof) with respect to such Potential
MetLife Change of Control, (ii) a MetLife Change of Control (as defined in
Section 2(a) hereof) or (iii) a Company Change of Control (as defined in Section
2(e) hereof). Notwithstanding anything to the contrary in this Agreement, the
term of this Agreement shall in all events expire (regardless of when the term
would otherwise have expired) on the second anniversary of the earlier to occur
of a MetLife Change of Control or a Company Change of Control.
(b) Effective Date. Notwithstanding the provisions of Section
1(a) hereof, this Agreement shall govern the terms and conditions of the
Executive's employment and the benefits and compensation to be provided to the
Executive commencing on the date on which a Potential MetLife Change of Control,
a MetLife Change of Control or a Company Change of Control occurs (the
"Effective Date") and ending on the date the term of this Agreement otherwise
expires, provided that if the Executive is not employed by the Company on the
Effective Date, this Agreement shall be void and without effect. If this
Agreement is rendered void and without effect under the immediately preceding
sentence, nothing in this Section 1(b) shall be construed to limit or otherwise
impair the effectiveness of any agreement between the Executive and MetLife
which provides the Executive with comparable benefits and employment protection.
2. Definitions. (a) MetLife Change of Control. For the
purposes of this Agreement, a "MetLife Change of Control" shall be deemed to
have occurred if:
(i) any person (within the meaning of Section 3(a)(9) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")),
including any group (within the meaning of Rule 13d-5(b) under the
Exchange Act)), acquires "beneficial ownership" (within the meaning of
Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of MetLife representing 25% or more of the combined Voting
Power (as defined below) of MetLife's securities;
(ii) within any 24-month period, the persons who were members
of the MetLife Board at the beginning of such period (the "Incumbent
Directors") shall cease to constitute at least a majority of the
MetLife Board or the board of directors of any successor to MetLife
provided, however, that any director elected to the MetLife Board, or
nominated for election, by a majority of the Incumbent Directors then
still in office shall be deemed to be an Incumbent Director for
purposes of this subclause 2(a)(ii);
2
<PAGE> 4
(iii) the policyholders of the MetLife, if at the time in
question MetLife is a mutual life insurance company, approve a merger,
consolidation, division, sale or other disposition of all or
substantially all of the assets of MetLife (a "Mutual Event");
provided, however, that a Mutual Event shall not be treated as a
MetLife Change of Control for purposes of this Agreement if (x) MetLife
is the surviving company in any such merger or other transaction and
(y) pursuant to the terms of the agreement governing the transaction
constituting the Mutual Event, the persons who were members of the
MetLife Board immediately prior to such Mutual Event constitute at
least 75% of the members of the MetLife Board immediately following the
consummation of such Mutual Event; or
(iv) the stockholders of MetLife, if at the time in question
MetLife is a stock company, approve a merger, consolidation, share
exchange, division, sale or other disposition of all or substantially
all of the assets of MetLife (a "Corporate Event"), and immediately
following the consummation of which the stockholders of MetLife
immediately prior to such Corporate Event do not hold, directly or
indirectly, a majority of the Voting Power of (x) in the case of a
merger or consolidation, the surviving or resulting corporation, (y) in
the case of a share exchange, the acquiring corporation or (z) in the
case of a division or a sale or other disposition of assets, each
surviving, resulting or acquiring corporation which, immediately
following the relevant Corporate Event, holds more than 25% of the
consolidated assets of MetLife immediately prior to such Corporate
Event; or
(v) any other event occurs which the MetLife Board declares to
be a MetLife Change of Control.
Notwithstanding the foregoing, a MetLife Change of Control shall not be deemed
to have occurred merely as a result of (i) the conversion of MetLife from a
mutual life insurance company to a stock company whose shareholders are either
(x) primarily persons who were policyholders of MetLife immediately prior to
such transaction and/or a trust holding the shares of MetLife for the benefit of
such policyholders or (y) another corporation the shares of which are held
primarily by the persons and/or trust described in subclause (x); (ii) MetLife
becoming a direct or indirect subsidiary of a mutual holding company whose
members are primarily persons who were policyholders of MetLife immediately
prior to such transaction or (iii) an underwritten offering of the equity
securities of MetLife where no Person (including any group (within the meaning
of Rule 13d-5(b) under the Exchange Act)) acquires more than 25% of the
beneficial ownership interests in such securities.
(b) Potential MetLife Change of Control. For the purposes of
this Agreement, a Potential MetLife Change of Control shall be deemed to have
occurred if:
3
<PAGE> 5
(i) a Person commences a tender offer, with adequate
financing, which, if consummated, would result in such Person being the
"beneficial ownership" (within the meaning of Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of MetLife
representing 10% or more of the combined Voting Power of MetLife's
securities;
(ii) MetLife enters into an agreement the consummation of
which would constitute a MetLife Change of Control;
(iii) any person (including any group (within the meaning of
Rule 13d- 5(b) under the Exchange Act)) other than MetLife attempts,
directly or indirectly, to replace more than 25% of the members of the
MetLife Board; provided, however, that any action taken in support of a
nominee approved by a majority of the members of the MetLife Board then
in office shall not be given any effect in determining whether a
Potential MetLife Change of Control has occurred;
(iv) certification, pursuant to New York Insurance Law Section
4210(h)(1)(B) (or any successor provision thereto) of an independent
nomination of candidates to replace more than 25% of the members of the
MetLife Board; or
(v) any other event occurs which the MetLife Board declares to
be a Potential MetLife Change of Control.
Notwithstanding the foregoing, if, after a Potential MetLife Change of Control
and before a MetLife Change of Control, the MetLife Board makes a good faith
determination that such Potential MetLife Change of Control will not result in a
MetLife Change of Control, the MetLife Board may nullify the effect of the
Potential MetLife Change of Control (a "Nullification") by resolution (a
"Nullification Resolution"), in which case the Executive shall have no further
rights and obligations under this Agreement by reason of such Potential MetLife
Change of Control; provided, however, that if the Executive shall have delivered
a Notice of Termination (within the meaning of Section 6(f) hereof) prior to the
date of the Nullification Resolution, such Resolution shall not effect the
Executive's rights hereunder. If a Nullification Resolution has been adopted and
the Executive has not delivered a Notice of Termination prior thereto, the
Effective Date for purposes of this Agreement shall be the date, if any, during
the term hereof on which another Potential MetLife Change of Control or any
actual MetLife Change of Control occurs.
(c) Voting Power. A specified percentage of "Voting Power" of
a company shall mean such number of the Voting Securities as shall enable the
holders thereof to cast such percentage of all the votes which could be cast in
an annual election of directors and "Voting Securities" shall mean all
securities of a company entitling the holders thereof to vote in an annual
election of directors.
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(d) Affiliate. An "Affiliate" shall mean any corporation,
partnership, limited liability company, trust or other entity which, at the
relevant time, directly, or indirectly through one or more intermediaries,
controls, or is controlled by, the Company.
(e) Company Change of Control. A "Company Change of Control"
shall mean any transaction or the last in a series of transactions (other than
any public offering of any class of capital stock of the Company or any
distribution of shares of such capital stock to MetLife's shareholders or, if
the MetLife stock is held in trust, to the beneficial owners of such trust)
immediately following which MetLife or an affiliate of MetLife does not,
directly or indirectly, own or control securities representing at least 50% of
the Voting Power of the Company or 50% of the value of all classes of the
Company's capital stock.
3. Employment Period. Subject to Section 6 hereof, the Company
agrees to continue the Executive in its employ, and the Executive agrees to
remain in the employ of the Company, for the period (the "Employment Period")
commencing on the Effective Date and ending on the expiration of the term of
this Agreement.
4. Position and Duties. (a) No Reduction in Position. During
the Employment Period, the Executive's position (including titles), authority
and responsibilities shall be at least commensurate with those held, exercised
and assigned immediately prior to the Effective Date. It is understood that, for
purposes of this Agreement, such position, authority and responsibilities shall
not be regarded as not commensurate merely by virtue of the fact that a
successor shall have acquired all or substantially all of the business and/or
assets of the Company as contemplated by Section 12(b) hereof. The Executive's
services shall be performed at the location where the Executive was employed
immediately preceding the Effective Date or at any other office or location not
more than 35 miles from such pre-Effective Date location. Notwithstanding the
foregoing, a transfer of the Executive's employment from the Company to MetLife
shall not constitute a reduction in duties or responsibilities so long as the
position held with MetLife provides the Executive with duties, authority and
responsibilities at least comparable to those she last held as an officer of
MetLife and the Executive's title with MetLife is at least commensurate with the
titles held at such time by officers of MetLife performing duties and
responsibilities at a comparable level.
(b) Business Time. During the Employment Period, the Executive
agrees to devote her full attention during normal business hours to the business
and affairs of the Company and its Affiliates and to use her best efforts to
perform faithfully and efficiently the responsibilities assigned to him
hereunder, to the extent necessary to discharge such responsibilities, except
for (i) time spent in managing her personal, financial and legal affairs and
serving on corporate, civic or charitable boards or committees, in each case
only if and to the extent not substantially interfering with the
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performance of such responsibilities, and (ii) periods of vacation and sick
leave to which she is entitled. It is expressly understood and agreed that the
Executive's continuing to serve on any boards and committees on which she is
serving or with which she is otherwise associated immediately preceding the
Effective Date shall not be deemed to interfere with the performance of the
Executive's services to the Company and its Affiliates.
5. Compensation. (a) Base Salary. During the Employment
Period, the Executive shall receive a base salary at a monthly rate at least
equal to the aggregate monthly salary paid to the Executive by the Company and
any Affiliates immediately prior to the Effective Date. The base salary shall be
reviewed at least once each year after the Effective Date, and may be increased
(but not decreased) at any time and from time to time by action of the Board of
Directors of the Company (the "Company Board") or any committee thereof or any
individual having authority to take such action in accordance with the
Company's regular practices. The Executive's base salary, as it may be increased
from time to time, shall hereafter be referred to as the "Base Salary". Neither
the Base Salary nor any increase in the Base Salary after the Effective Date
shall serve to limit or reduce any other obligation of the Company hereunder.
(b) Annual Bonus. During the Employment Period, in addition to
the Base Salary, the Executive shall be afforded the opportunity to receive an
annual bonus (the "Annual Bonus Opportunity") in an amount which provides the
Executive with the same bonus opportunity as other executives of the Company and
its Affiliates of comparable rank. If any fiscal year commences but does not end
during the Employment Period, Executive shall receive a pro-rated amount in
respect of the Annual Bonus Opportunity for the portion of the fiscal year
occurring during the Employment Period. Any amount payable in respect of the
Annual Bonus Opportunity shall be paid as soon as practicable following the year
for which the amount (or any prorated portion) is earned or awarded, unless
electively deferred by the Executive pursuant to any deferral programs or
arrangements that the Company may make available to the Executive.
(c) Long-term Incentive Compensation Programs. During the
Employment Period, the Executive shall participate in all long-term incentive
compensation programs for key executives at the Company (or, if the Executive is
then providing services principally to an Affiliate, at such Affiliate) at a
level that is commensurate with the level made available from time to time to
executives of the Company (or, if applicable, an Affiliate) of comparable rank.
(d) Benefit Plans. During the Employment Period, the Executive
(and, to the extent applicable, his dependents) shall be entitled to participate
in or be covered under all pension, retirement, deferred compensation, savings,
medical, dental, health, disability, group life, accidental death and travel
accident insurance plans and programs
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of the Company and any Affiliate at the level made available from time to time
to other similarly situated officers.
(e) Expenses. During the Employment Period, the Executive
shall be entitled to receive prompt reimbursement for all reasonable expenses
incurred by the Executive in accordance with the policies and procedures of the
Company as in effect from time to time with respect to expenses incurred by
other similarly situated officers.
(f) Vacation and Fringe Benefits. During the Employment
Period, the Executive shall be entitled to paid vacation and fringe benefits at
a level that is commensurate with the paid vacation and fringe benefits
available from time to time to other similarly situated officers of the Company
and MetLife.
(g) Indemnification. During and after the Employment Period,
the Company shall indemnify the Executive and hold the Executive harmless from
and against judgments, fines, amounts paid in settlement and reasonable
expenses, including attorneys' fees, on the same terms and conditions applicable
from time to time with respect to the indemnification of its other senior
officers of comparable rank.
(h) Office and Support Staff. The Executive shall be entitled
to an office with furnishings and other appointments, and to secretarial and
other assistance, at a level that is at least commensurate with the foregoing
provided to other similarly situated officers.
6. Termination. (a) Death, Disability or Retirement. Subject
to the provisions of Section 1 hereof, this Agreement shall terminate
automatically upon the Executive's death, termination due to "Disability" (as
defined below) or voluntary retirement under any retirement plan maintained by
the Company or an Affiliate, as in effect from time to time. For purposes of
this Agreement, "Disability" shall mean the Executive's inability to perform the
duties of her position, as determined in accordance with the policies and
procedures applicable with respect to the Company's long-term disability plan,
as in effect immediately prior to the Effective Date; provided, however, that
the Executive's employment may not be terminated for Disability hereunder unless
the Executive has requested that she be considered for, and has qualified to
receive, long-term disability benefits under such plan.
(b) Voluntary Termination. Notwithstanding anything in this
Agreement to the contrary, the Executive may voluntarily terminate employment
for any reason (including early retirement under the terms of any retirement
plan maintained by the Company or an Affiliate, as in effect from time to time),
upon not less than 60 days' written notice to the Company, provided that any
termination by the Executive pursuant
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to Section 6(d) hereof on account of Good Reason (as defined therein) shall not
be treated as a voluntary termination under this Section 6(b).
(c) Cause. The Company may terminate the Executive's
employment for Cause. For purposes of this Agreement, "Cause" means (i) the
Executive's conviction or plea of nolo contendere to a felony; (ii) an act of
dishonesty or gross misconduct on the Executive's part which results or is
intended to result in material damage to the Company's business or reputation;
or (iii) repeated material violations by the Executive of his obligations under
Section 4 hereof, which violations are demonstrably willful and deliberate on
the Executive's part.
(d) Good Reason. After the Effective Date, the Executive may
terminate her employment at any time for Good Reason. For purposes of this
Agreement, "Good Reason" means the occurrence of any of the following, without
the express written consent of the Executive, after the Effective Date:
(i) (A) the assignment to the Executive of any duties
inconsistent in any material adverse respect with the Executive's
position, authority or responsibilities as contemplated by Section 4(a)
hereof, or (B) any other material adverse change in such position,
including titles, authority or responsibilities;
(ii) any failure by the Company to comply with any of the
provisions of Section 5 hereof, other than an insubstantial or
inadvertent failure remedied by the Company promptly after receipt of
notice thereof given by the Executive;
(iii) requiring the Executive to be based at any office or
location more than 35 miles from the location at which the Executive
performed her duties immediately prior to the Effective Date, except
for travel reasonably required in the performance of the Executive's
responsibilities; or
(iv) any failure by the Company to obtain the assumption and
agreement to perform this Agreement by a successor as contemplated by
Section 12(b) hereof.
In no event shall the mere occurrence of a MetLife Change of Control or a
Company Change of Control, absent any further impact on the Executive, be deemed
to constitute Good Reason.
(e) Notice of Termination. Any termination by the Company for
Cause or by the Executive for Good Reason shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section 13(e)
hereof. For purposes of this Agreement, a "Notice of Termination" means a
written notice given, (i)
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in the case of a termination for Cause, within 10 business days of the Company's
having actual knowledge of the events giving rise to such termination or (ii) in
the case of a termination for Good Reason, within 120 days of the Executive's
having actual knowledge of the events giving rise to such termination. Any such
Notice of Termination shall (i) indicate the specific termination provision in
this Agreement relied upon, (ii) set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated, and (iii) if the termination date
is other than the date of receipt of such notice, specify the termination date
of this Agreement (which date shall be not more than 15 days after the giving of
such notice). The failure by the Executive to set forth in the Notice of
Termination any fact or circumstance which contributes to a showing of Good
Reason shall not waive any right of the Executive hereunder or preclude the
Executive from asserting such fact or circumstance in enforcing her rights
hereunder.
(f) Date of Termination. For the purpose of this Agreement,
the term "Date of Termination" means (i) in the case of a termination for which
a Notice of Termination is required, the date of receipt of such Notice of
Termination or, if later, the date specified therein, as the case may be, and
(ii) in all other cases, the actual date on which the Executive's employment
terminates during the Employment Period.
7. Obligations of the Company upon Termination. (a) Death or
Disability. If the Executive's employment is terminated during the Employment
Period by reason of the Executive's death or Disability, this Agreement shall
terminate without further obligations to the Executive or the Executive's legal
representatives under this Agreement other than those obligations accrued
hereunder at the Date of Termination, and the Company shall pay to the Executive
(or her beneficiary or estate), at the times determined below (i) the
Executive's full Base Salary through the Date of Termination (the "Earned
Salary"), (ii) any vested amounts or benefits owing to the Executive under or in
accordance with the terms and conditions of any otherwise applicable employee
benefit plans and programs maintained by the Company or any Affiliate, including
any compensation previously deferred by the Executive (together with any accrued
earnings thereon) and not yet paid by the Company and any accrued vacation pay
not yet paid by the Company or an Affiliate (the "Accrued Obligations"), and
(iii) any other benefits payable due to the Executive's death or Disability
under the plans, policies or programs maintained by the Company or any Affiliate
(the "Additional Benefits").
Any Earned Salary shall be paid in cash in a single lump sum
as soon as practicable, but in no event more than 30 days (or at such earlier
date required by law), following the Date of Termination. Accrued Obligations
and Additional Benefits shall be paid in accordance with the terms of the
applicable plan, program or arrangement.
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(b) Cause and Voluntary Termination. If, during the Employment
Period, the Executive's employment shall be terminated for Cause or voluntarily
terminated by the Executive (other than on account of Good Reason), the Company
shall pay the Executive (i) the Earned Salary in cash in a single lump sum as
soon as practicable, but in no event more than 30 days, following the Date of
Termination, and (ii) the Accrued Obligations in accordance with the terms of
the applicable plan, program or arrangement.
(c) Termination by the Company other than for Cause and
Termination by the Executive for Good Reason.
(i) Lump Sum Payments. If (x) the Company terminates the
Executive's employment other than for Cause during the Employment
Period or (y) the Executive terminates her employment at any time
during the Employment Period for Good Reason, the Company shall pay to
the Executive, at the times determined below, the following amounts:
(A) the Executive's Earned Salary;
(B) a cash amount (the "Severance Amount") equal to three
times the sum of
(1) the Executive's annual rate of Base Salary
as then in effect;
(2) the average of the annual bonuses payable to
the Executive under the Annual Variable
Incentive Plan (or any successor plan
thereto) or any other annual incentive
compensation plan maintained by an Affiliate
in which the Executive participated for the
each of the three fiscal years of the
Company or, if applicable, such Affiliate
(or, if less, the number of prior fiscal
years during which Executive was an employee
of the Company or an Affiliate) ended
immediately prior to the Effective Date for
which an annual bonus amount had been
determined, as applicable, by the MetLife
Board or Company Board or any committee
thereof (or, if applicable, the
administrator of any plan maintained by an
Affiliate) prior to the Effective Date. If
the Executive was employed with the Company,
an Affiliate or the Company and one or more
Affiliate for only a portion of any fiscal
year included in the period for which the
average referred to in the immediately
preceding sentence is determined and the
aggregate annual bonus
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payable by all such entities for such fiscal
year took into account such partial period
of employment, such bonus for such fiscal
year shall be annualized for purposes of
calculating such average; and
(3) the average of the long-term incentive
compensation amounts payable to the
Executive by the Company or any Affiliate
with respect to each of the last three
performance periods (or, if the Executive
participated in the long-term compensation
program in respect to a lesser number of
such performance periods, such lesser
number) ended prior to the Effective Date
for which the amount payable had been
determined, as applicable, by the MetLife
Board or the Company Board or any committee
of either such Board (or, if applicable, the
administrator of any plan maintained by such
Affiliate) prior to the Effective Date;
provided, however, that, the amount
determined under this subclause (3) shall be
reduced (but not below zero) by the
"Determined Value" (as defined below) of any
vested stock options, restricted stock or
similar equity-based award relating to the
common equity of MetLife on the earlier to
occur of the Executive's Date of Termination
or the date on which a MetLife Change of
Control or a Company Change of Control
occurs. For purposes of this Agreement,
Determined Value shall mean the excess of
the "Equity Value" over the price, if any,
payable by the Executive in respect of such
stock option or other award and Equity Value
shall be determined to be (x) in the case of
a MetLife Change of Control occurring by
reason of a merger, recapitalization or
similar transaction or as a result of a
tender offer, the value received by
MetLife's equity holders in such transaction
or the price paid in such tender offer (with
the value of any non-cash consideration to
be determined in good faith by the
Compensation Committee of the MetLife Board
as constituted immediately prior to the
Effective Date) and (y) in the case of any
other MetLife Change of Control, any Company
Change of Control or where the date as of
which such Determined Value is measured is
the Executive's Date of Termination, the
average of the high and low reported sales
prices of such equity on the principal
securities market on which such equity is
traded on the relevant date; and
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(C) the Accrued Obligations.
The Earned Salary and Severance Amount shall be paid in cash in a
single lump sum as soon as practicable, but in no event more than 30
days (or at such earlier date required by law), following the Date of
Termination. Accrued Obligations shall be paid in accordance with the
terms of the applicable plan, program or arrangement.
(ii) Continuation of Benefits. The Executive (and, to the
extent applicable, her dependents) shall be entitled, after the Date of
Termination until the third anniversary of the Date of Termination (the
"End Date"), to continue participation in all of the employee and
executive plans providing medical, dental and long-term disability
benefits maintained by the Company or an Affiliate (collectively, the
"Continuing Benefit Plans"); provided, however, that the participation
by the Executive (and, to the extent applicable, his dependents) in any
Continuing Benefit Plan shall cease on the date, if any, prior to the
End Date on which the Executive becomes eligible for comparable
benefits under a similar plan, policy or program of a subsequent
employer ("Prior Date"). The Executive's participation in the
Continuing Benefit Plans will be on the same terms and conditions that
would have applied had the Executive continued to be employed by the
Company through the End Date or the Prior Date. To the extent any such
benefits cannot be provided under the terms of the applicable plan,
policy or program, the Company shall provide a comparable benefit under
another plan or from the Company's general assets.
(iii) Termination of Employment Within Three Years of Normal
Retirement Date. Notwithstanding anything else to the contrary
contained in this Section 7(c), if the Executive's employment with the
Company terminates at any time during the three year period ending on
the Executive's normal retirement date, as determined in accordance
with the Company's policies then in effect for the Company's senior
executives (the "Normal Retirement Date"), and the Executive would be
entitled to receive severance benefits under this Section 7(c), then
(i) the multiplier in Section 7(c)(i) shall not be three, but shall be
a number equal to three times (x/1095), where x equals the number of
days remaining until the Executive's Normal Retirement Date, and (ii)
the End Date described in Section 7(c)(ii) shall not be the third
anniversary of the Date of Termination, but shall be the Executive's
Normal Retirement Date.
(d) Discharge of the Company's Obligations. Except as
expressly provided in the last sentence of this Section 7(d) hereof, the
amounts payable to the Executive pursuant to this Section 7 (whether or not
reduced pursuant to Section 7(e) hereof) following termination of her employment
shall be in full and complete
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satisfaction of the Executive's rights under this Agreement and any other claims
she may have in respect of her employment by the Company or any of its
Affiliates. Such amounts shall constitute liquidated damages with respect to any
and all such rights and claims and, upon the Executive's receipt of such
amounts, the Company shall be released and discharged from any and all liability
to the Executive in connection with this Agreement or otherwise in connection
with the Executive's employment with the Company and its Affiliates.
(e) Limit on Payments by the Company.
(i) Application of Section 7(e) Hereof. In the event that any
amount or benefit paid or distributed to the Executive pursuant to this
Agreement, taken together with any amounts or benefits otherwise paid
or distributed to the Executive by the Company or any Affiliate
(collectively, the "Covered Payments"), would be an "excess parachute
payment" as defined in Section 280G of the Internal Revenue Code of
1986, as amended (the "Code"), and would thereby subject the Executive
to the tax (the "Excise Tax") imposed under Section 4999 of the Code
(or any similar tax that may hereafter be imposed), the provisions of
this Section 7(e) shall apply to determine the amounts payable to
Executive pursuant to this Agreement.
(ii) Calculation of Benefits. Promptly after delivery of any
Notice of Termination, the Company shall notify the Executive of the
aggregate present value of all termination benefits to which she would
be entitled under this Agreement and any other plan, program or
arrangement as of the projected Date of Termination, together with the
projected maximum payments, determined as of such projected Date of
Termination that could be paid without the Executive being subject to
the Excise Tax.
(iii) Imposition of Payment Cap. If the aggregate value of all
compensation payments or benefits to be paid or provided to the
Executive under this Agreement and any other plan, agreement or
arrangement with the Company or an Affiliate exceeds the amount which
can be paid to the Executive without the Executive incurring an Excise
Tax, then the amounts payable to the Executive under this Section 7
shall be reduced (but not below zero) to the maximum amount which may
be paid hereunder without the Executive becoming subject to such an
Excise Tax (such reduced payments to be referred to as the "Payment
Cap"). In the event that Executive receives reduced payments and
benefits hereunder, Executive shall have the right to designate which
of the payments and benefits otherwise provided for in this Agreement
that he will receive in connection with the application of the Payment
Cap.
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(iv) Application of Section 280G. For purposes of determining
whether any of the Covered Payments will be subject to the Excise Tax
and the amount of such Excise Tax,
(A) such Covered Payments will be treated as "parachute
payments" within the meaning of Section 280G of the
Code, and all "parachute payments" in excess of the
"base amount" (as defined under Section 280G(b)(3) of
the Code) shall be treated as subject to the Excise
Tax, unless, and except to the extent that, in the
good faith judgment of the Company's independent
certified public accountants (or, if the Company does
not have its own accounting firm, MetLife's
independent certified public accountant) appointed
prior to the Effective Date or tax counsel selected
by such Accountants (the "Accountants"), the Company
has a reasonable basis to conclude that such Covered
Payments (in whole or in part) either do not
constitute "parachute payments" or represent
reasonable compensation for personal services
actually rendered (within the meaning of Section
280G(b)(4)(B) of the Code) in excess of the portion
of the "base amount allocable to such Covered
Payments," or such "parachute payments" are otherwise
not subject to such Excise Tax, and
(B) the value of any non-cash benefits or any deferred
payment or benefit shall be determined by the
Accountants in accordance with the principles of
Section 280G of the Code.
(v) Adjustments in Respect of the Payment Cap. If the
Executive receives reduced payments and benefits under this Section
7(e) (or this Section 7(e) is determined not to be applicable to the
Executive because the Accountants conclude that Executive is not
subject to any Excise Tax) and it is established pursuant to a final
determination of a court or an Internal Revenue Service proceeding (a
"Final Determination") that, notwithstanding the good faith of the
Executive and the Company in applying the terms of this Agreement, the
aggregate "parachute payments" within the meaning of Section 280G of
the Code paid to the Executive or for her benefit are in an amount that
would result in the Executive being subject an Excise Tax, then the
amount equal to such excess parachute payments shall be deemed for all
purposes to be a loan to the Executive made on the date of receipt of
such excess payments, which the Executive shall have an obligation to
repay to the Company on demand, together with interest on such amount
at the applicable Federal rate (as defined in Section 1274(d) of the
Code) from the date of the payment hereunder to the date of repayment
by the Executive. If this Section 7(e) is not applied to reduce the
Executive's
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entitlements under this Section 7 because the Accountants determine
that the Executive would not receive a greater net-after tax benefit by
applying this Section 7(e) and it is established pursuant to a Final
Determination that, notwithstanding the good faith of the Executive and
the Company in applying the terms of this Agreement, the Executive
would have received a greater net after tax benefit by subjecting her
payments and benefits hereunder to the Payment Cap, then the aggregate
"parachute payments" paid to the Executive or for his benefit in excess
of the Payment Cap shall be deemed for all purposes a loan to the
Executive made on the date of receipt of such excess payments, which
the Executive shall have an obligation to repay to the Company on
demand, together with interest on such amount at the applicable Federal
rate (as defined in Section 1274(d) of the Code) from the date of the
payment hereunder to the date of repayment by the Executive. If the
Executive receives reduced payments and benefits by reason of this
Section 7(e) and it is established pursuant to a Final Determination
that the Executive could have received a greater amount without
exceeding the Payment Cap, then the Company shall promptly thereafter
pay the Executive the aggregate additional amount which could have been
paid without exceeding the Payment Cap, together with interest on such
amount at the applicable Federal rate (as defined in Section 1274(d) of
the Code) from the original payment due date to the date of actual
payment by the Company.
(f) Notwithstanding anything else in this Section 7 to the
contrary, nothing in this Section 7 shall be construed to release the Company
from (or to otherwise waive or modify) the Company's obligation to indemnify the
Executive pursuant to Section 5(g) hereof
8. Non-exclusivity of Rights. Except as expressly provided
herein, nothing in this Agreement shall prevent or limit the Executive's
continuing or future participation in any benefit, bonus, incentive or other
plan or program provided by the Company or any Affiliate and for which the
Executive may qualify, nor shall anything herein limit or otherwise prejudice
such rights as the Executive may have under any other agreements with the
Company or any Affiliate, including employment agreements or stock option
agreements. Amounts which are vested benefits or which the Executive is
otherwise entitled to receive under any plan or program of the Company or any
Affiliate at or subsequent to the Date of Termination shall be payable in
accordance with such plan or program.
9. No Offset. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be diminished or otherwise affected by any circumstances,
including, but not limited to, any set-off, counterclaim, recoupment, defense or
other right which the Company may
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have against the Executive or others whether by reason of the subsequent
employment of the Executive or otherwise.
10. Legal Fees and Expenses. If the Executive asserts any
claim in any contest (whether initiated by the Executive or by the Company) as
to the validity, enforceability or interpretation of any provision of this
Agreement, the Company shall pay the Executive's legal expenses (or cause such
expenses to be paid) including, but not limited to, her reasonable attorney's
fees, on a quarterly basis, upon presentation of proof of such expenses in a
form acceptable to the Company, provided that the Executive shall reimburse the
Company for such amounts, plus simple interest thereon at the 90-day United
States Treasury Bill rate as in effect from time to time, compounded annually,
if the Executive shall not prevail, in whole or in part, as to at least one
material issue as to the validity, enforceability or interpretation of any
provision of this Agreement.
11. Company Property. The Agreement to Protect Corporate
Property previously executed by the Executive in favor of MetLife is
incorporated herein and made a part hereof. The Executive hereby reaffirms her
commitments under such agreement, and again agrees to be bound by each of the
covenants contained therein for the benefit of the Company in consideration of
the benefits made available to her hereby.
12. Successors. (a) This Agreement is personal to the
Executive and, without the prior written consent of the Company, shall not be
assignable by the Executive otherwise than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be enforceable by
the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be
binding upon the Company and its successors. The Company shall require any
successor to all or substantially all of the business and/or assets of the
Company, whether direct or indirect, by purchase, merger, consolidation,
acquisition of stock, or otherwise, expressly to assume and agree to perform
this Agreement in the same manner and to the same extent as the Company would be
required to perform if no such succession had taken place.
(c) MetLife Successor. If prior to the occurrence of a MetLife
Change of Control, MetLife is a party to a merger, recapitalization,
demutualization, restructuring, reorganization or similar transaction, as a
result of which MetLife becomes a subsidiary of any entity that was a subsidiary
of MetLife immediately prior to such transaction, from and after the date of
such transaction the term MetLife as used in the definition of MetLife Change of
Control and Potential MetLife Change of Control (but not as used in any other
Section hereof, unless required to effect the intent that a Potential MetLife
Change of Control or a MetLife Change of Control shall cause the Effective Date
of this Agreement to occur) shall refer to such entity.
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<PAGE> 18
13. Miscellaneous. (a) Applicable Law. This Agreement shall be
governed by and construed in accordance with the laws of the State of New York,
applied without reference to principles of conflict of laws.
(b) Arbitration. Except to the extent provided in Section
11(c) hereof, any dispute or controversy arising under or in connection with
this Agreement shall be resolved by binding arbitration. The arbitration shall
be held in New York City and except to the extent inconsistent with this
Agreement, shall be conducted in accordance with the Expedited Employment
Arbitration Rules of the American Arbitration Association then in effect at the
time of the arbitration (or such other rules as the parties may agree to in
writing), and otherwise in accordance with principles which would be applied by
a court of law or equity. The arbitrator shall be acceptable to both the Company
and the Executive. If the parties cannot agree on an acceptable arbitrator, the
dispute shall be heard by a panel of three arbitrators, one appointed by each of
the parties and the third appointed by the other two arbitrators.
(c) Amendments. This Agreement may not be amended or modified
otherwise than by a written agreement executed by the parties hereto or their
respective successors and legal representatives.
(d) Entire Agreement. This Agreement constitutes the entire
agreement between the parties hereto with respect to the matters referred to
herein. No other agreement relating to the terms of the Executive's employment
by the Company, oral or otherwise, shall be binding between the parties unless
it is in writing and signed by the party against whom enforcement is sought.
There are no promises, representations, inducements or statements between the
parties other than those that are expressly contained herein. The Executive
acknowledges that she is entering into this Agreement of her own free will and
accord, and with no duress, that she has read this Agreement and that she
understands it and its legal consequences.
(e) Notices. All notices and other communications hereunder
shall be in writing and shall be given by hand-delivery to the other party or by
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to the Executive: at the home address of the Executive noted
on the records of the Company
If to the Company: Metropolitan Property and Casualty
Insurance Company
700 Quaker Lane
Warwick, R.I. 02887
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with a copy to: Metropolitan Life Insurance Company
One Madison Avenue
New York, New York 10010
Att.: Secretary
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(f) Tax Withholding. The Company shall withhold from any
amounts payable under this Agreement such Federal, state or local taxes as shall
be required to be withheld pursuant to any applicable law or regulation.
(g) Severability; Reformation. In the event that one or more
of the provisions of this Agreement shall become invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein shall not be affected thereby.
(h) Waiver. Waiver by any party hereto of any breach or
default by the other party of any of the terms of this Agreement shall not
operate as a waiver of any other breach or default, whether similar to or
different from the breach or default waived. No waiver of any provision of this
Agreement shall be implied from any course of dealing between the parties hereto
or from any failure by either party hereto to assert its or her rights hereunder
on any occasion or series of occasions.
(i) Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
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<PAGE> 20
(j) Captions. The captions of this Agreement are not part of
the provisions hereof and shall have no force or effect.
IN WITNESS WHEREOF, the Executive has hereunto set her hand
and the Company has caused this Agreement to be executed in its name on its
behalf, and its corporate seal to be hereunto affixed and attested by its
Secretary, all as of the day and year first above written.
METROPOLITAN PROPERTY AND
CASUALTY INSURANCE COMPANY
/s/ John S. Lombardo
By: John S. Lombardo
Title: Sr. Vice President
WITNESSED:
/s/ Richard W. Berstein
EXECUTIVE:
/s/ Catherine A. Rein
WITNESSED:
/s/ Richard W. Berstein
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<PAGE> 1
EXHIBIT 10.11
EXECUTIVE EMPLOYMENT AGREEMENT
This EXECUTIVE EMPLOYMENT AGREEMENT (this "Agreement") is entered into and
made effective as of the 16th day of June, 1997 (the "Effective Date"), by and
between New England Life Insurance Company (the "Company") and James M. Benson
(the "Executive").
The Company desires to engage the services of the Executive as its
President and Chief Operating Officer, and the Executive desires to accept such
engagement, on the terms and subject to the conditions hereinafter set forth.
In consideration of the mutual promises, terms, provisions and conditions
set forth in this Agreement and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereby
agree as follows:
1. Employment. Subject to the terms and conditions set forth in this
Agreement, the Company hereby employs the Executive and the Executive hereby
accepts employment by the Company.
2. Term. Subject to earlier termination as hereinafter provided, the
Executive's employment hereunder shall be for a term of three (3) years,
commencing on the Effective Date. This Agreement may be extended or renewed only
by written agreement of the Executive and an expressly authorized representative
of the Board of Directors of the Company (the "Board").
3. Capacity and Performance.
a. During the term hereof, the Executive shall initially serve the
Company as its President and Chief Operating Officer and thereafter, within
eighteen (18) months of the Effective Date, shall be appointed Chief Executive
Officer of the Company. As President and Chief Operating Officer, the Executive
will report to the Company's Chief Executive Officer. Thereafter, as Chief
Executive Officer of the Company, the Executive will report to the Board of
Directors of the Company and to the President and Chief Operating Officer (or an
officer of higher status) of Metropolitan Life Insurance Company of New York.
b. As President, Chief Operating Officer and, thereafter, as Chief
Executive Officer of the Company, the Executive shall perform such assignments
and have such duties and authorities as are appropriate to his position(s), and
shall perform such assignments and have such other related duties as may
reasonably be assigned, delegated, designated or modified from time to time by
those to whom he reports and by the Board or its Chairman. The Executive's
duties shall include, without limitation, overall operational responsibility for
all Company business, including the oversight of sales, marketing, promotion,
strategic planning and development for the Company's business; provided,
<PAGE> 2
however, it is understood and agreed that, during the Executive's employment as
Chief Operating Officer, Robert A. Shafto shall retain responsibility for the
Company's Full Financial Services Firm and Electronic Commerce Projects.
c. The Executive shall be recommended for appointment to the Company's
Board as soon as may be practicable, but in no event later than the next
scheduled meeting of the Board.
d. During the term hereof, the Executive shall devote his full business
time and his best efforts, business judgment, skill and knowledge exclusively to
the advancement of the business and interests of the Company and its Affiliates
and to the discharge of his duties and responsibilities hereunder, except that
the Executive may devote a reasonable amount of time to charitable endeavors and
to personal affairs and, subject to the approval of the Board, may serve on the
boards of directors of other corporations, trade associations or charitable
organizations, to the extent that such exceptions do not interfere with the
Executive's responsibilities to the Company and its Affiliates. The Executive
shall not engage in any other business activity during the term hereof, except
as may be approved in advance by the Board. As used in this Agreement,
"Affiliates" means all persons and entities directly or indirectly controlling,
controlled by or under common control with the Company, where control may be by
management authority, equity interest or otherwise.
4. Compensation and Benefits. As compensation for all services performed by
the Executive under and during the term hereof and subject to performance of the
Executive's duties and of the obligations of the Executive to the Company and
its Affiliates:
a. Base Salary. During the term hereof, the Company shall pay the
Executive a base salary (the "Base Salary") at the rate of not less than Five
Hundred Thousand Dollars ($500,000) per annum, payable in accordance with the
Company's regular payroll practices, such Base Salary to be increased in an
amount determined by the Board in its discretion upon the Executive's
appointment as Chief Executive Officer.
b. Signing Bonus. Within thirty (30) days following the Effective Date,
the Executive will receive from the Company a one-time signing bonus of Three
Hundred Thousand Dollars ($300,000).
c. Bonus Compensation. During the term hereof, the Executive shall be
entitled to participate in the Company's short-term incentive compensation plan
and long-term incentive compensation plan, each as in effect from time to time.
Except as otherwise expressly provided herein, the Executive's participation in
the Company's short-term and long-term incentive compensation plans shall be
subject to (A) the terms of the applicable plan documents, (B) generally
applicable policies of the Company, and (C) the discretion of the Board or any
committee of the Board provided for in or contemplated by such plans. The
Executive understands and agrees that the Company may amend, replace or
terminate any or
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all of its incentive compensation plans from time to time in the sole discretion
of the Board and that nothing contained herein shall obligate the Company to
continue any such plan or any term thereof; provided, however, that amendment,
replacement or termination of one or all of the plans shall not affect the
Executive's right to receive not less than the guaranteed minimum bonuses set
forth below during his employment under this Agreement. The Executive shall be
entitled to receive, for the plan year in which termination of his employment
occurs, a bonus under any incentive compensation plan in which he is then a
participant, pro-rated to the date of termination and calculated as if his
target bonus under that plan had been met, provided that termination occurs
pursuant to Section 6.a., Section 6.b, Section 6.d or 6.f hereof.
It is agreed that the Executive's target bonus under the short-term
incentive plan shall be equal to the target bonus of the Company's Chief
Executive Officer (the "CEO") under that plan, expressed as a percentage of base
salary, and that, for purposes of the Executive's participation in the
short-term incentive plan in calendar year 1997, the Executive shall be treated
as if he had been employed by the Company as of January 1,1997. Provided that he
is employed hereunder at the time the 1997 short-term incentive compensation
bonus is payable to executives of the Company generally, the Executive shall be
guaranteed a minimum short-term incentive bonus of Three Hundred Thousand
Dollars ($300,000) for calendar year 1997, payable in 1998; provided, however,
that in the event the Executive's short-term bonus compensation, calculated in
accordance with the terms of the Company's short-term incentive compensation
plan, exceeds his guaranteed minimum short-term incentive bonus hereunder for
calendar year 1997, the Executive shall be entitled to the higher short-term
incentive bonus for that year.
It is agreed that the Executive's target bonus under the Company's
long-term incentive plan, (i) shall be one-third of the CEO's target bonus for
the three-year performance cycle of 1995, 1996 and 1997, expressed as a
percentage of base salary; (ii) shall be two-thirds of the CEO's target bonus
for the three-year performance cycle of 1996, 1997 and 1998, expressed as a
percentage of base salary; and (iii) shall be equal to the CEO's target bonus
for the three-year performance cycle of 1997, 1998 and 1999, expressed as a
percentage of base salary. Provided that he is employed hereunder on the last
day of the performance cycle for the following long-term incentive compensation
bonuses, the Executive shall be guaranteed a minimum long-term incentive bonus
of Three Hundred Thousand Dollars ($300,000) for the three-year performance
cycle of 1995, 1996 and 1997, payable in 1998, and a minimum bonus of Four
Hundred Thousand Dollars ($400,000) for the three-year performance cycle of
1996, 1997 and 1998, payable in 1999; provided, however, in the event the
Executive's long-term bonus compensation, calculated in accordance with the
terms of the Company's long-term incentive plan, exceeds his guaranteed minimum
bonus payable in 1998 and/or 1999, the Executive shall be entitled to the higher
long-term incentive bonus for such year(s).
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<PAGE> 4
d. Employee Benefits.
i. Retirement Plans. During the term hereof, the Executive
shall participate in The New England Retirement Plan &
Trust, an ERISA-qualified pension plan, The New England
Profit Sharing Plan and The New England Profit Sharing Plan
and Trust (the Company's 401(k) savings and profit-sharing
plan), as well as The New England Supplemental Retirement
Plan, The New England Select Employees Supplemental
Retirement Plan, The New England Select Employees
Supplemental Profit Sharing Plan and Home Office
Non-Qualified Elective Deferral Plan (nonqualified
supplemental executive retirement plans), all as may be in
effect from time to time. Such participation shall be
subject to (A) the terms of the applicable plan documents,
(B) generally applicable policies of the Company, and (C)
the discretion of the plan administrators provided for in or
contemplated by such plan(s).
ii. Individual Retirement Arrangement. In addition to any
entitlements the Executive may otherwise have under the
Company's qualified and non-qualified retirement plans
described in subsection i directly above, the Company
guarantees the Executive an enhanced pension benefit of Four
Hundred Thousand Dollars ($400,000) per annum, payable as a
twenty (20) year continuous and certain annuity starting at
age 62, subject to the vesting requirements set forth
herein. During the term hereof, the Executive shall vest in
this non-qualified benefit at the rate of Ten Percent (10%)
per annum. In the event the Company terminates the
Executive's employment in accordance with Section 6.d hereof
or the Executive terminates his employment for "Good Reason"
in accordance with Section 6.f hereof, the Executive's
vesting in the enhanced pension benefit will be
retroactively accelerated at the rate of an additional Ten
Percent (10%) per year of service. In the event of a final
partial year of service, the Executive shall be vested for
such year on a pro-rated basis to the date of termination.
Notwithstanding expiration of the term of this Agreement,
this Section 4.d.ii shall continue in effect throughout the
Executive's employment with the Company.
iii. Health and Welfare Plans. During the term hereof and subject
to any contribution therefor generally required of employees
of the Company, the Executive shall be entitled to
participate in any and
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<PAGE> 5
all employee benefit plans from time to time in effect for
employees of the Company generally, except to the extent
such plans are in a category of benefit (such as severance
pay) otherwise provided to the Executive hereunder.
Participation in such plans (including without limitation
any post-retirement medical, dental or life insurance plan)
shall be subject to (1) the terms of the applicable plan
documents, (2) generally applicable Company policies and (3)
the discretion of the plan administrators provided for in or
contemplated by such plan. The Company may alter, modify,
add to or delete its employee benefit plans and its
retirement plans set forth in subsection i hereof at any
time as it, in its sole discretion, determines to be
appropriate, without recourse by the Executive.
iv. Vacation and Leave. The Executive will be entitled to five
(5) weeks of paid vacation per calendar year, to be taken at
such times and at such intervals as shall be determined by
the Executive, subject to the reasonable business needs of
the Company. In addition, the Executive shall be entitled to
sick leave and paid holidays, consistent with the terms of
applicable Company policies, as in effect from time to time.
v. Relocation. The Executive is expected to relocate from
Connecticut to Massachusetts promptly following the
Effective Date. In that connection, the Company will
reimburse the Executive his reasonable relocation expenses
in accordance with the Company's policy, subject to such
substantiation and documentation as the Company may
reasonably require. The Company will also give consideration
to any additional reasonable relocation expenses which are
unique to the Executive's circumstances.
vi. Business Expenses. Subject to such policies regarding
expenses and expense reimbursement as may be adopted from
time to time by the Company and compliance therewith by the
Executive, the Company shall pay or reimburse the Executive
for all reasonable business expenses incurred or paid by the
Executive in the performance of his duties and
responsibilities hereunder, subject to any maximum annual
limit and other restrictions on such expenses as may be set
by the Board and further subject to such reasonable
substantiation and documentation as may be specified by the
Company from time to time.
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5. Indemnification. The Company shall indemnify and hold the Executive
harmless, to the maximum extent permitted by applicable law, from and against
any claim, loss or cause of action arising from or out of the Executive's
performance as an officer, director or employee of the Company or any of its
Affiliates or in any other capacity, including serving as a fiduciary, in which
the Executive serves at the request of, or for the benefit of, the Company.
During the term of this Agreement and for six years thereafter (or, if less,
throughout the period of any applicable statute of limitations), the Company
shall maintain directors and officers liability insurance which shall cover the
Executive, unless the Board shall determine that such insurance cannot be
maintained at commercially reasonable rates.
6. Termination of Employment and Severance Payments. Notwithstanding
anything to the contrary contained in this Agreement, the Executive's employment
hereunder shall terminate during the term of this Agreement under the following
circumstances:
a. Death. In the event of the Executive's death during the term hereof,
the Executive's employment shall immediately and automatically terminate. In
such event, the Company shall pay to the Executive's designated beneficiary or,
if no beneficiary has been designated by the Executive, to his estate: (i) any
earned and unpaid Base Salary, prorated through the date of the Executive's
death; (ii) bonus compensation to which the Executive is entitled in accordance
with Section 4.c hereof, prorated to the date of the Executive's death; (iii)
reimbursement in accordance with Section 4.d.v for any business expenses for
which the Executive has not yet been reimbursed and (iv) if the Executive's
eligible dependents elect continuation of their participation under the
Company's group medical and/or dental plan under the federal law known as
"COBRA", the Company will pay the frill premium cost of such participation for a
period of twelve (12) months following the date of the Executive's death or
until the dependent ceases to be eligible for participation under COBRA,
whichever is less.
b. Disability.
i. The Company may terminate the Executive's employment
hereunder, upon notice to the Executive, in the event that
the Executive becomes disabled during his employment through
any illness, injury, accident or condition of either a
physical or psychological nature and, as a result, is unable
to perform substantially all of his duties and
responsibilities hereunder for one hundred and eighty (180)
days during any period of three hundred and sixty-five (365)
consecutive calendar days. In such event, the Company shall
pay the Executive the following: (a) any earned and unpaid
Base Salary, prorated through the date of termination; (b)
bonus compensation to which the Executive is entitled in
accordance with Section 4.c hereof, prorated to the
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date of termination; (c) reimbursement in accordance with
Section 4.d.v. for any business expenses for which the
Executive has not yet been reimbursed; and (d) if the
Executive and/or his eligible dependents elect continuation
of their participation under the Company's group medical
and/or dental plan under COBRA, the Company will pay the
full premium cost of such participation for a period of
twelve (12) months following the date of termination of the
Executive's employment or until the Executive or the
dependent ceases to be eligible for participation under
COBRA, whichever is less.
ii. The Board may designate another employee to act in the
Executive's place during any period of the Executive's
disability. Notwithstanding any such designation, the
Executive shall continue to receive the Base Salary in
accordance with Section 4.a hereof and shall continue to
participate in the Company's benefit plans in accordance
with Section 4.d hereof to the extent permitted by the
then-current terms of the applicable benefit plans, until
the Executive becomes eligible for disability income
benefits under any disability plan provided to the Executive
by the Company or until the termination of his employment,
whichever shall first occur.
iii. If any question shall arise as to whether during any period
the Executive is disabled through any illness, injury,
accident or condition of either a physical or psychological
nature so as to be unable to perform substantially all of
his duties and responsibilities hereunder, the Executive
may, and at the request of the Company shall, submit to a
medical examination by a physician selected by the Company
to whom the Executive or his duly appointed guardian, if
any, has no reasonable objection to determine whether the
Executive is so disabled, and such determination shall for
purposes of this Agreement be conclusive of the issue. If
such question shall arise and the Executive shall fail to
submit to such a medical examination, the Company's
determination of the issue shall be binding on the
Executive.
c. By the Company for Cause. The Company may terminate the Executive's
employment hereunder for Cause at any time upon notice to the Executive setting
forth in reasonable detail the nature of such Cause. The following, as
determined by the Board in its reasonable judgment, shall constitute Cause for
termination:
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<PAGE> 8
willful gross neglect in the performance of the Executive's
duties and responsibilities to the Company and its
Affiliates as described in Section 3 hereof (other than a
failure resulting from disability); or
ii. the engaging of the Executive in the misappropriation of
funds, properties or assets of the Company of any of its
Affiliates, intentional tort(s), fraud or other material
dishonesty with respect to the Company or any of its
Affiliates, or other willful gross misconduct that is
reasonably likely to be materially harmful to the business,
interests or reputation of the Company or any of its
Affiliates; or
iii. the Executive's conviction of a crime constituting a felony,
including the entry of a plea of guilty or no contest by the
Executive to a charge of a crime constituting a felony; or
iv. material breach by the Executive of any of the restrictive
covenants contained in Section 8 or 9 hereof.
Upon the giving of notice of termination of the Executive's employment hereunder
for Cause, the Company shall have no further obligation or liability to the
Executive nor to his beneficiary or estate, other than for Base Salary earned
and unpaid to the date of termination and reimbursement in accordance with
Section 4.d.v for any business expenses for which the Executive has not yet been
reimbursed.
d. By the Company Other Than for Cause. The Company may terminate the
Executive's employment hereunder other than for Cause at any time upon notice to
the Executive. In the event of such termination, then, within forty-five (45)
days following the effective date of the Executive's termination, the Company
shall pay the Executive a single lump sum amount equal to the sum of two years'
Base Salary at the rate in effect on the date of termination plus two times the
Executive's target bonus under the Company's short-term incentive compensation
plan; provided, however, that the Company's obligations to make payments
hereunder are conditioned on the Executive's execution of a general release in
favor of the Company in such form as the Company shall specify. In addition to
the foregoing, the Company shall pay the Executive any Base Salary earned and
unpaid, prorated through the date of termination and any bonus compensation to
which the Executive is entitled in accordance with Section 4.c hereof, prorated
to the date of termination and shall reimburse the Executive in accordance with
Section 4.d.v. for any business expenses for which the Executive has not yet
been reimbursed.
e. By the Executive for Other Than Good Reason. The Executive may
terminate his employment hereunder at any time upon three (3) months' notice to
the
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<PAGE> 9
Company. In the event of termination by the Executive pursuant to this Section
6.e, the Board may elect to waive the period of notice, or any portion thereof,
and, if the Board so elects, the Company will pay the Executive the Base Salary
for the notice period (or for any remaining portion of that period). Upon
termination of the Executive's employment pursuant to this Section 6.e, the
Company shall have no further obligation or liability to the Executive nor to
his beneficiary or estate, other than for Base Salary earned and unpaid,
prorated to the date of termination, and reimbursement in accordance with
Section 4.d.v. for any business expenses for which the Executive has not yet
been reimbursed.
f. By the Executive for Good Reason. The Executive may terminate his
employment hereunder for Good Reason, provided that the Executive provides
written notice to the Company, setting forth in reasonable detail the nature of
such Good Reason, within sixty (60) days of the occurrence of the circumstances
giving rise to the Good Reason; the Company fails to cure within forty-five (45)
days following its receipt of such notice; and the Executive thereupon gives
thirty (30) days' written notice of termination; provided further, however, that
in the event of termination by the Executive for Good Reason in accordance with
subsection (iv) below, the Executive need only give thirty (30) days' notice of
termination, but must do so within sixty (60) days of the Change of Control. For
purposes of this Section 6.f, "Good Reason" shall mean any act or omission
identified below to which the Executive does not consent and which does not
occur in connection with the replacement of the Executive during any period of
disability or termination of the Executive's employment for Cause or disability,
as provided in this Agreement. The following shall constitute "Good Reason" for
termination by the Executive:
(i) Any (A) failure to designate or redesignate the Executive as, or (B)
removal of the Executive from or failure to re-elect the Executive to, any of
the following positions:
(I) Chief Executive Officer of the Company (to occur within eighteen
months of the Effective Date); or
(II) Member of the Board of Directors of the Company;
(ii) Any assignment to the Executive of any duties, functions, or
responsibilities, that
(I) is materially inconsistent with the Executive's positions described
in Section 3 above, or
(II) requires the Executive to report to anyone other than the CEO, the
Company's Board, or the President and Chief Operating Officer (or higher level
officer) of Metropolitan Life Insurance Company of New York, or
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<PAGE> 10
(III) deprives the Executive of effective supervision and control over,
and responsibility for, the strategic direction and general and active
day-to-day leadership and management (including the structure and organization
of such leadership and management) of the business and affairs of the Company,
subject to the direction and control of the Board; provided, however, that the
sale or transfer of any of the Company's Affiliates, or of any or all of the
assets of any of the Affiliates, shall not constitute "Good Reason" and provided
further that any change or diminution in the business of the Company shall not
constitute Good Reason unless constituting a "Change of Control" in accordance
with subsection (iv) of this Section 6.f; or
(IV) substantially interferes with the Executive's ability to
substantially perform the duties, functions or responsibilities, or exercise the
authority, of his positions as described in Section 3 above;
(iii) any substantial, objectively demonstrable failure by the Company to
materially comply with the provisions of Section 4 above; or
(iv) a Change of Control, meaning the occurrence hereafter of one of the
following events: (I) any "person," as such term is used in Sections 3(a)(9)
and 13(d) of the Securities Exchange Act of 1934, as amended (the "Act"),
becomes a "beneficial owner," as such term is used in Rule 13d-3 promulgated
under the Act, of twenty-five percent (25%) or more of the voting stock of the
Company; (II) the Company adopts any plan of liquidation providing for
distribution of all or substantially all of its assets; (III) all or
substantially all of the assets or business of the Company is disposed of
pursuant to a merger, consolidation or other transaction (unless the
shareholders of the Company immediately prior to such merger, consolidation or
other transaction beneficially own, directly or indirectly, in substantially the
same proportion as they owned the voting stock of the Company, all of the voting
stock or other ownership interests of the entity or entities, if any, that
succeed to the business of the Company); or (IV) the Company combines with
another company and is the surviving corporation but, immediately after the
combination, the shareholders of the Company immediately prior to the
combination hold, directly or indirectly, fifty percent (50%) or less of the
voting stock of the combined company (there being excluded from the number of
shares held by such shareholders, but not from the voting stock of the combined
company, any shares received by affiliates of such other company in exchange for
stock of such other company).
In the event of a termination by the Executive in accordance with this
Section 6.f, then, within forty-five (45) days following the effective date of
the Executive's termination, the Company shall pay the Executive a single lump
sum amount equal to the sum of two years' Base Salary at the rate in effect on
the date of termination plus two times the Executive's target bonus under the
Company's short-term incentive compensation plan; provided, however, that the
Company's obligations to make payments hereunder are conditioned on the
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Executive's execution of a general release in favor of the Company in such form
as the Company shall specify. In addition to the foregoing, the Company shall
pay the Executive any Base Salary earned and unpaid, prorated through the date
of termination and bonus compensation to which the Executive is entitled in
accordance with Section 4.c hereof, prorated to the date of termination and
shall reimburse the Executive in accordance with Section 4.d.v. for any business
expenses for which the Executive has not yet been reimbursed.
g. No Mitigation: No Offset. In the event of any termination of
employment, the Executive shall be under no obligation to seek other employment
and there shall be no offset against amounts due him under this Agreement on
account of any remuneration attributable to any subsequent employment that he
may obtain.
h. Post-Agreement Employment. In the event the Executive remains in the
employ of the Company or any of its Affiliates following termination of this
Agreement, by the expiration of the term or otherwise, then such employment
shall be at will.
7. Effect of Termination.
a. In the event of termination of the Executive's employment hereunder,
payment by the Company in accordance with the applicable provision of Section 6
above shall constitute the entire obligation of the Company to the Executive.
Except as otherwise expressly provided for in this Agreement, and except for any
right that the Executive may have to continue participation in the Company's
group medical and/or dental plan at his cost under applicable law, the
Executive's participation in the Company's benefit plans shall terminate
pursuant to the terms of the applicable benefit plans based on the date of
termination of the Executive's employment, without regard to any continuation of
Base Salary or other payment to the Executive following such date of
termination.
b. Notwithstanding the foregoing, in the event of termination of the
Executive's employment pursuant to Section 6.a, Section 6.b, Section 6.d or
Section 6.f, the Executive and his spouse shall be entitled to post-retirement
medical coverage to the same extent that, and on the same terms as,
post-retirement medical coverage is provided to executives of Metropolitan Life
Insurance Company of New York and their spouses generally; provided, however,
that any length of service requirement for eligibility will be waived and
provided further that such coverage shall be secondary to coverage provided by
any subsequent employer.
c. Provisions of this Agreement shall survive termination of this
Agreement, by expiration of the term or otherwise, if so provided herein or if
necessary or desirable to accomplish the purposes of other surviving provisions,
including without limitation the obligations of the Executive under Sections 8
and 9 hereof. The obligation of the Company to make payments to or on behalf of
the Executive under Section 6 hereof is expressly conditioned upon the
Executive's continued full performance of his obligations under
-11-
<PAGE> 12
Sections 8 and 9. The Executive recognizes that, except as expressly provided
herein, no compensation is earned after termination of employment.
8. Confidential Information.
a. The Executive acknowledges that the Company and its Affiliates
continually develop Confidential Information, that the Executive may develop
Confidential Information for the Company and its Affiliates, and that the
Executive may learn of Confidential Information during the course of employment.
The Executive will comply with the policies and procedures of the Company for
protecting Confidential Information and shall never use or disclose to any
person, corporation or other entity (except as required by applicable law or for
the proper performance of his regular duties and responsibilities for the
Company and its Affiliates) any Confidential Information obtained by the
Executive incident to his employment or other association with the Company or
any of its Affiliates. The Executive understands that this restriction shall
continue to apply after his employment terminates, regardless of the reason for
such termination. For purposes of this Agreement, "Confidential Information"
means any and all information of the Company and its Affiliates or concerning
the business, clients or affairs of the Company or any of its Affiliates, that
is not generally known by others with whom any of them compete or do business,
or with whom any of them plan to compete or do business. Confidential
Information includes without limitation such information relating to (i) the
development, research, testing, manufacturing, marketing, strategies, and
financial activities of the Company and its Affiliates, (ii) the products and
services, present and in contemplation, of the Company and its Affiliates, (iii)
inventions, processes, operations, administrative procedures, databases,
programs, systems, flow charts, software, firmware and equipment used in the
business of the Company or any of its Affiliates, (iv) customer lists and
customer information of the Company and its Affiliates, (v) their costs,
financial performance and strategic plans, (vi) the identity and special needs
of those with whom the Company and its Affiliates do business and (vii) the
people and organizations with whom the Company and its Affiliates have business
relationships and the substance of those relationships. Confidential Information
also includes all information that the Company or any of its Affiliates has
received belonging to others with any understanding, express or implied, that it
would not be disclosed.
b. All documents, records, tapes and other media of every kind and
description relating to the business, present or otherwise, of the Company and
its Affiliates and any copies, in whole or in part, thereof (the "Documents"),
whether or not prepared by the Executive, shall be the sole and exclusive
property of the Company and its Affiliates; provided, however, the Executive
shall be entitled to retain his personal notes, diaries, rolodexes,
correspondence and other materials of a personal nature that do not contain
Confidential Information. The Executive shall safeguard all Documents and shall
surrender to the Company at the time his employment terminates, or at such
earlier time or times as the Board or its designee may specify, all Documents
then in the Executive's possession or control.
-12-
<PAGE> 13
9. Restricted Activities. The Executive expressly recognizes that the
employees, general agents and agents of the Company and its Affiliates are
important and critical aspects of their ability to operate profitably. The
Executive, therefore, further agrees that, while he is employed by the Company,
other than in the course of performing his duties hereunder, and for a period of
one (1) year following termination of his employment for any reason, he will not
directly or indirectly (i) hire or solicit for hiring any employee of the
Company or any of its Affiliates or seek to persuade any employee of the Company
or any of its Affiliates to discontinue employment, (ii) hire or solicit for
hiring any employee of any general agent of the Company or any of its
Affiliates; or (iii) solicit or encourage any general agent or other independent
contractor providing services to the Company or any of its Affiliates to
terminate or diminish its relationship with them.
10. Enforcement of Covenants. In signing this Agreement, the Executive
gives the Company assurance that he has carefully read and considered all the
terms and conditions of this Agreement, including the restraints imposed on him
under Sections 8 and 9 hereof. The Executive agrees without reservation that
these restraints are necessary for the reasonable and proper protection of the
Company and its Affiliates; that each and every one of the restraints is
reasonable in respect to subject matter, length of time and geographic area; and
that these restraints will not prevent him from obtaining other suitable
employment during the Non-Competition Period. The Executive further agrees that,
were he to breach any of the covenants contained in Section 8 or 9 hereof, the
damage to the Company and its Affiliates would be irreparable. The Executive
therefore agrees that the Company, in addition to any other remedies available
to it, shall be entitled to preliminary and permanent injunctive relief against
any breach or threatened breach by the Executive of any of those covenants,
without having to post bond, and that he will not take, and he will not permit
anyone else to take on his behalf, any position in a court or any other forum
inconsistent with any of his covenants relating to this Section 10. The
Executive and the Company further agree that, in the event that any provision of
Section 8 or 9 is determined by any court of competent jurisdiction to be
unenforceable by reason of its being extended over too great a time, too large a
geographic area or too great a range of activities, that provision shall be
deemed to be modified to permit its enforcement to the maximum extent permitted
by law. It is also agreed that each of the Company's Affiliates shall have the
right to enforce all of the Executive's obligations to that Affiliate under this
Agreement, including without limitation pursuant to Sections 8 and 9 hereof.
11. Resolution of Disputes. Any dispute arising under or in connection with
this Agreement, other than a dispute arising under Section 8, 9 or 10 hereof,
shall, at the election of the Executive or the Company, be resolved by binding
arbitration conducted in Boston, Massachusetts in accordance with the Commercial
Rules of the American Arbitration Association then in force and the laws of the
Commonwealth of Massachusetts. Judgment upon the award rendered by the
arbitrator(s) may be enforced and executed upon in any court having jurisdiction
over the party against whom enforcement of such award is sought.
-13-
<PAGE> 14
The parties involved in the dispute shall divide equally the administrative
charges, arbitrator's fees and related expenses of the arbitration, but each
party shall pay its own legal fees incurred in connection with such arbitration.
12. Conflicting Agreements. The Executive hereby represents and warrants
that the execution of this Agreement and the performance of his obligations
hereunder will not breach or be in conflict with any other agreement to which
the Executive is a party or is bound, and that the Executive is not now subject
to any covenants against competition or similar covenants that would affect the
performance of his obligations hereunder. The Executive will not disclose to or
use on behalf of the Company any proprietary information of a third party
without such party's consent.
13. Withholding. All payments made by the Company under this Agreement
shall be reduced by any tax or other amounts required to be withheld by the
Company under applicable law.
14. Assignment. This Agreement is personal in its nature, and neither the
Company nor the Executive may make any assignment of this Agreement or any
interest herein, by operation of law or otherwise, without the prior written
consent of the other; provided, however, that the Company may assign its rights
and obligations under this Agreement without the consent of the Executive in the
event that the Company shall hereafter effect a reorganization, consolidate
with, or merge into, any other entity or transfer all or substantially all of
its properties or assets to any other entity. This Agreement shall inure to the
benefit of and be binding upon the Company and the Executive, their respective
successors, executors, administrators, heirs and permitted assigns.
15. Severability. If any portion or provision of this Agreement shall to
any extent be declared illegal or unenforceable by a court of competent
jurisdiction, then the remainder of this Agreement, or the application of such
portion or provision in circumstances other than those as to which it is so
declared illegal or unenforceable, shall not be affected thereby, and each
portion and provision of this Agreement shall be valid and enforceable to the
fullest extent permitted by law.
16. Waiver. No waiver of any provision hereof shall be effective unless
made in writing and signed by the waiving party. The failure of either party to
require the performance of any term or obligation of this Agreement, or the
waiver by either party of any breach of this Agreement, shall not prevent any
subsequent enforcement of such term or obligation or be deemed a waiver of any
subsequent breach.
17. Notices. Any and all notices, requests, demands and other
communications provided for by this Agreement shall be in writing and shall be
effective as provided herein when delivered in person or by overnight air
courier or deposited in the United States mail, postage prepaid, registered or
certified, return receipt requested and addressed to the persons
-14-
<PAGE> 15
and addresses listed below, or to such other address as either party may specify
by notice to the other actually received. Each notice shall, simultaneously with
its being delivered to the courier or messenger for delivery or placed in the
mail, be sent when possible by facsimile or comparable electronic means. All
notices and other communications hereunder shall be deemed to have been given:
(i) on the date of delivery if personally delivered; (ii) on the first business
day after the date sent if sent by overnight air courier; or (iii) on the fifth
business day after the date sent if sent by mail.
If to the Company:
The General Counsel
New England Life Insurance Company
501 Boylston Street
Boston, MA 02115-3700
If to the Executive:
James M. Benson
524 Lake Avenue
Greenwich, CT 06830
18. Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto, and supersedes all prior and contemporaneous
communications, agreements and understandings, written or oral, with respect to
the terms and conditions of the Executive's employment.
19. Amendment. This Agreement may be amended or modified only by a written
instrument signed by the Executive and an expressly authorized representative of
the Board.
20. Headings. The headings and captions in this Agreement are for
convenience only, and in no way define or describe the scope or content of any
provision of this Agreement.
21. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall, when executed, be deemed to be an original
and all of which together shall constitute one and the same instrument.
22. Governing Law. This is a Massachusetts contract and shall be construed
and enforced under and be governed in all respects by the laws of the
Commonwealth of Massachusetts, without regard to the conflict of laws principles
thereof.
-15-
<PAGE> 16
IN WITNESS WHEREOF, this Agreement has been executed as a sealed instrument
by the Company, by its duly authorized representative, and by the Executive, as
of the date first above written.
THE EXECUTIVE: THE COMPANY:
NEW ENGLAND LIFE INSURANCE COMPANY
/s/ James M. Benson By: /s/ Robert A. Shafto
- --------------------- -------------------------------------
James M. Benson Robert A. Shafto
Chairman and Chief Executive Officer
<PAGE> 1
Exhibit 10.13
NOTICE: DEFENSE EXPENSES ARE INCLUDED IN LOSS AND SUBJECT TO THE AGGREGATE LIMIT
OF INDEMNITY.
STOCKWOOD REINSURANCE COMPANY, LTD.
(the "Insurance Company")
POLICY NUMBER: 04-03-22
RESTATEMENT OF THE EXCESS ASBESTOS INDEMNITY
INSURANCE POLICY
DECLARATIONS
ITEM 1. NAME OF INSURED: Metropolitan Life Insurance Company
One Madison Avenue
New York, NY 10010
together with its successors and
permitted assigns.
ITEM 2. PERIOD OF INDEMNIFICATION:
From November 30, 1998 (the "Policy
Inception Date") until the earlier
of (a) the exhaustion of the
Aggregate Limit of Indemnity, or (b)
the Commutation Date (as defined in
this Policy) (in each case at 12:01
A.M. at the address stated in Item
1).
ITEM 3. (A) AGGREGATE LIMIT OF
INDEMNITY: Three Hundred Seventy-Five Million
Dollars ($375,000,000) as the
Insurance Company's Quota Share of
One Billion Five Hundred Million
Dollars ($1,500,000,000) in the
absolute aggregate for all Loss
excess of the Retention (as
hereinafter defined).
(B) ANNUAL SUBLIMIT AND PER
CLAIMANT LIMIT: As set forth in Section 3 of the
Policy. The Annual Sublimit and the
Per Claimant Limit shall be a part
of, and not in addition to, the
Aggregate Limit of Indemnity.
(C) RETENTION: As set forth in Section 4 of the
Policy.
<PAGE> 2
2
ITEM 4. PREMIUM: Two Hundred Fifteen Million Dollars
($215,000,000), payable in full on
or before December 31, 1998.
ITEM 5. NOTICES: All Notices under the Policy shall
be made in the manner prescribed in
the Policy to the addresses set
forth below;
If to the Insured, to:
Metropolitan Life
Insurance Company
One Madison Avenue
New York, NY 10010
Attention: General Counsel
with a copy to: Risk Manager
Facsimile: (212) 578-3916
If to the Insurance Company, to:
Stockwood Reinsurance
Company, Ltd.
Carleton Court
High Street
Bridgetown, Barbados
Attention: Tim Courtis
Facsimile: (246) 431-0522
<PAGE> 3
EXCESS ASBESTOS INDEMNITY INSURANCE POLICY
In consideration of the payment of the Premium and the mutual covenants and
promises herein, in light of the representations and warranties made in
connection herewith, and subject to the Declarations that are a part of this
Excess Asbestos Indemnity Insurance Policy and to the terms, conditions,
exclusions and limitations contained in this Excess Asbestos Indemnity Insurance
Policy (all of which collectively constitute this "Policy"), the Insurance
Company and the Insured hereby agree as follows:
SECTION 1. INSURING AGREEMENT
Subject to the terms and conditions of this Policy (including the Aggregate
Limit of Indemnity, the Annual Sublimit and the Per Claimant Limit), the
Insurance Company will indemnify the Insured during the Period of
Indemnification for the Insurance Company's Quota Share of the excess of (a) any
and all Loss for the defense and settlement of, or payment of judgments in,
Asbestos-Related Claims, arising out of events described in Section 2(C)(ii)
occurring prior to the Policy Inception Date; over (b) the Retention.
SECTION 2. DEFINITIONS
As used in this Policy, the following terms shall have the following meanings:
(A) "Aggregate Limit of Indemnity" has the meaning given to such
term in Item 3(A) of the Declarations of this Policy.
(B) "Annual Sublimit" has the meaning given to such term in
Section 3.2 of this Policy.
(C) "Asbestos-Related Claim" means any Claim against the Insured
for Bodily Injury allegedly caused by, arising out of, or
relating to, in whole or in part, any exposure to asbestos,
but only where such Claim:
(i) is sought, or threatened, to be enforced in
the Territory against the Insured; and
(ii) alleges (a) activities of Dr. Anthony J.
Lanza on behalf of the Insured; or (b) the
Insured's operation prior to January 1, 1970
of its Industrial Hygiene Division or
Section, regarding research, testing or
reporting of results associated with
asbestos; or (c) any alleged knowledge of
the Insured arising out of the operation
described in clause (ii)(b) above relating
to the Insured's alleged failure to warn of
the hazards of asbestos, or to the Insured's
alleged participation in any conspiracy,
negligent or otherwise, relating to the
hazards of asbestos.
<PAGE> 4
2
(D) "Bodily Injury" means bodily injury to a person, including
without limitation, illness, sickness, disease, loss of
consortium, death, mental anguish, emotional distress, or fear
of cancer.
(E) "Business Day" means any day other than a Saturday, a Sunday
or a day on which banking institutions in New York, New York,
or the Islands of Bermuda are authorized or obligated by law,
regulation or executive order to be closed.
(F) "Claim" means any past, present or future claim, demand,
request, complaint, cross-complaint, cross-claim, right, suit,
lawsuit, action or proceeding or cause of action or order
seeking monetary relief (including, without limitation,
punitive or exemplary damages) or other relief (including,
without limitation, medical monitoring, injunctive or
declaratory relief).
(G) "Commutation Date" has the meaning given to such term in
Section 8.3 of this Policy.
(H) "Direct Actions" has the meaning given to such term in Section
8.4 of this Policy.
(I) "Disputed Net Loss" has the meaning given to such term in
Section 8.1(C) of this Policy.
(J) "Experience Value" has the meaning given to such term in
Section 7.7 of this Policy.
(K) "Insurance Company" has the meaning given to such term in the
Declarations of this Policy.
(L) "Insurance Company's Quota Share" means twenty-five percent
(25.00%).
(M) "Insurance Coverage Claim" means any past, present or future
Claim against the Insured seeking (a) monetary or other relief
(including without limitation, medical monitoring, injunctive
or declaratory relief) from the Insured under any insurance or
reinsurance policies or contracts issued by the Insured, or
(b) damages, injunctive or other relief due to allegedly
unlawful claims handling practices of the Insured, including
without limitation, any Claims against the Insured for bad
faith or breach of fiduciary duties due to the manner in which
the Insured investigated, settled or paid claims under any
insurance or reinsurance policies or contracts issued by the
Insured.
(N) "Insured" has the meaning given to such term in Item 1 of the
Declarations of this Policy.
(O) "Insured Payments" means (i) all amounts actually paid by the
Insured and (ii) all amounts actually paid on behalf of the
Insured by the issuers of the Settled Policies ("Issuers") in
connection with the Settled Policies excluding (x) payments to
the
<PAGE> 5
3
Insured by the Issuers in connection with the Settled Policies
and (y) payments by the Insured to the Issuers in connection
with the Settled Policies.
(P) "Loss", except as set forth in Section 3.3 of the Claims
Handling and Cooperation Agreement executed simultaneously
herewith, means the amounts of Insured Payments made on or
after the Policy Inception Date,
(i) in investigating or defending any
Asbestos-Related Claims including fees and
expenses of the Insured's national
coordinating counsel, other attorneys' fees
and expenses, premiums on attachment or
appeal bonds, pre-judgment and post-judgment
interest, and expenses for experts;
(ii) in settling Asbestos-Related Claims for
which:
(a) a written release,
(b) evidence of a physical condition
that has been claimed in the
scientific or medical literature to
be caused by exposure to asbestos or
asbestos containing products, and
(c) proof of exposure to asbestos or
asbestos containing products (by way
of interrogatory answer, affidavit
(which may be included within the
release), personnel record, work
history sheet or other evidence of
exposure
have been obtained from or in respect of an
individual, identified claimant in
connection with any Asbestos-Related Claims;
(iii) in satisfying judgments in connection with
any Asbestos-Related Claims; and
(iv) in settling Asbestos-Related Claims for
which the documentation set forth in
Sections (O)(ii)(a) through (c) above has
not all been obtained, provided, however,
that the cumulative amount of such payments
included in Loss shall be no greater than 5%
of the cumulative amount of Insured Payments
made subsequent to the Policy Inception Date
in settling Asbestos-Related Claims for
which such documentation has been obtained.
"Loss" does not include the salaries, wages, or benefits of
the Insured's permanent or temporary employees, directors or
officers, including in-house lawyers, or the Insured's
administrative expenses, office expenses or overhead.
(Q) "Loss Offset" has the meaning given to such term in Section
7.6 of this Policy.
(R) "Loss Report" has the meaning given to such term in Section
8.1(A) of this Policy.
<PAGE> 6
4
(S) "Losses to be paid by the Insurance Company on such Settlement
Date" has the meaning given to such term in Section 7.3(3) of
this Policy.
(T) "Per Claimant Average Amount" has the meaning given to such
term in Section 3.4 of this Policy.
(U) "Per Claimant Limit" has the meaning given to such term in
Section 3.3 of this Policy.
(V) "Period of Indemnification" has the meaning given to such term
in Item 2 of the Declarations of this Policy.
(W) "Policy Inception Date" has the meaning given to such term in
Item 2 of the Declarations of this Policy.
(X) "Premium" has the meaning given to such term in Item 4 of the
Declarations of this Policy.
(Y) "Premium Payment Date" means the day on which the total
Premium is received by the Insurance Company.
(Z) "Reference Value" has the meaning given to such term in
Section 7 of this Policy.
(AA) "Retention" has the meaning given to such term in Section 4 of
this Policy.
(BB) "Scheduled Underlying Policies" means the policies listed in
the attached Schedule A to this Policy.
(CC) "Settled Policies" means those policies issued by Travelers
Insurance Company or Travelers Indemnity Company listed in
Schedule B to this Policy.
(DD) "Settlement Date" has the meaning given to such term in
Section 7.1 of this Policy.
(EE) "Territory" means the United States of America, its
territories and possessions and the Commonwealth of Puerto
Rico.
SECTION 3. LIMITS OF INSURANCE
3.1. AGGREGATE LIMIT OF INDEMNITY
Regardless of the number of claimants or Asbestos-Related Claims covered under
this Policy, the maximum amount payable by the Insurance Company for all Loss
(including defense expenses) covered under this Policy shall not exceed Three
Hundred Seventy-Five Million Dollars ($375,000,000) in the absolute aggregate as
the Insurance Company's Quota Share of One Billion Five Hundred Million Dollars
($1,500,000,000) in the absolute aggregate for all Loss excess of the Retention.
<PAGE> 7
5
This Aggregate Limit of Indemnity is the maximum amount recoverable by the
Insured under this Policy, excluding payments for commutation under this Policy.
3.2. ANNUAL SUBLIMIT
Subject to the Aggregate Limit of Indemnity described in Section 3.1 above, the
maximum amount payable by the Insurance Company at any Settlement Date for all
Loss in the calendar year immediately prior to such Settlement Date ("calendar
year(x)"), during the Period of Indemnification in respect of Loss under this
Policy shall not exceed the Insurance Company's Quota Share of the Annual
Sublimit for calendar year(x). The Annual Sublimit shall be calculated by the
Insurance Company for calendar year(x) and shall be equal to:
(1) the Per Claimant Average Amount for calendar year(x)
multiplied by
(2) the "Number of Individual Asbestos-Related Claims" for
calendar year(x).
A claimant shall be included in the calculation of the "Number of Individual
Asbestos-Related Claims" for calendar year(x) when Loss is paid to that claimant
pursuant to the criteria in Sections 2(O)(ii), (iii) and (iv); provided,
however, that members of the same family without their own independent
asbestos-related injury due to their own exposure to asbestos shall all be
treated for purposes of this Policy as a single Asbestos-Related Claim with the
primary claim notwithstanding the fact that all such individuals may have
provided separate releases.
The "Number of Individual Asbestos-Related Claims" for purposes of the
calculation in the previous paragraph shall be determined by treating claims by
each individual qualifying claimant as a separate Asbestos-Related Claim
regardless of whether claims by such claimant are part of a group or bulk
settlement.
3.3. PER CLAIMANT LIMIT
The Per Claimant Limit shall be One Hundred Fifty Million Dollars
($150,000,000), per claimant.
3.4. PER CLAIMANT AVERAGE AMOUNT
On the 1st through 9th Settlement Dates, the Per Claimant Average Amount shall
be equal to the total amount paid by the Insured in calendar year 1996 for
asbestos-related claims divided by the number 15,750. The total amount paid by
the Insured in calendar year 1996 for such claims shall be agreed by the
Insurance Company and the Insured prior to the Premium Payment Date. Once such
amount is agreed to by the Insurance Company and the Insured, such amount shall
not be adjusted due to the receipt of any additional information or for any
other reason, except with the prior written consent of the Insured and the
Insurance Company.
On the 10th and each subsequent Settlement Date, the Per Claimant Average Amount
for calendar year(x) shall equal the Per Claimant Average Amount from the
previous Settlement Date, increased by the annual inflation change for the
previous calendar year(x)-1, if any, as defined by the United States Consumer
Price Index ("CPI") as of the Settlement Date for which the calculation is being
made and calculated by the Insurance Company as follows:
<PAGE> 8
6
Per Claimant Average Amount in calendar year(x) shall be equal to the
greater of:
(1) the Per Claimant Average Amount in calendar year(x)-1; or
(2) (the CPI in calendar year(x) divided by the CPI in calendar
year(x)-1) multiplied by the Per Claimant Average Amount in
calendar year(x)-1.
SECTION 4. RETENTION
The Retention to be borne by the Insured under this Policy shall equal Four
Hundred Million Dollars ($400,000,000) plus all Loss paid by the Insured on or
after the Policy Inception Date and prior to the Premium Payment Date.
SECTION 5. PREMIUM
The Premium of Two Hundred Fifteen Million Dollars ($215,000,000) for this
Policy shall be payable by the Insured in full on or before December 31, 1998.
The Premium shall be payable to the Insurance Company in immediately available
non-reversible funds, free and clear of any set-off, counterclaim or other
deduction. The Premium shall be payable to an account specified by the Insurance
Company.
The Premium shall be considered fully earned when received by the Insurance
Company.
If the Insured fails to pay the Premium in full and in accordance with the terms
of this Section, this Policy shall not come into effect and shall not in any way
bind the Insurance Company.
SECTION 6. EXCLUSIONS
This Policy does not cover:
(A) Any injury or damage to property (tangible or intangible),
real or personal, including any resulting loss of use or
reduction in value of such property, no matter how such
injury, damage, loss of use or reduction in value occurred.
(B) Payments under any workers' compensation policies or plans,
employee benefit plans, or other employer liability of the
Insured.
(C) Any Insurance Coverage Claim.
SECTION 7. EXPERIENCE VALUES
7.1. SETTLEMENT DATE
<PAGE> 9
7
For each calendar year, the Settlement Date will be a date designated by the
Insurance Company, which shall be within thirty-five (35) days of the later of:
(i) the receipt by the Insurance Company of the Insured's Loss
Report for the calendar year last ended; and
(ii) March 3rd of that calendar year.
7.2. ANNUAL SETTLEMENT
On the Settlement Date, the Insurance Company shall:
1. Calculate:
a. The application of the Annual Sublimit to Loss based
upon the Loss Report provided by the Insured;
b. Any Loss Offset payable pursuant to Section 7.6;
c. The remaining Retention;
d. The "Losses to be paid by the Insurance Company on
such Settlement Date" pursuant to Section 7.3(3)
below;
e. Disputed Net Loss (if any) pursuant to Section
8.1(C);
f. "Actual amounts to be paid to the Insured" pursuant
to Section 7.3(4).
2. Report to the Insured:
a. The calculations of Annual Sublimit, Loss Offset if
any, Retention, remaining Aggregate Limit of
Indemnity, and all other items calculated in Section
7.2(1);
b. The Total Reference Value, together with a detailed
calculation thereof;
c. The Experience Value, together with a detailed
calculation thereof;
d. Schedule of all Disputed Net Loss (if any) pursuant
to Section 8.1(C).
3. Pay such amounts as calculated in Sections 7.2(1.e) and
7.2(1.f).
7.3. CALCULATION OF AMOUNT TO BE PAID AT EACH SETTLEMENT DATE
At each Settlement Date, the Insurance Company shall:
1. Determine the amount of the Annual Sublimit pursuant to
Section 3.2.
2. Determine the lesser of:
<PAGE> 10
8
a. the Annual Sublimit determined pursuant to Section
7.3(l), and
b. the Losses according to the Insured's Loss Report.
3. Calculate the "Losses to be paid by the Insurance Company on
such Settlement Date", which shall equal: (a) the Insurance
Company's Quota Share of the quantity arrived at by
subtracting any remaining Retention from the amount determined
pursuant to Section 7.3(2) except that; (b) if the amount
determined pursuant to Section 7.3(3)(a) is less than zero
(0), the "Losses to be paid by the Insurance company on such
Settlement Date" shall be deemed to equal zero (0), and if the
amount determined pursuant to Section 7.3(3)(a) is greater
than the remaining Aggregate Limit of Indemnity immediately
prior to the Settlement Date, the "Losses to be paid by the
Insurance company on such Settlement Date" shall be deemed to
equal the remaining Aggregate Limit of Indemnity immediately
prior to the Settlement Date.
4. Calculate the "Actual amounts to be paid to the Insured",
which shall equal the amount determined pursuant to Section
7.3(3) less Disputed Net Loss less Loss Offset. Such resulting
amount shall not be less than zero.
5. Determine the amount to be paid into the segregated
interest-bearing account, if any, pursuant to Section 8.1(C)
which shall be the lesser of:
a. the Disputed Net Loss, and
b. the "Losses to be paid by the Insurance Company on
such Settlement Date" minus the Loss Offset.
7.4. DATE CONVENTION; AMOUNTS
Unless otherwise specified, all quantities or values mentioned in this Section 7
are as of the close of business on the subject Settlement Date.
The use of the phrase "or Premium Payment Date" applies only at the first
Settlement Date.
7.5. PRECISE YEARS
The Precise Years at the first Settlement Date shall be the actual number of
days elapsed from but not including the Premium Payment Date to and including
three (3) Business Days prior to the first Settlement Date divided by 365.
The Precise Years at each subsequent Settlement Date shall be the actual number
of days elapsed from three (3) Business Days prior to the prior Settlement Date
to three (3) Business Days prior to that Settlement Date divided by the actual
number of days in the year of that Settlement Date.
7.6. LOSS OFFSET
<PAGE> 11
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If on any Settlement Date the Reduced Reference Value (as defined below) is less
than the Experience Value, before deducting "Losses to be paid by the Insurance
Company on such Settlement Date", and if the Experience Value is greater than
zero (0), then the Insured shall pay a Loss Offset to the Insurance Company
equal to:
((A) minus (B)) multiplied by ((C) divided by (A)), where:
(A) is equal to the Experience Value before deducting "Losses
to be paid by the Insurance Company on such Settlement Date";
(B) is equal to the Reduced Reference Value; and
(C) is equal to "Losses to be paid by the Insurance Company on
such Settlement Date";
provided, however, in no event shall (C) be greater than (A).
7.7. EXPERIENCE VALUE
The Experience Value shall be a notional value calculated by the Insurance
Company as follows:
1. On the Premium Payment Date, the Experience Value shall be One
Hundred Ninety-Seven Million Two Hundred Fifty Thousand
Dollars ($197,250,000).
2. At each Settlement Date, the Experience Value shall equal:
The Experience Value at the prior Settlement Date (or Premium
Payment Date) multiplied by 1.06 raised to the power of the
Precise Years
Plus
the Insurance Company's Quota Share of any Salvage,
subrogation, and other recoveries that are to the benefit of
the Insurance Company under this Policy and have been paid to
the Insured since the prior Settlement Date or Premium Payment
Date
Less
"Losses to be paid by the Insurance Company on such Settlement
Date".
7.8. REFERENCE VALUE
(A) TOTAL REFERENCE VALUE
The Total Reference Value at any time shall be equal to the
sum of Reference Value A plus Reference Value B.
<PAGE> 12
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(B) ORDER OF LOSS ATTRIBUTION
Losses, Loss Offset, salvage, subrogation, and other
recoveries and charges shall be attributed to Reference Value
A until the Number of Units of Reference Index A shall equal
zero (0).
Losses, Loss Offset, salvage, subrogation, and other
recoveries and charges shall next be attributed to Reference
Value B.
(C) REDUCED REFERENCE VALUE
The Reduced Reference Value shall be equal to the sum of
Reduced Reference Value A and Reduced Reference Value B.
(D) REFERENCE VALUE A
The Reference Value A for a Settlement Date shall be the
Number of Units of the Reference Index A deemed held by the
Insurance Company multiplied by the Reference Index Unit Value
A as of the close of business three (3) Business Days prior to
that Settlement Date.
(1) REFERENCE INDEX A
Reference Index A at any date shall be equal to the
Lehman Brothers Aggregate Bond Index as of the close
of business on such date. If the Lehman Brothers
Aggregate Bond Index is not available or is no longer
in existence, then the following indices will be
substituted in order of preference: the Salomon Broad
Investment Grade Index, or the Merrill Lynch Domestic
Master Index. If both of these indices are not
available or are no longer in existence, then the
Insured and the Insurance Company shall mutually
agree upon an alternative index substantially similar
to the foregoing indices.
(2) REFERENCE INDEX UNIT VALUE A
At the Premium Payment Date, the Reference Index Unit
Value A shall be One Million Dollars ($1,000,000).
At three (3) Business Days prior to each Settlement
Date, the Reference Index Unit Value A shall be equal
to One Million Dollars ($1,000,000) multiplied by the
published value of the Reference Index A as of the
close of business three (3) Business Days prior to
that Settlement Date divided by the Reference Index A
at the Premium Payment Date. The published value of
Reference Index A at the close of business on the
Premium Payment Date was 840.66.
(3) NUMBER OF UNITS OF THE REFERENCE INDEX A
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On the Premium Payment Date, the Number of Units of
the Reference Index A deemed held by the Insurance
Company shall be equal to One Hundred Five Million
Eight Hundred Seventy-Eight Thousand One Hundred
Twenty-Five Dollars ($105,878,125) divided by the
Reference Index Unit Value A on the close of business
that date (which results in 105.878125).
On each Settlement Date, the Number of Units of the
Reference Index A shall be the Number of Units of the
Reduced Reference Index A less (J-K)/L where:
J = "Losses to be paid by the Insurance
Company on that Settlement Date" and charges
that are attributable to Reference Value A;
K = Any Loss Offset, plus the Insurance
Company's Quota Share of any salvage,
subrogation, and other recoveries, that are
attributable to Reference Value A;
L = The Reference Index Unit Value A as of
the close of business three (3) Business
Days prior to that Settlement Date.
If the Number of Units of Reference Index A shall
ever equal zero (0), it will be zero (0) thereafter.
(4) NUMBER OF UNITS OF THE REDUCED REFERENCE INDEX A
The Number of Units of the Reduced Reference Index A
at a Settlement Date shall be the Number of Units of
Reference Index A deemed held by the Insurance
Company at the prior Settlement Date (or Premium
Payment Date) multiplied by the difference between
the quantity of one and the product of .0016 and the
Precise Years.
Formula: The Number of Units of the Reduced Reference
Index A at a Settlement Date = (Number of Units of
Reference Index A at prior Settlement Date (or
Premium Payment Date))* (1 - .0016 * Precise Years).
(5) REDUCED REFERENCE VALUE A
The Reduced Reference Value A shall be the Number of
Units of the Reduced Reference Index A deemed held by
the Insurance Company multiplied by the Reference
Index Unit Value A.
(E) REFERENCE VALUE B
<PAGE> 14
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The Reference Value B for a Settlement Date shall be the
Number of Units of the Reference Index B deemed held by the
Insurance Company multiplied by the Reference Index Unit Value
B as of the close of business three (3) Business Days prior to
that Settlement Date.
(1) REFERENCE INDEX B
Reference Index B at any date shall be equal to the
Standard & Poor's 500 Index (Total Return Basis) as
of the close of business on such date. If the
Standard & Poor's 500 Index is not available or is no
longer in existence, then the following indices will
be substituted in order of preference: the Morgan
Stanley Capital International Country Index for US,
or the Russell 1000 Index. If both of these indices
are not available or are no longer in existence, then
the Insured and the Insurance Company shall mutually
agree upon an alternative index substantially similar
to the foregoing indices.
(2) REFERENCE INDEX UNIT VALUE B
At the Premium Payment Date, the Reference Index Unit
Value B shall be One Million Dollars ($1,000,000).
At three (3) Business Days prior to each Settlement
Date, the Reference Index Unit Value B shall be equal
to One Million Dollars ($1,000,000) multiplied by the
published value of the Reference Index B as of the
close of business three (3) Business Days prior to
that Settlement Date divided by the Reference Index B
at the Premium Payment Date. The published value of
the Reference Index B at the close of business on the
Premium Payment Date was 1670.01.
(3) NUMBER OF UNITS OF THE REFERENCE INDEX B
On the Premium Payment Date, the Number of Units of
the Reference Index B deemed held by the Insurance
Company shall be equal to Ninety Million Nine Hundred
Fifty-Four Thousand Five Hundred Dollars
($90,954,500) divided by the Reference Index Unit
Value B as of the close of business on that date
(which results in 90.9545).
On each Settlement Date, the Number of Units of the
Reference Index B shall be the Number of Units of the
Reduced Reference Index B less (J-K)/L where:
J = "Losses to be paid by the Insurance
Company on that Settlement Date" and charges
that are attributable to Reference Value B;
<PAGE> 15
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K = Any Loss Offset, plus the Insurance
Company's Quota Share of any salvage,
subrogation, and other recoveries that are
attributable to Reference Value B;
L = The Reference Index Unit Value B as of
the close of business three (3) Business
Days prior to that Settlement Date.
If the Number of Units of Reference Index B shall
ever equal zero (0), it will be zero (0) thereafter.
(4) NUMBER OF UNITS OF THE REDUCED REFERENCE INDEX B
The Number of Units of the Reduced Reference Index B
at a Settlement Date shall be the Number of Units of
Reference Index B deemed held by the Insurance
Company at the prior Settlement Date (or Premium
Payment Date) multiplied by the difference between
the quantity of one (1) and the product of .0018 and
the Precise Years. The Reduction of Notional
Investment Income for Notional Income Taxation is
then subtracted from this amount.
Formula: The Number of Units of the Reduced
Reference Index B at a Settlement Date =
(Number of Units of Reference Index B at
prior Settlement Date (or Premium Payment
Date)) * (1 - .0018 * Precise Years) -
Reduction of Notional Investment Income for
Notional Income Taxation.
(a) REDUCTION OF NOTIONAL INVESTMENT INCOME FOR NOTIONAL
INCOME TAXATION
The Reduction of Notional Investment Income for
Notional Income Taxation shall be equal to 15% of V
multiplied by {(W divided by X) minus (Y divided by
Z)}, or 0.15 * V * (W/X - Y/Z)
where
V = Number of Units of Reference Index B at
the prior Settlement Date (or on the Premium
Payment Date);
W = Reference Index Unit Value B at the
close of business three (3) Business Days
prior to this Settlement Date;
X = Reference Index Unit Value B at the
close of business three (3) Business Days
prior to the prior Settlement Date (or on
the Premium Payment Date);
<PAGE> 16
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Y = Value of the Standard & Poor's 500 Index
(not on a total return basis) at the close
of business three (3) Business Days prior to
this settlement date;
Z = Value of the Standard & Poor's 500 Index
(not on a total return basis) at the close
of business three (3) Business Days prior to
the previous Settlement Date (or on the
Premium Payment Date, on which, at the close
of business, the value of the Standard &
Poor's 500 Index was 1229.23).
(5) REDUCED REFERENCE VALUE B
The Reduced Reference Value B shall be the Number of Units of
the Reduced Reference Index B deemed held by the Insurance
Company multiplied by the Reference Index Unit Value B.
SECTION 8. CONDITIONS
8.1. REPORTING OF AND PAYMENT FOR LOSS
(A) Within seventy-five (75) days after the end of each calendar
year, the Insured shall furnish the Insurance Company with a
written "Loss Report", providing, in a format acceptable to
the Insurance Company and the Insured, the Loss paid during
that calendar year. Each Loss Report shall provide both the
cumulative position from the Policy Inception Date through the
end of that calendar year and the changes within that calendar
year. The Insured shall also furnish the Insurance Company
such other financial data, and in such format, that the
Insurance Company may reasonably request for completion of its
statutory or other financial statements. The Insured and the
Insurance Company agree that, in light of the commonality of
interest evidenced by the execution of this Policy, furnishing
a Loss Report or other financial data pursuant to this Section
8.1 will not be considered a waiver of any attorney-client or
attorney-work-product privileges.
(B) If the Insurance Company disputes any portion of the amount
claimed by the Insured, the Insurance Company shall
nevertheless pay to the Insured the undisputed portion of the
amount claimed. Any payment pursuant to this Subsection shall
not constitute a waiver of the Insurance Company's objections
to the disputed portion of the amount claimed.
(C) Any disputed amount not paid by the Insurance Company to the
Insured at the relevant Settlement Date shall be deemed
"Disputed Net Loss." With respect to any Disputed Net Loss,
the Insurance Company shall pay on the Settlement Date the
Disputed Net Loss into a segregated interest-bearing account
at a bank with a net worth of at least One Hundred Million
Dollars ($100,000,000). The Insurance Company will provide
notice to the Insured on the Settlement Date of the amount
<PAGE> 17
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and circumstances of the Disputed Net Loss and of the details
of the segregated account. Withdrawals from the account shall
require either the consent of both the Insurance Company and
the Insured or a final arbitration award pursuant to Section
8.6. Until such withdrawal, however, legal ownership of the
account and all cash or other assets held therein shall be in
the Insurance Company.
No later than ten (10) days after any agreement between the Insured and the
Insurance Company to settle such disputed amount or a final arbitration award
(to the extent the Insured is successful), the cash and any other assets held in
the account together with the interest income credited thereto net of tax, if
any, thereon at the applicable tax rate on such income shall be immediately paid
to the Insured. To the extent the Insurance Company is successful, then the cash
and any other assets held in the account together with the interest income
credited thereto will be paid to the Insurance Company at the next Settlement
Date, and that amount shall be added into the Reference Value and Experience
Value at such Settlement Date.
8.2. SETTLEMENT OF NATIONAL CLASS ACTION
(A) In the event the Insured is a party to an action asserting
Asbestos-Related Claims, which is certified as a "National
Class Action" by a court of competent jurisdiction, and the
Insured enters into a National Class Action Settlement, the
Insured at its sole option may elect either to:
(i) commute the Policy in accordance with
Section 8.3 (notwithstanding the permitted
dates for commutation stated therein); or
(ii) irrevocably forego recovery of such
settlement amount under this Policy.
(B) Within ten (10) Business Days after the date upon which the
National Class Action Settlement receives final,
non-appealable court approval, the Insured shall notify the
Insurance Company of its election pursuant to paragraph (A)
above.
(C) For the purposes of this Section 8.2:
"National Class Action" means an action brought by or on
behalf of one or more classes of individuals located
substantially throughout the Territory who have allegedly
sustained or may in the future sustain Bodily Injury from
exposure to asbestos.
"National Class Action Settlement" means a settlement that
fully and finally resolves all then pending and future
Asbestos-Related Claims other than "opt-outs" encompassed by a
National Class Action.
8.3. COMMUTATION
<PAGE> 18
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This Policy may be irrevocably commuted by the Insured, upon not less than
thirty (30) days prior written notice to the Insurance Company, (i) effective
December 31, 2008 or on every fifth (5th) year anniversary of such date
occurring thereafter, or (ii) in the event that the greater of the Total
Reference Value or the Experience Value exceeds the remaining Aggregate Limit of
Indemnity during the calendar year. Within thirty (30) days after the effective
date of the commutation (the "Commutation Date"), the Insurance Company shall
pay to the Insured a commutation payment equal to ninety-eight percent (98%) of
the Total Reference Value, three (3) Business Days prior to the Commutation
Date, and the Insured shall provide to the Insurance Company a full release in
form and substance reasonably satisfactory to the Insurance Company, and the
Insurance Company shall be fully and finally released from any and all liability
and obligations under this Policy.
8.4. DIRECT ACTIONS
(A) "Direct Actions" shall mean all claims or proceedings asserted
or initiated against the Insurance Company (whether grounded
upon direct action or "reach and apply" statutes, third-party
beneficiary or garnishment theories, or otherwise) for the
purpose of causing the Insurance Company directly or
indirectly, to satisfy claims that have been or could have
been asserted against the Insured, which claims or proceedings
would not or could not have been asserted against the
Insurance Company had the Insurance Company not issued this
Policy.
(B) The Insured agrees that if the Insurance Company becomes
obligated to pay any sums as a result of any judgment entered
or compromise reached in a Direct Action, the Insured shall
fully indemnify and hold harmless the Insurance Company for
any such sums. The sums so indemnified by the Insured,
together with the costs of defense paid by the Insured
pursuant to Section 8.4(C), shall constitute loss under this
Policy, provided, that such sums satisfy the definition of
"Loss" herein.
(C) The Insured shall control, direct and pay the costs of the
defense of any Direct Action including decisions regarding
settlement and may elect to appoint the counsel representing
the Insured in the Direct Action or in other litigation to
defend the Insurance Company in the Direct Action. No position
taken by counsel appointed by the Insured to defend the
Insurance Company in a Direct Action shall be used or shall be
otherwise admissible in any fashion in connection with any
dispute between the Insurance Company and the Insured. The
Insured shall not take any coverage position on any issue of
coverage under this Policy which may be in dispute in such
Direct Action without the Insurance Company's prior written
input.
(D) In the event the Insured does not control, direct and pay the
costs of the defense of a Direct Action, the Insurance Company
shall direct and control the defense of the Direct Action
including decisions regarding settlement. The Insured shall
fully indemnify and hold harmless the Insurance Company for
any legal fees or other costs paid by the Insurance Company in
defense of a Direct Action where the Insured does not control,
direct and pay the costs of such defense.
<PAGE> 19
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8.5. NON-TRANSFERABILITY
This Policy confers no rights, powers or obligations on any person or
organization other than the Insurance Company and the Insured. Neither this
Policy nor any of the rights, powers, or obligations of the Insurance Company or
the Insured under it may be in any way transferred or assigned to any other
person or organization without express written consent by the Insurance Company
and the Insured. The granting of such consent shall be at the sole and absolute
discretion of each of the parties.
8.6. ARBITRATION
Except as otherwise agreed upon by the parties in writing:
(A) Resolution of Disputes: Any dispute between the Insured and
the Insurance Company arising out of or in connection with
this Policy or concerning its interpretation or validity or
the performance of the parties hereunder, whether arising
before or after termination of this Policy, shall be submitted
exclusively to arbitration in the manner set forth in this
Section 8.6, and the award shall be the exclusive remedy
available to a party under this Policy. Either party may
initiate arbitration of any such dispute by giving written
notice to the other party, by registered or certified mail,
return receipt requested, of its intention to arbitrate and of
its appointment of an arbitrator in accordance with subsection
(C) of this Section 8.6.
(B) Composition of Panel: Unless the parties agree upon a single
arbitrator within fifteen (15) days after the receipt of a
notice of intention to arbitrate, all disputes shall be
submitted to an arbitration panel composed of two arbitrators
and an umpire, chosen in accordance with subsections (C) and
(D) of this Section 8.6.
(C) Appointment of Arbitrators: The members of the arbitration
panel shall be chosen from disinterested persons having
knowledge of and experience in the insurance, reinsurance and
financial issues relevant to the matters in dispute. The party
requesting arbitration (hereinafter referred to as the
"requesting party") shall appoint an arbitrator and give
written notice thereof, by registered or certified mail,
return receipt requested, to the other party (hereinafter
referred to as the "respondent") together with its notice of
intention to arbitrate. Unless a single arbitrator is agreed
upon within fifteen (15) days after the receipt of the notice
of intention to arbitrate, the respondent shall, within thirty
(30) days after receiving such notice, also appoint an
arbitrator and notify the requesting party thereof in a like
manner. Before instituting a hearing, the two arbitrators so
appointed shall choose an umpire. If, within twenty (20) days
after they are both appointed, the arbitrators fail to agree
upon the appointment of an umpire, the umpire shall be
appointed by the President of the American Arbitration
Association.
(D) Failure of Party to Appoint Arbitrator: If the respondent
fails to appoint an arbitrator within thirty (30) days after
receiving a notice of intention to arbitrate,
<PAGE> 20
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such arbitrator shall be appointed by the President of the
American Arbitration Association, and shall then, together
with the arbitrator appointed by the requesting party, choose
an umpire as provided in subsection (C) of this Section 8.6.
(E) Choice of Law and Forum: Any arbitration instituted pursuant
to this Section 8.6 shall be held in Wilmington, Delaware. Any
action to enforce any arbitration award or to compel
arbitration shall be brought only in the state courts of the
State of Delaware situated in New Castle County, to the
exclusion of all other courts. The substantive laws of the
State of Delaware, without regard to its conflict of laws
rules, shall govern any action or suit brought to compel any
such arbitration or to enforce any award rendered pursuant to
such arbitration.
(F) Submission of Dispute to Panel: Unless otherwise extended by
the arbitration panel, or agreed to by the parties, each party
shall submit its case to the panel within thirty (30) days
after the selection of an umpire.
(G) Procedure Governing Arbitration: All proceedings before the
panel shall be informal, and the panel shall not be bound by
the formal rules of evidence. The panel shall have the power
to fix all procedural rules relating to the arbitration
proceeding. In reaching any decision, the panel shall give due
consideration to the customs and usage of the insurance,
reinsurance and finance business.
(H) Arbitration Award: The arbitration panel shall render its
decision within sixty (60) days after conclusion of the
hearing, which decision shall be in writing, stating the
reasons therefor. The decision of the majority of the panel
shall be final and binding on the parties to the proceeding.
Judgment on the award may be entered in any court of competent
jurisdiction, and execution of any monetary judgment may occur
in any jurisdiction.
(I) Cost of Arbitration: Unless otherwise allocated by the
arbitration panel, each party shall bear the expense of its
own arbitrator and its own witnesses and shall jointly and
equally bear with the other parties the expense of the umpire
and the arbitration.
(J) Limit of Power of Arbitration Panel: The arbitration panel
does not have the power to award punitive, multiplied, or
exemplary damages, other similar damages or any extra
contractual damages of any nature or description whatsoever,
except to the extent claimed as a Loss under this Policy, and
the Insured and the Insurance Company expressly waive all
rights to punitive, multiplied, or exemplary damages, other
similar damages or any extra contractual damages of any nature
or description whatsoever, except to the extent claimed as
Loss under this Policy.
8.7. OTHER INSURANCE
The obligation of the Insurance Company to pay Loss under this Policy is in
excess of the limits of liability under all of the Scheduled Underlying Policies
which are applicable to Asbestos-Related
<PAGE> 21
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Claims. To the extent that the insurer identified on such Scheduled Underlying
Policies refuses or fails to pay any amounts thereunder with respect to
Asbestos-Related Claims, the Insurance Company shall pay such amounts to the
extent such amounts constitute Loss hereunder, and shall thereafter be
subrogated to the Insured's rights against the non-paying insurers to the extent
of any and all such payments by the Insurance Company.
8.8. AMENDMENT
This Policy may be amended only by mutual consent of the parties expressed in a
written endorsement executed by the parties with the same formalities as this
Policy, and such addendum shall be deemed to be an integral part of this Policy
and binding on the parties hereto.
8.9. CONFIDENTIALITY
Any information that is not independently available from a non-confidential
source and is disclosed to the Insurance Company or its representatives in
connection with this Policy shall be treated as confidential by the Insurance
Company until any such information becomes independently available in
substantially similar form from a non-confidential source (all such information
referred to herein as "Confidential Information"). The Insurance Company shall
use its best efforts to preserve and protect the confidentiality of, and where
applicable, the privilege pertaining to, all Confidential Information. Unless
the Insured gives prior written consent or unless compelled by the law to
disclose such information, the Insurance Company may not disclose Confidential
Information to any person other than the legal representatives, accountants,
rating agencies or advisors of the Insurance Company or its affiliates, or the
co-insurers of this Policy and their respective legal representatives,
accountants or advisors (each, an "Authorized Third Party"), or tax and
regulatory authorities, and neither the Company nor any Authorized Person may
use Confidential Information for any purpose except in connection with the
exercise of its rights and obligations under this Policy or the rights and
obligations of the Insurance Company's reinsurers or retrocessionaires with
respect to this Policy. If the Insurance Company discloses any Confidential
Information to any Authorized Third Party, other than legal representatives, the
Insurance Company shall make reasonable efforts to minimize the amount of
information disclosed, taking into consideration the reason for the disclosure,
including where feasible marking all files containing Confidential Information
provided to tax and regulatory authorities as "Confidential". The Insurance
Company shall obtain from any such Authorized Third Party a written agreement
substantially similar to the provisions of this Section 8.9, to maintain the
confidentiality of all Confidential Information. The Insurance Company shall be
responsible for disclosure of Confidential Information by any Authorized Third
Party in violation of this Section 8.9. In the event the Insurance Company is
served with a subpoena or court order compelling disclosure by the Insurance
Company of Confidential Information, the Insurance Company shall give written
notice thereof to the Insured as soon as reasonably practicable. The Insured
may, at its sole option and expense, seek a protective order or otherwise
legally resist such attempts to compel disclosure. The Insurance Company shall
reasonably cooperate with the Insured during the process of seeking such
protective order or otherwise legally resisting such attempts to compel
disclosure.
8.10. NOTICE
<PAGE> 22
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(A) Any notice or other information required or authorized by this
Policy to be given by either party to the other may be given
by delivery by hand or by sending it by prepaid certified or
registered mail (or equivalent air mail, if international), or
by facsimile transmission, as set forth under Item 5 in the
Declarations.
(B) Either party may change the address for service referred to in
Subsection (A) above by sending notice to the other party in
the manner provided for by this Section to the last address
notified for the purpose of this Section by the other party.
8.11. CAPTIONS AND CATCHLINES
Captions and catchlines used in this Policy are intended solely as aids to
convenient reference. They shall not be considered part of this Policy nor limit
or otherwise affect its meaning, and no inference as to the meaning or intent of
any provision of this Policy may be drawn from them.
8.12. RIGHT OF OFFSET
Both the Insured and the Insurance Company shall have, and may exercise, at any
time the right to offset any balance or balances due the other under this
Policy. Except as otherwise agreed by the parties and to the extent provided
for, such offset may only include balances due under this Policy, regardless of
whether such balances are in respect of premiums, or Loss or otherwise, and
regardless of the capacity of any party, under the various agreements involved.
8.13. SALVAGE, SUBROGATION AND OTHER RECOVERIES
In the event of the payment of any indemnity by the Insurance Company under this
Policy, the Insurance Company shall be subrogated, to the extent of such
payment, to all of the rights of the Insured against any person or entity
legally responsible in damages for the Loss paid by the Insured. The Insurance
Company agrees, upon the Insured's request, to assign such subrogation rights to
the Insured. In the event the Insured enforces such rights, any recovery
effected by the Insured shall serve to reduce Loss under the Policy, after
deducting the costs of such recovery.
8.14. CHOICE OF LAW
All disputes arising under this Policy shall be governed by and construed in
accordance with the substantive laws of the State of Delaware, without giving
effect to its conflicts of laws principles.
8.15. NO WAIVER
No consent or waiver, express or implied, by any other party to or of any breach
or default by any other party in the performance of its obligations hereunder
shall be construed to be a consent or waiver to or of any other breach or
default in the performance of obligations by such other party hereunder. Failure
on the part of any party to complain of any act or failure to act of any other
party or to declare any other party in default, irrespective of how long such
failure continues, shall not constitute a waiver by such first party of its
rights hereunder.
<PAGE> 23
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8.16. CONSTRUCTION
It is understood and agreed that this Policy is a manuscript policy that has
been negotiated at arm's length and on equal footing as between the Insured and
Insurance Company, and that both parties fully understood and agreed to all the
terms and conditions contained in this Policy. Accordingly, in any dispute
concerning the meaning of this Policy, or any term or condition hereof, such
dispute shall be resolved without reference to the doctrine of contra
proferentem or any related or similar doctrine.
8.17. REPRESENTATION OF INSURED
The Insured has reviewed the terms, conditions, and significance of this Policy
with the legal and tax counsel and the accountants of its choice, and is
accepting this Policy with full knowledge of its terms, conditions and
significance. In accepting this Policy, the Insured is not relying upon any
representation or warranty by the Insurance Company regarding the legal,
regulatory, tax or accounting implications of this Policy for the Insured or the
suitability (or lack thereof) of this Policy for the Insured.
8.18. COUNTERPARTS
This Policy may be executed in two or more counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
instrument.
8.19. CURRENCY
All payments and amounts under this Policy shall be in United States Dollars.
8.20. TERMS OF POLICY CONFORMED TO STATUTE.
If any of the terms or conditions of this Policy are found to be in conflict
with the local laws or statutes of the State wherein this Policy is issued, the
Policy will be amended by the agreement of both parties hereto so as to conform
with such law or statute. If the parties cannot agree to the changes to be made,
any dispute will be settled in accordance with Section 8.6 of this Policy.
8.21. TAXATION OF FOREIGN PERSONS.
(A) In the event that, due to a change in United States law, the rate of
tax applicable to dividends paid by a United States corporation to a
Swiss person that is eligible for the benefits of the tax treaty
currently in effect between the United States and the Confederation of
Switzerland is increased above, or decreased below, fifteen percent
(15%), the Reduction of Notional Investment Income for Notional
Taxation, as defined in this Policy, shall be determined by
substituting the rate of tax applicable to Swiss holders who own any
amount of equity of the dividend payer without any minimum level of
investment for fifteen percent (15%).
(B) In the event that gains, interest or any other applicable form of
investment income recognized by non-United States owners of assets held
in the United States become
<PAGE> 24
22
subject to United States income taxation, either by a change in the
rules regarding the definition of the character or source of income or
otherwise, the parties shall agree to appropriate modifications of the
terms of this Policy.
(C) For purposes of this Section, a change in United States law shall
include (i) a change in the Internal Revenue Code and the Income Tax
Regulations promulgated thereunder and (ii) any amendment, cancellation
or termination of the tax treaty currently in effect between the United
States and the Confederation of Switzerland.
8.22. PREMIUM TAXES
The Insured agrees that it shall pay any additional applicable State tax and any
other related assessments with respect to any additional premium due under this
Policy.
8.23. DATES AND TIMES
All dates and times contained in this Policy, unless otherwise specified, are
New York, New York time.
<PAGE> 25
23
IN WITNESS WHEREOF, the parties hereto have caused this Policy to be executed by
their duly authorized representatives, effective as of the 31st day of December,
1998.
METROPOLITAN LIFE INSURANCE
COMPANY
BY: __________________________________
Name: ________________________________
Title: _______________________________
STOCKWOOD REINSURANCE COMPANY, LTD.
BY: __________________________________
Name: ________________________________
Title: _______________________________
<PAGE> 26
SCHEDULE A
SCHEDULED UNDERLYING POLICIES
A-1
<PAGE> 27
SCHEDULE B
SETTLED POLICIES
B-1
<PAGE> 28
ENDORSEMENT NO. 1 TO POLICY NO. 04-03-22,
A RESTATEMENT OF THE EXCESS ASBESTOS INDEMNITY INSURANCE POLICY
ISSUED TO METROPOLITAN LIFE INSURANCE COMPANY
BY
STOCKWOOD REINSURANCE COMPANY LTD.
This Endorsement is attached to and forms a part of Policy No. 04-03-22 (the
"Policy"), issued to Metropolitan Life Insurance Company (the "Insured") by
Stockwood Reinsurance Company Ltd. (the "Insurance Company") and effective as of
December 31, 1998.
For value received, the parties hereby agree that, effective from the inception
of the Policy:
1. On page 3 of the Policy, Section 2(P)(ii)(c) is hereby amended to read
in its entirety as follows:
proof of exposure to asbestos or asbestos containing products (by way
of interrogatory answer, affidavit (which may be included within the
release), personnel record, work history sheet or other evidence of
exposure).
2. On page 3 of the Policy, Section 2(P)(iv) is hereby amended to read in
its entirety as follows:
in settling Asbestos-Related Claims for which the documentation set
forth in Sections (P)(ii)(a) through (c) above has not all been
obtained; provided, however, that the cumulative amount of such
payments included in Loss shall be no greater than 5% of the cumulative
amount of Insured Payments made subsequent to the Policy Inception Date
in settling Asbestos-Related Claims for which such documentation has
been obtained.
3. On page 5 of the Policy, Section 3.2., entitled "Annual Sublimit", is
hereby amended to read in its entirety as follows:
Subject to the Aggregate Limit of Indemnity described in Section 3.1
above, the maximum amount payable by the Insurance Company at any
Settlement Date for all Loss in the calendar year immediately prior to
such Settlement Date ("calendar year(x)"), during the Period of
Indemnification in respect of Loss under this Policy shall not exceed
the Insurance Company's Quota Share of the Annual Sublimit for calendar
year(x). The Annual Sublimit shall be calculated by the Insurance
Company for calendar year(x) and shall be equal to:
(1) the Per Claimant Average Amount for calendar year(x)
multiplied by
(2) the "Number of Individual Asbestos-Related Claims" for
calendar year(x).
A claimant shall be included in the calculation of the "Number of
Individual Asbestos-Related Claims" for calendar year(x) when Loss is
paid to that claimant pursuant to the
<PAGE> 29
criteria in Sections 2(P)(ii), (iii) and (iv); provided, however, that
members of the same family without their own independent
asbestos-related injury due to their own exposure to asbestos shall all
be treated for purposes of this Policy as a single Asbestos-Related
Claim with the primary claim notwithstanding the fact that all such
individuals may have provided separate releases.
The "Number of Individual Asbestos-Related Claims" for purposes of the
calculation in the previous paragraph shall be determined by treating
claims by each individual qualifying claimant as a separate
Asbestos-Related Claim regardless of whether claims by such claimant
are part of a group or bulk settlement.
4. On page 6 of the Policy, Section 4, entitled "Retention", is hereby
amended to read in its entirety as follows:
The Retention to be borne by the Insured under this Policy shall equal
in the aggregate Four Hundred Million Dollars ($400,000,000) plus all
Loss paid by the Insured on or after the Policy Inception Date and
prior to the Premium Payment Date.
5. On page 8 of the Policy, Section 7.3.3. is hereby amended to read in
its entirety as follows:
Calculate the "Losses to be paid by the Insurance Company on such
Settlement Date", which shall equal: (a) the Insurance Company's Quota
Share of the quantity arrived at by subtracting any remaining Retention
from the amount determined pursuant to Section 7.3(2); except that (b)
if the amount determined pursuant to Section 7.3(3)(a) is less than
zero (0), the "Losses to be paid by the Insurance Company on such
Settlement Date" shall be deemed to equal zero (0), and if the amount
determined pursuant to Section 7.3(3)(a) is greater than the remaining
Aggregate Limit of Indemnity immediately prior to the Settlement Date,
the "Losses to be paid by the Insurance Company on such Settlement
Date" shall be deemed to equal the remaining Aggregate Limit of
Indemnity immediately prior to the Settlement Date.
All parties agree and covenant that this Endorsement shall and does take
precedence over the Policy to the extent that the terms and conditions set forth
in this Endorsement modify the terms and conditions of the Policy. The
undersigned further agree that this Endorsement shall not be altered or modified
while the Policy is in force without the express written consent of all parties.
The undersigned agree and warrant that this Endorsement is a valid and binding
contract which they have the right to make and that the persons signing for them
below are authorized to sign this Endorsement.
<PAGE> 30
AGREED, as of this day of June, 1999.
METROPOLITAN LIFE INSURANCE COMPANY
BY:
NAME:
TITLE:
STOCKWOOD REINSURANCE COMPANY LTD.
BY:
NAME:
TITLE:
<PAGE> 1
Exhibit 10.14
NOTICE: DEFENSE EXPENSES ARE INCLUDED IN LOSS AND SUBJECT TO THE AGGREGATE LIMIT
OF INDEMNITY.
EUROPEAN REINSURANCE CORPORATION OF AMERICA
(the "Insurance Company")
POLICY NUMBER: 980-01-00
RESTATEMENT OF THE EXCESS ASBESTOS INDEMNITY
INSURANCE POLICY
DECLARATIONS
ITEM 1. NAME OF INSURED: Metropolitan Life Insurance Company
One Madison Avenue
New York, NY 10010
together with its successors and
permitted assigns.
ITEM 2. PERIOD OF INDEMNIFICATION: From November 30, 1998 (the "Policy
Inception Date") until the earlier
of (a) the exhaustion of the
Aggregate Limit of Indemnity, or
(b) the Commutation Date (as
defined in this Policy) (in each
case at 12:01 A.M. at the address
stated in Item 1).
NOTICE: THESE POLICY FORMS AND THE APPLICABLE RATES ARE EXEMPT FROM THE FILING
REQUIREMENTS OF THE NEW YORK STATE INSURANCE DEPARTMENT. HOWEVER, SUCH FORMS AND
RATES MUST MEET THE MINIMUM STANDARDS OF THE NEW YORK INSURANCE LAW AND
REGULATIONS.
<PAGE> 2
2
ITEM 3. (A) AGGREGATE LIMIT OF Three Hundred Seventy-Five Million
INDEMNITY: Dollars ($375,000,000) as the
Insurance Company's Quota Share of
One Billion Five Hundred Million
Dollars ($1,500,000,000) in the
absolute aggregate for all Loss
excess of the Retention (as
hereinafter defined).
(B) ANNUAL SUBLIMIT AND PER As set forth in Section 3 of the
CLAIMANT LIMIT: Policy. The Annual Sublimit and the
Per Claimant Limit shall be a part
of, and not in addition to, the
Aggregate Limit of Indemnity.
(C) RETENTION: As set forth in Section 4 of the
Policy.
ITEM 4. PREMIUM: Two Hundred Twenty Million Five
Hundred Twelve Thousand Eight
Hundred Twenty-One Dollars
($220,512,821), payable in full on or
before December 31, 1998.
ITEM 5. NOTICES: All Notices under the Policy shall be
made in the manner prescribed in the
Policy to the addresses set forth
below;
If to the Insured, to:
Metropolitan Life Insurance Company
One Madison Avenue
New York, NY 10010
Attention: General Counsel
with a copy to: Risk Manager
Facsimile: (212) 578-3916
If to the Insurance Company, to:
European Reinsurance Corporation
of America
650 Elm Street
Manchester, NH 03101
Attention: President
Facsimile: (603) 644-6696
<PAGE> 3
EXCESS ASBESTOS INDEMNITY INSURANCE POLICY
In consideration of the payment of the Premium and the mutual covenants and
promises herein, in light of the representations and warranties made in
connection herewith, and subject to the Declarations that are a part of this
Excess Asbestos Indemnity Insurance Policy and to the terms, conditions,
exclusions and limitations contained in this Excess Asbestos Indemnity Insurance
Policy (all of which collectively constitute this "Policy"), the Insurance
Company and the Insured hereby agree as follows:
SECTION 1. INSURING AGREEMENT
Subject to the terms and conditions of this Policy (including the Aggregate
Limit of Indemnity, the Annual Sublimit and the Per Claimant Limit), the
Insurance Company will indemnify the Insured during the Period of
Indemnification for the Insurance Company's Quota Share of the excess of (a) any
and all Loss for the defense and settlement of, or payment of judgments in,
Asbestos-Related Claims, arising out of events described in Section 2(C)(ii)
occurring prior to the Policy Inception Date; over (b) the Retention.
SECTION 2. DEFINITIONS
As used in this Policy, the following terms shall have the following meanings:
(A) "Aggregate Limit of Indemnity" has the meaning given to such
term in Item 3(A) of the Declarations of this Policy.
(B) "Annual Sublimit" has the meaning given to such term in
Section 3.2 of this Policy.
(C) "Asbestos-Related Claim" means any Claim against the Insured
for Bodily Injury allegedly caused by, arising out of, or
relating to, in whole or in part, any exposure to asbestos,
but only where such Claim:
(i) is sought, or threatened, to be enforced in
the Territory against the Insured; and
(ii) alleges (a) activities of Dr. Anthony J.
Lanza on behalf of the Insured; or (b) the
Insured's operation prior to January 1, 1970
of its Industrial Hygiene Division or
Section, regarding research, testing or
reporting of results associated with
asbestos; or (c) any alleged knowledge of
the Insured arising out of the operation
described in clause (ii)(b) above relating
to the Insured's alleged failure to warn of
the hazards of asbestos, or to the Insured's
alleged participation in any conspiracy,
negligent or otherwise, relating to the
hazards of asbestos.
<PAGE> 4
2
(D) "Bodily Injury" means bodily injury to a person, including
without limitation, illness, sickness, disease, loss of
consortium, death, mental anguish, emotional distress, or fear
of cancer.
(E) "Business Day" means any day other than a Saturday, a Sunday
or a day on which banking institutions in New York, New York,
or the Islands of Bermuda are authorized or obligated by law,
regulation or executive order to be closed.
(F) "Claim" means any past, present or future claim, demand,
request, complaint, cross-complaint, cross-claim, right, suit,
lawsuit, action or proceeding or cause of action or order
seeking monetary relief (including, without limitation,
punitive or exemplary damages) or other relief (including,
without limitation, medical monitoring, injunctive or
declaratory relief).
(G) "Commutation Date" has the meaning given to such term in
Section 8.3 of this Policy.
(H) "Direct Actions" has the meaning given to such term in Section
8.4 of this Policy.
(I) "Disputed Net Loss" has the meaning given to such term in
Section 8.1(C) of this Policy.
(J) "Experience Value" has the meaning given to such term in
Section 7.7 of this Policy.
(K) "Insurance Company" has the meaning given to such term in the
Declarations of this Policy.
(L) "Insurance Company's Quota Share" means twenty-five percent
(25.00%).
(M) "Insurance Coverage Claim" means any past, present or future
Claim against the Insured seeking (a) monetary or other relief
(including without limitation, medical monitoring, injunctive
or declaratory relief) from the Insured under any insurance or
reinsurance policies or contracts issued by the Insured, or
(b) damages, injunctive or other relief due to allegedly
unlawful claims handling practices of the Insured, including
without limitation, any Claims against the Insured for bad
faith or breach of fiduciary duties due to the manner in which
the Insured investigated, settled or paid claims under any
insurance or reinsurance policies or contracts issued by the
Insured.
(N) "Insured" has the meaning given to such term in Item 1 of the
Declarations of this Policy.
(O) "Insured Payments" means (i) all amounts actually paid by the
Insured and (ii) all amounts actually paid on behalf of the
Insured by the issuers of the Settled Policies ("Issuers") in
connection with the Settled Policies excluding (x) payments to
the
<PAGE> 5
3
Insured by the Issuers in connection with the Settled Policies
and (y) payments by the Insured to the Issuers in connection
with the Settled Policies.
(P) "Loss", except as set forth in Section 3.3 of the Claims
Handling and Cooperation Agreement executed simultaneously
herewith, means the amounts of Insured Payments made on or
after the Policy Inception Date,
(i) in investigating or defending any
Asbestos-Related Claims including fees and
expenses of the Insured's national
coordinating counsel, other attorneys' fees
and expenses, premiums on attachment or
appeal bonds, pre-judgment and post-judgment
interest, and expenses for experts;
(ii) in settling Asbestos-Related Claims for
which:
(a) a written release,
(b) evidence of a physical condition
that has been claimed in the
scientific or medical literature to
be caused by exposure to asbestos or
asbestos containing products, and
(c) proof of exposure to asbestos or
asbestos containing products (by way
of interrogatory answer, affidavit
(which may be included within the
release), personnel record, work
history sheet or other evidence of
exposure
have been obtained from or in respect of an
individual, identified claimant in
connection with any Asbestos-Related Claims;
(iii) in satisfying judgments in connection with
any Asbestos-Related Claims; and
(iv) in settling Asbestos-Related Claims for
which the documentation set forth in
Sections (O)(ii)(a) through (c) above has
not all been obtained, provided, however,
that the cumulative amount of such payments
included in Loss shall be no greater than 5%
of the cumulative amount of Insured Payments
made subsequent to the Policy Inception Date
in settling Asbestos-Related Claims for
which such documentation has been obtained.
"Loss" does not include the salaries, wages, or benefits of
the Insured's permanent or temporary employees, directors or
officers, including in-house lawyers, or the Insured's
administrative expenses, office expenses or overhead.
(Q) "Loss Offset" has the meaning given to such term in Section
7.6 of this Policy.
(R) "Loss Report" has the meaning given to such term in Section
8.1(A) of this Policy.
<PAGE> 6
4
(S) "Losses to be paid by the Insurance Company on such Settlement
Date" has the meaning given to such term in Section 7.3(3) of
this Policy.
(T) "Per Claimant Average Amount" has the meaning given to such
term in Section 3.4 of this Policy.
(U) "Per Claimant Limit" has the meaning given to such term in
Section 3.3 of this Policy.
(V) "Period of Indemnification" has the meaning given to such term
in Item 2 of the Declarations of this Policy.
(W) "Policy Inception Date" has the meaning given to such term in
Item 2 of the Declarations of this Policy.
(X) "Premium" has the meaning given to such term in Item 4 of the
Declarations of this Policy.
(Y) "Premium Payment Date" means the day on which the total
Premium is received by the Insurance Company.
(Z) "Reference Value" has the meaning given to such term in
Section 7 of this Policy.
(AA) "Retention" has the meaning given to such term in Section 4 of
this Policy.
(BB) "Scheduled Underlying Policies" means the policies listed in
the attached Schedule A to this Policy.
(CC) "Settled Policies" means those policies issued by Travelers
Insurance Company or Travelers Indemnity Company listed in
Schedule B to this Policy.
(DD) "Settlement Date" has the meaning given to such term in
Section 7.1 of this Policy.
(EE) "Territory" means the United States of America, its
territories and possessions and the Commonwealth of Puerto
Rico.
SECTION 3. LIMITS OF INSURANCE
3.1. AGGREGATE LIMIT OF INDEMNITY
Regardless of the number of claimants or Asbestos-Related Claims covered under
this Policy, the maximum amount payable by the Insurance Company for all Loss
(including defense expenses) covered under this Policy shall not exceed Three
Hundred Seventy-Five Million Dollars ($375,000,000) in the absolute aggregate as
the Insurance Company's Quota Share of One Billion Five Hundred Million Dollars
($1,500,000,000) in the absolute aggregate for all Loss excess of the Retention.
<PAGE> 7
5
This Aggregate Limit of Indemnity is the maximum amount recoverable by the
Insured under this Policy, excluding payments for commutation under this Policy.
3.2. ANNUAL SUBLIMIT
Subject to the Aggregate Limit of Indemnity described in Section 3.1 above, the
maximum amount payable by the Insurance Company at any Settlement Date for all
Loss in the calendar year immediately prior to such Settlement Date ("calendar
year(x)"), during the Period of Indemnification in respect of Loss under this
Policy shall not exceed the Insurance Company's Quota Share of the Annual
Sublimit for calendar year(x). The Annual Sublimit shall be calculated by the
Insurance Company for calendar year(x) and shall be equal to:
(1) the Per Claimant Average Amount for calendar year(x)
multiplied by
(2) the "Number of Individual Asbestos-Related Claims" for
calendar year(x).
A claimant shall be included in the calculation of the "Number of Individual
Asbestos-Related Claims" for calendar year(x) when Loss is paid to that claimant
pursuant to the criteria in Sections 2(O)(ii), (iii) and (iv); provided,
however, that members of the same family without their own independent
asbestos-related injury due to their own exposure to asbestos shall all be
treated for purposes of this Policy as a single Asbestos-Related Claim with the
primary claim notwithstanding the fact that all such individuals may have
provided separate releases.
The "Number of Individual Asbestos-Related Claims" for purposes of the
calculation in the previous paragraph shall be determined by treating claims by
each individual qualifying claimant as a separate Asbestos-Related Claim
regardless of whether claims by such claimant are part of a group or bulk
settlement.
3.3. PER CLAIMANT LIMIT
The Per Claimant Limit shall be One Hundred Fifty Million Dollars
($150,000,000), per claimant.
3.4. PER CLAIMANT AVERAGE AMOUNT
On the 1st through 9th Settlement Dates, the Per Claimant Average Amount shall
be equal to the total amount paid by the Insured in calendar year 1996 for
asbestos-related claims divided by the number 15,750. The total amount paid by
the Insured in calendar year 1996 for such claims shall be agreed by the
Insurance Company and the Insured prior to the Premium Payment Date. Once such
amount is agreed to by the Insurance Company and the Insured, such amount shall
not be adjusted due to the receipt of any additional information or for any
other reason, except with the prior written consent of the Insured and the
Insurance Company.
<PAGE> 8
6
On the 10th and each subsequent Settlement Date, the Per Claimant Average Amount
for calendar year(x) shall equal the Per Claimant Average Amount from the
previous Settlement Date, increased by the annual inflation change for the
previous calendar year(x-1), if any, as defined by the United States Consumer
Price Index ("CPI") as of the Settlement Date for which the calculation is being
made and calculated by the Insurance Company as follows:
Per Claimant Average Amount in calendar year(x) shall be equal to the
greater of:
(1) the Per Claimant Average Amount in calendar year(x-1); or
(2) (the CPI in calendar year(x) divided by the CPI in calendar
year(x-1)) multiplied by the Per Claimant Average Amount in
calendar year(x-1).
SECTION 4. RETENTION
The Retention to be borne by the Insured under this Policy shall equal Four
Hundred Million Dollars ($400,000,000) plus all Loss paid by the Insured on or
after the Policy Inception Date and prior to the Premium Payment Date.
SECTION 5. PREMIUM
The Premium of Two Hundred Twenty Million Five Hundred Twelve Thousand Eight
Hundred Twenty-One Dollars ($220,512,821) for this Policy, shall be payable by
the Insured in full on or before December 31, 1998. The Premium shall be payable
to the Insurance Company in immediately available non-reversible funds, free and
clear of any set-off, counterclaim or other deduction. The Premium shall be
payable to an account specified by the Insurance Company.
The Premium shall be considered fully earned when received by the Insurance
Company.
If the Insured fails to pay the Premium in full and in accordance with the terms
of this Section, this Policy shall not come into effect and shall not in any way
bind the Insurance Company.
SECTION 6. EXCLUSIONS
This Policy does not cover:
(A) Any injury or damage to property (tangible or intangible),
real or personal, including any resulting loss of use or
reduction in value of such property, no matter how such
injury, damage, loss of use or reduction in value occurred.
(B) Payments under any workers' compensation policies or plans,
employee benefit plans, or other employer liability of the
Insured.
(C) Any Insurance Coverage Claim.
<PAGE> 9
7
SECTION 7. EXPERIENCE VALUES
7.1. SETTLEMENT DATE
For each calendar year, the Settlement Date will be a date designated by the
Insurance Company, which shall be within thirty-five (35) days of the later of:
(i) the receipt by the Insurance Company of the Insured's Loss
Report for the calendar year last ended; and
(ii) March 3rd of that calendar year.
7.2. ANNUAL SETTLEMENT
On the Settlement Date, the Insurance Company shall:
1. Calculate:
a. The application of the Annual Sublimit to Loss based
upon the Loss Report provided by the Insured;
b. Any Loss Offset payable pursuant to Section 7.6;
c. The remaining Retention;
d. The "Losses to be paid by the Insurance Company on
such Settlement Date" pursuant to Section 7.3(3)
below;
e. Disputed Net Loss (if any) pursuant to Section
8.1(C);
f. "Actual amounts to be paid to the Insured" pursuant
to Section 7.3(4).
2. Report to the Insured:
a. The calculations of Annual Sublimit, Loss Offset if
any, Retention, remaining Aggregate Limit of
Indemnity, and all other items calculated in Section
7.2(1);
b. The Total Reference Value, together with a detailed
calculation thereof;
c. The Experience Value, together with a detailed
calculation thereof;
d. Schedule of all Disputed Net Loss (if any) pursuant
to Section 8.1(C).
3. Pay such amounts as calculated in Sections 7.2(1.e) and
7.2(1.f).
<PAGE> 10
8
7.3. CALCULATION OF AMOUNT TO BE PAID AT EACH SETTLEMENT DATE
At each Settlement Date, the Insurance Company shall:
1. Determine the amount of the Annual Sublimit pursuant to
Section 3.2.
2. Determine the lesser of:
a. the Annual Sublimit determined pursuant to Section
7.3(l), and
b. the Losses according to the Insured's Loss Report.
3. Calculate the "Losses to be paid by the Insurance Company on
such Settlement Date", which shall equal: (a) the Insurance
Company's Quota Share of the quantity arrived at by
subtracting any remaining Retention from the amount determined
pursuant to Section 7.3(2) except that;(b) if the amount
determined pursuant to Section 7.3(3)(a) is less than zero
(0), the "Losses to be paid by the Insurance company on such
Settlement Date" shall be deemed to equal zero (0), and if the
amount determined pursuant to Section 7.3(3)(a) is greater
than the remaining Aggregate Limit of Indemnity immediately
prior to the Settlement Date, the "Losses to be paid by the
Insurance company on such Settlement Date" shall be deemed to
equal the remaining Aggregate Limit of Indemnity immediately
prior to the Settlement Date.
4. Calculate the "Actual amounts to be paid to the Insured",
which shall equal the amount determined pursuant to Section
7.3(3) less Disputed Net Loss less Loss Offset. Such resulting
amount shall not be less than zero.
5. Determine the amount to be paid into the segregated
interest-bearing account, if any, pursuant to Section 8.1(C)
which shall be the lesser of:
a. the Disputed Net Loss, and
b. the "Losses to be paid by the Insurance Company on
such Settlement Date" minus the Loss Offset.
7.4. DATE CONVENTION; AMOUNTS
Unless otherwise specified, all quantities or values mentioned in this Section 7
are as of the close of business on the subject Settlement Date.
The use of the phrase "or Premium Payment Date" applies only at the first
Settlement Date.
7.5. PRECISE YEARS
The Precise Years at the first Settlement Date shall be the actual number of
days elapsed from but not including the Premium Payment Date to and including
three (3) Business Days prior to the first Settlement Date divided by 365.
<PAGE> 11
9
The Precise Years at each subsequent Settlement Date shall be the actual number
of days elapsed from three (3) Business Days prior to the prior Settlement Date
to three (3) Business Days prior to that Settlement Date divided by the actual
number of days in the year of that Settlement Date.
7.6. LOSS OFFSET
If on any Settlement Date the Reduced Reference Value (as defined below) is less
than the Experience Value, before deducting "Losses to be paid by the Insurance
Company on such Settlement Date", and if the Experience Value is greater than
zero (0), then the Insured shall pay a Loss Offset to the Insurance Company
equal to:
((A) minus (B)) multiplied by ((C) divided by (A)), where:
(A) is equal to the Experience Value before deducting "Losses
to be paid by the Insurance Company on such Settlement Date";
(B) is equal to the Reduced Reference Value; and
(C) is equal to "Losses to be paid by the Insurance Company on
such Settlement Date";
provided, however, in no event shall (C) be greater than (A).
7.7. EXPERIENCE VALUE
The Experience Value shall be a notional value calculated by the Insurance
Company as follows:
1. On the Premium Payment Date, the Experience Value shall be One
Hundred Ninety-Seven Million Two Hundred Fifty Thousand
Dollars ($197,250,000).
2. At each Settlement Date, the Experience Value shall equal:
The Experience Value at the prior Settlement Date (or Premium
Payment Date) multiplied by 1.06 raised to the power of the
Precise Years
Plus
the Insurance Company's Quota Share of any Salvage,
subrogation, and other recoveries that are to the benefit of
the Insurance Company under this Policy and have been paid to
the Insured since the prior Settlement Date or Premium Payment
Date
Less
"Losses to be paid by the Insurance Company on such Settlement
Date".
<PAGE> 12
10
7.8. REFERENCE VALUE
(A) TOTAL REFERENCE VALUE
The Total Reference Value at any time shall be equal to the
sum of Reference Value A plus Reference Value B.
(B) ORDER OF LOSS ATTRIBUTION
Losses, Loss Offset, salvage, subrogation, and other
recoveries and charges shall be attributed to Reference Value
A until the Number of Units of Reference Index A shall equal
zero (0).
Losses, Loss Offset, salvage, subrogation, and other
recoveries and charges shall next be attributed to Reference
Value B.
(C) REDUCED REFERENCE VALUE
The Reduced Reference Value shall be equal to the sum of
Reduced Reference Value A and Reduced Reference Value B.
(D) REFERENCE VALUE A
The Reference Value A for a Settlement Date shall be the
Number of Units of the Reference Index A deemed held by the
Insurance Company multiplied by the Reference Index Unit Value
A as of the close of business three (3) Business Days prior to
that Settlement Date.
(1) REFERENCE INDEX A
Reference Index A at any date shall be equal to the
Lehman Brothers Aggregate Bond Index as of the close
of business on such date. If the Lehman Brothers
Aggregate Bond Index is not available or is no longer
in existence, then the following indices will be
substituted in order of preference: the Salomon Broad
Investment Grade Index, or the Merrill Lynch Domestic
Master Index. If both of these indices are not
available or are no longer in existence, then the
Insured and the Insurance Company shall mutually
agree upon an alternative index substantially similar
to the foregoing indices.
(2) REFERENCE INDEX UNIT VALUE A
At the Premium Payment Date, the Reference Index Unit
Value A shall be One Million Dollars ($1,000,000).
At three (3) Business Days prior to each Settlement
Date, the Reference Index Unit Value A shall be equal
to One Million Dollars ($1,000,000) multiplied by the
published value of the Reference Index A as of the
close
<PAGE> 13
11
of business three (3) Business Days prior to that
Settlement Date divided by the Reference Index A at
the Premium Payment Date. The published value of
Reference Index A at the close of business on the
Premium Payment Date was 840.66.
(3) NUMBER OF UNITS OF THE REFERENCE INDEX A
On the Premium Payment Date, the Number of Units of
the Reference Index A deemed held by the Insurance
Company shall be equal to One Hundred Five Million
Eight Hundred Seventy-Eight Thousand One Hundred
Twenty-Five Dollars ($105,878,125) divided by the
Reference Index Unit Value A on the close of business
that date (which results in 105.878125).
On each Settlement Date, the Number of Units of the
Reference Index A shall be the Number of Units of the
Reduced Reference Index A less (J-K)/L where:
J = "Losses to be paid by the Insurance
Company on that Settlement Date" and charges
that are attributable to Reference Value A;
K = Any Loss Offset, plus the Insurance
Company's Quota Share of any salvage,
subrogation, and other recoveries, that are
attributable to Reference Value A;
L = The Reference Index Unit Value A as of
the close of business three (3) Business
Days prior to that Settlement Date.
If the Number of Units of Reference Index A shall
ever equal zero (0), it will be zero thereafter.
(4) NUMBER OF UNITS OF THE REDUCED REFERENCE INDEX A
The Number of Units of the Reduced Reference Index A
at a Settlement Date shall be the Number of Units of
Reference Index A deemed held by the Insurance
Company at the prior Settlement Date (or Premium
Payment Date) multiplied by the difference between
the quantity of one and the product of .0016 and the
Precise Years.
Formula: The Number of Units of the Reduced Reference
Index A at a Settlement Date = (Number of Units of
Reference Index A at prior Settlement Date (or
Premium Payment Date))* (1 - .0016 * Precise Years).
<PAGE> 14
12
(5) REDUCED REFERENCE VALUE A
The Reduced Reference Value A shall be the Number of
Units of the Reduced Reference Index A deemed held by
the Insurance Company multiplied by the Reference
Index Unit Value A.
(E) REFERENCE VALUE B
The Reference Value B for a Settlement Date shall be the
Number of Units of the Reference Index B deemed held by the
Insurance Company multiplied by the Reference Index Unit Value
B as of the close of business three (3) Business Days prior to
that Settlement Date.
(1) REFERENCE INDEX B
Reference Index B at any date shall be equal to the
Standard & Poor's 500 Index (Total Return Basis) as
of the close of business on such date. If the
Standard & Poor's 500 Index is not available or is no
longer in existence, then the following indices will
be substituted in order of preference: the Morgan
Stanley Capital International Country Index for US,
or the Russell 1000 Index. If both of these indices
are not available or are no longer in existence, then
the Insured and the Insurance Company shall mutually
agree upon an alternative index substantially similar
to the foregoing indices.
(2) REFERENCE INDEX UNIT VALUE B
At the Premium Payment Date, the Reference Index Unit
Value B shall be One Million Dollars ($1,000,000).
At three (3) Business Days prior to each Settlement
Date, the Reference Index Unit Value B shall be equal
to One Million Dollars ($1,000,000) multiplied by the
published value of the Reference Index B as of the
close of business three (3) Business Days prior to
that Settlement Date divided by the Reference Index B
at the Premium Payment Date. The published value of
the Reference Index B at the close of business on the
Premium Payment Date was 1670.01.
(3) NUMBER OF UNITS OF THE REFERENCE INDEX B
On the Premium Payment Date, the Number of Units of
the Reference Index B deemed held by the Insurance
Company shall be equal to Ninety Million Nine Hundred
Fifty-Four Thousand Five Hundred Dollars
($90,954,500) divided by the Reference Index Unit
Value B as of the close of business on that date
(which results in 90.9545).
<PAGE> 15
13
On each Settlement Date, the Number of Units of the
Reference Index B shall be the Number of Units of the
Reduced Reference Index B less (J-K)/L where:
J = "Losses to be paid by the Insurance
Company on that Settlement Date" and charges
that are attributable to Reference Value B;
K = Any Loss Offset, plus the Insurance
Company's Quota Share of any salvage,
subrogation, and other recoveries that are
attributable to Reference Value B;
L = The Reference Index Unit Value B as of
the close of business three (3) Business
Days prior to that Settlement Date.
If the Number of Units of Reference Index B shall
ever equal zero (0), it will be zero thereafter.
(4) NUMBER OF UNITS OF THE REDUCED REFERENCE INDEX B
The Number of Units of the Reduced Reference Index B
at a Settlement Date shall be the Number of Units of
Reference Index B deemed held by the Insurance
Company at the prior Settlement Date (or Premium
Payment Date) multiplied by the difference between
the quantity of one (1) and the product of .0018 and
the Precise Years. The Reduction of Notional
Investment Income for Notional Income Taxation is
then subtracted from this amount.
Formula: The Number of Units of the Reduced
Reference Index B at a Settlement Date =
(Number of Units of Reference Index B at
prior Settlement Date (or Premium Payment
Date)) * (1 - .0018 * Precise Years) -
Reduction of Notional Investment Income for
Notional Income Taxation.
(a) REDUCTION OF NOTIONAL INVESTMENT INCOME FOR NOTIONAL
INCOME TAXATION
The Reduction of Notional Investment Income for
Notional Income Taxation shall be equal to 15% of V
multiplied by {(W divided by X) minus (Y divided by
Z)}, or 0.15 * V * (W/X - Y/Z)
where
V = Number of Units of Reference Index B at
the prior Settlement Date (or on the Premium
Payment Date);
<PAGE> 16
14
W = Reference Index Unit Value B at the
close of business three (3) Business Days
prior to this Settlement Date;
X = Reference Index Unit Value B at the
close of business three (3) Business Days
prior to the prior Settlement Date (or on
the Premium Payment Date);
Y = Value of the Standard & Poor's 500 Index
(not on a total return basis) at the close
of business three (3) Business Days prior to
this settlement date;
Z = Value of the Standard & Poor's 500 Index
(not on a total return basis) at the close
of business three (3) Business Days prior to
the previous Settlement Date (or on the
Premium Payment Date, on which, at the close
of business, the value of the Standard &
Poor's 500 Index was 1229.23).
(5) REDUCED REFERENCE VALUE B
The Reduced Reference Value B shall be the Number of Units of
the Reduced Reference Index B deemed held by the Insurance
Company multiplied by the Reference Index Unit Value B.
SECTION 8. CONDITIONS
8.1. REPORTING OF AND PAYMENT FOR LOSS
(A) Within seventy-five (75) days after the end of each calendar
year, the Insured shall furnish the Insurance Company with a
written "Loss Report", providing, in a format acceptable to
the Insurance Company and the Insured, the Loss paid during
that calendar year. Each Loss Report shall provide both the
cumulative position from the Policy Inception Date through the
end of that calendar year and the changes within that calendar
year. The Insured shall also furnish the Insurance Company
such other financial data, and in such format, that the
Insurance Company may reasonably request for completion of its
statutory or other financial statements. The Insured and the
Insurance Company agree that, in light of the commonality of
interest evidenced by the execution of this Policy, furnishing
a Loss Report or other financial data pursuant to this Section
8.1 will not be considered a waiver of any attorney-client or
attorney-work-product privileges.
(B) If the Insurance Company disputes any portion of the amount
claimed by the Insured, the Insurance Company shall
nevertheless pay to the Insured the undisputed portion of the
amount claimed. Any payment pursuant to this Subsection shall
not constitute a waiver of the Insurance Company's objections
to the disputed portion of the amount claimed.
<PAGE> 17
15
(C) Any disputed amount not paid by the Insurance Company to the
Insured at the relevant Settlement Date shall be deemed
"Disputed Net Loss." With respect to any Disputed Net Loss,
the Insurance Company shall pay on the Settlement Date the
Disputed Net Loss into a segregated interest-bearing account
at a bank with a net worth of at least One Hundred Million
Dollars ($100,000,000). The Insurance Company will provide
notice to the Insured on the Settlement Date of the amount and
circumstances of the Disputed Net Loss and of the details of
the segregated account. Withdrawals from the account shall
require either the consent of both the Insurance Company and
the Insured or a final arbitration award pursuant to Section
8.6. Until such withdrawal, however, legal ownership of the
account and all cash or other assets held therein shall be in
the Insurance Company.
No later than ten (10) days after any agreement between the Insured and the
Insurance Company to settle such disputed amount or a final arbitration award
(to the extent the Insured is successful), the cash and any other assets held in
the account together with the interest income credited thereto net of tax, if
any, thereon at the applicable tax rate on such income shall be immediately paid
to the Insured. To the extent the Insurance Company is successful, then the cash
and any other assets held in the account together with the interest income
credited thereto will be paid to the Insurance Company at the next Settlement
Date, and that amount shall be added into the Reference Value and Experience
Value at such Settlement Date.
8.2. SETTLEMENT OF NATIONAL CLASS ACTION
(A) In the event the Insured is a party to an action asserting
Asbestos-Related Claims, which is certified as a "National
Class Action" by a court of competent jurisdiction, and the
Insured enters into a National Class Action Settlement, the
Insured at its sole option may elect either to:
(i) commute the Policy in accordance with
Section 8.3 (notwithstanding the permitted
dates for commutation stated therein); or
(ii) irrevocably forego recovery of such
settlement amount under this Policy.
(B) Within ten (10) Business Days after the date upon which the
National Class Action Settlement receives final,
non-appealable court approval, the Insured shall notify the
Insurance Company of its election pursuant to paragraph (A)
above.
(C) For the purposes of this Section 8.2:
"National Class Action" means an action brought by or on
behalf of one or more classes of individuals located
substantially throughout the Territory who have allegedly
sustained or may in the future sustain Bodily Injury from
exposure to asbestos.
<PAGE> 18
16
"National Class Action Settlement" means a settlement that
fully and finally resolves all then pending and future
Asbestos-Related Claims other than "opt-outs" encompassed by a
National Class Action.
8.3. COMMUTATION
This Policy may be irrevocably commuted by the Insured, upon not less than
thirty (30) days prior written notice to the Insurance Company, (i) effective
December 31, 2008 or on every fifth (5th) year anniversary of such date
occurring thereafter, or (ii) in the event that the greater of the Total
Reference Value or the Experience Value exceeds the remaining Aggregate Limit of
Indemnity during the calendar year. Within thirty (30) days after the effective
date of the commutation (the "Commutation Date"), the Insurance Company shall
pay to the Insured a commutation payment equal to ninety-eight percent (98%) of
the Total Reference Value, three (3) Business Days prior to the Commutation
Date, and the Insured shall provide to the Insurance Company a full release in
form and substance reasonably satisfactory to the Insurance Company, and the
Insurance Company shall be fully and finally released from any and all liability
and obligations under this Policy.
8.4. DIRECT ACTIONS
(A) "Direct Actions" shall mean all claims or proceedings asserted
or initiated against the Insurance Company (whether grounded
upon direct action or "reach and apply" statutes, third-party
beneficiary or garnishment theories, or otherwise) for the
purpose of causing the Insurance Company directly or
indirectly, to satisfy claims that have been or could have
been asserted against the Insured, which claims or proceedings
would not or could not have been asserted against the
Insurance Company had the Insurance Company not issued this
Policy.
(B) The Insured agrees that if the Insurance Company becomes
obligated to pay any sums as a result of any judgment entered
or compromise reached in a Direct Action, the Insured shall
fully indemnify and hold harmless the Insurance Company for
any such sums. The sums so indemnified by the Insured,
together with the costs of defense paid by the Insured
pursuant to Section 8.4(C), shall constitute loss under this
Policy, provided, that such sums satisfy the definition of
"Loss" herein.
(C) The Insured shall control, direct and pay the costs of the
defense of any Direct Action including decisions regarding
settlement and may elect to appoint the counsel representing
the Insured in the Direct Action or in other litigation to
defend the Insurance Company in the Direct Action. No position
taken by counsel appointed by the Insured to defend the
Insurance Company in a Direct Action shall be used or shall be
otherwise admissible in any fashion in connection with any
dispute between the Insurance Company and the Insured. The
Insured shall not take any coverage position on any issue of
coverage under this Policy which may be in dispute in such
Direct Action without the Insurance Company's prior written
input.
<PAGE> 19
17
(D) In the event the Insured does not control, direct and pay the
costs of the defense of a Direct Action, the Insurance Company
shall direct and control the defense of the Direct Action
including decisions regarding settlement. The Insured shall
fully indemnify and hold harmless the Insurance Company for
any legal fees or other costs paid by the Insurance Company in
defense of a Direct Action where the Insured does not control,
direct and pay the costs of such defense.
8.5. NON-TRANSFERABILITY
This Policy confers no rights, powers or obligations on any person or
organization other than the Insurance Company and the Insured. Neither this
Policy nor any of the rights, powers, or obligations of the Insurance Company or
the Insured under it may be in any way transferred or assigned to any other
person or organization without express written consent by the Insurance Company
and the Insured. The granting of such consent shall be at the sole and absolute
discretion of each of the parties.
8.6. ARBITRATION
Except as otherwise agreed upon by the parties in writing:
(A) Resolution of Disputes: Any dispute between the Insured and
the Insurance Company arising out of or in connection with
this Policy or concerning its interpretation or validity or
the performance of the parties hereunder, whether arising
before or after termination of this Policy, shall be submitted
exclusively to arbitration in the manner set forth in this
Section 8.6, and the award shall be the exclusive remedy
available to a party under this Policy. Either party may
initiate arbitration of any such dispute by giving written
notice to the other party, by registered or certified mail,
return receipt requested, of its intention to arbitrate and of
its appointment of an arbitrator in accordance with subsection
(C) of this Section 8.6.
(B) Composition of Panel: Unless the parties agree upon a single
arbitrator within fifteen (15) days after the receipt of a
notice of intention to arbitrate, all disputes shall be
submitted to an arbitration panel composed of two arbitrators
and an umpire, chosen in accordance with subsections (C) and
(D) of this Section 8.6.
(C) Appointment of Arbitrators: The members of the arbitration
panel shall be chosen from disinterested persons having
knowledge of and experience in the insurance, reinsurance and
financial issues relevant to the matters in dispute. The party
requesting arbitration (hereinafter referred to as the
"requesting party") shall appoint an arbitrator and give
written notice thereof, by registered or certified mail,
return receipt requested, to the other party (hereinafter
referred to as the "respondent") together with its notice of
intention to arbitrate. Unless a single arbitrator is agreed
upon within fifteen (15) days after the receipt of the notice
of intention to arbitrate, the respondent shall, within thirty
(30) days after receiving such notice, also appoint an
arbitrator and notify the requesting party thereof in a
<PAGE> 20
18
like manner. Before instituting a hearing, the two arbitrators
so appointed shall choose an umpire. If, within twenty (20)
days after they are both appointed, the arbitrators fail to
agree upon the appointment of an umpire, the umpire shall be
appointed by the President of the American Arbitration
Association.
(D) Failure of Party to Appoint Arbitrator: If the respondent
fails to appoint an arbitrator within thirty (30) days after
receiving a notice of intention to arbitrate, such arbitrator
shall be appointed by the President of the American
Arbitration Association, and shall then, together with the
arbitrator appointed by the requesting party, choose an umpire
as provided in subsection (C) of this Section 8.6.
(E) Choice of Law and Forum: Any arbitration instituted pursuant
to this Section 8.6 shall be held in Wilmington, Delaware. Any
action to enforce any arbitration award or to compel
arbitration shall be brought only in the state courts of the
State of Delaware situated in New Castle County, to the
exclusion of all other courts. The substantive laws of the
State of Delaware, without regard to its conflict of laws
rules, shall govern any action or suit brought to compel any
such arbitration or to enforce any award rendered pursuant to
such arbitration.
(F) Submission of Dispute to Panel: Unless otherwise extended by
the arbitration panel, or agreed to by the parties, each party
shall submit its case to the panel within thirty (30) days
after the selection of an umpire.
(G) Procedure Governing Arbitration: All proceedings before the
panel shall be informal, and the panel shall not be bound by
the formal rules of evidence. The panel shall have the power
to fix all procedural rules relating to the arbitration
proceeding. In reaching any decision, the panel shall give due
consideration to the customs and usage of the insurance,
reinsurance and finance business.
(H) Arbitration Award: The arbitration panel shall render its
decision within sixty (60) days after conclusion of the
hearing, which decision shall be in writing, stating the
reasons therefor. The decision of the majority of the panel
shall be final and binding on the parties to the proceeding.
Judgment on the award may be entered in any court of competent
jurisdiction, and execution of any monetary judgment may occur
in any jurisdiction.
(I) Cost of Arbitration: Unless otherwise allocated by the
arbitration panel, each party shall bear the expense of its
own arbitrator and its own witnesses and shall jointly and
equally bear with the other parties the expense of the umpire
and the arbitration.
(J) Limit of Power of Arbitration Panel: The arbitration panel
does not have the power to award punitive, multiplied, or
exemplary damages, other similar damages or any extra
contractual damages of any nature or description whatsoever,
except to the extent claimed as a Loss under this Policy, and
the Insured and the
<PAGE> 21
19
Insurance Company expressly waive all rights to punitive,
multiplied, or exemplary damages, other similar damages or any
extra contractual damages of any nature or description
whatsoever, except to the extent claimed as Loss under this
Policy.
8.7. OTHER INSURANCE
The obligation of the Insurance Company to pay Loss under this Policy is in
excess of the limits of liability under all of the Scheduled Underlying Policies
which are applicable to Asbestos-Related Claims. To the extent that the insurer
identified on such Scheduled Underlying Policies refuses or fails to pay any
amounts thereunder with respect to Asbestos-Related Claims, the Insurance
Company shall pay such amounts to the extent such amounts constitute Loss
hereunder, and shall thereafter be subrogated to the Insured's rights against
the non-paying insurers to the extent of any and all such payments by the
Insurance Company.
8.8. AMENDMENT
This Policy may be amended only by mutual consent of the parties expressed in a
written endorsement executed by the parties with the same formalities as this
Policy, and such addendum shall be deemed to be an integral part of this Policy
and binding on the parties hereto.
8.9. CONFIDENTIALITY
Any information that is not independently available from a non-confidential
source and is disclosed to the Insurance Company or its representatives in
connection with this Policy shall be treated as confidential by the Insurance
Company until any such information becomes independently available in
substantially similar form from a non-confidential source (all such information
referred to herein as "Confidential Information"). The Insurance Company shall
use its best efforts to preserve and protect the confidentiality of, and where
applicable, the privilege pertaining to, all Confidential Information. Unless
the Insured gives prior written consent or unless compelled by the law to
disclose such information, the Insurance Company may not disclose Confidential
Information to any person other than the legal representatives, accountants,
rating agencies or advisors of the Insurance Company or its affiliates, or the
co-insurers of this Policy and their respective legal representatives,
accountants or advisors (each, an "Authorized Third Party"), or tax and
regulatory authorities, and neither the Company nor any Authorized Person may
use Confidential Information for any purpose except in connection with the
exercise of its rights and obligations under this Policy or the rights and
obligations of the Insurance Company's reinsurers or retrocessionaires with
respect to this Policy. If the Insurance Company discloses any Confidential
Information to any Authorized Third Party, other than legal representatives, the
Insurance Company shall make reasonable efforts to minimize the amount of
information disclosed, taking into consideration the reason for the disclosure,
including where feasible marking all files containing Confidential Information
provided to tax and regulatory authorities as "Confidential". The Insurance
Company shall obtain from any such Authorized Third Party a written agreement
substantially similar to the provisions of this Section 8.9, to maintain the
confidentiality of all Confidential Information. The Insurance Company shall be
responsible for disclosure of Confidential Information by any Authorized Third
Party in violation of this Section 8.9. In the event the Insurance Company is
served with a subpoena or court order
<PAGE> 22
20
compelling disclosure by the Insurance Company of Confidential Information, the
Insurance Company shall give written notice thereof to the Insured as soon as
reasonably practicable. The Insured may, at its sole option and expense, seek a
protective order or otherwise legally resist such attempts to compel disclosure.
The Insurance Company shall reasonably cooperate with the Insured during the
process of seeking such protective order or otherwise legally resisting such
attempts to compel disclosure.
8.10. NOTICE
(A) Any notice or other information required or authorized by this
Policy to be given by either party to the other may be given
by delivery by hand or by sending it by prepaid certified or
registered mail (or equivalent air mail, if international), or
by facsimile transmission, as set forth under Item 5 in the
Declarations.
(B) Either party may change the address for service referred to in
Subsection (A) above by sending notice to the other party in
the manner provided for by this Section to the last address
notified for the purpose of this Section by the other party.
8.11. CAPTIONS AND CATCHLINES
Captions and catchlines used in this Policy are intended solely as aids to
convenient reference. They shall not be considered part of this Policy nor limit
or otherwise affect its meaning, and no inference as to the meaning or intent of
any provision of this Policy may be drawn from them.
8.12. RIGHT OF OFFSET
Both the Insured and the Insurance Company shall have, and may exercise, at any
time the right to offset any balance or balances due the other under this
Policy. Except as otherwise agreed by the parties and to the extent provided
for, such offset may only include balances due under this Policy, regardless of
whether such balances are in respect of premiums, or Loss or otherwise, and
regardless of the capacity of any party, under the various agreements involved.
8.13. SALVAGE, SUBROGATION AND OTHER RECOVERIES
In the event of the payment of any indemnity by the Insurance Company under this
Policy, the Insurance Company shall be subrogated, to the extent of such
payment, to all of the rights of the Insured against any person or entity
legally responsible in damages for the Loss paid by the Insured. The Insurance
Company agrees, upon the Insured's request, to assign such subrogation rights to
the Insured. In the event the Insured enforces such rights, any recovery
effected by the Insured shall serve to reduce Loss under the Policy, after
deducting the costs of such recovery.
8.14. CHOICE OF LAW
All disputes arising under this Policy shall be governed by and construed in
accordance with the substantive laws of the State of Delaware, without giving
effect to its conflicts of laws principles.
<PAGE> 23
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8.15. NO WAIVER
No consent or waiver, express or implied, by any other party to or of any breach
or default by any other party in the performance of its obligations hereunder
shall be construed to be a consent or waiver to or of any other breach or
default in the performance of obligations by such other party hereunder. Failure
on the part of any party to complain of any act or failure to act of any other
party or to declare any other party in default, irrespective of how long such
failure continues, shall not constitute a waiver by such first party of its
rights hereunder.
8.16. CONSTRUCTION
It is understood and agreed that this Policy is a manuscript policy that has
been negotiated at arm's length and on equal footing as between the Insured and
Insurance Company, and that both parties fully understood and agreed to all the
terms and conditions contained in this Policy. Accordingly, in any dispute
concerning the meaning of this Policy, or any term or condition hereof, such
dispute shall be resolved without reference to the doctrine of contra
proferentem or any related or similar doctrine.
8.17. REPRESENTATION OF INSURED
The Insured has reviewed the terms, conditions, and significance of this Policy
with the legal and tax counsel and the accountants of its choice, and is
accepting this Policy with full knowledge of its terms, conditions and
significance. In accepting this Policy, the Insured is not relying upon any
representation or warranty by the Insurance Company regarding the legal,
regulatory, tax or accounting implications of this Policy for the Insured or the
suitability (or lack thereof) of this Policy for the Insured.
8.18. COUNTERPARTS
This Policy may be executed in two or more counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
instrument.
8.19. CURRENCY
All payments and amounts under this Policy shall be in United States Dollars.
8.20. TERMS OF POLICY CONFORMED TO STATUTE.
If any of the terms or conditions of this Policy are found to be in conflict
with the local laws or statutes of the State wherein this Policy is issued, the
Policy will be amended by the agreement of both parties hereto so as to conform
with such law or statute. If the parties cannot agree to the changes to be made,
any dispute will be settled in accordance with Section 8.6 of this Policy.
8.21. TAXATION OF FOREIGN PERSONS.
(A) In the event that, due to a change in United States law, the rate of
tax applicable to dividends paid by a United States corporation to a
Swiss person that is eligible for the benefits of the tax treaty
currently in effect between the United States and the
<PAGE> 24
22
Confederation of Switzerland is increased above, or decreased below,
fifteen percent (15%), the Reduction of Notional Investment Income for
Notional Taxation, as defined in this Policy, shall be determined by
substituting the rate of tax applicable to Swiss holders who own any
amount of equity of the dividend payer without any minimum level of
investment for fifteen percent (15%).
(B) In the event that gains, interest or any other applicable form of
investment income recognized by non-United States owners of assets held
in the United States become subject to United States income taxation,
either by a change in the rules regarding the definition of the
character or source of income or otherwise, the parties shall agree to
appropriate modifications of the terms of this Policy.
(C) For purposes of this Section, a change in United States law shall
include (i) a change in the Internal Revenue Code and the Income Tax
Regulations promulgated thereunder and (ii) any amendment, cancellation
or termination of the tax treaty currently in effect between the United
States and the Confederation of Switzerland.
8.22. PREMIUM TAXES
The Insured agrees that it shall pay any additional applicable State tax and any
other related assessments with respect to any additional premium due under this
Policy.
8.23. DATES AND TIMES
All dates and times contained in this Policy, unless otherwise specified, are
New York, New York time.
<PAGE> 25
23
IN WITNESS WHEREOF, the parties hereto have caused this Policy to be executed by
their duly authorized representatives, effective as of the 31st day of December,
1998.
METROPOLITAN LIFE INSURANCE COMPANY
BY: _______________________________________
Name: _____________________________________
Title: ____________________________________
EUROPEAN REINSURANCE CORPORATION OF AMERICA
BY: _______________________________________
Name: _____________________________________
Title: ____________________________________
<PAGE> 26
SCHEDULE A
SCHEDULED UNDERLYING POLICIES
A-1
<PAGE> 27
SCHEDULE B
SETTLED POLICIES
B-1
<PAGE> 28
ENDORSEMENT NO. 1 TO POLICY NO. 980-01-00,
A RESTATEMENT OF THE EXCESS ASBESTOS INDEMNITY INSURANCE POLICY
ISSUED TO METROPOLITAN LIFE INSURANCE COMPANY
BY
EUROPEAN REINSURANCE CORPORATION OF AMERICA
This Endorsement is attached to and forms a part of Policy No. 980-01-00 (the
"Policy"), issued to Metropolitan Life Insurance Company (the "Insured") by
European Reinsurance Corporation of America (the "Insurance Company") and
effective as of December 31, 1998.
For value received, the parties hereby agree that, effective from the inception
of the Policy:
1. On page 3 of the Policy, Section 2(P)(ii)(c) is hereby amended to read
in its entirety as follows:
proof of exposure to asbestos or asbestos containing products (by way
of interrogatory answer, affidavit (which may be included within the
release), personnel record, work history sheet or other evidence of
exposure).
2. On page 3 of the Policy, Section 2(P)(iv) is hereby amended to read in
its entirety as follows:
in settling Asbestos-Related Claims for which the documentation set
forth in Sections (P)(ii)(a) through (c) above has not all been
obtained; provided, however, that the cumulative amount of such
payments included in Loss shall be no greater than 5% of the cumulative
amount of Insured Payments made subsequent to the Policy Inception Date
in settling Asbestos-Related Claims for which such documentation has
been obtained.
3. On page 5 of the Policy, Section 3.2., entitled "Annual Sublimit", is
hereby amended to read in its entirety as follows:
Subject to the Aggregate Limit of Indemnity described in Section 3.1
above, the maximum amount payable by the Insurance Company at any
Settlement Date for all Loss in the calendar year immediately prior to
such Settlement Date ("calendar year(x)"), during the Period of
Indemnification in respect of Loss under this Policy shall not exceed
the Insurance Company's Quota Share of the Annual Sublimit for calendar
year(x). The Annual Sublimit shall be calculated by the Insurance
Company for calendar year(x) and shall be equal to:
(1) the Per Claimant Average Amount for calendar year(x)
multiplied by
(2) the "Number of Individual Asbestos-Related Claims" for
calendar year(x).
<PAGE> 29
A claimant shall be included in the calculation of the "Number of
Individual Asbestos-Related Claims" for calendar year(x) when Loss is
paid to that claimant pursuant to the criteria in Sections 2(P)(ii),
(iii) and (iv); provided, however, that members of the same family
without their own independent asbestos-related injury due to their own
exposure to asbestos shall all be treated for purposes of this Policy
as a single Asbestos-Related Claim with the primary claim
notwithstanding the fact that all such individuals may have provided
separate releases.
The "Number of Individual Asbestos-Related Claims" for purposes of the
calculation in the previous paragraph shall be determined by treating
claims by each individual qualifying claimant as a separate
Asbestos-Related Claim regardless of whether claims by such claimant
are part of a group or bulk settlement.
4. On page 6 of the Policy, Section 4, entitled "Retention", is hereby
amended to read in its entirety as follows:
The Retention to be borne by the Insured under this Policy shall equal
in the aggregate Four Hundred Million Dollars ($400,000,000) plus all
Loss paid by the Insured on or after the Policy Inception Date and
prior to the Premium Payment Date.
5. On page 8 of the Policy, Section 7.3.3. is hereby amended to read in
its entirety as follows:
Calculate the "Losses to be paid by the Insurance Company on such
Settlement Date", which shall equal: (a) the Insurance Company's Quota
Share of the quantity arrived at by subtracting any remaining Retention
from the amount determined pursuant to Section 7.3(2); except that (b)
if the amount determined pursuant to Section 7.3(3)(a) is less than
zero (0), the "Losses to be paid by the Insurance Company on such
Settlement Date" shall be deemed to equal zero (0), and if the amount
determined pursuant to Section 7.3(3)(a) is greater than the remaining
Aggregate Limit of Indemnity immediately prior to the Settlement Date,
the "Losses to be paid by the Insurance Company on such Settlement
Date" shall be deemed to equal the remaining Aggregate Limit of
Indemnity immediately prior to the Settlement Date.
All parties agree and covenant that this Endorsement shall and does take
precedence over the Policy to the extent that the terms and conditions set forth
in this Endorsement modify the terms and conditions of the Policy. The
undersigned further agree that this Endorsement shall not be altered or modified
while the Policy is in force without the express written consent of all parties.
The undersigned agree and warrant that this Endorsement is a valid and binding
contract which they have the right to make and that the persons signing for them
below are authorized to sign this Endorsement.
<PAGE> 30
AGREED, as of this day of June, 1999.
METROPOLITAN LIFE INSURANCE COMPANY
BY:
NAME:
TITLE:
EUROPEAN REINSURANCE CORPORATION OF AMERICA
BY:
NAME:
TITLE:
<PAGE> 1
Exhibit 10.15
RESTATEMENT OF THE
AGGREGATE EXCESS OF LOSS
REINSURANCE AGREEMENT
(hereinafter referred to as the "Agreement")
between
METROPOLITAN LIFE INSURANCE COMPANY
One Madison Avenue
New York, New York 10010
(hereinafter referred to as the "Company")
AND
STOCKWOOD REINSURANCE COMPANY LTD.
Carleton Court, High Street
Bridgetown, Barbados
(hereinafter referred to as the "Reinsurer")
TYPE: Aggregate Excess of Loss Reinsurance.
EFFECTIVE DATE: The Effective Date of this Agreement shall be 12:01 a.m.,
New York City Time, December 31, 1998.
TERM: This Agreement shall remain in force and the Term of this
Agreement shall be from the Effective Date of this Agreement
until the earliest of (A) December 31, 2008; (B) the
exhaustion of the Overall Aggregate Limit; or (C) the
Effective Date of Commutation of this Agreement.
COVERAGE: Part A Coverage:
The Reinsurer shall indemnify the Company for Part A Covered
Losses.
Part B Coverage:
The Reinsurer shall indemnify the Company for Part B Covered
Losses.
<PAGE> 2
BUSINESS
COVERED: Part A Business Covered:
Amounts paid or to be paid by the Company as life insurance
benefits, cash values or otherwise to its life insurance
policyholders and annuity contract holders, or beneficiaries
or proper assignees thereof, where such amounts arise out of
policies or contracts issued by the Company but are in
addition to the amounts anticipated at the time the policies
or contracts were issued; and, where such amounts are
payable pursuant to judgments in, or settlements of,
lawsuits or other proceedings (including without limitation
administrative proceedings) alleging that the Company or its
agents engaged in improper sales practices.
Part B Business Covered:
Except as otherwise provided in this section, Part B
Business Covered shall mean all death benefits for policies
listed in the Company's Notice Business Policy Master File
(NBPMF) that were issued and delivered in the Part B Subject
Territory prior to January 1, 1997, and were in force as of
the Effective Date with a policy account code of: (1)
premium paying (Policy Account Code =1), (2) fully paid up
(Policy Account Code =2), or (3) single premium (Policy
Account Code =9). Policies on (a) the nonforfeiture reduced
paid up option (Policy Account Code =3) as of the Effective
Date or on any other date during the Term of this Agreement
and policies on (b) the nonforfeiture extended term
insurance option (Policy Account Code =5) as of the
Effective Date or on any other date during the Term of this
Agreement are excluded from coverage under this Agreement.
Policy forms identified by the Company's plan code "Estate
Saver" are also excluded from coverage under this Agreement.
All other policy riders and benefits are covered by this
Agreement except for the Accidental Death Benefit (ADB),
Disability Waiver of Premium Benefit (DW), Applicant's
Waiver of Premium Benefit (AWB), and Additional Insurance
(AI).
SUBJECT
TERRITORY: Part A Subject Territory:
The Reinsurer's liability shall be limited to policies or
contracts issued for delivery in the fifty (50) States of
the United States of America, the District of Columbia, or
Canada for losses occurring
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<PAGE> 3
in the fifty (50) States of the United States of America,
the District of Columbia, or Canada.
Part B Subject Territory:
The Reinsurer's liability shall be limited to policies
issued for delivery in the fifty (50) States of the United
States of America and the District of Columbia for losses
occurring in the fifty (50) States of the United States of
America and the District of Columbia.
SUBJECT LOSSES: Part A Subject Losses:
Part A Subject Losses shall mean all Part A Ultimate Net
Loss with Claim Dates on or after the Effective Date of this
Agreement arising from claims made against the Company on or
prior to December 31, 1999 in respect of the Part A Business
Covered hereunder.
Part B Subject Losses:
Part B Subject Losses shall mean all Part B Ultimate Net
Loss paid by the Company on or after the Effective Date of
this Agreement as a result of deaths occurring on or after
the Effective Date and on or prior to December 31, 1999 in
respect of the Part B Business Covered hereunder.
COVERED LOSSES: Part A Covered Losses:
Subject to the Overall Aggregate Limit and the Part A
Aggregate Sublimit, Part A Covered Losses shall mean Fifty
Percent (50%) of Part A Subject Losses in excess of the Part
A Aggregate Retention.
Part B Covered Losses:
Subject to the Overall Aggregate Limit and the Part B
Sublimit, Part B Covered Losses shall mean Fifty Percent
(50%) of Part B Subject Losses in excess of the Part B
Aggregate Retention.
RETENTIONS: Part A Aggregate Retention:
Three Hundred Eighty Five Million Dollars ($385,000,000) in
the aggregate.
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<PAGE> 4
Part B Aggregate Retention:
Five Hundred Six Million Dollars ($506,000,000), plus the
Company's statutory policy reserves released upon death of
an insured or otherwise.
SUBLIMITS: Part A Aggregate Sublimit:
The maximum amount of Part A Covered Losses indemnified
under this Agreement shall be limited to Two Hundred Seventy
Five Million Dollars ($275,000,000).
This Part A Aggregate Sublimit is the maximum amount payable
by the Reinsurer for Part A Covered Losses under this
Agreement. Under no circumstances will the Reinsurer be
obligated to pay more than this amount in respect of Part A
Covered Losses.
Part B Sublimit
The maximum amount of Part B Covered Losses indemnified
under this Agreement shall be limited to Two Million Five
Hundred Thousand Dollars ($2,500,000) for any individual
insured.
OVERALL AGGREGATE
LIMIT: The Overall Aggregate Limit for the sum of Part A Covered
Losses and Part B Covered Losses combined under this
Agreement shall equal Three Hundred Twenty Five Million
Dollars ($325,000,000).
This Overall Aggregate Limit is the maximum amount payable
by the Reinsurer under this Agreement, excluding payments
for commutation under this Agreement.
REINSURANCE
PREMIUM: The Reinsurance Premium shall equal Two Hundred Sixty Four
Million Five Hundred Thousand Dollars ($264,500,000) and
shall be payable in full and without deduction by the
Company on or before December 31, 1998. The date the
Reinsurance Premium is paid shall be referred to as the
"Premium Payment Date". The Reinsurance Premium shall be
payable in cash by federal wire transfer in immediately
available non-reversible United States Federal Funds to an
account specified by the Reinsurer.
The Reinsurance Premium shall be considered fully earned
when received in the account specified by the Reinsurer.
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<PAGE> 5
The Reinsurance Premium is a net amount and includes no
allowance for commissions, brokerage, taxes or any other
costs which may arise in connection with this Agreement or
the Business Covered hereunder. Any such amounts shall
remain the sole responsibility of the Company.
If the Company fails to pay the Reinsurance Premium in full
and in accordance with the terms of this Reinsurance Premium
Section, this Agreement shall not come into effect and shall
not in any way bind the Reinsurer.
SETTLEMENT
DATES: The first Settlement Date shall be the later of April 1,
2000, or if such day is not a Business Day, then the first
Business Day thereafter, or, the thirtieth day after the
Reinsurer's receipt of the Company's Loss Report for the
period from the Effective Date to December 31, 1999. The
Settlement Date for calendar year 2000 and each calendar
year thereafter shall be the later of April 1 of the
following calendar year or if such day is not a Business
Day, then the first Business Day thereafter, or, the
thirtieth day after the Reinsurer's receipt of the Company's
Loss Report for the prior calendar year, or if such day is
not a Business Day, then the first Business Day thereafter.
BUSINESS DAYS: Business Day shall mean any day other than a Saturday, a
Sunday or a day on which banking institutions in New York,
New York, or the Islands of Bermuda are authorized or
obligated by law, regulation or executive order to be
closed.
EXPERIENCE
BALANCE: The Reinsurer shall establish and maintain a notional
Experience Balance during the time that this Agreement is in
effect and whose balance shall be determined in accordance
with this Experience Balance section.
The Experience Balance at the Premium Payment Date shall be
equal to Two Hundred Sixty One Million Five Hundred Thousand
United States Dollars ($261,500,000).
The Experience Balance at the first Settlement Date shall be
equal to:
The Experience Balance at the Premium Payment Date
multiplied by (1.0 plus the annual compounded
yield on the one (1) year United States Treasury
Bill as of the close of
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<PAGE> 6
business on the Premium Payment Date) raised to
the power of the actual number of days from the
Premium Payment Date to and including the first
Settlement Date divided by the actual number of
days in the current calendar year, multiplied by
(1.0 plus (the Federal Funds rate divided by the
actual number of days in the current calendar
year)) for each day between April 1, 2000 and the
first Settlement Date,
LESS
Covered Losses due from the Reinsurer from and
including the Premium Payment Date (through and
including the Settlement Date).
The Experience Balance at each Settlement Date thereafter
shall be equal to:
The Experience Balance at the end of the prior
Settlement Date multiplied by (1.0 plus the annual
compounded yield on the one (1) year United States
Treasury Bill maturing closest to April 1 of the
current calendar year) raised to the power of the
actual number of days from the prior Settlement
Date to April 1 of the current calendar year
divided by the actual number of days in the
current calendar year, multiplied by (1.0 plus
(the Federal Funds rate divided by the actual
number of days in the current calendar year)) for
each day between April 1 of the current calendar
year to and including the Settlement Date divided
by the actual number of days in the current
calendar year,
LESS
Covered Losses due from the Reinsurer from but not
including the prior Settlement Date through and
including the current Settlement Date.
ULTIMATE NET LOSS: (a) Part A Ultimate Net Loss:
Part A Ultimate Net Loss as used herein shall mean
the actual sum of all Claim Amounts with Claim
Dates on or after the Effective Date in settlement
of all losses arising in respect of the Part A
Business Covered after making deductions for all
recoveries, all salvage, and all claims upon other
reinsurances, which inure to the benefit of the
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<PAGE> 7
Reinsurer under this Agreement, whether
collectable or not, and shall include Allocated
Loss Adjustment Expenses paid by the Company.
Part B Ultimate Net Loss:
Part B Ultimate Net Loss as used herein shall mean
the actual sum paid by the Company on or after the
Effective Date in settlement of all death claims
arising in respect of the Part B Business Covered
after making deductions for all recoveries, all
salvage, and all claims upon other reinsurances,
which inure to the benefit of the Reinsurer under
this Agreement, whether collectable or not.
(b) All salvages, recoveries, reinsurance or payments
recovered or received subsequent to a loss
settlement under this Agreement shall be applied
as if recovered or received prior to the aforesaid
settlement and all necessary adjustments shall be
made by the parties hereto.
(c) Nothing in this definition shall be construed to
mean that losses are not recoverable hereunder
until the Part A Ultimate Net Loss and Part B
Ultimate Net Loss of the Company has been
ascertained.
CLAIM AMOUNT: Claim Amount as used herein shall mean for each
claim, the sum of the amount paid by the Company
on the Claim Date plus the amount reserved by the
Company on the Claim Date on the basis of New York
State statutorily prescribed mortality, morbidity
or interest rates, arising in respect of the Part
A Business Covered.
CLAIM DATE: Claim Date as used herein shall mean the date of
judgment in, or settlement of, a lawsuit or other
proceeding (including without limitation
administrative proceedings) arising in respect of
the Part A Business Covered.
CLAIMS HANDLING: (a) The Company shall have the sole and absolute
authority with respect to the administration,
defense, settlement and payment of Part A Covered
Losses, subject to the terms and conditions of
this Agreement.
(b) The Company shall retain the sole and absolute
authority with respect to the administration,
defense, settlement and payment of Part B Covered
Losses.
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<PAGE> 8
(c) In furtherance of the commonality of interest
evidenced by the execution of this Agreement, the
Company agrees that the Company or the Company's
designated counsel shall provide the Reinsurer
with updated information concerning the present
and future handling of the Part A Covered Losses
on a quarterly basis to allow the Reinsurer to
properly reserve and project payments under this
Agreement and as otherwise reasonably required by
the Reinsurer.
ALLOCATED
LOSS ADJUSTMENT
EXPENSES: Allocated Loss Adjustment Expenses as used herein
shall mean all allocated expenses incurred by the
Company on or after the Effective Date in
connection with the investigation, settlement,
defense or mitigation of any claim or loss which
is the subject matter of the Part A Business
Covered, and shall exclude salaries and fees of
adjusters, attorneys or other persons who are
employees of the Company, or its designated claims
adjusters, attorneys on permanent retainer, office
expenses, overhead or other unallocated expenses.
COMMUTATION: This Agreement may be irrevocably commuted by the
Company on (i) December 31, 2008 or, (ii) in the
event that after December 31, 1999 the Experience
Balance exceeds the remaining Part A Aggregate
Sublimit during the calendar year ("Effective Date
of Commutation"), subject to ninety (90) days
prior written notice to the Reinsurer. Within
ninety (90) days of such Effective Date of
Commutation, upon receipt from the Company of a
full release in form and substance reasonably
satisfactory to the Reinsurer, then the Reinsurer
shall pay to the Company a Commutation Settlement
equal to Ninety Nine Percent (99%) multiplied by
the positive Experience Balance, if any, at the
Settlement Date following Commutation, less all
amounts due and payable by the Company to the
Reinsurer, under this or any related agreement and
the Reinsurer and the Company shall be fully and
finally released from all liability and
obligations under or in connection with this
Agreement.
REPORTS AND
REMITTANCES: Within sixty (60) days after the end of each
calendar quarter during the Term of this
Agreement, the Company shall
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<PAGE> 9
provide the Reinsurer with copies of all loss
reports received or prepared by the Company in
connection with the Business Covered during that
calendar quarter. In addition to the above, within
sixty (60) days after the end of each calendar
quarter, the Company shall provide to the
Reinsurer a written Loss Report, providing, in a
format acceptable to the Reinsurer and the
Company, the following information in respect of
the Business Covered hereunder, for Part A
Business Covered:
(1) The amount of Subject Losses paid by the
Company during that calendar quarter.
(2) The net amount of Subject Losses payable
but unpaid by the Company as at the end
of the calendar quarter (the "Net
Subject Loss").
(3) The Company's estimate of reserves for
Net Subject Loss and Allocated Loss
Adjustment Expenses, as at the end of
that calendar quarter.
(4) And such other information as may be
agreed to by the Company and the
Reinsurer.
In addition to the above, within sixty (60) days after the
end of each calendar quarter, the Company shall provide to
the Reinsurer a written Loss Report, providing, in a format
acceptable to the Reinsurer, the following information in
respect of the Business Covered hereunder for Part B
Business Covered:
(1) The face amount of death claims paid
during the calendar quarter.
(2) The face amount of death claims reported
but not paid as of the end of that
calendar quarter.
(3) Statutory reserves released in the
calendar quarter on death claims paid.
(4) Statutory reserves released in the
calendar quarter on death claims
reported but not paid.
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<PAGE> 10
(5) The face amount of death claims during
the calendar quarter ceded to other
reinsurers.
(6) Statutory reserves released in the
calendar quarter on death claims ceded
to other reinsurers.
(7) Policy level detail (as detailed in
items (1) through (6) above) for
individual insureds with Subject Losses
in excess of Five Million Dollars
($5,000,000).
(8) The Company's estimate of IBNR losses as
at the end of that calendar quarter.
Each Loss Report shall provide both the cumulative position
from the Effective Date through the end of that calendar
quarter and the changes within the calendar quarter. The
first such quarterly Loss Report shall be due by June 1,
1999 for the period from the Effective Date through March
31, 1999.
Within sixty (60) days after the end of each calendar year,
the Company shall furnish the Reinsurer with a written
Annual Report, providing, in a format acceptable to the
Reinsurer, the Subject Losses paid by the Company for that
calendar year in respect of the Business Covered hereunder
separately for the Part A Business Covered and Part B
Business Covered.
Covered Losses due from the Reinsurer shall be paid by the
Reinsurer to the Company on the Settlement Date for the
calendar year.
All remittances shall be made by federal wire transfer in
immediately available non-reversible United States Federal
Funds to an account specified by the receiving party.
SECURITY: 1. Security:
Upon the Company's written request and expense, the
Reinsurer shall provide security to the Company adjusted at
each Settlement Date in an amount equal to the Experience
Balance as of such Settlement Date, if any, by providing
access to funds held in Trust or Letters of Credit or any
combination thereof, for the benefit of the Company, in
accordance with the provisions set forth in this SECURITY
Article.
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<PAGE> 11
2. Letter of Credit:
(A) Upon the written request of the Company, the
Reinsurer agrees that it will be the applicant for
and provide the Company with a Letter or Letters
of Credit, adjusted at each Settlement Date, in an
amount no less than the Experience Balance, as of
such Settlement Date if any. The cost of such
Letter(s) of Credit, if any, shall be borne by the
Company.
(B) The Reinsurer and the Company agree that the
Letter(s) of Credit provided by the Reinsurer
pursuant to the provisions of this Agreement may
be drawn upon at any time, notwithstanding any
other provisions in this Agreement, and shall be
utilized by the Company or any successor by
operation of law of the Company including, without
limitation, any liquidator, rehabilitator,
receiver, or conservator of the Company only for
one or more of the following purposes:
(i) to reimburse the Company for the
Reinsurer's share of premiums returned
to the owners of policies reinsured
under this Agreement, on account of
cancellations of such policies;
(ii) to reimburse the Company for the
Reinsurer's share of surrenders and
benefits or losses paid by the Company
under the terms and provisions of the
policies reinsured under this Agreement.
(iii) to fund an account with the Company in
an amount at least equal to the
deduction, for reinsurance ceded, from
the Company's liabilities for
reinsurance ceded under this Agreement.
Such amount shall be limited to the
Experience Balance. Such amount shall
include, but not be limited to, amounts
for policy reserves, reserves for claims
and losses incurred (including losses
incurred but not reported), reserves for
loss adjustment expenses and reserves
for unearned premiums, but shall not
exceed the amount of the obligations of
the Reinsurer under this Agreement; and
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<PAGE> 12
(iv) to pay any other amounts payable to the
Company under this Agreement.
All of the foregoing shall be applied without diminution
because of insolvency on the part of the Company or the
Reinsurer.
(C) Should amounts be held pursuant to (B)(iii) above,
then the Company shall pay interest at the Prime
Rate on such funds as may be held from time to
time.
(D) Should any amounts drawn down on the Letters of
Credit be in excess of the actual amounts required
for (B)(i), (B)(ii), or (B)(iii) above, or should
any amounts subsequently be determined not to be
due under (B)(iv) above, then such excess amounts
and amounts not due shall be returned to the
Reinsurer forthwith and the Company shall pay
interest at the Prime Rate on such funds from the
date they were drawn down to the date they are
returned.
(E) Any interest calculated pursuant to the provisions
of paragraphs (C) and (D) above shall be offset
against any other obligations of the Reinsurer.
3. Trust Funds:
(A) Upon the written request of the Company, the
Reinsurer may at its option provide funds in Trust
for the benefit of the Company, adjusted at each
Settlement Date as an alternative or supplement to
Letter(s) of Credit. The cost of such Trust Funds,
if any, shall be borne by the Company.
(B) The assets deposited in the trust account shall be
valued, according to their current fair market
value, and shall consist only of cash (United
States legal tender), certificates of deposit
(issued by a United States bank and payable in
United States legal tender), and investments of
the types permitted by the Delaware Insurance
Laws, provided that such investments are issued by
an institution that is not the parent, subsidiary,
or affiliate of either the Reinsurer or the
Company.
(C) Prior to depositing assets into the Trust account,
the Reinsurer shall execute assignments,
endorsements in blank, or transfer legal title to
the trustee of all shares, obligations or any
other assets requiring assignments, in order that
the
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<PAGE> 13
Company, or the trustee upon the direction of the
Company, may whenever necessary negotiate any such
assets without consent or signature from the
Reinsurer or any other entity.
(D) All settlements of account between the Company and
the Reinsurer shall be made in cash or its
equivalent.
(E) The Reinsurer and the Company agree that the
assets in the Trust account, established by the
Reinsurer pursuant to the provisions of this
Agreement, may be withdrawn by the Company at any
time, notwithstanding any other provisions in this
Agreement, and shall be utilized and applied by
the Company or any successor by operation of law
of the Company including, without limitation, any
liquidator, rehabilitator, receiver or conservator
of the Company only for one or more of the
following purposes:
(i) to reimburse the Company for the
Reinsurer's share of premiums returned
to the owners of policies reinsured this
Agreement, on account of cancellations
of such policies;
(ii) to reimburse the Company for the
Reinsurer's share of surrenders and
benefits or losses paid by the Company
pursuant to the provisions of the
policies reinsured under this Agreement;
(iii) to fund an account with the Company in
an amount at least equal to the
deduction, for reinsurance ceded, from
the Company's liabilities for
reinsurance ceded under this Agreement.
Such amount shall be limited to the
Experience Balance. Such amount shall
include, but not be limited to, amounts
for policy reserves, reserves for claims
and losses incurred (including losses
incurred but not reported), reserves for
loss adjustment expenses and reserves
for unearned premiums, but shall not
exceed the amount of the obligations of
the Reinsurer under this Agreement; and
(iv) to pay any other amounts payable to the
Company under this Agreement.
All of the foregoing shall be applied without diminution
because of
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<PAGE> 14
insolvency on the part of the Company or the Reinsurer.
(F) The Company shall give the Reinsurer the right to
seek approval from the Company to withdraw from
the aforementioned Trust account all or any part
of the assets contained therein and transfer such
assets to the Reinsurer, provided:
(i) The Reinsurer shall at the time of such
withdrawal, replace the withdrawn assets
with other qualified assets having a
market value equal to the market value
of the assets withdrawn so as to
maintain at all times the deposit equal
to the Experience Balance, or
(ii) after such withdrawal and transfer, the
market value of the Trust account is no
less than one-hundred-two percent (102%)
of the Experience Balance.
(G) Should amounts be held pursuant to (E)(iii) above,
then the Company shall pay interest at the Prime
Rate on such funds as may be held from time to
time.
(H) Should any amounts withdrawn from the Trust
account be in excess of the actual amounts
required for (E)(i), (E)(ii), or (E)(iii) above,
or should any amounts subsequently be determined
not to be due under (E)(iv) above, then such
excess amounts and amounts not due shall be
returned to the Reinsurer forthwith and the
Company shall pay interest at the Prime Rate on
such funds from the date they were drawn down to
the date they are returned.
(I) Any interest calculated pursuant to the provisions
of paragraphs (G) and (H) above shall be offset
against any other obligations of the Reinsurer.
4. Other Forms of Security:
The Reinsurer may, at its option, as an alternative or
supplement to Letter(s) of Credit and Trust Funds, provide
security in any other form that would permit the Company to
take credit for the reinsurance ceded hereunder in the
amount of the Experience Balance.
5. Prime Rates:
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<PAGE> 15
Prime Rates shall be determined for each Business Day in New
York City, and for non-business days shall equal the Prime
Rate as determined for the most recent preceding Business
Day. The BANK PRIME LOAN rates as published in "FEDERAL
RESERVE statistical release H.15(519) SELECTED INTEREST
RATES" and the PRIME RATES as published in The Wall Street
Journal shall be the primary sources for the Prime Rates.
When either or both sources publish such a rate for a
Business Day, the Prime Rate shall be the maximum of such
published rates. If neither source publishes such a rate for
a Business Day, the Prime Rate shall be the maximum of the
rates publicly announced by major banks in New York City as
their "Prime Rates" applicable to such day.
INSOLVENCY: 1. Reinsurer's Obligation:
In the event of the insolvency of the Company, the
reinsurance afforded by this Agreement shall be payable by
the Reinsurer on the basis of the liability of the Company
under the Business Covered, without diminution because of
such insolvency, directly to the Company or its liquidator,
receiver, conservator, or statutory successor, except (a)
where this Agreement specifically provides another payee of
such reinsurance in the event of the insolvency of the
Company and (b) where the Reinsurer, with the consent of the
direct insured or insureds, has assumed such policy
obligations of the Company as direct obligations of the
Reinsurer to the payees under such policies and in
substitution for the obligations of the Company to such
payees.
2. Reinsurer's Notice and Defense of Claims:
The Reinsurer shall be given written notice of the pendency
of each claim or loss which may involve the reinsurance
afforded by this Agreement within a reasonable time after
such claim or loss is filed in the insolvency proceedings.
The Reinsurer shall have the right to investigate each such
claim or loss and interpose at its own expense, in the
proceeding where the claim or loss is to be adjudicated, any
defense which it may deem available to the Company or its
liquidator, receiver, conservator, or statutory successor.
If more than one Reinsurer is involved, they may designate
one Reinsurer to act for all.
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<PAGE> 16
3. Defense Expense:
The expense thus incurred by the Reinsurer shall be
chargeable, subject to court approval, against the insolvent
Company as part of the expense of liquidation to the extent
of a proportionate share of the benefit which may accrue to
the Company solely as a result of the defense undertaken by
the Reinsurer.
4. Offset:
Any debts or credits, liquidated or unliquidated, in favor
of or against either party under this Agreement on the date
of the receivership or liquidation order (except where the
obligation was purchased by or transferred to be used as an
offset) are deemed mutual debts or credits and shall be set
off with the balance only to be allowed or paid. Although
such claim on the part of either party may be unliquidated
or undetermined in amount on the date of the entry of the
receivership or liquidation order, such claim will be
regarded as being in existence as of such date and any
credits or claims then in existence and held by the other
party may be offset against it.
5. Rights of Parties:
Nothing hereinabove set forth in this Insolvency Article
shall in any way change the relationship or status of the
parties hereto, nor enlarge the obligations of either party
to each other except as specifically hereinabove provided,
to wit, to pay the statutory successor on the basis of the
amount of liability determined in the liquidation or
receivership proceeding, rather than on the basis of the
actual amount of loss (dividends) paid by the liquidator,
receiver, conservator, or statutory successor to allowed
claimants. Nor, except as hereinabove specifically provided,
shall anything in this Insolvency Article in any manner
create any obligation or establish any right against the
Reinsurer in favor of any third parties or any other persons
not parties to this Agreement.
ARBITRATION: Except as otherwise agreed upon by the parties:
1. Resolution of Disputes: Any dispute between the
Company and the Reinsurer arising out of the
provisions of this Agreement, or concerning its
interpretation or validity, whether arising before
or after termination of this Agreement, shall be
submitted to arbitration in the manner set forth
in this Article. Either party may initiate
arbitration
-16-
<PAGE> 17
of any such dispute by giving written notice to
the other party, by registered or certified mail,
return receipt requested, of its intention to
arbitrate and of its appointment of an arbitrator
in accordance with subsection (3) of this Article.
2. Composition of Panel: Unless the parties agree
upon a single arbitrator within fifteen (15) days
after the receipt of a notice of intention to
arbitrate, all disputes shall be submitted to an
arbitration panel composed of two arbitrators and
an umpire, chosen in accordance with subsections
(3) and (4) of this Article.
3. Appointment of Arbitrators: The members of the
arbitration panel shall be chosen from
disinterested persons having knowledge of the
insurance, reinsurance and financial issues
relevant to the matters in dispute. The party
requesting arbitration (hereinafter referred to as
the "requesting party") shall appoint an
arbitrator and give written notice thereof, by
registered or certified mail, return receipt
requested, to the other party (hereinafter
referred to as the "respondent") together with its
notice of intention to arbitrate. Unless a single
arbitrator is agreed upon within fifteen (15) days
after the receipt of the notice of intention to
arbitrate, the respondent shall, within thirty
(30) days after receiving such notice, also
appoint an arbitrator and notify the requesting
party thereof in a like manner. Before instituting
a hearing, the two arbitrators so appointed shall
choose an umpire. If, within twenty (20) days
after they are both appointed, the arbitrators
fail to agree upon the appointment of an umpire,
the umpire shall be appointed by the President of
the American Arbitration Association.
4. Failure of Party to Appoint Arbitrator: If the
respondent fails to appoint an arbitrator within
thirty (30) days after receiving a notice of
intention to arbitrate, such arbitrator shall be
appointed by the President of the American
Arbitration Association, and shall then, together
with the arbitrator appointed by the requesting
party, choose an umpire as provided in subsection
(3) of this Article.
5. Involvement of Other Reinsurers:
(a) If more than one Reinsurer of this Agreement
is involved in the same dispute, all such
Reinsurers shall
-17-
<PAGE> 18
constitute and act as one party for purposes of
this Article and communication shall be made by
the Company to each of the Reinsurers constituting
the one party; provided, however, nothing herein
shall impair the right of such Reinsurers to
assert several, rather than joint, defenses or
claims, nor be construed as changing the liability
of the Reinsurers under the terms of this
Agreement from several to joint.
(b) If the Company is involved in a dispute under
the terms of this Agreement and in one or more
separate disputes with one or more other insurers
or reinsurers in which common questions of law or
fact are in issue, the Company or Reinsurer, at
their option, may join with such other insurers or
reinsurers in a common arbitration proceeding
under the terms of this Article. If the Company
and such other insurers or reinsurers have
commenced arbitration, the Reinsurers may at its
option join such proceeding for the determination
of the dispute between the Company and Reinsurer.
6. Choice of Law and Forum: Any arbitration
instituted pursuant to this Article shall be held
in Wilmington, Delaware. Any action to enforce any
arbitration award or to compel arbitration shall
be brought only in the state courts of the State
of Delaware situated in New Castle County, to the
exclusion of all other courts. The substantive
laws of the State of Delaware, without regard to
its conflict of laws rules, shall govern any
action or suit brought to compel any such
arbitration or to enforce any award rendered
pursuant to such arbitration.
7. Submission of Dispute to Panel: Unless otherwise
extended by the arbitration panel, or agreed to by
the parties, each party shall submit its case to
the panel within thirty (30) days after the
selection of an umpire.
8. Procedure Governing Arbitration: All proceedings
before the panel shall be informal and the panel
shall not be bound by the formal rules of
evidence. The panel shall have the power to fix
all procedural rules relating to the arbitration
proceeding. In reaching any decision, the panel
shall give due consideration to the customs and
usage of the insurance, reinsurance and finance
business.
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<PAGE> 19
9. Arbitration Award: The arbitration panel shall
render its decision within sixty (60) days after
conclusion of the hearing, which decision shall be
in writing, stating the reasons therefor. The
decision of the majority of the panel shall be
final and binding on the parties to the
proceeding. Judgment on the award may be entered
in any court of competent jurisdiction, and
execution of any monetary judgment may occur in
any jurisdiction.
10. Cost of Arbitration: Unless otherwise allocated by
the panel, each party shall bear the expense of
its own arbitrator and its own witnesses and shall
jointly and equally bear with the other parties
the expense of the umpire and the arbitration.
11. Limit of Authority of Arbitration Panel: The
arbitration panel does not have the authority to
award punitive, multiplied, or exemplary damages,
other similar damages or any extra contractual
damages of any nature or description whatsoever
except to the extent claimed as Subject Loss under
this Agreement, and each of the Company and the
Reinsurer expressly waives all rights to punitive,
multiplied, or exemplary damages, other similar
damages or any extra contractual damages of any
nature or description whatsoever except to the
extent claimed as a Subject Loss under this
Agreement.
WAIVER OF PUNITIVE
DAMAGES: The Company and the Reinsurer agree that in no
event shall either party be entitled to any award
against the other of punitive, multiplied, or
exemplary damages, other similar damages or any
extra contractual damages of any nature or
description whatsoever, and each of the Company
and the Reinsurer both expressly waives all rights
to punitive, multiplied, or exemplary damages,
other similar damages or any extra contractual
damages of any nature or description whatsoever
except to the extent claimed as a Subject Loss
under this Agreement.
EXCLUSIONS: (A) Ex Gratia Payments: Part B Covered Losses under
this Agreement shall exclude any Ex Gratia
Payments except to the extent consented to by the
Reinsurer. "Ex Gratia Payments" as used herein
means a claim payment not required by the terms of
the underlying insurance policies covered by this
Agreement.
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<PAGE> 20
(B) Insolvency Funds: The Reinsurer shall not be
obligated to pay to the Company any share of any
liability of the Company arising, by contract,
operation of law, or otherwise, from participation
or membership of the Company or any of its
affiliates, whether voluntary or involuntary, in
any insolvency fund or from reimbursement of any
person for any such liability. "Insolvency Fund"
includes any guaranty or insolvency fund, plan,
pool, association, or other arrangement howsoever
denominated, established or governed, which
provides for any assessment of or payment or
assumption by any person of part or all of any
claim, debt, charge, fee, or other obligation of
any insurer, or its successors or assigns which
has been declared to be insolvent, or which is
otherwise deemed unable to meet any claim, debt,
charge, fee or other obligation in whole or in
part.
(C) Assessments: This Agreement does not cover
assessments of any nature whatsoever levied
against the Company.
(D) Dividends: The Reinsurer shall not participate in
the determination of, nor reimburse the Company
for, any policyholder or other dividends paid by
the Company.
(E) Assumed Reinsurance: This Agreement does not cover
reinsurance assumed by the Company.
REINSURANCE
INTERMEDIARY: Swiss Re Atrium Corporation, 55 East 52 Street, 42nd Floor,
NewYork, New York 10055, U.S.A., is hereby recognized as the
Reinsurance Intermediary for all business under this
Agreement.
All communications, including but not limited to notices,
reports, and statements, relating to this Agreement, shall
be transmitted to the Company and the Reinsurer through the
Intermediary.
All payments, including but not limited to premiums, losses,
loss adjustment expenses, and salvages and settlements,
relating to this Agreement shall be made directly between
the Company and the Reinsurer, and not through any
Intermediary.
AMENDMENTS: This Agreement may be amended only by mutual consent of the
parties expressed in a written addendum executed by the
parties with the same formalities as this Agreement, and
such addendum
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<PAGE> 21
shall be deemed to be an integral part of this Agreement and
binding on the parties hereto.
ACCESS TO RECORDS: The Reinsurer shall have the right to examine, at any
reasonable time, all papers, books, accounts, documents and
other records of the Company or any agent or employee of the
Company including any claims adjuster or any other person
acting on behalf of the Company relating to the business
covered hereunder. Upon the Reinsurer's request, the Company
shall supply the Reinsurer, at the Reinsurer's expense, with
copies of the whole or any part of such papers, books,
accounts, documents and other records relating to the
business covered hereunder. The Reinsurer's right of
inspection under this Access to Records section shall
continue to exist after termination of this Agreement as
long as one of the parties hereto has a claim against any
other arising from this Agreement.
CAPTIONS AND
CATCHLINES: Captions and catchlines used in this Agreement are intended
solely as aids to convenient reference. They shall not be
considered part of this Agreement nor limit or otherwise
affect its meaning, and no inference as to the meaning or
intent of any provision of this Agreement may be drawn from
them.
COUNTERPARTS: This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
CURRENCY: All payments hereunder shall be made in United States
Dollars. All monetary amounts herein are in United States
Dollars. All reports and accounts hereunder shall be
rendered in United States Dollars. For the purpose of this
Agreement, where the Company pays amounts in currencies
other than United States Dollars, such amounts shall be
converted into United States Dollars at the actual rate of
exchange at which such amounts are entered in the Company's
books.
DISCLOSURES
AND APPROVALS: The Company represents and warrants with respect to this
Agreement and the transactions hereunder and with respect to
any insurance and reinsurance which is covered by this
Agreement and all transactions thereunder, that all
disclosures, approvals and expiry of waiting periods which
are necessary or appropriate under any applicable law or
regulation have been made or obtained, or will be made or
obtained in a timely manner.
-21-
<PAGE> 22
ERRORS AND
OMISSIONS: Inadvertent errors and omissions of any nature made by
either party shall neither increase nor reduce the liability
of either party from what that liability would have been had
no such error or omission taken place. Upon discovery, the
party committing an error or omission shall correct such
error or supply such omission retroactively to the extent
possible to the time such error or omission occurred, and
advise the other party thereof as soon as possible.
NON
TRANSFERABILITY: This Agreement confers no rights, powers, or obligations on
any person or organization other than the Reinsurer and the
Company. Neither this Agreement nor any of the rights,
powers, or obligations of the Reinsurer or the Company under
this Agreement may be in any way transferred or assigned to
any other person or organization without the express written
consent of the Reinsurer and the Company. The granting of
such consent shall be at the sole and absolute discretion of
each of the parties.
OTHER
REINSURANCES: The existence or collectibility of any other reinsurance of
the Company (past, present, or future) shall in no way cause
any liability of the Reinsurer hereunder to be payable
earlier or to be greater than would have been the case in
the absence of such reinsurance and the risk of
uncollectibility of reinsurance shall be with the Company.
PARTIES TO THIS
AGREEMENT: This is an Agreement for indemnity reinsurance solely
between the Company and the Reinsurer. The acceptance of
reinsurance hereunder shall not create any right or legal
relationship whatsoever between the Reinsurer and the
policyholder, the insured or the beneficiary under any
policy reinsured hereunder. The Company shall be and remain
solely liable to the policyholder, the insured or the
beneficiary under any policy reinsured hereunder.
RIGHT OF OFFSET: Both the Company and the Reinsurer shall have, and may
exercise, at any time the right to offset any balance or
balances due the other. Such offset may only include
balances due under this Agreement and any other agreements
heretofore or hereafter entered into between the Company and
the Reinsurer, regardless of whether such balances are in
respect of premiums, or losses or otherwise, and regardless
of the capacity of any party, whether as reinsurer or
reinsured, under the various agreements involved.
-22-
<PAGE> 23
SALVAGE,
SUBROGATION,
AND OTHER
RECOVERIES: In the event of the payment of any indemnity by the
Reinsurer under this Agreement, the Reinsurer shall be
subrogated, to the extent of such payment, to all of the
rights of the Company against any person or entity legally
responsible for damages for the losses paid by the Company.
The Company agrees to enforce such rights, but in case the
Company refuses or neglects to do so, the Reinsurer is
hereby authorized and empowered to bring any appropriate
action in the name of the Company or the Company's
policyholders or otherwise to enforce such rights. In
determining the amount of salvage, subrogation and other
recoveries, there shall first be deducted from any amount
recovered the expenses incurred in effecting the recovery.
The whole of the balance shall then be applied in reduction
of the original losses paid by the Company and the Covered
Losses and the Experience Balance shall be determined or
redetermined accordingly. Any overpayment made by the
Reinsurer because of the computation of loss before the
application of such a recovery shall be refunded promptly by
the Company but no later than three (3) Business Days after
receipt of notice of such overpayment.
TAXES: The Company shall be liable for all taxes, except income and
profit taxes of the Reinsurer, on amounts paid to the
Reinsurer under the terms of this Agreement, and shall
indemnify and hold the Reinsurer harmless for any taxes
which the Reinsurer may become obligated to pay on the
Company's behalf.
FEDERAL EXCISE
TAX: In the event that any Federal Excise Tax is due with respect
to any amounts due under this Agreement, the Company agrees
to pay such tax in addition to any amounts due under this
Agreement and agrees to remit such tax to the United States
Internal Revenue Service and shall indemnify and hold the
Reinsurer harmless for any such taxes which the Reinsurer
may become obligated to pay.
NO WAIVER: No consent or waiver, express or implied, by any other party
to or of any breach or default by any other party in the
performance of its obligations hereunder shall be construed
to be a consent or waiver to or of any other breach or
default in the performance of obligations by such other
party hereunder. Failure on the part of any party to
complain of any act or failure to act of any other party or
to declare any other party in default, irrespective of how
long
-23-
<PAGE> 24
such failure continues, shall not constitute a waiver by
such first party of its rights hereunder.
GOVERNING LAW: It is agreed that, subject to the express provisions of this
Agreement to the contrary, this Agreement shall be governed
by the substantive laws of the State of Delaware, without
regard to its principles of conflict of laws.
SERVICE OF SUIT: Submission To Jurisdiction: It is agreed that in the event
of the failure of the Reinsurer to pay any amount claimed to
be due under this Agreement, the Reinsurer, at the request
of the Company, will submit to the jurisdiction of any Court
of competent jurisdiction within the United States of
America and will comply with all requirements necessary to
give such Court jurisdiction; and all matters arising
hereunder shall be determined in accordance with the law and
practice of such Court and the Reinsurer will abide by the
final decision of such Court or of any Appellate Court in
the event of an appeal.
Service of Process: It is further agreed that service of
process in any suit instituted against the Reinsurer arising
out of this Agreement, may be made upon Morgan, Lewis &
Bockius LLP, 101 Park Avenue, New York, New York 10178-0060,
U.S.A., Attention: F. Sedgwick Browne, and that in such suit
the Reinsurer will abide by the final decision of such Court
or of any Appellate Court in the event of an appeal.
Appearance: Morgan, Lewis & Bockius LLP are authorized and
directed to accept service of process on behalf of the
Reinsurer in any such suit and/or upon the request of the
Company to give a written undertaking to the Company that
they will enter a general appearance upon the Reinsurer's
behalf in the event such a suit shall be instituted.
Insurance Official As Attorney For Service of Process:
Further, pursuant to any statute of any State, Territory or
District of the United States of America which makes
provision therefor, the Reinsurer hereby designates the
Superintendent, Commissioner or Director of Insurance or
other officer specified for that purpose in the statute, or
his successor or successors in office, as their true and
lawful attorney upon whom may be served any lawful process
in any action, suit or proceeding instituted by or on behalf
of the Company or any beneficiary hereunder arising out of
this Agreement, and hereby designates Morgan, Lewis &
Bockius LLP as the party to whom the said officer is
authorized to mail such
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<PAGE> 25
process or a true copy thereof.
REPRESENTATIONS: The Company acknowledges that, at the Reinsurer's request,
it has provided the Reinsurer with the Company Data
described in Schedule 1 prior to the execution of this
Agreement by the Reinsurer. The Company represents that all
factual information contained in the Company Data is
substantially complete and accurate as of the date the
document containing the information was prepared. The
Company further represents that any assumptions made in
preparing the Company Data were based upon informed judgment
and are consistent with sound actuarial principles. The
Company further represents that it is not aware of any
omissions, errors, changes or discrepancies which would
materially affect the Company Data. The Reinsurer has relied
on such data and the foregoing representations in entering
into this Agreement.
WARRANTY: The Company warrants that the Business Covered and all
agreements relating thereto shall not be amended in any
manner whatsoever without the prior and express written
consent of the Reinsurer.
DATES AND TIMES: All dates and times contained in this Agreement, unless
otherwise specified, are New York, New York time.
-25-
<PAGE> 26
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their duly authorized representatives in Hamilton, Bermuda effective as of
December 31, 1998.
METROPOLITAN LIFE INSURANCE COMPANY
BY: ________________________________
Name: ______________________________
Title: _____________________________
STOCKWOOD REINSURANCE COMPANY LTD.
BY: ________________________________
Name: ______________________________
Title: _____________________________
<PAGE> 27
SCHEDULE 1
SCHEDULE 1
The Company Data provided to Stockwood Reinsurance Company Ltd. includes the
following information:
(A) The following e-mails and attachments thereto:
December 14, 1998 e-mail from Joseph Dunn to Mary Rohe, "Re: Revised
Traditional Ordinary Calendar Year Exposure and Paid Death Claims"
December 15, 1998 e-mail from Ronald Rubnich to Mary Rohe, "Trad Ord
Exposure"
December 22, 1998 e-mail from Richard Daillak to Mary Rohe, "Net
amount at risk basis data"
December 23, 1998 e-mail from Richard Daillak to Mary Rohe, "MetLife
Business Definition"
December 23, 1998 e-mail from Richard Daillak to Mary Rohe, "Re:
MetLife Business Definition"
December 23, 1998 e-mail from Richard Daillak to Mary Rohe, "9 mos of
1998, exposure by attained age and sex"
December 28, 1998 e-mail from Richard Daillak to Mary Rohe,
"Metromatic & COLI"
December 28, 1998 e-mail from Richard Daillak to Mary Rohe, "9 mos
1998 exposure and death experience"
(B) The following facsimile transmission:
December 14, 1998 facsimile from Paul Schmieder to Mary Rohe, "Re
Information on Traditional Ordinary Large-sized Policies
<PAGE> 1
Exhibit 10.16
NOTICE: DEFENSE EXPENSES ARE INCLUDED IN LOSS AND SUBJECT TO THE AGGREGATE
LIMIT OF INDEMNITY.
GRANITE STATE INSURANCE COMPANY
(the "Insurance Company")
POLICY NUMBER: 711-34-07
RESTATEMENT OF THE EXCESS ASBESTOS INDEMNITY
INSURANCE POLICY
DECLARATIONS
ITEM 1. NAME OF INSURED: Metropolitan Life Insurance Company
One Madison Avenue
New York, NY 10010
together with its successors and
permitted assigns.
ITEM 2. PERIOD OF
INDEMNIFICATION: From November 30, 1998 (the "Policy
Inception Date") until the earlier of (a)
the exhaustion of the Aggregate Limit of
Indemnity, or (b) the Commutation Date
(as defined in this Policy) (in each case
at 12:01 A.M. at the address stated in
Item 1).
ITEM 3. (A) AGGREGATE LIMIT
OF INDEMNITY: Under this Policy, 50% or Seven Hundred
Fifty Million Dollars ($750,000,000) in the
aggregate part of One Billion Five Hundred
Million Dollars ($1,500,000,000) in the
aggregate for all Loss excess of the
Retention (as hereinafter defined).
(B) ANNUAL SUBLIMIT
AND PER CLAIMANT
LIMIT: As set forth in Section 3 of the Policy.
The Annual Sublimit and the Per Claimant
Limit shall be a part of, and not in
addition to, the Aggregate Limit of
Indemnity.
(C) RETENTION: As set forth in Section 4 of the Policy.
ITEM 4. PREMIUM: Four Hundred Forty Two Million Thirty
Five Thousand Six Hundred Twenty Three
Dollars ($442,035,623) payable in full on or
before December 31, 1998.
NOTICE: THESE POLICY FORMS AND THE APPLICABLE RATES ARE EXEMPT FROM THE
FILING REQUIREMENTS OF THE NEW YORK STATE INSURANCE DEPARTMENT. HOWEVER,
SUCH FORMS AND RATES MUST MEET THE MINIMUM STANDARDS OF THE NEW YORK
INSURANCE LAW AND REGULATIONS.
<PAGE> 2
2
ITEM 5. NOTICES: All Notices under the Policy shall be
made in the manner prescribed in the
Policy to the addresses set forth below;
If to the Insured, to:
Metropolitan Life Insurance Company
One Madison Avenue
New York, NY 10010
Attention: General Counsel
with a copy to: Risk Manager
Facsimile: (212) 578-3916
If to the Insurance Company, to:
Granite State Insurance Company
70 Pine Street
New York, NY 10270
Attention: President, AIG Risk Finance
Facsimile: (212) 482-6098
------------------------
Authorized Representative
As Attorney-in-fact
<PAGE> 3
EXCESS ASBESTOS INDEMNITY INSURANCE POLICY
In consideration of the payment of the Premium and the mutual covenants and
promises herein, in light of the representations and warranties made in
connection herewith, and subject to the Declarations that are a part of this
Excess Asbestos Indemnity Insurance Policy and to the terms, conditions,
exclusions and limitations contained in this Excess Asbestos Indemnity Insurance
Policy (all of which collectively constitute this "Policy"), the Insurance
Company and the Insured hereby agree as follows:
SECTION 1. INSURING AGREEMENT
Subject to the terms and conditions of this Policy (including the Aggregate
Limit of Indemnity, the Annual Sublimit and the Per Claimant Limit), the
Insurance Company will indemnify the Insured during the Period of
Indemnification for the Insurance Company's Quota Share of the excess of (a) any
and all Loss for the defense and settlement of, or payment of judgments in,
Asbestos - Related Claims, arising out of events described in Section 2(C)(ii)
occurring prior to the Policy Inception Date; over (b) the Retention.
SECTION 2. DEFINITIONS
As used in this Policy, the following terms shall have the following meanings:
(A) "Aggregate Limit of Indemnity" has the meaning given to such term in
Item 3(A) of the Declarations of this Policy.
(B) "Annual Sublimit" has the meaning given to such term in Section 3.2
of this Policy.
(C) "Asbestos-Related Claim" means any Claim against the Insured for
Bodily Injury allegedly caused by, arising out of, or relating to,
in whole or in part, any exposure to asbestos, but only where such
Claim:
(i) is sought, or threatened, to be enforced in the
Territory against the Insured; and
(ii) alleges (a) activities of Dr. Anthony J. Lanza on behalf
of the Insured; or (b) the Insured's operation prior to
January 1, 1970 of its Industrial Hygiene Division or
Section, regarding research, testing or reporting of
results associated with asbestos; or (c) any alleged
knowledge of the Insured arising out of the operation
described in clause (ii)(b) above relating to the
Insured's alleged failure to warn of the hazards of
asbestos, or the Insured's alleged
<PAGE> 4
2
participation in any conspiracy, negligent or otherwise,
relating to the hazards of asbestos.
(D) "Bodily Injury" means bodily injury to a person, including without
limitation, illness, sickness, disease, loss of consortium, death,
mental anguish, emotional distress, or fear of cancer.
(E) "Business Day" means any day other than a Saturday, a Sunday or a
day on which banking institutions in New York, New York, or the
Islands of Bermuda are authorized or obligated by law, regulation or
executive order to be closed.
(F) "Claim" means any past, present or future claim, demand, request,
complaint, cross-complaint, cross-claim, right, suit, lawsuit,
action or proceeding or cause of action or order seeking monetary
relief (including, without limitation, punitive or exemplary
damages) or other relief (including, without limitation, medical
monitoring, injunctive or declaratory relief).
(G) "Commutation Date" has the meaning given to such term in Section 8.3
of this Policy.
(H) "Direct Actions" has the meaning given to such term in Section 8.4
of this Policy.
(I) "Disputed Net Loss" has the meaning given to such term in Section
8.1 (C) of this Policy.
(J) "Experience Value" has the meaning given to such term in Section 7.7
of this Policy.
(K) "Insurance Company" has the meaning given to such term in the
Declarations of this Policy.
(L) "Insurance Company's Quota Share" means fifty percent (50.00%).
(M) "Insurance Coverage Claim" means any past, present or future Claim
against the Insured seeking (a) monetary or other relief (including
without limitation, medical monitoring, injunctive or declaratory
relief) from the Insured under any insurance or reinsurance policies
or contracts issued by the Insured, or (b) damages, injunctive or
other relief due to allegedly unlawful claims handling practices of
the Insured, including without limitation, any Claims against the
Insured for bad faith or breach of fiduciary duties due to the
manner in which the Insured investigated, settled or paid claims
under any insurance or reinsurance policies or contracts issued by
the Insured.
(N) "Insured" has the meaning given to such term in Item 1 of the
Declarations of this Policy.
<PAGE> 5
3
(O) "Insured Payments" means (i) all amounts actually paid by the
Insured and (ii) all amounts actually paid on behalf of the Insured
by the issuers of the Settled Policies ("Issuers") in connection
with the Settled Policies excluding (x) payments to the Insured by
the Issuers in connection with the Settled Policies and (y) payments
by the Insured to the Issuers in connection with the Settled
Policies.
(P) "Loss", except as set forth in Section 3.3 of the Claims Handling
and Cooperation Agreement executed simultaneously herewith, means
the amounts of Insured Payments made on or after the Policy
Inception Date,
(i) in investigating or defending any Asbestos-Related
Claims including fees and expenses of the Insured's
national coordinating counsel, other attorneys' fees and
expenses, premiums on attachment or appeal bonds,
pre-judgment and post-judgment interest, and expenses
for experts;
(ii) in settling Asbestos-Related Claims for which:
(a) a written release,
(b) evidence of a physical condition that has been
claimed in the scientific or medical literature to be
caused by exposure to asbestos or asbestos containing
products, and
(c) proof of exposure to asbestos or asbestos containing
products (by way of interrogatory answer, affidavit
(which may be included within the release), personnel
record, work history sheet or other evidence of
exposure)
have been obtained from or in respect of an
individual, identified claimant in connection with
any Asbestos-Related Claims;
(iii) in satisfying judgments in connection with any
Asbestos-Related Claims; and
(iv) in settling Asbestos-Related Claims for which the
documentation set forth in Sections (P)(ii)(a)
through (c) above has not all been obtained,
provided, however, that the cumulative amount of such
payments included in Loss shall be no greater than 5%
of the cumulative amount of Insured Payments made
subsequent to the Policy Inception Date in settling
Asbestos-Related Claims for which such documentation
has been obtained.
"Loss" does not include the salaries, wages, or benefits of the
Insured's permanent or temporary employees, directors or officers,
including in-house lawyers, or the Insured's administrative
expenses, office expenses or overhead.
<PAGE> 6
4
(Q) "Loss Offset" has the meaning given to such term in Section 7.6 of
this Policy.
(R) "Loss Report" has the meaning given to such term in Section 8.1(A)
of this Policy.
(S) "Losses to be paid by the Insurance Company on such Settlement Date"
has the meaning given to such term in Section 7.3(3) of this Policy.
(T) "Per Claimant Average Amount" has the meaning given to such term in
Section 3.4 of this Policy.
(U) "Per Claimant Limit" has the meaning given to such term in Section
3.3 of this Policy.
(V) "Period of Indemnification" has the meaning given to such term in
Item 2 of the Declarations of this Policy.
(W) "Policy Inception Date" has the meaning given to such term in Item 2
of the Declarations of this Policy.
(X) "Premium" has the meaning given to such term in Item 4 of the
Declarations of this Policy.
(Y) "Premium Payment Date" means the day on which the total Premium is
received by the Insurance Company.
(Z) "Reference Value" has the meaning given to such term in Section 7 of
this Policy.
(AA) "Retention" has the meaning given to such term in Section 4 of this
Policy.
(BB) "Scheduled Underlying Policies" means the policies listed in the
attached Schedule A to this Policy.
(CC) "Settled Policies" means those policies issued by Travelers
Insurance Company or Travelers Indemnity Company listed in Schedule
B to this Policy.
(DD) "Settlement Date" has the meaning given to such term in Section 7.1
of this Policy.
(EE) "Territory" means the United States of America, its territories and
possessions and the Commonwealth of Puerto Rico.
SECTION 3. LIMITS OF INSURANCE
3.1. AGGREGATE LIMIT OF INDEMNITY
Regardless of the number of claimants or Asbestos-Related Claims covered under
this Policy, the maximum amount payable by the Insurance Company for all Loss
(including defense expenses) covered under this Policy shall not exceed Seven
Hundred Fifty Million Dollars ($750,000,000)
<PAGE> 7
5
in the absolute aggregate as the Insurance Company's Quota Share of One Billion
Five Hundred Million Dollars ($1,500,000,000) in the absolute aggregate for all
Loss excess of the Retention.
This Aggregate Limit of Indemnity is the maximum amount recoverable by the
Insured under this Policy, excluding payments for commutation under this Policy.
3.2. ANNUAL SUBLIMIT
Subject to the Aggregate Limit of Indemnity described in Section 3.1 above, the
maximum amount payable by the Insurance Company at any Settlement Date for all
Loss in the calendar year immediately prior to such Settlement Date ("calendar
year(x)"), during the Period of Indemnification in respect of Loss under this
Policy shall not exceed the Insurance Company's Quota Share of the Annual
Sublimit for calendar year(x). The Annual Sublimit shall be calculated by the
Insurance Company for calendar year(x) and shall be equal to:
(1) the Per Claimant Average Amount for calendar year(x) multiplied by
(2) the "Number of Individual Asbestos-Related Claims" for calendar
year(x).
A claimant shall be included in the calculation of the "Number of Individual
Asbestos-Related Claims" for calendar year(x) when Loss is paid to that claimant
pursuant to the criteria in Sections 2(P)(ii), (iii) and (iv); provided,
however, that members of the same family without their own independent
asbestos-related injury due to their own exposure to asbestos shall all be
treated for purposes of this Policy as a single Asbestos-Related Claim with the
primary claim notwithstanding the fact that all such individuals may have
provided separate releases.
The "Number of Individual Asbestos-Related Claims" for purposes of the
calculation in the previous paragraph shall be determined by treating claims by
each individual qualifying claimant as a separate Asbestos-Related Claim
regardless of whether claims by such claimant are part of a group or bulk
settlement.
3.3. PER CLAIMANT LIMIT
The Per Claimant Limit shall be One Hundred Fifty Million Dollars
($150,000,000), per claimant.
3.4. PER CLAIMANT AVERAGE AMOUNT
On the 1st through 9th Settlement Dates, the Per Claimant Average Amount shall
be equal to the total amount paid by the Insured in calendar year 1996 for
asbestos-related claims divided by the number 15,750. The total amount paid by
the Insured in calendar year 1996 for such claims shall be agreed by the
Insurance Company and the Insured prior to the Premium Payment Date. Once such
amount is agreed to by the Insurance Company and the Insured, such amount shall
not be adjusted due to the receipt of any additional information or for any
other reason, except with the prior written consent of the Insured and the
Insurance Company.
On the 10th and each subsequent Settlement Date, the Per Claimant Average Amount
for calendar year(x) shall equal the Per Claimant Average Amount from the
previous Settlement Date,
<PAGE> 8
6
increased by the annual inflation change for the previous calendar year(x)-1, if
any, as defined by the United States Consumer Price Index ("CPI") as of the
Settlement Date for which the calculation is being made and calculated by the
Insurance Company as follows:
Per Claimant Average Amount in calendar year(x) shall be equal to the
greater of:
(1) the Per Claimant Average Amount in calendar year(x)-1; or
(2) (the CPI in calendar year(x) divided by the CPI in calendar
year(x)-1) multiplied by the Per Claimant Average Amount in
calendar year(x)-1.
SECTION 4. RETENTION
The Retention to be borne by the Insured under this Policy shall equal in the
aggregate Four Hundred Million Dollars ($400,000,000) plus all Loss paid by the
Insured on or after the Policy Inception Date and prior to the Premium Payment
Date.
SECTION 5. PREMIUM
The Premium of Four Hundred Forty Two Million Thirty Five Thousand Six Hundred
Twenty Three Dollars ($442,035,623) for this Policy shall be payable by the
Insured in full on or before December 31, 1998. The Premium shall be payable to
the Insurance Company in immediately available non-reversible funds, free and
clear of any set-off, counterclaim or other deduction. The Premium shall be
payable to an account specified by the Insurance Company.
The Premium shall be considered fully earned when received by the Insurance
Company.
If the Insured fails to pay the Premium in full and in accordance with the terms
of this Section, this Policy shall not come into effect and shall not in any way
bind the Insurance Company.
SECTION 6. EXCLUSIONS
This Policy does not cover:
(A) Any injury or damage to property (tangible or intangible), real or
personal, including any resulting loss of use or reduction in value
of such property, no matter how such injury, damage, loss of use or
reduction in value occurred.
(B) Payments under any workers' compensation policies or plans, employee
benefit plans, or other employer liability of the Insured.
(C) Any Insurance Coverage Claim.
<PAGE> 9
7
SECTION 7. EXPERIENCE VALUES
7.1. SETTLEMENT DATE
For each calendar year, the Settlement Date will be a date designated by the
Insurance Company, which shall be within thirty-five (35) days of the later of:
(i) the receipt by the Insurance Company of the Insured's Loss Report
for the calendar year last ended; and
(ii) March 3rd of that calendar year.
7.2. ANNUAL SETTLEMENT
On the Settlement Date, the Insurance Company shall:
1. Calculate:
a. The application of the Annual Sublimit to Loss based upon the
Loss Report provided by the Insured;
b. Any Loss Offset payable pursuant to Section 7.6;
c. The remaining Retention;
d. The "Losses to be paid by the Insurance Company on such
Settlement Date" pursuant to Section 7.3(3) below;
e. Disputed Net Loss (if any) pursuant to Section 8.1(C);
f. "Actual amounts to be paid to the Insured" pursuant to Section
7.3(4).
2. Report to the Insured:
a. The calculations of Annual Sublimit, Loss Offset if any,
Retention, remaining Aggregate Limit of Indemnity, and all other
items calculated in Section 7.2(1);
b. The Total Reference Value, together with a detailed calculation
thereof;
c. The Experience Value, together with a detailed calculation
thereof;
d. Schedule of all Disputed Net Loss (if any) pursuant to Section
8.1(C).
3. Pay such amounts as calculated in Sections 7.2(1.e) and 7.2(1.f).
<PAGE> 10
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7.3. CALCULATION OF AMOUNT TO BE PAID AT EACH SETTLEMENT DATE
At each Settlement Date, the Insurance Company shall:
1. Determine the amount of the Annual Sublimit pursuant to Section 3.2.
2. Determine the lesser of:
a. the Annual Sublimit determined pursuant to Section 7.3(1), and
b. the Losses according to the Insured's Loss Report.
3. Calculate the "Losses to be paid by the Insurance Company on such
Settlement Date", which shall equal (a) the Insurance Company's
Quota Share of the quantity arrived at by subtracting any remaining
Retention from the amount determined pursuant to Section 7.3(2)
except that; (b) if the amount determined pursuant to Section
7.3(3)(a) is less than zero (0), the "Losses to be paid by the
Insurance Company on such Settlement Date" shall be deemed to equal
zero (0), and if the amount determined pursuant to Section 7.3(3)(a)
is greater than the remaining Aggregate Limit of Indemnity
immediately prior to the Settlement Date, the "Losses to be paid by
the Insurance Company on such Settlement Date" shall be deemed to
equal the remaining Aggregate Limit of Indemnity immediately prior
to the Settlement Date.
4. Calculate the "Actual amounts to be paid to the Insured", which shall
equal the amount determined pursuant to Section 7.3(3) less Disputed
Net Loss less Loss Offset. Such resulting amount shall not be less than
zero.
5. Determine the amount to be paid into the segregated interest-bearing
account, if any, pursuant to Section 8.1(C) which shall be the lesser
of:
a. the Disputed Net Loss, and
b. the "Losses to be paid by the Insurance Company on such
Settlement Date" minus the Loss Offset.
7.4. DATE CONVENTION; AMOUNTS
Unless otherwise specified, all quantities or values mentioned in this Section 7
are as of the close of business on the subject Settlement Date.
The use of the phrase "or Premium Payment Date" applies only at the first
Settlement Date.
7.5. PRECISE YEARS
<PAGE> 11
9
The Precise Years at the first Settlement Date shall be the actual number of
days elapsed from but not including the Premium Payment Date to and including
three (3) Business Days prior to the first Settlement Date divided by 365.
The Precise Years at each subsequent Settlement Date shall be the actual number
of days elapsed from three (3) Business Days prior to the prior Settlement Date
to three (3) Business Days prior to that Settlement Date divided by the actual
number of days in the year of that Settlement Date.
7.6. LOSS OFFSET
If on any Settlement Date the Reduced Reference Value (as defined below) is less
than the Experience Value, before deducting "Losses to be paid by the Insurance
Company on such Settlement Date", and if the Experience Value is greater than
zero (0), then the Insured shall pay a Loss Offset to the Insurance Company
equal to:
((A) minus (B)) multiplied by ((C) divided by (A)), where:
(A) is equal to the Experience Value before deducting "Losses to be
paid by the Insurance Company on such Settlement Date";
(B) is equal to the Reduced Reference Value; and
(C) is equal to "Losses to be paid by the Insurance Company on such
Settlement Date";
provided, however, in no event shall (C) be greater than (A).
7.7. EXPERIENCE VALUE
The Experience Value shall be a notional value calculated by the Insurance
Company as follows:
1. On the Premium Payment Date, the Experience Value shall be Three
Hundred Ninety Four Million Five Hundred Thousand Dollars
($394,500,000).
2. At each Settlement Date, the Experience Value shall equal:
The Experience Value at the prior Settlement Date (or Premium
Payment Date) multiplied by 1.06 raised to the power of the Precise
Years
Plus
the Insurance Company's Quota Share of any Salvage, subrogation, and
other recoveries that are to the benefit of the Insurance Company
under this Policy and have been paid to the Insured since the prior
Settlement Date or Premium Payment Date
<PAGE> 12
10
Less
"Losses to be paid by the Insurance Company on such Settlement
Date".
7.8. REFERENCE VALUE
(A) TOTAL REFERENCE VALUE
The Total Reference Value at any time shall be equal to the sum of
Reference Value A plus Reference Value B.
(B) ORDER OF LOSS ATTRIBUTION
Losses, Loss Offset, salvage, subrogation, and other recoveries and
charges shall be attributed to Reference Value A until the Number of
Units of Reference Index A shall equal zero (0).
Losses, Loss Offset, salvage, subrogation, and other recoveries and
charges shall next be attributed to Reference Value B.
(C) REDUCED REFERENCE VALUE
The Reduced Reference Value shall be equal to the sum of Reduced
Reference Value A and Reduced Reference Value B.
(D) REFERENCE VALUE A
The Reference Value A for a Settlement Date shall be the Number of
Units of the Reference Index A deemed held by the Insurance Company
multiplied by the Reference Index Unit Value A as of the close of
business three (3) Business Days prior to that Settlement Date.
(1) REFERENCE INDEX A
Reference Index A at any date shall be equal to the Lehman
Brothers Aggregate Bond Index as of the close of business on
such date. If the Lehman Brothers Aggregate Bond Index is not
available or is no longer in existence, then the following
indices will be substituted in order of preference: the
Salomon Broad Investment Grade Index, or the Merrill Lynch
Domestic Master Index. If both of these indices are not
available or are no longer in existence, then the Insured and
the Insurance Company shall mutually agree upon an alternative
index substantially similar to the foregoing indices.
<PAGE> 13
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(2) REFERENCE INDEX UNIT VALUE A
At the Premium Payment Date, the Reference Index Unit Value A
shall be One Million Dollars ($1,000,000).
At three (3) Business Days prior to each Settlement Date, the
Reference Index Unit Value A shall be equal to One Million
Dollars ($1,000,000) multiplied by the published value of the
Reference Index A as of the close of business three (3)
Business Days prior to that Settlement Date divided by the
Reference Index A at the Premium Payment Date. The published
value of Reference Index A at the close of business on the
Premium Payment Date was 840.66.
(3) NUMBER OF UNITS OF THE REFERENCE INDEX A
On the Premium Payment Date, the Number of Units of the
Reference Index A deemed held by the Insurance Company shall
be equal to Two Hundred Eleven Million Seven Hundred Fifty Six
Million Two Hundred Fifty Dollars ($211,756,250) divided by
the Reference Index Unit Value A on the close of business that
date (which results in 211.756250).
On each Settlement Date, the Number of Units of the Reference
Index A shall be the Number of Units of the Reduced Reference
Index A less (J-K)/L where:
J = "Losses to be paid by the Insurance Company on that
Settlement Date" and charges that are attributable to
Reference Value A;
K= Any Loss Offset, plus the Insurance Company's Quota
Share of any salvage, subrogation, and other recoveries,
that are attributable to Reference Value A;
L = The Reference Index Unit Value A as of the close of
business three (3) Business Days prior to that
Settlement Date.
If the Number of Units of Reference Index A shall ever equal
zero (0), it will be zero thereafter.
(4) NUMBER OF UNITS OF THE REDUCED REFERENCE INDEX A
The Number of Units of the Reduced Reference Index A at a
Settlement Date shall be the Number of Units of Reference
Index A deemed held by the Insurance Company at the prior
Settlement Date (or Premium Payment
<PAGE> 14
12
Date) multiplied by the difference between the quantity of one
and the product of .0016 and the Precise Years.
Formula: The Number of Units of the Reduced Reference Index A
at the Settlement Date = (Number of Units of Reference Index A
at prior Settlement Date (or Premium Payment Date)) *
(1-.0016*Precise Years).
(5) REDUCED REFERENCE VALUE A
The Reduced Reference Value A shall be the Number of Units of
the Reduced Reference Index A deemed held by the Insurance
Company multiplied by the Reference Index Unit
Value A.
(E) REFERENCE VALUE B
The Reference Value B for a Settlement Date shall be the Number of
Units of the Reference Index B deemed held by the Insurance Company
multiplied by the Reference Index Unit Value B as of the close of
business three (3) Business Days prior to that Settlement Date.
(1) REFERENCE INDEX B
Reference Index B at any date shall be equal to the Standard &
Poor's 500 Index (Total Return Basis) as of the close of
business on such date. If the Standard & Poor's 500 Index is
not available or is no longer in existence, then the following
indices will be substituted in order of preference: the Morgan
Stanley Capital International Country Index for US, or the
Russell 1000 Index. If both of these indices are not available
or are no longer in existence, then the Insured and the
Insurance Company shall mutually agree upon an alternative
index substantially similar to the foregoing indices.
(2) REFERENCE INDEX UNIT VALUE B
At the Premium Payment Date, the Reference Index Unit Value B
shall be One Million Dollars ($1,000,000).
At three (3) Business Days prior to each Settlement Date, the
Reference Index Unit Value B shall be equal to One Million
Dollars ($1,000,000) multiplied by the published value of the
Reference Index B as of the close of business three (3)
Business Days prior to that Settlement Date divided by the
Reference Index B at the Premium Payment Date. The published
value of the Reference Index B at the close of business on the
Premium Payment Date was 1670.01.
<PAGE> 15
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(3) NUMBER OF UNITS OF THE REFERENCE INDEX B
On the Premium Payment Date, the Number of Units of the
Reference Index B deemed held by the Insurance Company shall
be equal to One Hundred Eighty One Million Nine Hundred Nine
Thousand Dollars ($181,909,000) divided by the Reference Index
Unit Value B as of the close of business on that date (which
results in 181.909).
On each Settlement Date, the Number of Units of the Reference
Index B shall be the Number of Units of the Reduced Reference
Index B less (J-K)/L where:
J = "Losses to be paid by the Insurance Company on that
Settlement Date" and charges that are attributable to
Reference Value B;
K= Any Loss Offset, plus the Insurance Company's Quota
Share of any salvage, subrogation, and other recoveries
that are attributable to Reference Value B;
L = The Reference Index Unit Value B as of the close of
business three (3) Business Days prior to that
Settlement Date.
If the Number of Units of Reference Index B shall ever equal
zero (0), it will be zero thereafter.
(4) NUMBER OF UNITS OF THE REDUCED REFERENCE INDEX B
The Number of Units of the Reduced Reference Index B at a
Settlement Date shall be the Number of Units of Reference
Index B deemed held by the Insurance Company at the prior
Settlement Date (or Premium Payment Date) multiplied by the
difference between the quantity of one (1) and the product of
.0018 and the Precise Years. The Reduction of Notional
Investment Income for Notional Income Taxation is then
subtracted from this amount.
Formula: The Number of Units of the Reduced
Reference Index B at a Settlement Date = (Number of
Units of Reference Index B at prior Settlement Date
(or Premium Payment Date)) * (1-.0018*Precise Years)
- Reduction of Notional Investment Income for
Notional Income Taxation
(a) REDUCTION OF NOTIONAL INVESTMENT INCOME FOR NOTIONAL
INCOME TAXATION
<PAGE> 16
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The Reduction of Notional Investment Income for Notional
Income Taxation shall be equal to 15% of V multiplied by
{(W divided by X) minus (Y divided by Z)}, or
0.15*V*(W/X - Y/Z)
where
V = Number of Units of Reference Index B at the
prior Settlement Date (or on the Premium Payment
Date);
W = Reference Index Unit Value B at the close of
business three (3) Business Days prior to this
Settlement Date;
X = Reference Index Unit Value B at the close of
business three (3) Business Days prior to the
prior Settlement Date (or on the Premium Payment
Date);
Y = Value of the Standard & Poor's 500 Index (not
on a total return basis) at the close of business
three (3) Business Days prior to this Settlement
Date;
Z = Value of the Standard & Poor's 500 Index (not
on a total return basis) at the close of business
three (3) Business Days prior to the previous
Settlement Date (or on the Premium Payment Date,
on which, at the close of business, the value of
the Standard & Poor's 500 Index was 1229.23).
(5) REDUCED REFERENCE VALUE B
The Reduced Reference Value B shall be the Number of Units of
the Reduced Reference Index B deemed held by the Insurance
Company multiplied by the Reference Index Unit Value B.
SECTION 8. CONDITIONS
8.1. REPORTING OF AND PAYMENT FOR LOSS
(A) Within seventy-five (75) days after the end of each calendar
year, the Insured shall furnish the Insurance Company with a
written "Loss Report", providing, in a format acceptable to the
Insurance Company and the Insured, the Loss paid during that
calendar year. Each Loss Report shall provide both the
cumulative position from the Policy Inception Date through the
end of that calendar year and the changes within that calendar
year. The Insured shall also furnish the Insurance Company such
other financial data, and in such format, that the Insurance
Company may reasonably request for completion of its statutory or
other financial
<PAGE> 17
15
statements. The Insured and the Insurance Company agree that, in
light of the commonality of interest evidenced by the execution of
this Policy, furnishing a Loss Report or other financial data
pursuant to this Section 8.1 will not be considered a waiver of any
attorney-client or attorney-work-product privileges.
(B) If the Insurance Company disputes any portion of the amount claimed
by the Insured, the Insurance Company shall nevertheless pay to the
Insured the undisputed portion of the amount claimed. Any payment
pursuant to this Subsection shall not constitute a waiver of the
Insurance Company's objections to the disputed portion of the amount
claimed.
(C) Any disputed amount not paid by the Insurance Company to the
Insured at the relevant Settlement Date shall be deemed "Disputed
Net Loss." With respect to any Disputed Net Loss, the Insurance
Company shall pay on the Settlement Date the Disputed Net Loss
into a segregated interest-bearing account at a bank with a net
worth of at least One Hundred Million Dollars ($100,000,000).
The Insurance Company will provide notice to the Insured on the
Settlement Date of the amount and circumstances of the Disputed
Net Loss and of the details of the segregated account.
Withdrawals from the account shall require either the consent of
both the Insurance Company and the Insured or a final arbitration
award pursuant to Section 8.6. Until such withdrawal, however,
legal ownership of the account and all cash or other assets held
therein shall be in the Insurance Company.
No later than ten (10) days after any agreement between the Insured and the
Insurance Company to settle such disputed amount or a final arbitration award
(to the extent the Insured is successful), the cash and any other assets held in
the account together with the interest income credited thereto net of tax, if
any, thereon at the applicable tax rate on such income shall be immediately paid
to the Insured. To the extent the Insurance Company is successful, then the cash
and any other assets held in the account together with the interest income
credited thereto will be paid to the Insurance Company at the next Settlement
Date, and that amount shall be added into the Reference Value and Experience
Value at such Settlement Date.
8.2. SETTLEMENT OF NATIONAL CLASS ACTION
(A) In the event the Insured is a party to an action asserting Asbestos
Related Claims, which is certified as a "National Class Action" by a
court of competent jurisdiction, and the Insured enters into a
National Class Action Settlement, the Insured at its sole option may
elect either to:
(i) commute the Policy in accordance with Section 8.3
(notwithstanding the permitted dates for commutation stated
therein); or
(ii) irrevocably forego recovery of such settlement amount under this
Policy.
<PAGE> 18
16
(B) Within ten (10) Business Days after the date upon which the National
Class Action Settlement receives final, non-appealable court approval,
the Insured shall notify the Insurance Company of its election
pursuant to paragraph (A) above.
(C) For the purposes of this Section 8.2:
"National Class Action" means an action brought by or on behalf of
one or more classes of individuals located substantially throughout
the Territory who have allegedly sustained or may in the future
sustain Bodily Injury from exposure to asbestos.
"National Class Action Settlement" means a settlement that fully and
finally resolves all then pending and future Asbestos Related
Claims, other than "opt-outs", encompassed by a National Class
Action.
8.3. COMMUTATION
This Policy may be irrevocably commuted by the Insured, upon not less than
thirty (30) days prior written notice to the Insurance Company, (i) effective
December 31, 2008 or on every fifth (5th) year anniversary of such date
occurring thereafter, or (ii) in the event that the greater of the Total
Reference Value or the Experience Value exceeds the remaining Aggregate Limit of
Indemnity during the calendar year. Within thirty (30) days after the effective
date of the commutation (the "Commutation Date"), the Insurance Company shall
pay to the Insured a commutation payment equal to ninety-eight percent (98%) of
the Total Reference Value, three (3) Business Days prior to the Commutation
Date, and the Insured shall provide to the Insurance Company a full release in
form and substance reasonably satisfactory to the Insurance Company, and the
Insurance Company shall be fully and finally released from any and all liability
and obligations under this Policy.
8.4. DIRECT ACTIONS
(A) "Direct Actions" shall mean all claims or proceedings asserted or
initiated against the Insurance Company (whether grounded upon direct
action or "reach and apply" statutes, third-party beneficiary or
garnishment theories, or otherwise) for the purpose of causing the
Insurance Company directly or indirectly, to satisfy claims that have
been or could have been asserted against the Insured, which claims or
proceedings would not or could not have been asserted against the
Insurance Company had the Insurance Company not issued this Policy.
(B) The Insured agrees that if the Insurance Company becomes obligated to
pay any sums as a result of any judgment entered or compromise reached
in a Direct Action, the Insured shall fully indemnify and hold
harmless the Insurance Company for any such sums. The sums so
indemnified by the Insured, together with the costs of defense paid by
the Insured pursuant to Section 8.4(C), shall constitute
<PAGE> 19
17
loss under this Policy, provided, that such sums satisfy the
definition of "Loss" herein.
(C) The Insured shall control, direct and pay the costs of the defense of
any Direct Action including decisions regarding settlement and may
elect to appoint the counsel representing the Insured in the Direct
Action or in other litigation to defend the Insurance Company in the
Direct Action. No position taken by counsel appointed by the Insured
to defend the Insurance Company in a Direct Action shall be used or
shall be otherwise admissible in any fashion in connection with any
dispute between the Insurance Company and the Insured. The Insured
shall not take any coverage position on any issue of coverage under
this Policy which may be in dispute in such Direct Action without the
Insurance Company's prior written input.
(D) In the event the Insured does not control, direct and pay the costs of
the defense of a Direct Action, the Insurance Company shall direct and
control the defense of the Direct Action including decisions regarding
settlement. The Insured shall fully indemnify and hold harmless the
Insurance Company for any legal fees or other costs paid by the
Insurance Company in defense of a Direct Action where the Insured does
not control, direct and pay the costs of such defense.
8.5. NON-TRANSFERABILITY
This Policy confers no rights, powers or obligations on any person or
organization other than the Insurance Company and the Insured. Neither this
Policy nor any of the rights, powers, or obligations of the Insurance Company or
the Insured under it may be in any way transferred or assigned to any other
person or organization without express written consent by the Insurance Company
and the Insured. The granting of such consent shall be at the sole and absolute
discretion of each of the parties.
8.6. ARBITRATION
Except as otherwise agreed upon by the parties in writing:
(A) Resolution of Disputes: Any dispute between the Insured and the
Insurance Company arising out of or in connection with this
Policy or concerning its interpretation or validity or the
performance of the parties hereunder, whether arising before or
after termination of this Policy, shall be submitted exclusively
to arbitration in the manner set forth in this Section 8.6, and
the award shall be the exclusive remedy available to a party
under this Policy. Either party may initiate arbitration of any
such dispute by giving written notice to the other party, by
registered or certified mail, return receipt requested, of its
intention to arbitrate and of its appointment of an arbitrator in
accordance with subsection (C) of this Section 8.6.
<PAGE> 20
18
(B) Composition of Panel: Unless the parties agree upon a single
arbitrator within fifteen (15) days after the receipt of a notice of
intention to arbitrate, all disputes shall be submitted to an
arbitration panel composed of two arbitrators and an umpire, chosen
in accordance with subsections (C) and (D) of this Section 8.6.
(C) Appointment of Arbitrators: The members of the arbitration panel
shall be chosen from disinterested persons having knowledge of
and experience in the insurance, reinsurance and financial issues
relevant to the matters in dispute. The party requesting
arbitration (hereinafter referred to as the "requesting party")
shall appoint an arbitrator and give written notice thereof, by
registered or certified mail, return receipt requested, to the
other party (hereinafter referred to as the "respondent")
together with its notice of intention to arbitrate. Unless a
single arbitrator is agreed upon within fifteen (15) days after
the receipt of the notice of intention to arbitrate, the
respondent shall, within thirty (30) days after receiving such
notice, also appoint an arbitrator and notify the requesting
party thereof in a like manner. Before instituting a hearing, the
two arbitrators so appointed shall choose an umpire. If, within
twenty (20) days after they are both appointed, the arbitrators
fail to agree upon the appointment of an umpire, the umpire shall
be appointed by the President of the American Arbitration
Association.
(D) Failure of Party to Appoint Arbitrator: If the respondent fails to
appoint an arbitrator within thirty (30) days after receiving a
notice of intention to arbitrate, such arbitrator shall be appointed
by the President of the American Arbitration Association, and shall
then, together with the arbitrator appointed by the requesting
party, choose an umpire as provided in subsection (C) of this
Section 8.6.
(E) Choice of Law and Forum: Any arbitration instituted pursuant to
this Section 8.6 shall be held in Wilmington, Delaware. Any
action to enforce any arbitration award or to compel arbitration
shall be brought only in the state courts of the State of
Delaware situated in New Castle County, to the exclusion of all
other courts. The substantive laws of the State of Delaware,
without regard to its conflict of laws rules, shall govern any
action or suit brought to compel any such arbitration or to
enforce any award rendered pursuant to such arbitration.
(F) Submission of Dispute to Panel: Unless otherwise extended by the
arbitration panel, or agreed to by the parties, each party shall
submit its case to the panel within thirty (30) days after the
selection of an umpire.
(G) Procedure Governing Arbitration: All proceedings before the panel
shall be informal, and the panel shall not be bound by the formal
rules of evidence. The panel shall have the power to fix all
procedural rules relating to the arbitration proceeding. In reaching
any decision, the panel shall give due consideration to the customs
and usage of the insurance, reinsurance and finance business.
<PAGE> 21
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(H) Arbitration Award: The arbitration panel shall render its
decision within sixty (60) days after conclusion of the hearing,
which decision shall be in writing, stating the reasons
therefor. The decision of the majority of the panel shall be
final and binding on the parties to the proceeding. Judgment on
the award may be entered in any court of competent jurisdiction,
and execution of any monetary judgment may occur in any
jurisdiction.
(I) Cost of Arbitration: Unless otherwise allocated by the arbitration
panel, each party shall bear the expense of its own arbitrator and
its own witnesses and shall jointly and equally bear with the other
parties the expense of the umpire and the arbitration.
(J) Limit of Power of Arbitration Panel: The arbitration panel does
not have the power to award punitive, multiplied, or exemplary
damages, other similar damages or any extra contractual damages
of any nature or description whatsoever, except to the extent
claimed as a Loss under this Policy, and the Insured and the
Insurance Company expressly waive all rights to punitive,
multiplied, or exemplary damages, other similar damages or any
extra contractual damages of any nature or description
whatsoever, except to the extent claimed as Loss under this
Policy.
8.7. OTHER INSURANCE
The obligation of the Insurance Company to pay Loss under this Policy is in
excess of the limits of liability under all of the Scheduled Underlying Policies
which are applicable to Asbestos-Related Claims. To the extent that the insurer
identified on such Scheduled Underlying Policies refuses or fails to pay any
amounts thereunder with respect to Asbestos-Related Claims, the Insurance
Company shall pay such amounts to the extent such amounts constitute Loss
hereunder, and shall thereafter be subrogated to the Insured's rights against
the non-paying insurers to the extent of any and all such payments by the
Insurance Company.
8.8. AMENDMENT
This Policy may be amended only by mutual consent of the parties expressed in a
written endorsement executed by the parties with the same formalities as this
Policy, and such addendum shall be deemed to be an integral part of this Policy
and binding on the parties hereto.
8.9. CONFIDENTIALITY
Any information that is not independently available from a non-confidential
source and is disclosed to the Insurance Company or its representatives in
connection with this Policy shall be treated as confidential by the Insurance
Company until any such information becomes independently available in
substantially similar form from a non-confidential source (all such information
referred to herein as "Confidential Information"). The Insurance Company shall
use its best efforts to preserve and protect the confidentiality of, and where
applicable, the privilege pertaining to, all Confidential Information. Unless
the Insured gives prior written consent or
<PAGE> 22
20
unless compelled by the law to disclose such information, the Insurance Company
may not disclose Confidential Information to any person other than the legal
representatives, accountants, rating agencies or advisors of the Insurance
Company or its affiliates, or the co-insurers of this Policy and their
respective legal representatives, accountants or advisors (each, an "Authorized
Third Party"), or tax and regulatory authorities, and neither the Company nor
any Authorized Person may use Confidential Information for any purpose except in
connection with the exercise of its rights and obligations under this Policy or
the rights and obligations of the Insurance Company's reinsurers or
retrocessionaires with respect to this Policy. If the Insurance Company
discloses any Confidential Information to any Authorized Third Party, other than
legal representatives, the Insurance Company shall make reasonable efforts to
minimize the amount of information disclosed, taking into consideration the
reason for the disclosure, including where feasible marking all files containing
Confidential Information provided to tax and regulatory authorities as
"Confidential". The Insurance Company shall obtain from any such Authorized
Third Party a written agreement substantially similar to the provisions of this
Section 8.9, to maintain the confidentiality of all Confidential Information.
The Insurance Company shall be responsible for disclosure of Confidential
Information by any Authorized Third Party in violation of this Section 8.9. In
the event the Insurance Company is served with a subpoena or court order
compelling disclosure by the Insurance Company of Confidential Information, the
Insurance Company shall give written notice thereof to the Insured as soon as
reasonably practicable. The Insured may, at its sole option and expense, seek a
protective order or otherwise legally resist such attempts to compel disclosure.
The Insurance Company shall reasonably cooperate with the Insured during the
process of seeking such protective order or otherwise legally resisting such
attempts to compel disclosure.
8.10. NOTICE
(A) Any notice or other information required or authorized by this
Policy to be given by either party to the other may be given by
delivery by hand or by sending it by prepaid certified or registered
mail (or equivalent air mail, if international), or by facsimile
transmission, as set forth under Item 5 in the Declarations.
(B) Either party may change the address for service referred to in
Subsection (A) above by sending notice to the other party in the
manner provided for by this Section to the last address notified for
the purpose of this Section by the other party.
8.11. CAPTIONS AND CATCHLINES
Captions and catchlines used in this Policy are intended solely as aids to
convenient reference. They shall not be considered part of this Policy nor limit
or otherwise affect its meaning, and no inference as to the meaning or intent of
any provision of this Policy may be drawn from them.
<PAGE> 23
21
8.12. RIGHT OF OFFSET
Both the Insured and the Insurance Company shall have, and may exercise, at any
time the right to offset any balance or balances due the other under this
Policy. Except as otherwise agreed by the parties and to the extent provided
for, such offset may only include balances due under this Policy, regardless of
whether such balances are in respect of premiums, or Loss or otherwise, and
regardless of the capacity of any party, under the various agreements involved.
8.13. SALVAGE, SUBROGATION AND OTHER RECOVERIES
In the event of the payment of any indemnity by the Insurance Company under this
Policy, the Insurance Company shall be subrogated, to the extent of such
payment, to all of the rights of the Insured against any person or entity
legally responsible in damages for the Loss paid by the Insured. The Insurance
Company agrees, upon the Insured's request, to assign such subrogation rights to
the Insured. In the event the Insured enforces such rights, any recovery
effected by the Insured shall serve to reduce Loss under the Policy, after
deducting the costs of such recovery.
8.14. CHOICE OF LAW
All disputes arising under this Policy shall be governed by and construed in
accordance with the substantive laws of the State of Delaware, without giving
effect to its conflicts of laws principles.
8.15 NO WAIVER
No consent or waiver, express or implied, by any other party to or of any breach
or default by any other party in the performance of its obligations hereunder
shall be construed to be a consent or waiver to or of any other breach or
default in the performance of obligations by such other party hereunder. Failure
on the part of any party to complain of any act or failure to act of any other
party or to declare any other party in default, irrespective of how long such
failure continues, shall not constitute a waiver by such first party of its
rights hereunder.
8.16 CONSTRUCTION
It is understood and agreed that this Policy is a manuscript policy that has
been negotiated at arm's length and on equal footing as between the Insured and
Insurance Company, and that both parties fully understood and agreed to all the
terms and conditions contained in this Policy. Accordingly, in any dispute
concerning the meaning of this Policy, or any term or condition hereof, such
dispute shall be resolved without reference to the doctrine of contra
proferentem or any related or similar doctrine.
8.17 REPRESENTATION OF INSURED
The Insured has reviewed the terms, conditions, and significance of this Policy
with the legal and tax counsel and the accountants of its choice, and is
accepting this Policy with full knowledge of its terms, conditions and
significance. In accepting this Policy, the Insured is not relying upon any
representation or warranty by the Insurance Company regarding the legal,
regulatory, tax or
<PAGE> 24
22
accounting implications of this Policy for the Insured or the suitability (or
lack thereof) of this Policy for the Insured.
8.18 COUNTERPARTS
This Policy may be executed in two or more counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
instrument.
8.19 CURRENCY
All payments and amounts under this Policy shall be in United States Dollars.
8.20 PREMIUM TAXES
The Insured agrees that it shall pay any additional applicable State tax and any
other related assessments with respect to any additional premium due under this
Policy.
8.21 DATES AND TIMES
All dates and times contained in this Policy, unless otherwise specified, are
New York, New York time.
<PAGE> 25
23
In Witness Whereof, the parties hereto have caused this Policy to be executed by
their duly authorized representatives, effective as of the 31st day of December,
1998.
METROPOLITAN LIFE INSURANCE COMPANY
BY: _______________________________
Name: ______________________________
Title: _______________________________
GRANITE STATE INSURANCE COMPANY
BY:
Name: ______________________________
Title: _______________________________
<PAGE> 26
SCHEDULE A
SCHEDULE UNDERLYING POLICIES
A1
<PAGE> 27
SCHEDULE B
SETTLED POLICIES
B1
<PAGE> 1
EXHIBIT 10.17
RESTATEMENT OF THE
AGGREGATE EXCESS OF LOSS
REINSURANCE AGREEMENT
(hereinafter referred to as the "Agreement")
between
METROPOLITAN LIFE INSURANCE COMPANY
One Madison Avenue
New York, New York 10010
(hereinafter referred to as the "Company")
AND
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY OF NEW YORK
70 Pine Street
New York, New York 10270
(hereinafter referred to as the "Reinsurer")
TYPE: Aggregate Excess of Loss Reinsurance.
EFFECTIVE DATE: The Effective Date of this Agreement shall be 12:01
a.m., New York City Time, December 31, 1998.
TERM: This Agreement shall remain in force and the Term of
this Agreement shall be from the Effective Date of this
Agreement until the earliest of (A) December 31, 2008;
(B) the exhaustion of the Overall Aggregate Limit; or
(C) the Effective Date of Commutation of this Agreement.
COVERAGE: Part A Coverage:
The Reinsurer shall indemnify the Company for Part A
Covered Losses.
Part B Coverage:
The Reinsurer shall indemnify the Company for Part B
Covered Losses.
BUSINESS Part A Business Covered:
COVERED:
Amounts paid or to be paid by the Company as life
insurance benefits, cash values or otherwise to its life
insurance policyholders and annuity contract holders, or
beneficiaries or proper assignees thereof, where such
amounts arise out of policies or contracts issued by the
Company but are in addition to the amounts anticipated
at the time the policies or contracts were issued; and,
where such amounts are payable pursuant to judgments in,
or settlements of, lawsuits or other proceedings
(including without limitation administrative
proceedings)
<PAGE> 2
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alleging that the Company or its agents engaged in
improper sales practices.
Part B Business Covered:
Except as otherwise provided in this Article, Part B
Business Covered shall mean all death benefits for
policies listed in the Company's Notice Business Policy
Master File (NBPMF) that were issued and delivered in
the Part B Subject Territory prior to January 1, 1997,
and were in force as of the Effective Date with a policy
account code of: (1) premium paying (Policy Account Code
=1), (2) fully paid up (Policy Account Code =2), or (3)
single premium (Policy Account Code =9). Policies on (a)
the nonforfeiture reduced paid up option (Policy Account
Code =3) as of the Effective Date or on any other date
during the Term of this Agreement and (b) the
nonforfeiture extended term insurance option (Policy
Account Code =5) as of the Effective Date or on any
other date during the Term of this Agreement are
excluded from coverage under this Agreement. Policy
forms identified by the Company's plan code "Estate
Saver" are also excluded from coverage under this
Agreement. All other policy riders and benefits are
covered by this Agreement except for the Accidental
Death Benefit (ADB), Disability Waiver of Premium
Benefit (DW), Applicant's Waiver of Premium Benefit
(AWB), and Additional Insurance (AI).
SUBJECT
TERRITORY: Part A Subject Territory:
The Reinsurer's liability shall be limited to policies
or contracts issued for delivery in the fifty (50)
States of the United States of America, the District of
Columbia, or Canada for losses occurring in the fifty
(50) States of the United States of America, the
District of Columbia, or Canada.
Part B Subject Territory:
The Reinsurer's liability shall be limited to policies
issued for delivery in the fifty (50) States of the
United States of America and the District of Columbia
for losses occurring in the fifty (50) States of the
United States of America and the District of Columbia.
SUBJECT LOSSES: Part A Subject Losses:
Part A Subject Losses shall mean all Part A Ultimate Net
Loss with Claim Dates on or after the Effective Date of
this Agreement arising from claims made against the
Company on or prior to December 31, 1999 in respect of
the Part A Business Covered hereunder.
<PAGE> 3
3
Part B Subject Losses:
Part B Subject Losses shall mean all Part B Ultimate Net
Loss paid by the Company on or after the Effective Date
of this Agreement as a result of deaths occurring on or
after the Effective Date and on or prior to December 31,
1999 in respect of the Part B Business Covered
hereunder.
COVERED LOSSES: Part A Covered Losses:
Subject to the Overall Aggregate Limit and the Part A
Aggregate Sublimit, Part A Covered Losses shall mean
Fifty Percent (50%) of Part A Subject Losses in excess
of the Part A Aggregate Retention.
Part B Covered Losses:
Subject to the Overall Aggregate Limit and the Part B
Sublimit, Part B Covered Losses shall mean Fifty Percent
(50%) of Part B Subject Losses in excess of the Part B
Aggregate Retention.
RETENTIONS: Part A Aggregate Retention:
Three Hundred Eighty Five Million Dollars
($385,000,000) in the aggregate.
Part B Aggregate Retention:
Five Hundred Six Million Dollars ($506,000,000) plus the
Company's statutory policy reserves released upon death
of an insured or otherwise.
SUBLIMITS: Part A Aggregate Sublimit:
The maximum amount of all Part A Covered Losses
indemnified under this Agreement shall be limited to Two
Hundred Seventy Five Million Dollars ($275,000,000).
This Part A Aggregate Sublimit is the maximum amount
payable by the Reinsurer for Part A Covered Losses under
this Agreement. Under no circumstances will the
Reinsurer be obligated to pay more than this amount in
respect of Part A Covered Losses.
Part B Sublimit
The maximum amount of all Part B Covered Losses
indemnified under this Agreement shall be limited to Two
Million Five Hundred Thousand Dollars ($2,500,000) for
any individual insured.
<PAGE> 4
4
OVERALL AGGREGATE
LIMIT: The Overall Aggregate Limit for the sum of Part A
Covered Losses and Part B Covered Losses combined
under this Agreement shall equal Three Hundred Twenty
Five Million Dollars ($325,000,000).
This Overall Aggregate Limit is the maximum amount
payable by the Reinsurer under this Agreement, excluding
payments for commutation under this Agreement.
REINSURANCE
PREMIUM: The Reinsurance Premium shall equal Two Hundred Sixty
Four Million Five Hundred Thousand Dollars
($264,500,000) and shall be payable in full and
without deduction by the Company on or before
December 31, 1998. The date the Reinsurance Premium
is paid shall be referred to as the "Premium Payment
Date". The Reinsurance Premium shall be payable in
cash by federal wire transfer in immediately
available non-reversible United States Federal Funds
to an account specified by the Reinsurer.
The Reinsurance Premium shall be considered fully earned
when received in the account specified by the Reinsurer.
The Reinsurance Premium is a net amount and includes no
allowance for commissions, brokerage, taxes or any other
costs which may arise in connection with this Agreement
or the Business Covered hereunder. Any such amounts
shall remain the sole responsibility of the Company.
If the Company fails to pay the Reinsurance Premium in
full and in accordance with the terms of this
Reinsurance Premium Section, this Agreement shall not
come into effect and shall not in any way bind the
Reinsurer.
DEFFERED ACQUISITION
COST ("DAC") TAX
REIMBURSEMENT
AMOUNT: The initial DAC Tax Reimbursement Amount is Ten Million
Eight Hundred Forty Five Thousand Four Hundred Thirty
Three Dollars ($10,845,433) and all subsequent
settlements will be calculated on a similar basis to
that set forth hereafter.
For purposes of determining DAC Tax Reimbursement
Amounts, a Contract Payment shall be any payment (other
than a DAC Tax Reimbursement Amount) made under this
reinsurance agreement either by the Company to the
Reinsurer or by the Reinsurer to the Company in
accordance with the principles set forth in Treas. Reg.
Section 1.848 defining net consideration.
<PAGE> 5
5
SETTLEMENT
DATES: The first Settlement Date shall be the later of April
1, 2000, or if such day is not a Business Day, then
the first Business Day thereafter, or, the thirtieth
day after the Reinsurer's receipt of the Company's
Loss Report for the period from the Effective Date to
December 31, 1999 The Settlement Date for calendar
year after 2000 and each calendar year thereafter
shall be the later of April 1 of the following
calendar year or if such day is not a Business Day,
then the first Business Day thereafter, or, the
thirtieth day after the Reinsurer's receipt of the
Company's Loss Report for the prior calendar year, or
if such day is not Business Day, then the first
Business Day thereafter.
BUSINESS DAYS: Business Day shall mean any day other than a Saturday, a
Sunday or a day on which banking institutions in New
York, New York, or the Islands of Bermuda are authorized
or obligated by law, regulation or executive order to be
closed.
EXPERIENCE
BALANCE: The Reinsurer shall establish and maintain a notional
Experience Balance during the time that this Agreement
is in effect and whose balance shall be determined in
accordance with this Experience Balance section.
The Experience Balance at the Premium Payment Date shall
be equal to Two Hundred Sixty One Million Five Hundred
Thousand Dollars ($261,500,000).
The Experience Balance at the first Settlement Date
shall be equal to:
The Experience Balance at the Premium Payment Date
multiplied by (1.0 plus the annual compounded
yield on the one (1) year United States Treasury
Bill as of the close of business on the Premium
Payment Date) raised to the power of the actual
number of days from the Premium Payment Date to
and including the first Settlement Date divided by
the actual number of days in the current calendar
year, multiplied by (1.0 plus (the Federal Funds
rate divided by the actual number of days in the
current calendar year)) for each day between
April 1, 2000 and the first Settlement Date,
LESS
Covered Losses due from the Reinsurer from and
including the Premium Payment Date (through and
including the Settlement Date).
<PAGE> 6
6
The Experience Balance at each Settlement Date
thereafter shall be equal to:
The Experience Balance at the end of the prior
Settlement Date multiplied by (1.0 plus the annual
compounded yield on the one (1) year United States
Treasury Bill maturing closest to April 1 of the
current calendar year) raised to the power of the
actual number of days from the prior Settlement
Date to April 1 of the current calendar year
divided by the actual number of days in the
current calendar year, multiplied by (1.0 plus
(the Federal Funds rate divided by the actual
number of days in the current calendar year)) for
each day between April 1 of the current calendar
year to and including the Settlement Date divided
by the actual number of days in the current
calendar year,
LESS
Covered Losses due from the Reinsurer from but not
including the prior Settlement Date through and
including the current Settlement Date.
ULTIMATE NET LOSS: (a) Part A Ultimate Net Loss:
Part A Ultimate Net Loss as used herein shall mean
the actual sum of all Claim Amounts with Claim
Dates on or after the Effective Date in settlement
of all losses arising in respect of the Part A
Business Covered after making deductions for all
recoveries, all salvage, and all claims upon other
reinsurances, which inure to the benefit of the
Reinsurer under this Agreement, whether
collectable or not,. and shall include Allocated
Loss Adjustment Expenses paid by the Company.
Part B Ultimate Net Loss:
Part B Ultimate Net Loss as used herein shall mean
the actual sum paid by the Company on or after the
Effective Date in settlement of all death claims
arising in respect of the Part B Business Covered
after making deductions for all recoveries, all
salvage, and all claims upon other reinsurances,
which inure to the benefit of the Reinsurer under
this Agreement, whether collectable or not.
(b) All salvages, recoveries, reinsurance or payments
recovered or received subsequent to a loss
settlement under this Agreement shall be applied
as if recovered or received prior to the aforesaid
settlement and all necessary adjustments shall be
made by the parties hereto.
<PAGE> 7
7
(c) Nothing in this definition shall be construed to
mean that losses are not recoverable hereunder
until the Part A Ultimate Net Loss and Part B
Ultimate Net Loss of the Company has been
ascertained.
CLAIM AMOUNT: Claim Amount as used herein shall mean for each
claim, the sum of the amount paid by the
Company on the Claim Date plus the amount
reserved by the Company on the Claim Date on
the basis of New York State statutorily
prescribed mortality, morbidity or interest
rates, arising in respect of the Part A
Business Covered.
CLAIM DATE: Claim Date as used herein shall mean the date of
judgment in, or settlement of, a lawsuit or other
proceeding (including without limitation
administrative proceedings) arising in respect of
the Part A Business Covered.
CLAIMS HANDLING: (a) The Company shall have the sole and absolute
authority with respect to the administration,
defense, settlement and payment of Part A
Covered Losses, subject to the terms and
conditions of this Agreement.
(b) The Company shall retain the sole and absolute
authority with respect to the administration,
defense, settlement and payment of Part B Covered
Losses.
(c) In furtherance of the commonality of interest
evidenced by the execution of this Agreement, the
Company agrees that the Company or the Company's
designated counsel shall provide the Reinsurer
with updated information concerning the present
and future handling of the Part A Covered Losses
on a quarterly basis to allow the Reinsurer to
properly reserve and project payments under this
Agreement and as otherwise reasonably required by
the Reinsurer.
ALLOCATED
LOSS ADJUSTMENT
EXPENSES: Allocated Loss Adjustment Expenses as used
herein shall mean all allocated expenses
incurred by the Company on or after the
Effective Date in connection with the
investigation, settlement, defense or
mitigation of any claim or loss which is the
subject matter of the Part A Business Covered,
and shall exclude salaries and fees of
adjusters, attorneys or other persons who are
employees of the Company, or its designated
claims adjusters, attorneys on permanent
retainer, office expenses, overhead or other
unallocated expenses.
COMMUTATION: This Agreement may be irrevocably commuted by
the Company on (i) December 31, 2008 or, (ii)
in the event that after December 31, 1999 the
Experience Balance exceeds the
<PAGE> 8
8
remaining Part A Aggregate Sublimit during the
calendar year ("Effective Date of Commutation"),
subject to ninety (90) days prior written notice
to the Reinsurer. Within ninety (90) days of such
Effective Date of Commutation, upon receipt from
the Company of a full release in form and
substance reasonably satisfactory to the
Reinsurer, then the Reinsurer shall pay to the
Company a Commutation Settlement equal to Ninety
Nine Percent (99%) multiplied by the positive
Experience Balance, if any, at the Settlement Date
following Commutation, less all amounts due and
payable by the Company to the Reinsurer, under
this or any related agreement and the Reinsurer
and the Company shall be fully and finally
released from all liability and obligations under
or in connection with this Agreement.
REPORTS AND
REMITTANCES: Within sixty (60) days after the end of each
calendar quarter during the Term of this
Agreement, the Company shall provide the
Reinsurer with copies of all loss reports
received or prepared by the Company in
connection with the Business Covered during
that calendar quarter. In addition to the
above, within sixty (60) days after the end of
each calendar quarter, the Company shall
provide to the Reinsurer a written Loss Report,
providing, in a format acceptable to the
Reinsurer and the Company, the following
information in respect of the Business Covered
hereunder for Part A Business Covered:
(1) The amount of Subject Losses paid by the
Company during that calendar quarter.
(2) The net amount of Subject Losses payable but
unpaid by the Company as at the end of the
calendar quarter (the "Net Subject Loss").
(3) The Company's estimate of reserves for Net
Subject Loss and Allocated Loss Adjustment
Expenses, as at the end of that calendar
quarter.
(4) Such other information as to be agreed upon
between the Company and the Reinsurer.
In addition to the above, within sixty (60) days after
the end of each calendar quarter, the Company shall
provide to the Reinsurer a written Loss Report,
providing, in a format acceptable to the Reinsurer, the
following information in respect of the Business Covered
hereunder for Part B Business Covered:
(1) The face amount of death claims paid during the
calendar quarter.
<PAGE> 9
9
(2) The face amount of death claims reported but not
paid as of the end of that calendar quarter.
(3) Statutory reserves released in the calendar quarter
on death claims paid.
(4) Statutory reserves released in the calendar quarter
on death claims reported but not paid.
(5) The face amount of death claims during the calendar
quarter ceded to other reinsurers.
(6) Statutory reserves released in the calendar quarter
on death claims ceded to other reinsurers.
(7) Policy level detail (as detailed in items (1)
through (6) above) for individual insureds with Subject
Losses in excess of Five Million Dollar ($5,000,000).
(8) The Company's estimate of IBNR losses as at the end
of that calendar quarter.
Each Loss Report shall provide both the cumulative
position from the Effective Date through the end of that
calendar quarter and the changes within the calendar
quarter. The first such quarterly Loss Report shall be
due by June 1, 1999 for the period from the Effective
Date through March 31, 1999.
Within sixty (60) days after the end of each calendar
year, the Company shall furnish the Reinsurer with a
written Annual Report, providing, in a format acceptable
to the Reinsurer, the Subject Losses paid by the Company
for that calendar year in respect of the Business
Covered hereunder separately for the Part A Business
Covered and Part B Business Covered.
Covered Losses from the Reinsurer shall be paid by the
Reinsurer to the Company on the Settlement Date for the
calendar year.
All remittances shall be made by federal wire transfer
in immediately available non-reversible United States
Federal Funds to an account specified by the receiving
party.
INSOLVENCY: 1. Reinsurer's Obligation:
In the event of the insolvency of the Company, the
reinsurance afforded by this Agreement shall be payable
by the Reinsurer on the basis of the liability of the
Company under the Business Covered, without diminution
because of such insolvency, directly to the Company or
its liquidator, receiver, conservator, or statutory
successor, except (a) where this Agreement specifically
provides
<PAGE> 10
10
another payee of such reinsurance in the event of the
insolvency of the Company and (b) where the Reinsurer,
with the consent of the direct insured or insureds, has
assumed such policy obligations of the Company as direct
obligations of the Reinsurer to the payees under such
policies and in substitution for the obligations of the
Company to such payees.
2. Reinsurer's Notice and Defense of Claims:
The Reinsurer shall be given written notice of the
pendency of each claim or loss which may involve the
reinsurance afforded by this Agreement within a
reasonable time after such claim or loss is filed in the
insolvency proceedings. The Reinsurer shall have the
right to investigate each such claim or loss and
interpose at its own expense, in the proceeding where
the claim or loss is to be adjudicated, any defense
which it may deem available to the Company or its
liquidator, receiver, conservator, or statutory
successor. If more than one Reinsurer is involved, they
may designate one Reinsurer to act for all.
3. Defense Expense:
The expense thus incurred by the Reinsurer shall be
chargeable, subject to court approval, against the
insolvent Company as part of the expense of liquidation
to the extent of a proportionate share of the benefit
which may accrue to the Company solely as a result of
the defense undertaken by the Reinsurer.
4. Offset:
Any debts or credits, liquidated or unliquidated, in
favor of or against either party under this Agreement on
the date of the receivership or liquidation order
(except where the obligation was purchased by or
transferred to be used as an offset) are deemed mutual
debts or credits and shall be set off with the balance
only to be allowed or paid. Although such claim on the
part of either party may be unliquidated or undetermined
in amount on the date of the entry of the receivership
or liquidation order, such claim will be regarded as
being in existence as of such date and any credits or
claims then in existence and held by the other party may
be offset against it.
5. Rights of Parties:
Nothing hereinabove set forth in this Insolvency Section
shall in any way change the relationship or status of
the parties hereto, nor enlarge the obligations of
either party to each other except as specifically
hereinabove provided, to wit, to pay the statutory
successor on the basis of the amount of liability
determined in the liquidation or receivership
proceeding, rather than on the basis of the actual
amount of loss (dividends) paid by the liquidator,
receiver, conservator, or statutory successor to allowed
claimants. Nor, except as hereinabove
<PAGE> 11
11
specifically provided, shall anything in this Insolvency
Section in any manner create any obligation or establish
any right against the Reinsurer in favor of any third
parties or any other persons not parties to this
Agreement.
ARBITRATION: Except as otherwise agreed upon by the parties:
1. Resolution of Disputes: Any dispute between the
Company and the Reinsurer arising out of the
provisions of this Agreement, or concerning its
interpretation or validity, whether arising before
or after termination of this Agreement, shall be
submitted to arbitration in the manner set forth
in this Article. Either party may initiate
arbitration of any such dispute by giving written
notice to the other party, by registered or
certified mail, return receipt requested, of its
intention to arbitrate and of its appointment of
an arbitrator in accordance with subsection (3) of
this Article.
2. Composition of Panel: Unless the parties agree
upon a single arbitrator within fifteen (15) days
after the receipt of a notice of intention to
arbitrate, all disputes shall be submitted to an
arbitration panel composed of two arbitrators and
an umpire, chosen in accordance with subsections
(3) and (4) of this Article.
3. Appointment of Arbitrators: The members of the
arbitration panel shall be chosen from
disinterested persons having knowledge of the
insurance, reinsurance and financial issues
relevant to the matters in dispute. The party
requesting arbitration (hereinafter referred to as
the "requesting party") shall appoint an
arbitrator and give written notice thereof, by
registered or certified mail, return receipt
requested, to the other party (hereinafter
referred to as the "respondent") together with its
notice of intention to arbitrate. Unless a single
arbitrator is agreed upon within fifteen (15) days
after the receipt of the notice of intention to
arbitrate, the respondent shall, within thirty
(30) days after receiving such notice, also
appoint an arbitrator and notify the requesting
party thereof in a like manner. Before instituting
a hearing, the two arbitrators so appointed shall
choose an umpire. If, within twenty (20) days
after they are both appointed, the arbitrators
fail to agree upon the appointment of an umpire,
the umpire shall be appointed by the President of
the American Arbitration Association.
4. Failure of Party to Appoint Arbitrator: If the
respondent fails to appoint an arbitrator within
thirty (30) days after receiving a notice of
intention to arbitrate, such arbitrator shall be
appointed by the President of the American
Arbitration Association, and shall then, together
with the arbitrator
<PAGE> 12
12
appointed by the requesting party, choose an
umpire as provided in subsection (3) of this
Article.
5. Involvement of Other Reinsurers: (a) If more than
one Reinsurer of this Agreement is involved in the
same dispute, all such Reinsurers shall constitute
and act as one party for purposes of this Article
and communication shall be made by the Company to
each of the Reinsurers constituting the one party;
provided, however, nothing herein shall impair the
right of such Reinsurers to assert several, rather
than joint, defenses or claims, nor be construed
as changing the liability of the Reinsurers under
the terms of this Agreement from several to joint.
(b) If the Company is involved in a dispute under
the terms of this Agreement and in one or more
separate disputes with one or more other insurers
or reinsurers in which common questions of law or
fact are in issue, the Company or Reinsurer, at
their option, may join with such other insurers or
reinsurers in a common arbitration proceeding
under the terms of this Article. If the Company
and such other insurers or reinsurers have
commenced arbitration, the Reinsurers may at its
option join such proceeding for the determination
of the dispute between the Company and Reinsurer.
6. Choice of Law and Forum: Any arbitration
instituted pursuant to this Article shall be held
in Wilmington, Delaware. Any action to enforce
any arbitration award or to compel arbitration
shall be brought only in the state courts of the
State of Delaware situated in New Castle County,
to the exclusion of all other courts. The
substantive laws of the State of Delaware,
without regard to its conflict of laws rules,
shall govern any action or suit brought to compel
any such arbitration or to enforce any award
rendered pursuant to such arbitration.
7. Submission of Dispute to Panel: Unless otherwise
extended by the arbitration panel, or agreed to by
the parties, each party shall submit its case to
the panel within thirty (30) days after the
selection of an umpire.
8. Procedure Governing Arbitration: All proceedings
before the panel shall be informal and the panel
shall not be bound by the formal rules of
evidence. The panel shall have the power to fix
all procedural rules relating to the arbitration
proceeding. In reaching any decision, the panel
shall give due consideration to the customs and
usage of the insurance, reinsurance and finance
business.
<PAGE> 13
13
9. Arbitration Award: The arbitration panel shall
render its decision within sixty (60) days after
termination of the proceeding, which decision
shall be in writing, stating the reasons therefor.
The decision of the majority of the panel shall be
final and binding on the parties to the proceeding
and their permitted successors and assigns.
Judgment on the award may be entered in any court
of competent jurisdiction and execution of any
monetary judgment may occur in any jurisdiction.
10. Cost of Arbitration: Unless otherwise allocated by
the panel, each party shall bear the expense of
its own arbitrator and its own witnesses and shall
jointly and equally bear with the other parties
the expense of the umpire and the arbitration.
11. Limit of Authority of Arbitration Panel: The
arbitration panel does not have the power to award
punitive, multiplied, or exemplary damages, other
similar damages or any extra contractual damages
of any nature or description whatsoever except to
the extent claimed as Subject Loss under this
Agreement, and each of the Company and the
Reinsurer expressly waives all rights to punitive,
multiplied, or exemplary damages, other similar
damages or any extra contractual damages of any
nature or description whatsoever except to the
extent claimed as a Subject Loss under this
Agreement.
WAIVER OF PUNITIVE
DAMAGES: The Company and the Reinsurer agree that in no
event shall either party be entitled to any
award against the other of punitive,
multiplied, or exemplary damages, other similar
damages or any extra contractual damages of any
nature or description whatsoever, and each of
the Company and the Reinsurer both expressly
waives all rights to punitive, multiplied, or
exemplary damages, other similar damages or any
extra contractual damages of any nature or
description whatsoever except to the extent
claimed as a Subject Loss under this Agreement.
EXCLUSIONS:
(A) Ex Gratia Payments: Part B Covered Losses under
this Agreement shall exclude any Ex Gratia
Payments except to the extent consented to by the
Reinsurer. "Ex Gratia Payments" as used herein
means a claim payment not required by the terms of
the underlying insurance policies covered by this
Agreement.
(B) Insolvency Funds: The Reinsurer shall not be
obligated to pay to the Company any share of any
liability of the Company
<PAGE> 14
14
arising, by contract, operation of law, or
otherwise, from participation or membership of the
Company or any of its affiliates, whether
voluntary or involuntary, in any insolvency fund
or from reimbursement of any person for any such
liability. "Insolvency Fund" includes any guaranty
or insolvency fund, plan, pool, association, or
other arrangement howsoever denominated,
established or governed, which provides for any
assessment of or payment or assumption by any
person of part or all of any claim, debt, charge,
fee, or other obligation of any insurer, or its
successors or assigns which has been declared to
be insolvent, or which is otherwise deemed unable
to meet any claim, debt, charge, fee or other
obligation in whole or in part.
(C) Assessments: This Agreement does not cover
assessments of any nature whatsoever levied
against the Company.
(D) Dividends: The Reinsurer shall not participate in
the determination of, nor reimburse the Company
for, any policyholder or other dividends paid by
the Company.
(E) Assumed Reinsurance: This Agreement does not cover
reinsurance assumed by the Company.
AMENDMENTS: This Agreement may be amended only by mutual consent of
the parties expressed in a written addendum executed by
the parties with the same formalities as this Agreement,
and such addendum shall be deemed to be an integral part
of this Agreement and binding on the parties hereto.
ACCESS TO RECORDS: The Reinsurer shall have the right to examine, at any
reasonable time, all papers, books, accounts,
documents and other records of the Company or any
agent or employee of the Company including any claims
adjuster or any other person acting on behalf of the
Company relating to the business covered hereunder.
Upon the Reinsurer's request, the Company shall
supply the Reinsurer, at the Reinsurer's expense,
with copies of the whole or any part of such papers,
books, accounts, documents and other records relating
to the business covered hereunder. The Reinsurer's
right of inspection under this Access to Records
section shall continue to exist after termination of
this Agreement as long as one of the parties hereto
has a claim against any other arising from this
Agreement.
CAPTIONS AND
CATCHLINES: Captions and catchlines used in this Agreement are
intended solely as aids to convenient reference. They
shall not be considered part of this Agreement nor limit
or otherwise affect its meaning, and no inference as to
the meaning or intent of any provision of this Agreement
may be drawn from them.
<PAGE> 15
15
OTHER REINSURANCES: The existence or collectibility of any other reinsurance
of the Company (past, present, or future) shall in no
way cause any liability of the Reinsurer hereunder to be
payable earlier or to be greater than would have been
the case in the absence of such reinsurance and the risk
of uncollectibility of reinsurance shall be with the
Company.
COUNTERPARTS: This Agreement may be executed in two or more
counterparts, each of which shall be deemed an
original, but all of which together shall constitute
one and the same instrument.
DISCLOSURES
AND APPROVALS: The Company represents and warrants with respect to
this Agreement and the transactions hereunder and
with respect to any insurance and reinsurance which
is covered by this Agreement and all transactions
thereunder, that all disclosures, approvals and
expiry of waiting periods which are necessary or
appropriate under any applicable law or regulation
have been made or obtained, or will be made or
obtained in a timely manner.
ERRORS AND
OMISSIONS: Inadvertent errors and omissions of any nature made
by either party shall neither increase nor reduce the
liability of either party from what that liability
would have been had no such error or omission taken
place. Upon discovery, the party committing an error
or omission shall correct such error or supply such
omission retroactively to the extent possible to the
time such error or omission occurred, and advise the
other party thereof as soon as possible.
NON TRANSFERABILITY: This Agreement confers no rights, powers, or
obligations on any person or organization other than
the Reinsurer and the Company. Neither this Agreement
nor any of the rights, powers, or obligations of the
Reinsurer or the Company under this Agreement may be
in any way transferred or assigned to any other
person or organization without the express written
consent of the Reinsurer and the Company. The
granting of such consent shall be at the sole and
absolute discretion of each of the parties.
PARTIES TO THIS
AGREEMENT: This is an Agreement for indemnity reinsurance solely
between the Company and the Reinsurer. The acceptance
of reinsurance hereunder shall not create any right or
legal relationship whatsoever between the Reinsurer and
the policyholder, the insured or the beneficiary under
any policy reinsured hereunder. The Company shall be
and remain solely liable to the policyholder, the
insured or the beneficiary under any policy reinsured
hereunder.
RIGHT OF OFFSET: Both the Company and the Reinsurer shall have, and
may exercise, at any time the right to offset any
balance or balances due the other.
<PAGE> 16
16
Such offset may only include balances due under this
Agreement and any other agreements heretofore or
hereafter entered into between the Company and the
Reinsurer, regardless of whether such balances are in
respect of premiums, or losses or otherwise, and
regardless of the capacity of any party, whether as
reinsurer or reinsured, under the various agreements
involved.
SALVAGE,
SUBROGATION,
AND OTHER
RECOVERIES: In the event of the payment of any indemnity by the
Reinsurer under this Agreement, the Reinsurer shall
be subrogated, to the extent of such payment, to all
of the rights of the Company against any person or
entity legally responsible for damages for the losses
paid by the Company. The Company agrees to enforce
such rights, but in case the Company refuses or
neglects to do so, the Reinsurer is hereby authorized
and empowered to bring any appropriate action in the
name of the Company or the Company's policyholders or
otherwise to enforce such rights. In determining the
amount of salvage, subrogation and other recoveries,
there shall first be deducted from any amount
recovered the expenses incurred in effecting the
recovery. The whole of the balance shall then be
applied in reduction of the original losses paid by
the Company and the Covered Losses and the Experience
Balance shall be determined or redetermined
accordingly. Any overpayment made by the Reinsurer
because of the computation of loss before the
application of such a recovery shall be refunded
promptly by the Company but no later than three (3)
Business Days after receipt of notice of such
overpayment.
TAXES: The Company shall be liable for all taxes, except income
and profit taxes of the Reinsurer, on amounts paid to
the Reinsurer under the terms of this Agreement, and
shall indemnify and hold the Reinsurer harmless for any
taxes which the Reinsurer may become obligated to pay on
the Company's behalf.
DAC TAXES: The Company and the Reinsurer agree to elect jointly
under Treas. Reg. Section 1.848-2(g)(8) that:
(a) The party with the net positive consideration under
this Agreement is required to capitalize specified
policy acquisition expenses without regard to the
general deductions limitation of Section 848(c)(1)
of the Internal Revenue Code of 1986, as amended.
The first year for which the joint election is
effective is 1998.
(b) This joint election shall be effective for all
taxable years under this Agreement.
The parties agree to exchange information pertaining to
the amount of net consideration as determined under
Treas. Reg. Sections 1.848-
<PAGE> 17
17
2(f) or 1.848-2(g)(2) and 1.848-3, whichever is
applicable, under this Agreement to insure consistency
or as is otherwise required by the Internal Revenue
Service.
The parties agree to take all items of net consideration
into account for the same taxable year as required under
Treas. Reg. Section 1.848-2(f)(4). The parties also
agree to exchange such information as may be necessary
to implement this requirement.
The parties represent and warrant that they are subject
to U.S. taxation under subchapter L of chapter 1 of the
Internal Revenue Code.
DAC TAX
REIMBURSEMENT
AMOUNT: In addition to and simultaneously with any Contract
Payment under this Agreement, the party making the
payment agrees to pay the party receiving the payment
an amount to compensate the party receiving the
payment on an after-tax basis for any DAC tax
incurred. Under the current tax law, the amount
shall be X divided by Y where
X = The product of the Contract Payment multiplied by
7.7% multiplied by 95% multiplied by 35%, and
Y = 65% minus the product of 7.7% multiplied by 95%
multiplied by 35%.
The initial DAC Tax Reimbursement Amount corresponding
to the Contract Payment consisting solely of the
Reinsurance Premium is $10,845,433. If the Internal
Revenue Code is amended to change the DAC tax, the
formula for determining DAC Tax Reimbursement shall be
appropriately adjusted.
Commencing one year after the payment of any DAC Tax
Reimbursement Amount generated by a Contract Payment as
described above, the party that received such payment
shall pay the other party an amount so that on an
after-tax basis the other party is compensated for the
tax cost of the DAC amortization. Under current law a
party that made payment of a DAC Tax Reimbursement
Amount generated by a Contract Payment will be entitled
to receive payments of DAC Tax Reimbursement Amounts
equal to the product of the original DAC Tax
Reimbursement Amount multiplied bv 10% divided by 95% in
each of the nine years following the Contract Payment
and by 5% divided by 95% in the tenth year following
Contract Payment.
FEDERAL EXCISE
TAX: In the event that any Federal Excise Tax is due with
respect to any amounts due under this Agreement, the
Company agrees to pay such
<PAGE> 18
18
tax in addition to any amounts due under this Agreement
and agrees to remit such tax to the United States
Internal Revenue Service and shall indemnify and hold
the Reinsurer harmless for any such taxes which the
Reinsurer may become obligated to pay.
NO WAIVER: No consent or waiver, express or implied, by any
other party to or of any breach or default by any
other party in the performance of its obligations
hereunder shall be construed to be a consent or
waiver to or of any other breach or default in the
performance of obligations by such other party
hereunder. Failure on the part of any party to
complain of any act or failure to act of any other
party or to declare any other party in default,
irrespective of how long such failure continues,
shall not constitute a waiver by such first party of
its rights hereunder.
GOVERNING LAW: It is agreed that, subject to the express provisions of
this Agreement to the contrary, this Agreement shall be
governed by the substantive laws of the State of
Delaware, without regard to its principles of conflict
of laws.
REPRESENTATIONS: The Company acknowledges that, at the Reinsurer's
request, it has provided the Reinsurer with the Company
Data described in Schedule 1 prior to the execution of
this Agreement by the Reinsurer. The Company represents
that all factual information contained in the Company
Data is substantially complete and accurate as of the
date the document containing the information was
prepared. The Company further represents that any
assumptions made in preparing the Company Data were
based upon informed judgment and are consistent with
sound actuarial principles. The Company further
represents that it is not aware of any omissions,
errors, changes or discrepancies which would materially
affect the Company Data. The Reinsurer has relied on
such data and the foregoing representations in entering
into this Agreement.
WARRANTIES: The Company warrants that the Business Covered and
all agreements relating thereto shall not be amended
in any manner whatsoever without the prior and
express written consent of the Reinsurer.
CURRENCY: All payments hereunder shall be made in United States
Dollars. All monetary amounts herein are in United
States Dollars. All reports and accounts hereunder
shall be rendered in United States Dollars. For the
purpose of this Agreement, where the Company pays
amounts in currencies other than United States
Dollars, such amounts shall be converted into United
States Dollars at the actual rate of exchange at
which such amounts are entered in the Company's books.
DATES AND TIMES: All dates and times contained in this Agreement, unless
otherwise specified, are New York, New York time.
<PAGE> 19
19
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their duly authorized representatives, effective as of the 31st day of
December, 1998.
METROPOLITAN LIFE INSURANCE COMPANY
BY:
------------------------------------
Name:
------------------------------------
Title:
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY OF NEW YORK
BY:
------------------------------------
Name:
------------------------------------
Title:
<PAGE> 20
EXHIBIT A
SCHEDULE 1
The Company Data includes the following information:
(A) The following e-mails and attachments thereto:
December 14, 1998 e-mail from Joseph Dunn to Mary Rohe, "Re: Revised
Traditional Ordinary Calendar Year Exposure and Paid Death Claims"
December 15, 1998 e-mail from Ronald Rubnich to Mary Rohe, "Trad Ord
Exposure"
December 22, 1998 e-mail from Richard Daillak to Mary Rohe, "Net amount at
risk basis data"
December 23, 1998 e-mail from Richard Daillak to Mary Rohe, "MetLife
Business Definition"
December 23, 1998 e-mail from Richard Daillak to Mary Rohe, "Re:
MetLife Business Definition"
December 23, 1998 e-mail from Richard Daillak to Mary Rohe, "9 mos of
1998, exposure by attained age and sex"
December 28, 1998 e-mail from Richard Daillak to Mary Rohe, "Metromatic &
COLI"
December 28, 1998 e-mail from Richard Daillak to Mary Rohe, "9 mos 1998
exposure and death experience"
(B) The following facsimile transmission:
December 14, 1998 facsimile from Paul Schmieder to Mary Rohe, "Re
Information on Traditional Ordinary Large-sized Policies
<PAGE> 1
Exhibit 10.18
CONFORMED COPY
FIVE-YEAR CREDIT AGREEMENT
dated as of
April 27, 1998
among
METROPOLITAN LIFE INSURANCE COMPANY
METLIFE FUNDING, INC.,
as Borrowers
The LENDERS Party Hereto
CREDIT SUISSE FIRST BOSTON,
as Syndication Agent and Co-Arranger
CITIBANK, N.A.
THE BANK OF NEW YORK,
as Documentation Agents
and
THE CHASE MANHATTAN BANK,
as Administrative Agent
$1,000,000,000
CHASE SECURITIES INC.,
as Arranger
Exhibits B and C are photocopies of the documents as delivered
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I Definitions........................................................................................... 1
SECTION 1.01. DEFINED TERMS...................................................................... 1
SECTION 1.02. CLASSIFICATION OF LOANS AND BORROWINGS............................................. 14
SECTION 1.03. TERMS GENERALLY.................................................................... 15
SECTION 1.04. ACCOUNTING TERMS; GAAP; SAP........................................................ 15
ARTICLE II The Credits.......................................................................................... 16
SECTION 2.01. COMMITMENTS........................................................................ 16
SECTION 2.02. LOANS AND BORROWINGS............................................................... 16
SECTION 2.03. REQUESTS FOR REVOLVING BORROWINGS.................................................. 17
SECTION 2.04. COMPETITIVE BID PROCEDURE.......................................................... 17
SECTION 2.05. FUNDING OF BORROWINGS.............................................................. 20
SECTION 2.06. INTEREST ELECTIONS................................................................. 20
SECTION 2.07. TERMINATION AND REDUCTION OF COMMITMENTS........................................... 21
SECTION 2.08. REPAYMENT OF LOANS; EVIDENCE OF DEBT............................................... 22
SECTION 2.09. PREPAYMENT OF LOANS................................................................ 23
SECTION 2.10. FEES............................................................................... 24
SECTION 2.11. INTEREST........................................................................... 24
SECTION 2.12. ALTERNATE RATE OF INTEREST......................................................... 25
SECTION 2.13. INCREASED COSTS.................................................................... 26
SECTION 2.14. BREAK FUNDING PAYMENTS............................................................. 27
SECTION 2.15. TAXES.............................................................................. 27
SECTION 2.16. PAYMENTS GENERALLY; PRO RATA TREATMENT; SHARING OF SET-OFFS........................ 28
SECTION 2.17. MITIGATION OBLIGATIONS; REPLACEMENT OF LENDERS..................................... 30
SECTION 2.18. INCREASE IN COMMITMENTS............................................................ 30
ARTICLE III Representations and Warranties...................................................................... 31
SECTION 3.01. ORGANIZATION; POWERS............................................................... 31
SECTION 3.02. AUTHORIZATION; ENFORCEABILITY...................................................... 31
SECTION 3.03. GOVERNMENTAL APPROVALS; NO CONFLICTS............................................... 32
SECTION 3.04. FINANCIAL CONDITION; NO MATERIAL ADVERSE CHANGE.................................... 32
SECTION 3.05. PROPERTIES......................................................................... 32
SECTION 3.06. LITIGATION AND ENVIRONMENTAL MATTERS............................................... 32
SECTION 3.07. COMPLIANCE WITH LAWS AND AGREEMENTS................................................ 33
SECTION 3.08. INVESTMENT AND HOLDING COMPANY STATUS.............................................. 33
</TABLE>
(i)
<PAGE> 3
<TABLE>
Page
----
<S> <C>
SECTION 3.09. TAXES.............................................................................. 33
SECTION 3.10. ERISA.............................................................................. 33
SECTION 3.11. DISCLOSURE......................................................................... 33
SECTION 3.12. MARGIN STOCK....................................................................... 34
SECTION 3.13. YEAR 2000.......................................................................... 34
ARTICLE IV Conditions........................................................................................... 34
SECTION 4.01. EFFECTIVE DATE..................................................................... 34
SECTION 4.02. EACH CREDIT EVENT.................................................................. 35
ARTICLE V Affirmative Covenants................................................................................. 35
SECTION 5.01. FINANCIAL STATEMENTS AND OTHER INFORMATION......................................... 36
SECTION 5.02. NOTICES OF DEFAULTS................................................................ 36
SECTION 5.03. EXISTENCE; CONDUCT OF BUSINESS..................................................... 37
SECTION 5.04. PAYMENT OF OBLIGATIONS............................................................. 37
SECTION 5.05. MAINTENANCE OF PROPERTIES; INSURANCE............................................... 37
SECTION 5.06. BOOKS AND RECORDS; INSPECTION RIGHTS............................................... 37
SECTION 5.07. COMPLIANCE WITH LAWS............................................................... 37
SECTION 5.08. USE OF PROCEEDS.................................................................... 37
SECTION 5.09. SUPPORT AGREEMENT.................................................................. 38
ARTICLE VI Negative Covenants................................................................................... 38
SECTION 6.01. LIENS.............................................................................. 38
SECTION 6.02. FUNDAMENTAL CHANGES................................................................ 39
SECTION 6.03. TRANSACTIONS WITH AFFILIATES....................................................... 40
SECTION 6.04. NET WORTH.......................................................................... 40
ARTICLE VII Events of Default................................................................................... 40
ARTICLE VIII Agents............................................................................................. 42
SECTION 8.01. ADMINISTRATIVE AGENT............................................................... 42
SECTION 8.02. SYNDICATION AGENT AND CO-ARRANGER.................................................. 44
SECTION 8.03. DOCUMENTATION AGENTS............................................................... 44
ARTICLE IX Miscellaneous........................................................................................ 45
SECTION 9.01. NOTICES............................................................................ 45
SECTION 9.02. WAIVERS; AMENDMENTS................................................................ 45
SECTION 9.03. EXPENSES; INDEMNITY: DAMAGE; WAIVER................................................ 46
SECTION 9.04. SUCCESSORS AND ASSIGNS............................................................. 47
</TABLE>
(ii)
<PAGE> 4
<TABLE>
Page
----
<S> <C>
SECTION 9.05. SURVIVAL........................................................................... 49
SECTION 9.06. COUNTERPARTS; INTEGRATION; EFFECTIVENESS........................................... 50
SECTION 9.07. SEVERABILITY....................................................................... 50
SECTION 9.08. RIGHT OF SETOFF.................................................................... 50
SECTION 9.09. GOVERNING LAW; JURISDICTION; CONSENT TO SERVICE OF PROCESS......................... 50
SECTION 9.10. WAIVER OF JURY TRIAL............................................................... 51
SECTION 9.11. HEADINGS........................................................................... 51
SECTION 9.12. CONFIDENTIALITY.................................................................... 51
SECTION 9.13. BILATERAL LINES.................................................................... 52
</TABLE>
SCHEDULES:
Schedule 2.01 -- Commitments
Schedule 3.06 -- Disclosed Matters
EXHIBITS:
Exhibit A -- Form of Assignment and Acceptance
Exhibit B -- Form of Opinion of Counsel to the Borrowers
Exhibit C -- Form of Opinion of Special New York Counsel to Chase
(iii)
<PAGE> 5
Five-Year CREDIT AGREEMENT dated as of April 27, 1998, among:
METROPOLITAN LIFE INSURANCE COMPANY (the "Company") and METLIFE FUNDING INC.
("Funding" and together with the Company, the "Borrowers"); the LENDERS party
hereto; and THE CHASE MANHATTAN BANK, as Administrative Agent.
The parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Defined Terms. As used in this Agreement, the
following terms have the meanings specified below:
"ABR", when used in reference to any Loan or Borrowing, refers to
whether such Loan, or the Loans comprising such Borrowing, are bearing interest
at a rate determined by reference to the Alternate Base Rate.
"Adjusted LIBO Rate" means, with respect to any Eurodollar
Borrowing for any Interest Period, an interest rate per annum (rounded upwards,
if necessary, to the next 1/16 of 1%) equal to (a) the LIBO Rate for such
Interest Period multiplied by (b) the Statutory Reserve Rate.
"Administrative Agent" means The Chase Manhattan Bank, in its
capacity as administrative agent for the Lenders hereunder.
"Administrative Questionnaire" means an Administrative
Questionnaire in a form supplied by the Administrative Agent.
"Affiliate" means, with respect to a specified Person, another
Person that directly, or indirectly through one or more intermediaries, Controls
or is Controlled by or is under common Control with the Person specified;
provided that, for the purposes of Section 9.04(b), any special purpose funding
vehicle that funds itself principally in the commercial paper market shall not
constitute an Affiliate of any Lender.
"Alternate Base Rate" means, for any day, a rate per annum equal
to the greatest of (a) the Prime Rate in effect on such day, (b) the Base CD
Rate in effect on such day plus 1% and (c) the Federal Funds Effective Rate in
effect on such day plus 1/2 of 1%. Any change in the Alternate Base Rate due to
a change in the Prime Rate, the Base CD Rate or the Federal Funds Effective Rate
shall be effective from and including the effective date of such change in the
Prime Rate, the Base CD Rate or the Federal Funds Effective Rate, respectively.
Five-Year Credit Agreement
<PAGE> 6
-2-
"Applicable Insurance Regulatory Authority" means the insurance
department or similar insurance regulatory or administrative authority or agency
of the jurisdiction in which the Company is domiciled.
"Applicable Percentage" means, with respect to any Lender, the
percentage of the total Commitments represented by such Lender's Commitment. If
the Commitments have terminated or expired, the Applicable Percentages shall be
determined based upon the Commitments most recently in effect, giving effect to
any assignments.
"Applicable Rate" means, for any day, with respect to any
Eurodollar Revolving Loan, or with respect to the facility fees payable
hereunder, as the case may be, the applicable rate per annum set forth below
under the caption "Eurodollar Spread" or "Facility Fee Rate", as the case may
be, based upon the ratings by S&P applicable on such date to the Index Debt:
<TABLE>
<CAPTION>
Index Debt Rating: Eurodollar Facility Fee
Spread Rate
----------------- --------- ------------
<S> <C> <C> <C>
Category 1 0.100% 0.050%
Category 2 0.135% 0.065%
Category 3 0.160% 0.090%
Category 4 0.175% 0.125%
</TABLE>
For purposes of determining the applicable Index Debt Rating: (a) Category 1
shall be deemed to be applicable if (i) no Event of Default shall have occurred
and be continuing and (ii) the Index Debt is rated AA+ (or its equivalent) or
higher by S&P; (b) Category 2 shall be deemed to be applicable if (i) no Event
of Default shall have occurred and be continuing, (ii) Category 1 is not
applicable and (iii) the Index Debt is rated AA- (or its equivalent) or higher
by S&P; (c) Category 3 shall be deemed to be applicable if (i) no Event of
Default shall have occurred and be continuing, (ii) neither Category 1 nor
Category 2 is applicable and (iii) the Index Debt is rated A (or its equivalent)
or higher by S&P; and (d) Category 4 shall be deemed to be applicable if no
other Category is applicable. If S&P shall not have in effect a rating for the
Index Debt (other than by reason of the circumstances referred to in the last
sentence of this definition), then S&P shall be deemed to have established a
rating in Category 4. If the rating established or deemed to have been
established by S&P for the Index Debt shall be changed (other than as a result
of a change in the rating system of S&P), such change shall be effective as of
the date on which it is first announced by S&P. Each change in the Applicable
Rate shall apply during the period commencing on the effective date of such
change and ending on the date immediately preceding the effective date of the
next such change. If the rating system of S&P shall change, or if S&P shall
cease to be in the business of rating corporate debt obligations, the Borrowers
and the Lenders shall negotiate in good faith to amend this definition to
reflect such changed rating system or the unavailability of ratings from such
rating agency and, pending the effectiveness of any such amendment, the
Applicable Rate shall be determined by reference to the rating most recently in
effect prior to such change or cessation.
"Assessment Rate" means, for any day, the annual assessment rate
in effect on such day that is payable by a member of the Bank Insurance Fund
classified as "well-capitalized"
Five-Year Credit Agreement
<PAGE> 7
-3-
and within supervisory subgroup "B" (or a comparable successor risk
classification) within the meaning of 12 C.F.R. Part 327 (or any successor
provision) to the Federal Deposit Insurance Corporation for insurance by such
Corporation of time deposits made in dollars at the offices of such member in
the United States; provided that if, as a result of any change in any law, rule
or regulation, it is no longer possible to determine the Assessment Rate as
aforesaid, then the Assessment Rate shall be such annual rate as shall be
determined by the Administrative Agent to be representative of the cost of such
insurance to the Lenders.
"Asset Securitization" means a public or private transfer of
installment receivables, credit card receivables, lease receivables or any other
type of secured or unsecured financial assets, which transfer is recorded as a
sale according to GAAP as of the date of such transfer.
"Assignment and Acceptance" means an assignment and acceptance
entered into by a Lender and an assignee (with the consent of any party whose
consent is required by Section 9.04), and accepted by the Administrative Agent,
in the form of Exhibit A or any other form approved by the Administrative Agent.
"Availability Period" means the period from and including the
Effective Date to but excluding the earlier of the Maturity Date and the date of
termination of the Commitments.
"Base CD Rate" means the sum of (a) the Three-Month Secondary CD
Rate multiplied by the Statutory Reserve Rate plus (b) the Assessment Rate.
"Board" means the Board of Governors of the Federal Reserve
System of the United States of America.
"Borrowing" means (a) Revolving Loans of the same Type, made,
converted or continued on the same date and, in the case of Eurodollar Loans, as
to which a single Interest Period is in effect, or (b) a Competitive Loan or
group of Competitive Loans of the same Type made on the same date and as to
which a single Interest Period is in effect.
"Borrowing Request" means a request by the Borrower for a
Revolving Borrowing in accordance with Section 2.03.
"Business Day" means any day that is not a Saturday, Sunday or
other day on which commercial banks in New York City are authorized or required
by law to remain closed; provided that, when used in connection with a
Eurodollar Loan, the term "Business Day" shall also exclude any day on which
banks are not open for dealings in dollar deposits in the London interbank
market.
"Capital Lease Obligations" of any Person means the obligations
of such Person to pay rent or other amounts under any lease of (or other
arrangement conveying the right to use) real or personal property, or a
combination thereof, which obligations are required to be classified and
accounted for as capital leases on a balance sheet of such Person under GAAP,
and
Five-Year Credit Agreement
<PAGE> 8
-4-
the amount of such obligations shall be the capitalized amount thereof
determined in accordance with GAAP.
"Change in Control" means (a) the acquisition of ownership,
directly or indirectly, beneficially or of record, by any Person or group
(within the meaning of the Securities Exchange Act of 1934 and the rules of the
Securities and Exchange Commission thereunder as in effect on the date hereof),
of shares representing more than 25% of the aggregate ordinary voting power
represented by the issued and outstanding capital stock of the Company, or (b)
occupation of a majority of the seats (other than vacant seats) on the board of
directors of the Company by Persons who were neither (i) nominated by the board
of directors of the Company nor (ii) appointed by directors so nominated.
"Change in Law" means (a) the adoption of any law, rule or
regulation after the date of this Agreement, (b) any change in any law, rule or
regulation or in the interpretation or application thereof by any Governmental
Authority after the date of this Agreement or (c) compliance by any Lender (or,
for purposes of Section 2.13(b), by any lending office of such Lender or by such
Lender's holding company, if any) with any request, guideline or directive
(whether or not having the force of law) of any Governmental Authority made or
issued after the date of this Agreement.
"Chase" means The Chase Manhattan Bank.
"Class", when used in reference to any Loan or Borrowing, refers
to whether such Loan, or the Loans comprising such Borrowing, are Revolving
Loans or Competitive Loans.
"Code" means the Internal Revenue Code of 1986, as amended from
time to time.
"Commitment" means, with respect to each Lender, the commitment
of such Lender to make Revolving Loans hereunder, expressed as an amount
representing the maximum aggregate amount of such Lender's Revolving Credit
Exposure hereunder, as such commitment may be (a) reduced from time to time
pursuant to Section 2.07, (b) increased pursuant to Section 2.18, and (c)
reduced or increased from time to time pursuant to assignments by or to such
Lender pursuant to Section 9.04. The initial amount of each Lender's Commitment
is set forth on Schedule 2.01, or in the Assignment and Acceptance pursuant to
which such Lender shall have assumed its Commitment, as applicable. The initial
aggregate amount of the Lenders' Commitments is $1,000,000,000.
"Competitive Bid" means an offer by a Lender to make a
Competitive Loan in accordance with Section 2.04.
"Competitive Bid Rate" means, with respect to any Competitive
Bid, the Margin or the Fixed Rate, as applicable, offered by the Lender making
such Competitive Bid.
"Competitive Bid Request" means a request by the Borrower for
Competitive Bids in accordance with Section 2.04.
Five-Year Credit Agreement
<PAGE> 9
-5-
"Competitive Loan" means a Loan made pursuant to Section 2.04.
"Control" means the possession, directly or indirectly, of the
power to direct or cause the direction of the management or policies of a
Person, whether through the ability to exercise voting power, by contract or
otherwise. "Controlling" and "Controlled" have meanings correlative thereto.
"Default" means any event or condition which constitutes an Event
of Default or which upon notice, lapse of time or both would, unless cured or
waived, become an Event of Default.
"Disclosed Matters" means the actions, suits and proceedings and
the environmental matters disclosed in Schedule 3.06.
"Disposition" has the meaning assigned to such term in Section
6.02.
"dollars" or "$" refers to lawful money of the United States of
America.
"Effective Date" means the date on which the conditions specified
in Section 4.01 are satisfied (or waived in accordance with Section 9.02).
"Environmental Laws" means all laws, rules, regulations, codes,
ordinances, orders, decrees, judgments, injunctions, notices or binding
agreements issued, promulgated or entered into by any Governmental Authority,
relating in any way to the environment, preservation or reclamation of natural
resources, the management, release or threatened release of any Hazardous
Material or to health and safety matters.
"Environmental Liability" means any liability, contingent or
otherwise (including any liability for damages, costs of environmental
remediation, fines, penalties or indemnities), of the Company or any of its
Subsidiaries directly or indirectly resulting from or based upon (a) violation
of any Environmental Law, (b) the generation, use, handling, transportation,
storage, treatment or disposal of any Hazardous Materials, (c) exposure to any
Hazardous Materials, (d) the release or threatened release of any Hazardous
Materials into the environment or (e) any contract, agreement or other
consensual arrangement pursuant to which liability is assumed or imposed with
respect to any of the foregoing.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) that, together with the Company, is treated as a single employer
under Section 414(b) or (c) of the Code or, solely for purposes of Section 302
of ERISA and Section 412 of the Code, is treated as a single employer under
Section 414 of the Code.
"ERISA Event" means (a) any "reportable event", as defined in
Section 4043 of ERISA or the regulations issued thereunder with respect to a
Plan (other than an event for which
Five-Year Credit Agreement
<PAGE> 10
-6-
the 30-day notice period is waived); (b) the existence with respect to any Plan
of an "accumulated funding deficiency" (as defined in Section 412 of the Code or
Section 302 of ERISA), whether or not waived; (c) the filing pursuant to Section
412(d) of the Code or Section 303(d) of ERISA of an application for a waiver of
the minimum funding standard with respect to any Plan; (d) the incurrence by the
Company or any of its ERISA Affiliates of any liability under Title IV of ERISA
with respect to the termination of any Plan; (e) the receipt by the Company or
any ERISA Affiliate from the PBGC or a plan administrator of any notice relating
to an intention to terminate any Plan or Plans or to appoint a trustee to
administer any Plan; (f) the incurrence by the Company or any of its ERISA
Affiliates of any liability with respect to the withdrawal or partial withdrawal
from any Plan or Multiemployer Plan; or (g) the receipt by the Company or any
ERISA Affiliate of any notice, or the receipt by any Multiemployer Plan from the
Company or any ERISA Affiliate of any notice, concerning the imposition of
Withdrawal Liability or a determination that a Multiemployer Plan is, or is
expected to be, insolvent or in reorganization, within the meaning of Title IV
of ERISA.
"Eurodollar", when used in reference to any Loan or Borrowing,
refers to whether such Loan, or the Loans comprising such Borrowing, are bearing
interest at a rate determined by reference to the Adjusted LIBO Rate (or, in the
case of a Competitive Loan, the LIBO Rate).
"Event of Default" has the meaning assigned to such term in
Article VII.
"Excluded Taxes" means, with respect to the Administrative Agent,
any Lender or any other recipient of any payment to be made by or on account of
any obligation of either Borrower hereunder, (a) income or franchise taxes
imposed on (or measured by) its net income by the United States of America, or
by the jurisdiction under the laws of which such recipient is organized or in
which its principal office is located or, in the case of any Lender, in which
its applicable lending office is located, (b) any branch profits taxes imposed
by the United States of America or any similar tax imposed by any other
jurisdiction in which either Borrower is located and (c) in the case of a
Foreign Lender (other than an assignee pursuant to a request by the Company
under Section 2.17(b)), any withholding tax that is imposed on amounts payable
to such Foreign Lender at the time such Foreign Lender becomes a party to this
Agreement (or designates a new lending office) or is attributable to such
Foreign Lender's failure to comply with Section 2.15(e), except to the extent
that such Foreign Lender (or its assignor, if any) was entitled, at the time of
designation of a new lending office (or assignment), to receive additional
amounts from such Borrower with respect to such withholding tax pursuant to
Section 2.15(a).
"Federal Funds Effective Rate" means, for any day, the weighted
average (rounded upwards, if necessary, to the next 1/100 of 1%) of the rates on
overnight Federal funds transactions with members of the Federal Reserve System
arranged by Federal funds brokers, as published on the next succeeding Business
Day by the Federal Reserve Bank of New York, or, if such rate is not so
published for any day that is a Business Day, the average (rounded upwards, if
necessary, to the next 1/100 of 1%) of the quotations for such day for such
transactions received by Chase from three Federal funds brokers of recognized
standing selected by it.
"Financial Officer" means the chief financial officer, principal
accounting officer, treasurer or controller of the Company.
Five-Year Credit Agreement
<PAGE> 11
-7-
"Fixed Rate" means, with respect to any Competitive Loan (other
than a Eurodollar Competitive Loan), the fixed rate of interest per annum
specified by the Lender making such Competitive Loan in its related Competitive
Bid.
"Fixed Rate Loan" means a Competitive Loan bearing interest at a
Fixed Rate.
"Foreign Lender" means any Lender that is organized under the
laws of a jurisdiction other than that in which either Borrower is located. For
purposes of this definition, the United States of America, each State thereof
and the District of Columbia shall be deemed to constitute a single
jurisdiction.
"Funding" means MetLife Funding, Inc., a Delaware corporation.
"GAAP" means generally accepted accounting principles in the
United States of America.
"Governmental Authority" means the government of the United
States of America, any other nation or any political subdivision thereof,
whether state or local, and any agency, authority, instrumentality, regulatory
body, court, central bank or other entity exercising executive, legislative,
judicial, taxing, regulatory or administrative powers or functions of or
pertaining to government.
"Guarantee" of or by any Person (the "guarantor") means any
obligation, contingent or otherwise, of the guarantor guaranteeing or having the
economic effect of guaranteeing any Indebtedness or other obligation of any
other Person (the "primary obligor") in any manner, whether directly or
indirectly, and including any obligation of the guarantor, direct or indirect,
(a) to purchase or pay (or advance or supply funds for the purchase or payment
of) such Indebtedness or other obligation or to purchase (or to advance or
supply funds for the purchase of) any security for the payment thereof, (b) to
purchase or lease property, securities or services for the purpose of assuring
the owner of such Indebtedness or other obligation of the payment thereof, (c)
to maintain working capital, equity capital or any other financial statement
condition or liquidity of the primary obligor so as to enable the primary
obligor to pay such Indebtedness or other obligation or (d) as an account party
in respect of any letter of credit or letter of guaranty issued to support such
Indebtedness or obligation; provided, that the term Guarantee shall not include
endorsements for collection or deposit in the ordinary course of business.
"Hazardous Materials" means all explosive or radioactive
substances or wastes and all hazardous or toxic substances, wastes or other
pollutants, including petroleum or petroleum distillates, asbestos or asbestos
containing materials, polychlorinated biphenyls, radon gas, infectious or
medical wastes and all other substances or wastes of any nature regulated
pursuant to any Environmental Law.
Five-Year Credit Agreement
<PAGE> 12
-8-
"Hedging Agreement" means any interest rate protection agreement,
foreign currency exchange agreement, commodity price protection agreement or
other interest or currency exchange rate or commodity price hedging arrangement.
"Indebtedness" of any Person means, without duplication, (a) all
obligations of such Person for borrowed money or with respect to deposits or
advances of any kind, (b) all obligations of such Person evidenced by bonds,
debentures, notes or similar instruments, (c) all obligations of such Person
upon which interest charges are customarily paid, (d) all obligations of such
Person under conditional sale or other title retention agreements relating to
property acquired by such Person, (e) all obligations of such Person in respect
of the deferred purchase price of property or services (excluding current
accounts payable incurred in the ordinary course of business), (f) all
Indebtedness of others secured by (or for which the holder of such Indebtedness
has an existing right, contingent or otherwise, to be secured by) any Lien on
property owned or acquired by such Person, whether or not the Indebtedness
secured thereby has been assumed, (g) all Guarantees by such Person of
Indebtedness of others, (h) all Capital Lease Obligations of such Person, (i)
all obligations, contingent or otherwise, of such Person as an account party in
respect of letters of credit and letters of guaranty, (j) all obligations,
contingent or otherwise, of such Person in respect of bankers' acceptances, and
(k) all Surplus Relief Reinsurance ceded by such Person. The Indebtedness of any
Person shall include the Indebtedness of any other entity (including any
partnership in which such Person is a general partner) to the extent such Person
is liable therefor as a result of such Person's ownership interest in or other
relationship with such entity, except to the extent the terms of such
Indebtedness provide that such Person is not liable therefor.
"Indemnified Taxes" means Taxes other than Excluded Taxes.
"Index Debt" means senior, unsecured, long-term indebtedness for
borrowed money of the Company that is not guaranteed by any other Person or
subject to any other credit enhancement.
"Interest Election Request" means a request by the Borrower to
convert or continue a Revolving Borrowing in accordance with Section 2.06.
"Interest Payment Date" means (a) with respect to any ABR Loan,
the last day of each March, June, September and December, (b) with respect to
any Eurodollar Loan, the last day of the Interest Period applicable to the
Borrowing of which such Loan is a part and, in the case of a Eurodollar
Borrowing with an Interest Period of more than three months' duration, each day
prior to the last day of such Interest Period that occurs at intervals of three
months' duration after the first day of such Interest Period, and (c) with
respect to any Fixed Rate Loan, the last day of the Interest Period applicable
to the Borrowing of which such Loan is a part and, in the case of a Fixed Rate
Borrowing with an Interest Period of more than 90 days' duration (unless
otherwise specified in the applicable Competitive Bid Request), each day prior
to the last day of such Interest Period that occurs at intervals of 90 days'
duration after the first day of such Interest Period, and any other dates that
are specified in the applicable Competitive Bid Request as Interest Payment
Dates with respect to such Borrowing.
Five-Year Credit Agreement
<PAGE> 13
-9-
"Interest Period" means (a) with respect to any Eurodollar
Revolving Borrowing, the period commencing on the date of such Borrowing and
ending on the numerically corresponding day in the calendar month that is one,
two, three or six months thereafter, as the Borrower may elect, (b) with respect
to any Eurodollar Competitive Borrowing, the period commencing on the date of
such Borrowing and ending on the numerically corresponding day in the calendar
month that is one, two, three or six months thereafter, as specified in the
applicable Competitive Loan Request and (c) with respect to any Fixed Rate
Borrowing, the period (which shall not be less than 7 days or more than 360
days) commencing on the date of such Borrowing and ending on the date specified
in the applicable Competitive Bid Request; provided, that (i) if any Interest
Period would end on a day other than a Business Day, such Interest Period shall
be extended to the next succeeding Business Day unless, in the case of a
Eurodollar Borrowing only, such next succeeding Business Day would fall in the
next calendar month, in which case such Interest Period shall end on the next
preceding Business Day, (ii) any Interest Period pertaining to a Eurodollar
Borrowing that commences on the last Business Day of a calendar month (or on a
day for which there is no numerically corresponding day in the last calendar
month of such Interest Period) shall end on the last Business Day of the last
calendar month of such Interest Period and (iii) any Interest Period that would
otherwise end after the Maturity Date shall not be available hereunder. For
purposes hereof, the date of a Borrowing initially shall be the date on which
such Borrowing is made and, in the case of a Revolving Borrowing, thereafter
shall be the effective date of the most recent conversion or continuation of
such Borrowing.
"Lenders" means the Persons listed on Schedule 2.01 and any other
Person that shall have become a party hereto pursuant to an Assignment and
Acceptance, other than any such Person that ceases to be a party hereto pursuant
to an Assignment and Acceptance.
"LIBO Rate" means, with respect to any Eurodollar Borrowing for
any Interest Period, the rate per annum appearing on the Screen at approximately
11:00 a.m., London time (or as soon thereafter as practicable), two Business
Days prior to the commencement of such Interest Period, as LIBOR with a maturity
comparable to such Interest Period. In the event that the Screen shall cease to
report such LIBOR or, in the reasonable judgement of the Required Lenders, shall
cease to accurately reflect such LIBOR (as reported by any publicly available
source of similar market data selected by such Required Lenders), then the "LIBO
Rate" with respect to such Eurodollar Borrowing for such Interest Period shall
be the rate per annum at which dollar deposits of $5,000,000 and for a maturity
comparable to such Interest Period are offered by the principal London office of
Chase in immediately available funds in the London interbank market at
approximately 11:00 a.m., London time, two Business Days prior to the
commencement of such Interest Period.
"LIBOR" means the rate at which deposits in dollars are offered
to leading banks in the London interbank market.
"Lien" means, with respect to any asset, (a) any mortgage, deed
of trust, lien, pledge, hypothecation, encumbrance, charge or security interest
in, on or of such asset, (b) the interest of a vendor or a lessor under any
conditional sale agreement, capital lease or title retention agreement (or any
financing lease having substantially the same economic effect as any
Five-Year Credit Agreement
<PAGE> 14
-10-
of the foregoing) relating to such asset and (c) in the case of securities, any
purchase option, call or similar right of a third party with respect to such
securities.
"Loans" means the loans made by the Lenders to the Borrowers
pursuant to this Agreement.
"Margin" means, with respect to any Competitive Loan bearing
interest at a rate based on the LIBO Rate, the marginal rate of interest, if
any, to be added to or subtracted from the LIBO Rate to determine the rate of
interest applicable to such Loan, as specified by the Lender making such Loan in
its related Competitive Bid.
"Margin Stock" means "margin stock" within the meaning of
Regulations U and X.
"Material Adverse Change" means any event, development or
circumstance that has had or could reasonably be expected to have a material
adverse effect on (a) the business, assets, property, condition (financial or
otherwise) or prospects of the Company and its Subsidiaries taken as a whole, or
(b) the validity or enforceability of this Agreement or the rights and remedies
of the Administrative Agent and the Lenders hereunder.
"Material Indebtedness" means Indebtedness (other than the
Loans), or obligations in respect of one or more Hedging Agreements, of the
Company or any of its Material Subsidiaries in an aggregate principal amount
exceeding $200,000,000 (or its equivalent in any other currency). For purposes
of determining Material Indebtedness, the "principal amount" of the obligations
of the Company or any of its Material Subsidiaries in respect of any Hedging
Agreement at any time shall be the maximum aggregate amount (giving effect to
any netting agreements) that the Company or such Material Subsidiary would be
required to pay if such Hedging Agreement were terminated at such time.
"Material Subsidiary" means, at any time, (i) Funding and (ii)
each Subsidiary of the Company that as of such time meets the definition of
"significant subsidiary" contained as of the date hereof in Regulation S-X of
the SEC.
"Maturity Date" means April 27, 2003.
"Multiemployer Plan" means a multiemployer plan as defined in
Section 4001(a)(3) of ERISA.
"NAIC" means the National Association of Insurance Commissioners
and any successor thereto.
"Net Available Proceeds" means, with respect to any Disposition,
the aggregate amount of all cash proceeds, and the fair market value of all
non-cash consideration, received by the Company directly or indirectly in
connection with such Disposition, net of (a) the amount of any legal, title and
recording tax expenses, commissions and other fees and expenses paid by the
Company as a result of such Disposition, (b) any Federal, state or local or
other taxes payable by
Five-Year Credit Agreement
<PAGE> 15
-11-
the Company as a result of such Disposition, (c) any repayments by the Company
of Indebtedness to the extent that (i) such Indebtedness is secured by a Lien on
the assets that are the subject of such Disposition and (ii) the transferee (or
holder of a Lien on) such assets require that such Indebtedness be repaid as a
condition to the purchase of assets and (d) any liabilities associated with the
assets that are the subject of the Disposition to the extent such liabilities
are retained by the Company.
"Net Worth" means, as at any date, the total amount of equity of
the Company and its Subsidiaries determined on a consolidated basis without
duplication in accordance with GAAP (calculated without giving effect to any
changes from and after the date hereof required by Statement of Financial
Accounting Standards No. 115, Accounting for Certain Investments in Debt and
Equity Securities).
"Other Taxes" means any and all present or future stamp or
documentary taxes or any other excise or property taxes, charges or similar
levies arising from any payment made hereunder or from the execution, delivery
or enforcement of, or otherwise with respect to, this Agreement.
"Participant" has the meaning set forth in Section 9.04(e).
"PBGC" means the Pension Benefit Guaranty Corporation referred to
and defined in ERISA and any successor entity performing similar functions.
"Permitted Encumbrances" means:
(a) Liens imposed by law for taxes that are not yet due or are
being contested in compliance with Section 5.04;
(b) carriers', warehousemen's, mechanics', materialmen's,
repairmen's and other like Liens imposed by law, arising in the
ordinary course of business and securing obligations that are not
overdue by more than 30 days or are being contested in compliance with
Section 5.04;
(c) pledges and deposits made in the ordinary course of
business in compliance with workers' compensation, unemployment
insurance and other social security laws or regulations;
(d) deposits to secure the performance of bids, trade
contracts, leases, statutory obligations, surety and appeal bonds,
performance bonds and other obligations of a like nature, in each case
in the ordinary course of business; and
(e) easements, zoning restrictions, rights-of-way and similar
encumbrances on real property imposed by law or arising in the ordinary
course of business that do not secure any monetary obligations and do
not materially detract from the value of the affected property or
interfere with the ordinary conduct of business of any Borrower;
Five-Year Credit Agreement
<PAGE> 16
-12-
provided that the term "Permitted Encumbrances" shall not include any Lien
securing Indebtedness.
"Person" means any natural person, corporation, limited liability
company, trust, joint venture, association, company, partnership, Governmental
Authority or other entity.
"Plan" means any employee pension benefit plan (other than a
Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section
412 of the Code or Section 302 of ERISA, and in respect of which the Company or
any ERISA Affiliate is (or, if such plan were terminated, would under Section
4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of
ERISA.
"Prime Rate" means the rate of interest per annum publicly
announced from time to time by Chase as its prime rate in effect at its
principal office in New York City; each change in the Prime Rate shall be
effective from and including the date such change is publicly announced as being
effective.
"Register" has the meaning set forth in Section 9.04(c).
"Regulations D, U and X" means, respectively, Regulations D, U
and X of the Board (or any successor), as the same may be modified and
supplemented and in effect from time to time.
"Related Parties" means, with respect to any specified Person,
such Person's Affiliates and the respective directors, officers, employees,
agents and advisors of such Person and such Person's Affiliates.
"Required Lenders" means, at any time, Lenders having Revolving
Credit Exposures and unused Commitments representing more than 50% of the sum of
the total Revolving Credit Exposures and unused Commitments at such time;
provided that, for all purposes after the Commitments expire or terminate, the
outstanding Competitive Loans of the Lenders shall be included in their
respective Revolving Credit Exposures in determining the Required Lenders.
"Revolving Credit Exposure" means, with respect to any Lender at
any time, the sum of the outstanding principal amount of such Lender's Revolving
Loans.
"Revolving Loan" means a Loan made pursuant to Section 2.01.
"SAP" means the accounting procedures and practices prescribed or
permitted by the Applicable Insurance Regulatory Authority or the NAIC.
"S&P" means Standard & Poor's Ratings Group, a division of The
McGraw-Hill Companies, Inc., and any successor thereto.
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"Screen" means the display page 3750 for LIBOR on the Dow Jones
Markets (Telerate) Service (or on any successor or substitute page of such
Service, as determined by the Administrative Agent); provided that if the
Administrative Agent determines that there is no such relevant display page for
LIBOR, "Screen" shall mean the relevant display page for LIBOR (as determined by
the Administrative Agent) on the Reuter Monitor Money Rates Service.
"SEC" means the Securities and Exchange Commission or any
governmental authority succeeding to its principal functions.
"Securities Transactions" means (a) securities lending
arrangements, and (b) repurchase and reverse repurchase arrangements with
respect to securities and financial instruments.
"Separate Accounts Assets" means, as at any date, the "Separate
Accounts assets" of the Company, determined in accordance with SAP, reported as
such in the Statutory Statements of the Company.
"Statutory Reserve Rate" means a fraction (expressed as a
decimal), the numerator of which is the number one and the denominator of which
is the number one minus the aggregate of the maximum reserve percentages
(including any marginal, special, emergency or supplemental reserves) expressed
as a decimal established by the Board to which the Administrative Agent is
subject (a) with respect to the Base CD Rate, for new negotiable nonpersonal
time deposits in dollars of over $100,000 with maturities approximately equal to
three months and (b) with respect to the Adjusted LIBO Rate, for eurocurrency
funding (currently referred to as "Eurocurrency Liabilities" in Regulation D).
Such reserve percentages shall include those imposed pursuant to Regulation D.
Eurodollar Loans shall be deemed to constitute eurocurrency funding and to be
subject to such reserve requirements without benefit of or credit for proration,
exemptions or offsets that may be available from time to time to any Lender
under Regulation D or any comparable regulation. The Statutory Reserve Rate
shall be adjusted automatically on and as of the effective date of any change in
any reserve percentage.
"Statutory Statement" means a statement of the condition and
affairs of the Company, prepared in accordance with SAP, and filed with the
Applicable Insurance Regulatory Authority.
"Subsidiary" means, with respect to any Person (the "parent") at
any date, any corporation, limited liability company, partnership, association
or other entity the accounts of which would be consolidated with those of the
parent in the parent's consolidated financial statements if such financial
statements were prepared in accordance with GAAP as of such date, as well as any
other corporation, limited liability company, partnership, association or other
entity (a) of which securities or other ownership interests representing more
than 50% of the equity or more than 50% of the ordinary voting power or, in the
case of a partnership, more than 50% of the general partnership interests are,
as of such date, owned, controlled or held, or (b) that is, as of such date,
otherwise Controlled, by the parent or one or more subsidiaries of the parent or
by the parent and one or more subsidiaries of the parent.
Five-Year Credit Agreement
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"Support Agreement" means the Support Agreement dated as of
November 30, 1984 between the Company and Funding, as amended and restated
effective as of that date on July 2, 1985.
"Surplus Relief Reinsurance" means any transaction in which the
Company or any Subsidiary of the Company cedes business under a reinsurance
agreement that would be considered a "financing-type" reinsurance agreement as
determined by the independent certified public accountants of the Company in
accordance with principles published by the Financial Accounting Standards Board
or the Second Edition of the AICPA Audit Guide for Stock Life Insurance
Companies (pp. 91-92), as the same may be revised from time to time.
"Taxes" means any and all present or future taxes, levies,
imposts, duties, deductions, charges or withholdings imposed by any Governmental
Authority.
"Three-Month Secondary CD Rate" means, for any day, the secondary
market rate for three-month certificates of deposit reported as being in effect
on such day (or, if such day is not a Business Day, the next preceding Business
Day) by the Board through the public information telephone line of the Federal
Reserve Bank of New York (which rate will, under the current practices of the
Board, be published in Federal Reserve Statistical Release H.15(519) during the
week following such day) or, if such rate is not so reported on such day or such
next preceding Business Day, the average of the secondary market quotations for
three-month certificates of deposit of major money center banks in New York City
received at approximately 10:00 a.m., New York City time, on such day (or, if
such day is not a Business Day, on the next preceding Business Day) by the
Administrative Agent from three negotiable certificate of deposit dealers of
recognized standing selected by it.
"Transactions" means the execution, delivery and performance by
the Borrowers of this Agreement, the borrowing of Loans and the use of the
proceeds thereof.
"Type", when used in reference to any Loan or Borrowing, refers
to whether the rate of interest on such Loan, or on the Loans comprising such
Borrowing, is determined by reference to the Adjusted LIBO Rate, the Alternate
Base Rate or, in the case of a Competitive Loan or Borrowing, the LIBO Rate or a
Fixed Rate.
"Withdrawal Liability" means liability to a Multiemployer Plan as
a result of a complete or partial withdrawal from such Multiemployer Plan, as
such terms are defined in Part I of Subtitle E of Title IV of ERISA.
SECTION 1.02. Classification of Loans and Borrowings. For
purposes of this Agreement, Loans may be classified and referred to by Class
(e.g., a "Revolving Loan") or by Type (e.g., a "Eurodollar Loan") or by Class
and Type (e.g., a "Eurodollar Revolving Loan"). Borrowings also may be
classified and referred to by Class (e.g., a "Revolving Borrowing") or by Type
(e.g., a "Eurodollar Borrowing") or by Class and Type (e.g., a "Eurodollar
Revolving Borrowing").
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SECTION 1.03. Terms Generally. The definitions of terms herein
shall apply equally to the singular and plural forms of the terms defined.
Whenever the context may require, any pronoun shall include the corresponding
masculine, feminine and neuter forms. The words "include", "includes" and
"including" shall be deemed to be followed by the phrase "without limitation".
The word "will" shall be construed to have the same meaning and effect as the
word "shall". Unless the context requires otherwise (a) any definition of or
reference to any agreement, instrument or other document herein shall be
construed as referring to such agreement, instrument or other document as from
time to time amended, supplemented or otherwise modified (subject to any
restrictions on such amendments, supplements or modifications set forth herein),
(b) any reference herein to any Person shall be construed to include such
Person's successors and assigns, (c) the words "herein", "hereof" and
"hereunder", and words of similar import, shall be construed to refer to this
Agreement in its entirety and not to any particular provision hereof, (d) all
references herein to Articles, Sections, Exhibits and Schedules shall be
construed to refer to Articles and Sections of, and Exhibits and Schedules to,
this Agreement and (e) the words "asset" and "property" shall be construed to
have the same meaning and effect and to refer to any and all tangible and
intangible assets and properties, including cash, securities, accounts and
contract rights.
SECTION 1.04. Accounting Terms; GAAP; SAP. Except as otherwise
expressly provided herein, all terms of an accounting or financial nature shall
be construed in accordance with GAAP or SAP, as the case may be, as in effect
from time to time; provided that, if the Company notifies the Administrative
Agent that the Company requests an amendment to any provision hereof to
eliminate the effect of any change occurring after the date hereof in GAAP or
SAP, as the case may be, or in the application thereof on the operation of such
provision (or if the Administrative Agent notifies the Company that the Required
Lenders request an amendment to any provision hereof for such purpose),
regardless of whether any such notice is given before or after such change in
GAAP or SAP, as the case may be, or in the application thereof, then such
provision shall be interpreted on the basis of GAAP or SAP, as the case may be,
as in effect and applied immediately before such change shall have become
effective until such notice shall have been withdrawn or such provision amended
in accordance herewith.
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<PAGE> 20
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ARTICLE II
THE CREDITS
SECTION 2.01. Commitments. Subject to the terms and conditions
set forth herein, each Lender agrees to make Revolving Loans to the Borrowers
from time to time during the Availability Period in an aggregate principal
amount that will not result in (a) such Lender's Revolving Credit Exposure
exceeding such Lender's Commitment or (b) the sum of the total Revolving Credit
Exposures plus the aggregate principal amount of outstanding Competitive Loans
exceeding the total Commitments. Within the foregoing limits and subject to the
terms and conditions set forth herein, either Borrower or both Borrowers may
borrow, prepay and reborrow Revolving Loans.
SECTION 2.02. Loans and Borrowings.
(a) Each Revolving Loan shall be made as part of a Borrowing
consisting of Revolving Loans made by the Lenders ratably in accordance with
their respective Commitments. Each Competitive Loan shall be made in accordance
with the procedures set forth in Section 2.04. The failure of any Lender to make
any Loan required to be made by it shall not relieve any other Lender of its
obligations hereunder; provided that the Commitments and Competitive Bids of the
Lenders are several and not joint, and no Lender shall be responsible for any
other Lender's failure to make Loans as required.
(b) Subject to Section 2.12, (i) each Revolving Borrowing shall
be comprised entirely of ABR Loans or Eurodollar Loans as the relevant Borrower
may request in accordance herewith, and (ii) each Competitive Borrowing shall be
comprised entirely of Eurodollar Loans or Fixed Rate Loans as the relevant
Borrower may request in accordance herewith. Each Lender at its option may make
any Eurodollar Loan by causing any domestic or foreign branch or Affiliate of
such Lender to make such Loan; provided that any exercise of such option shall
not affect the obligation of the relevant Borrower to repay such Loan in
accordance with the terms of this Agreement.
(c) At the commencement of each Interest Period for any
Eurodollar Revolving Borrowing, such Borrowing shall be in an aggregate amount
that is an integral multiple of $1,000,000 and not less than $10,000,000. At the
time that each ABR Revolving Borrowing is made, such Borrowing shall be in an
aggregate amount that is an integral multiple of $1,000,000 and not less than
$5,000,000; provided that an ABR Revolving Borrowing may be in an aggregate
amount that is equal to the entire unused balance of the total Commitments. Each
Competitive Borrowing shall be in an aggregate amount that is an integral
multiple of $1,000,000 and not less than $10,000,000. Borrowings of more than
one Type and Class may be outstanding at the same time; provided that there
shall not at any time be more than a total of 10 Eurodollar Revolving Borrowings
outstanding.
(d) Notwithstanding any other provision of this Agreement, the
Borrowers shall not be entitled to request, or to elect to convert or continue,
any Borrowing if the Interest Period requested with respect thereto would end
after the Maturity Date.
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SECTION 2.03. Requests for Revolving Borrowings. To request a
Revolving Borrowing, the relevant Borrower shall notify the Administrative Agent
of such request by telephone (a) in the case of a Eurodollar Borrowing, not
later than 11:00 a.m., New York City time, three Business Days before the date
of the proposed Borrowing or (b) in the case of an ABR Borrowing, not later than
11:00 a.m., New York City time, one Business Day before the date of the proposed
Borrowing. Each such telephonic Borrowing Request shall be irrevocable and shall
be confirmed promptly by hand delivery or telecopy to the Administrative Agent
of a written Borrowing Request in a form approved by the Administrative Agent
and signed by the relevant Borrower. Each such telephonic and written Borrowing
Request shall specify the following information in compliance with Section 2.02:
(i) the name of the Borrower and aggregate amount of the
requested Borrowing;
(ii) the date of such Borrowing, which shall be a Business Day;
(iii) whether such Borrowing is to be an ABR Borrowing or a
Eurodollar Borrowing;
(iv) in the case of a Eurodollar Borrowing, the initial Interest
Period to be applicable thereto, which shall be a period contemplated
by the definition of the term "Interest Period"; and
(v) the location and number of the relevant Borrower's account to
which funds are to be disbursed, which shall comply with the
requirements of Section 2.05.
If no election as to the Type of Revolving Borrowing is specified, then the
requested Revolving Borrowing shall be an ABR Borrowing. If no Interest Period
is specified with respect to any requested Eurodollar Revolving Borrowing, then
the relevant Borrower shall be deemed to have selected an Interest Period of one
month's duration. Promptly following receipt of a Borrowing Request in
accordance with this Section, the Administrative Agent shall advise each Lender
of the details thereof and of the amount of such Lender's Loan to be made as
part of the requested Borrowing.
SECTION 2.04. Competitive Bid Procedure.
(a) Subject to the terms and conditions set forth herein, from
time to time during the Availability Period either Borrower or both Borrowers
may request Competitive Bids and may (but shall not have any obligation to)
accept Competitive Bids and borrow Competitive Loans; provided that the sum of
the total Revolving Credit Exposures plus the aggregate principal amount of
outstanding Competitive Loans at any time shall not exceed the total
Commitments. To request Competitive Bids, the relevant Borrower shall notify the
Administrative Agent of such request by telephone, in the case of a Eurodollar
Borrowing, not later than 11:00 a.m., New York City time, four Business Days
before the date of the proposed Borrowing and, in the case of a Fixed Rate
Borrowing, not later than 10:00 a.m., New York City time, one Business Day
before the date of the proposed Borrowing; provided that the Borrowers may
submit up to (but not more than) three Competitive Bid Requests on the same day,
but a
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Competitive Bid Request shall not be made within five Business Days after the
date of any previous Competitive Bid Request, unless any and all such previous
Competitive Bid Requests shall have been withdrawn or all Competitive Bids
received in response thereto rejected. Each such telephonic Competitive Bid
Request shall be confirmed promptly by hand delivery or telecopy to the
Administrative Agent of a written Competitive Bid Request in a form approved by
the Administrative Agent and signed by the relevant Borrower. Each such
telephonic and written Competitive Bid Request shall specify the following
information in compliance with Section 2.02:
(i) the name of the Borrower and aggregate amount of the
requested Borrowing;
(ii) the date of such Borrowing, which shall be a Business Day;
(iii) whether such Borrowing is to be a Eurodollar Borrowing or a
Fixed Rate Borrowing;
(iv) the Interest Period to be applicable to such Borrowing,
which shall be a period contemplated by the definition of the term
"Interest Period"; and
(v) the location and number of the relevant Borrower's account to
which funds are to be disbursed, which shall comply with the
requirements of Section 2.05.
Promptly following receipt of a Competitive Bid Request in
accordance with this Section, the Administrative Agent shall notify the Lenders
of the details thereof by telecopy, inviting the Lenders to submit Competitive
Bids.
(b) Each Lender may (but shall not have any obligation to) make
one or more Competitive Bids to the relevant Borrower in response to a
Competitive Bid Request. Each Competitive Bid by a Lender must be in a form
approved by the Administrative Agent and must be received by the Administrative
Agent by telecopy, in the case of a Eurodollar Competitive Borrowing, not later
than 9:30 a.m., New York City time, three Business Days before the proposed date
of such Competitive Borrowing, and in the case of a Fixed Rate Borrowing, not
later than 9:30 a.m., New York City time, on the proposed date of such
Competitive Borrowing. Competitive Bids that do not conform substantially to the
form approved by the Administrative Agent may be rejected by the Administrative
Agent, and the Administrative Agent shall notify the applicable Lender as
promptly as practicable. Each Competitive Bid shall specify (i) the principal
amount (which shall be a minimum of $10,000,000 and an integral multiple of
$1,000,000 and which may equal the entire principal amount of the Competitive
Borrowing requested by the relevant Borrower) of the Competitive Loan or Loans
that the Lender is willing to make, (ii) the Competitive Bid Rate or Rates at
which the Lender is prepared to make such Loan or Loans (expressed as a
percentage rate per annum in the form of a decimal to no more than four decimal
places), and (iii) the Interest Period applicable to each such Loan and the last
day thereof.
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<PAGE> 23
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(c) The Administrative Agent shall promptly notify the relevant
Borrower by telecopy of the Competitive Bid Rate and the principal amount
specified in each Competitive Bid and the identity of the Lender that shall have
made such Competitive Bid.
(d) Subject only to the provisions of this paragraph, the
relevant Borrower may accept or reject any Competitive Bid. Such Borrower shall
notify the Administrative Agent by telephone, confirmed by telecopy in a form
approved by the Administrative Agent, whether and to what extent it has decided
to accept or reject each Competitive Bid, in the case of a Eurodollar
Competitive Borrowing, not later than 10:30 a.m., New York City time, three
Business Days before the date of the proposed Competitive Borrowing, and in the
case of a Fixed Rate Borrowing, not later than 10:30 a.m., New York City time,
on the proposed date of the Competitive Borrowing; provided that (i) the failure
of such Borrower to give such notice shall be deemed to be a rejection of each
Competitive Bid, (ii) such Borrower shall not accept a Competitive Bid made at a
particular Competitive Bid Rate if such Borrower rejects a Competitive Bid made
at a lower Competitive Bid Rate, (iii) the aggregate amount of the Competitive
Bids accepted by such Borrower shall not exceed the aggregate amount of the
requested Competitive Borrowing specified in the related Competitive Bid
Request, (iv) to the extent necessary to comply with clause (iii) above, such
Borrower may accept Competitive Bids at the same Competitive Bid Rate in part,
which acceptance, in the case of multiple Competitive Bids at such Competitive
Bid Rate, shall be made by such Borrower in consultation with the Administrative
Agent pro rata in accordance with the amount of each such Competitive Bid, and
(v) except pursuant to clause (iv) above, no Competitive Bid shall be accepted
for a Competitive Loan unless such Competitive Loan is in a minimum principal
amount of $5,000,000 and an integral multiple of $1,000,000; and provided
further that if a Competitive Loan must be in an amount less than $5,000,000
because of the provisions of clause (iv) above, such Competitive Loan may be for
a minimum of $1,000,000 or any integral multiple thereof, and in calculating the
pro rata allocation of acceptances of portions of multiple Competitive Bids at a
particular Competitive Bid Rate pursuant to clause (iv) the amounts shall be
rounded to integral multiples of $1,000,000 in a manner determined by the
relevant Borrower in consultation with the Administrative Agent. A notice given
by the relevant Borrower pursuant to this paragraph shall be irrevocable.
(e) The Administrative Agent shall promptly notify each bidding
Lender by telecopy whether or not its Competitive Bid has been accepted (and, if
so, the amount and Competitive Bid Rate so accepted), and each successful bidder
will thereupon become bound, subject to the terms and conditions hereof, to make
the Competitive Loan in respect of which its Competitive Bid has been accepted.
(f) If the Administrative Agent shall elect to submit a
Competitive Bid in its capacity as a Lender, it shall submit such Competitive
Bid directly to the relevant Borrower at least one quarter of an hour earlier
than the time by which the other Lenders are required to submit their
Competitive Bids to the Administrative Agent pursuant to paragraph (b) of this
Section.
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<PAGE> 24
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SECTION 2.05. Funding of Borrowings.
(a) Each Lender shall make each Loan to be made by it hereunder
on the proposed date thereof by wire transfer of immediately available funds by
noon, New York City time, to the account of the Administrative Agent most
recently designated by it for such purpose by notice to the Lenders. The
Administrative Agent will make such Loans available to the relevant Borrower by
promptly crediting the amounts so received, in immediately available funds, to
an account of such Borrower maintained with the Administrative Agent in New York
City and designated by such Borrower in the applicable Borrowing Request or
Competitive Bid Request.
(b) Unless the Administrative Agent shall have received notice
from a Lender prior to the proposed date of any Borrowing that such Lender will
not make available to the Administrative Agent such Lender's share of such
Borrowing, the Administrative Agent may assume that such Lender has made such
share available on such date in accordance with paragraph (a) of this Section
and may, in reliance upon such assumption, make available to the relevant
Borrower a corresponding amount. In such event, if a Lender has not in fact made
its share of the applicable Borrowing available to the Administrative Agent,
then the applicable Lender and the relevant Borrower severally agree to pay to
the Administrative Agent forthwith on demand such corresponding amount with
interest thereon, for each day from and including the date such amount is made
available to such Borrower to but excluding the date of payment to the
Administrative Agent, at (i) in the case of such Lender, the greater of the
Federal Funds Effective Rate and a rate determined by the Administrative Agent
in accordance with banking industry rules on interbank compensation or (ii) in
the case of such Borrower, the interest rate applicable to ABR Loans. If such
Lender pays such amount to the Administrative Agent, then such amount shall
constitute such Lender's Loan included in such Borrowing.
SECTION 2.06. Interest Elections.
(a) Each Revolving Borrowing initially shall be of the Type
specified in the applicable Borrowing Request and, in the case of a Eurodollar
Revolving Borrowing, shall have an initial Interest Period as specified in such
Borrowing Request. Thereafter, the relevant Borrower may elect to convert such
Borrowing to a different Type or to continue such Borrowing and, in the case of
a Eurodollar Revolving Borrowing, may elect Interest Periods therefor, all as
provided in this Section. The relevant Borrower may elect different options with
respect to different portions of the affected Borrowing, in which case each such
portion shall be allocated ratably among the Lenders holding the Loans
comprising such Borrowing, and the Loans comprising each such portion shall be
considered a separate Borrowing. This Section shall not apply to Competitive
Borrowings, which may not be converted or continued.
(b) To make an election pursuant to this Section, the relevant
Borrower shall notify the Administrative Agent of such election by telephone by
the time that a Borrowing Request would be required under Section 2.03 if such
Borrower were requesting a Revolving Borrowing of the Type resulting from such
election to be made on the effective date of such election. Each such telephonic
Interest Election Request shall be irrevocable and shall be confirmed promptly
by hand delivery or telecopy to the Administrative Agent of a written
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Interest Election Request in a form approved by the Administrative Agent and
signed by the relevant Borrower.
(c) Each telephonic and written Interest Election Request shall
specify the following information in compliance with Section 2.02:
(i) the name of the Borrower and Borrowing to which such Interest
Election Request applies and, if different options are being elected
with respect to different portions thereof, the portions thereof to
be allocated to each resulting Borrowing (in which case the
information to be specified pursuant to clauses (iii) and (iv) below
shall be specified for each resulting Borrowing);
(ii) the effective date of the election made pursuant to such
Interest Election Request, which shall be a Business Day;
(iii) whether the resulting Borrowing is to be an ABR Borrowing
or a Eurodollar Borrowing; and
(iv) if the resulting Borrowing is a Eurodollar Borrowing, the
Interest Period to be applicable thereto after giving effect to such
election, which shall be a period contemplated by the definition of
the term "Interest Period".
If any such Interest Election Request requests a Eurodollar Borrowing but does
not specify an Interest Period, then the relevant Borrower shall be deemed to
have selected an Interest Period of one month's duration.
(d) Promptly following receipt of an Interest Election Request,
the Administrative Agent shall advise each Lender of the details thereof and of
such Lender's portion of each resulting Borrowing.
(e) If the relevant Borrower fails to deliver a timely Interest
Election Request with respect to a Eurodollar Revolving Borrowing prior to the
end of the Interest Period applicable thereto, then, unless such Borrowing is
repaid as provided herein, at the end of such Interest Period such Borrowing
shall be converted to an ABR Revolving Borrowing. Notwithstanding any contrary
provision hereof, if an Event of Default has occurred and is continuing and the
Administrative Agent, at the request of the Required Lenders, so notifies the
relevant Borrower, then, so long as an Event of Default is continuing (i) no
outstanding Revolving Borrowing may be converted to or continued as a Eurodollar
Borrowing and (ii) unless repaid, each Eurodollar Revolving Borrowing shall be
converted to an ABR Borrowing at the end of the Interest Period applicable
thereto.
SECTION 2.07. Termination and Reduction of Commitments.
(a) Unless previously terminated, the Commitments shall terminate
on the Maturity Date.
(b) Upon the occurrence of either (i) a Change in Control or (ii)
a Disposition of all or any substantial part of the assets of the Company in
connection with a reorganization of the
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Company and its Subsidiaries in connection with the establishment of a mutual
holding company, the Administrative Agent shall, at the request of the Required
Lenders, by notice to the Borrowers, terminate the Commitments, and thereupon
the Commitments shall terminate immediately.
(c) The Borrowers may at any time terminate, or from time to time
reduce, the Commitments; provided that (i) each reduction of the Commitments
shall be in an amount that is an integral multiple of $10,000,000 and (ii) the
Borrowers shall not terminate or reduce the Commitments if, after giving effect
to any concurrent prepayment of the Loans in accordance with Section 2.09, the
sum of the Revolving Credit Exposures plus the aggregate principal amount of
outstanding Competitive Loans would exceed the total Commitments.
(d) The Borrowers shall notify the Administrative Agent of any
election to terminate or reduce the Commitments under paragraph (c) of this
Section at least three Business Days prior to the effective date of such
termination or reduction, specifying such election and the effective date
thereof. Promptly following receipt of any notice, the Administrative Agent
shall advise the Lenders of the contents thereof. Each notice delivered by the
Borrowers pursuant to this Section shall be irrevocable; provided that a notice
of termination of the Commitments delivered by the Borrowers may state that such
notice is conditioned upon the effectiveness of other credit facilities, in
which case such notice may be revoked by the Borrowers (by notice to the
Administrative Agent on or prior to the specified effective date) if such
condition is not satisfied. Any termination or reduction of the Commitments
shall be permanent. Each reduction of the Commitments shall be made ratably
among the Lenders in accordance with their respective Commitments.
SECTION 2.08. Repayment of Loans; Evidence of Debt.
(a) Each Borrower hereby unconditionally promises to pay (i) to
the Administrative Agent for account of each Lender the then unpaid principal
amount of each Revolving Loan made to such Borrower hereunder on the Maturity
Date, and (ii) to the Administrative Agent for account of each Lender the then
unpaid principal amount of each Competitive Loan made to such Borrower on the
last day of the Interest Period applicable to such Loan.
(b) Each Lender shall maintain in accordance with its usual
practice an account or accounts evidencing the indebtedness of each Borrower to
such Lender resulting from each Loan made by such Lender, including the amounts
of principal and interest payable and paid to such Lender from time to time
hereunder.
(c) The Administrative Agent shall maintain accounts in which it
shall record (i) the name of the Borrower and amount of each Loan made
hereunder, the Class and Type thereof and the Interest Period applicable
thereto, (ii) the amount of any principal or interest due and payable or to
become due and payable from each Borrower to each Lender hereunder and (iii) the
amount of any sum received by the Administrative Agent from either Borrower
hereunder for the account of the Lenders and each Lender's share thereof.
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(d) The entries made in the accounts maintained pursuant to
paragraph (b) or (c) of this Section shall be prima facie evidence of the
existence and amounts of the obligations recorded therein; provided that the
failure of any Lender or the Administrative Agent to maintain such accounts or
any error therein shall not in any manner affect the obligation of either
Borrower to repay its Loans in accordance with the terms of this Agreement.
(e) Any Lender may request that Loans made by it be evidenced by
a promissory note. In such event, the relevant Borrower shall prepare, execute
and deliver to such Lender a promissory note payable to the order of such Lender
(or, if requested by such Lender, to such Lender and its registered assigns) and
in a form approved by the Administrative Agent. Thereafter, the Loans evidenced
by such promissory note and interest thereon shall at all times (including after
assignment pursuant to Section 9.04) be represented by one or more promissory
notes in such form payable to the order of the payee named therein (or, if such
promissory note is a registered note, to such payee and its registered assigns).
SECTION 2.09. Prepayment of Loans.
(a) Each Borrower shall have the right at any time and from time
to time to prepay any Borrowing of such Borrower in whole or in part, subject to
prior notice in accordance with paragraph (b) of this Section; provided that no
Borrower shall have the right to prepay any Competitive Loan without the prior
consent of the Lender thereof.
(b) The Borrowers shall notify the Administrative Agent by
telephone (confirmed by telecopy) of any prepayment hereunder (i) in the case of
prepayment of a Eurodollar Revolving Borrowing, not later than 11:00 a.m., New
York City time, three Business Days before the date of prepayment, or (ii) in
the case of prepayment of an ABR Revolving Borrowing, not later than 11:00 a.m.,
New York City time, one Business Day before the date of prepayment. Each such
notice shall be irrevocable and shall specify the name of the Borrower, the
prepayment date and the principal amount of each Borrowing or portion thereof to
be prepaid; provided that, if a notice of prepayment is given in connection with
a conditional notice of termination of the Commitments as contemplated by
Section 2.07, then such notice of prepayment may be revoked if such notice of
termination is revoked in accordance with Section 2.07. Promptly following
receipt of any such notice relating to a Revolving Borrowing, the Administrative
Agent shall advise the Lenders of the contents thereof. Each partial prepayment
of any Revolving Borrowing shall be in an amount that would be permitted in the
case of an advance of a Revolving Borrowing of the same Type as provided in
Section 2.02. Each prepayment of a Revolving Borrowing shall be applied ratably
to the Loans included in the prepaid Borrowing. Prepayments shall be accompanied
by accrued interest to the extent required by Section 2.11.
(c) Upon the occurrence of either (i) a Change in Control, or
(ii) a Disposition of all or any substantial part of the assets of the Company
in connection with a reorganization of the Company and its Subsidiaries in
connection with the establishment of a mutual holding company, each Borrower
agrees that if requested by the Administrative Agent (acting at the request of
Lenders holding more than 50% of the aggregate principal amount of Loans
outstanding hereunder), such Borrower will promptly prepay each Loan, together
with accrued
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interest; provided that no prepayment of any Competitive Loan shall be made
without the prior consent of the Lender thereof.
SECTION 2.10. Fees.
(a) The Company agrees to pay to the Administrative Agent for
account of each Lender a facility fee, which shall accrue at the Applicable Rate
on the daily amount of the Commitment of such Lender (whether used or unused)
during the period from and including the date hereof to but excluding the date
on which such Commitment terminates; provided that, if such Lender continues to
have any Revolving Credit Exposure after its Commitment terminates, then such
facility fee shall continue to accrue on the daily amount of such Lender's
Revolving Credit Exposure from and including the date on which its Commitment
terminates to but excluding the date on which such Lender ceases to have any
Revolving Credit Exposure. Accrued facility fees shall be payable in arrears on
the last day of March, June, September and December of each year and on the date
on which the Commitments terminate, commencing on the first such date to occur
after the date hereof; provided that any facility fees accruing after the date
on which the Commitments terminate shall be payable on demand. All facility fees
shall be computed on the basis of a year of 360 days and shall be payable for
the actual number of days elapsed (including the first day but excluding the
last day).
(b) Each Borrower agrees to pay to the Administrative Agent for
its own account a fee for each Competitive Bid Request submitted by such
Borrower under Section 2.04 in an amount equal to $2,500.
(c) The Borrowers agree to pay to the Administrative Agent, for
its own account, fees payable in the amounts and at the times separately agreed
upon between the Borrowers and the Administrative Agent.
(d) All fees payable hereunder shall be paid on the dates due, in
immediately available funds, to the Administrative Agent for distribution, in
the case of facility fees, to the Lenders. Fees paid shall not be refundable
under any circumstances.
SECTION 2.11. Interest.
(a) The Loans comprising each ABR Borrowing shall bear interest
at the Alternate Base Rate.
(b) The Loans comprising each Eurodollar Borrowing shall bear
interest (i) in the case of a Eurodollar Revolving Loan, the Adjusted LIBO Rate
for the Interest Period in effect for such Borrowing plus the Applicable Rate,
or (ii) in the case of a Eurodollar Competitive Loan, the LIBO Rate for the
Interest Period in effect for such Borrowing plus (or minus, as applicable) the
Margin applicable to such Loan.
(c) Each Fixed Rate Loan shall bear interest at the Fixed Rate
applicable to such Loan.
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(d) Notwithstanding the foregoing, if any principal of or
interest on any Loan or any fee or other amount payable by either Borrower
hereunder is not paid when due, whether at stated maturity, upon acceleration or
otherwise, such overdue amount shall bear interest, after as well as before
judgment, at a rate per annum equal to (i) in the case of overdue principal of
any Loan, 2% plus the rate otherwise applicable to such Loan as provided in the
preceding paragraphs of this Section or (ii) in the case of any other amount, 2%
plus the rate applicable to ABR Loans as provided in paragraph (a) of this
Section.
(e) Accrued interest on each Loan shall be payable in arrears on
each Interest Payment Date for such Loan and, in the case of Revolving Loans,
upon termination of the Commitments; provided that (i) interest accrued pursuant
to paragraph (d) of this Section shall be payable on demand, (ii) in the event
of any repayment or prepayment of any Loan (other than a prepayment of an ABR
Revolving Loan prior to the end of the Availability Period), accrued interest on
the principal amount repaid or prepaid shall be payable on the date of such
repayment or prepayment and (iii) in the event of any conversion of any
Eurodollar Revolving Loan prior to the end of the current Interest Period
therefor, accrued interest on such Loan shall be payable on the effective date
of such conversion.
(f) All interest hereunder shall be computed on the basis of a
year of 360 days, except that interest computed by reference to the Alternate
Base Rate at times when the Alternate Base Rate is based on the Prime Rate shall
be computed on the basis of a year of 365 days (or 366 days in a leap year), and
in each case shall be payable for the actual number of days elapsed (including
the first day but excluding the last day). The applicable Alternate Base Rate,
Adjusted LIBO Rate or LIBO Rate shall be determined by the Administrative Agent,
and such determination shall be conclusive absent manifest error.
SECTION 2.12. Alternate Rate of Interest. If prior to the
commencement of any Interest Period for a Eurodollar Borrowing:
(a) the Administrative Agent determines (which determination
shall be conclusive absent manifest error) that adequate and reasonable means do
not exist for ascertaining the Adjusted LIBO Rate or the LIBO Rate, as
applicable, for such Interest Period; or
(b) the Administrative Agent is advised by the Required Lenders
(or, in the case of a Eurodollar Competitive Loan, the Lender that is required
to make such Loan) that the Adjusted LIBO Rate or the LIBO Rate, as applicable,
for such Interest Period will not adequately and fairly reflect the cost to such
Lenders (or Lender) of making or maintaining their Loans (or its Loan) included
in such Borrowing for such Interest Period;
then the Administrative Agent shall give notice thereof to the Borrowers and the
Lenders by telephone or telecopy as promptly as practicable thereafter and,
until the Administrative Agent notifies the relevant Borrower and the Lenders
that the circumstances giving rise to such notice no longer exist, (i) any
Interest Election Request that requests the conversion of any Revolving
Borrowing to, or continuation of any Revolving Borrowing as, a Eurodollar
Borrowing shall be ineffective, (ii) if any Borrowing Request requests a
Eurodollar Revolving Borrowing, such Borrowing shall be made as an ABR Borrowing
and (iii) any request by the relevant Borrower for a Eurodollar Competitive
Borrowing shall be ineffective; provided that (A) if the
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circumstances giving rise to such notice do not affect all the Lenders, then
requests by such Borrower for Eurodollar Competitive Borrowings may be made to
Lenders that are not affected thereby and (B) if the circumstances giving rise
to such notice affect only one Type of Borrowings, then the other Type of
Borrowings shall be permitted.
SECTION 2.13. Increased Costs.
(a) If any Change in Law shall:
(i) impose, modify or deem applicable any reserve, special
deposit or similar requirement against assets of, deposits with or
for the account of, or credit extended by, any Lender (except any
such reserve requirement reflected in the Adjusted LIBO Rate); or
(ii) impose on any Lender or the London interbank market any
other condition affecting this Agreement or Eurodollar Loans or Fixed
Rate Loans made by such Lender;
and the result of any of the foregoing shall be to increase the cost to such
Lender of making or maintaining any Eurodollar Loan or Fixed Rate Loan (or of
maintaining its obligation to make any such Loan) or to reduce the amount of any
sum received or receivable by such Lender hereunder (whether of principal,
interest or otherwise), then the relevant Borrower will pay to such Lender such
additional amount or amounts as will compensate such Lender for such additional
costs incurred or reduction suffered.
(b) If any Lender determines that any Change in Law regarding
capital requirements has or would have the effect of reducing the rate of return
on such Lender's or the capital or on the capital of such Lender's holding
company, if any, as a consequence of this Agreement or the Loans made to a level
below that which such Lender or such Lender's holding company could have
achieved but for such Change in Law (taking into consideration such Lender's
policies and the policies of such Lender's holding company with respect to
capital adequacy), then from time to time each Borrower will pay to such Lender,
as the case may be, such additional amount or amounts as will compensate such
Lender or such Lender's holding company for any such reduction suffered.
(c) A certificate of a Lender setting forth the amount or amounts
necessary to compensate such Lender or its holding company, as the case may be,
as specified in paragraph (a) or (b) of this Section shall be delivered to the
relevant Borrower(s) and shall be conclusive absent manifest error. Such
Borrower(s) shall pay such Lender, as the case may be, the amount shown as due
on any such certificate within 10 days after receipt thereof.
(d) Failure or delay on the part of any Lender to demand
compensation pursuant to this Section shall not constitute a waiver of such
Lender's right to demand such compensation; provided that no Borrower shall be
required to compensate a Lender pursuant to this Section for any increased costs
or reductions incurred more than 90 days prior to the date that such Lender
notifies the relevant Borrower(s) of the Change in Law giving rise to such
increased costs or reductions and of such Lender's intention to claim
compensation therefor; provided further that, if the Change in Law giving rise
to such increased costs or reductions is retroactive, then the
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270-day period referred to above shall be extended to include the period of
retroactive effect thereof.
(e) Notwithstanding the foregoing provisions of this Section, a
Lender shall not be entitled to compensation pursuant to this Section in respect
of any Competitive Loan if the Change in Law that would otherwise entitle it to
such compensation shall have been publicly announced prior to submission of the
Competitive Bid pursuant to which such Loan was made.
SECTION 2.14. Break Funding Payments. In the event of (a) the
payment of any principal of any Eurodollar Loan or Fixed Rate Loan other than on
the last day of an Interest Period applicable thereto (including, without
limitation, as a result of a mandatory prepayment under Section 2.09(c) or an
Event of Default), (b) the conversion of any Eurodollar Loan other than on the
last day of the Interest Period applicable thereto, (c) the failure to borrow,
convert, continue or prepay any Revolving Loan on the date specified in any
notice delivered pursuant hereto (regardless of whether such notice may be
revoked under Section 2.09(b) and is revoked in accordance therewith), (d) the
failure to borrow any Competitive Loan after accepting the Competitive Bid to
make such Loan, or (e) the assignment of any Eurodollar Loan or Fixed Rate Loan
other than on the last day of the Interest Period applicable thereto as a result
of a request by either Borrower pursuant to Section 2.17, then, in any such
event, the relevant Borrower shall compensate each Lender for the loss, cost and
expense attributable to such event. In the case of a Eurodollar Loan, such loss,
cost or expense to any Lender shall be deemed to include an amount determined by
such Lender to be the excess, if any, of (i) the amount of interest which would
have accrued on the principal amount of such Loan had such event not occurred,
at the Adjusted LIBO Rate that would have been applicable to such Loan, for the
period from the date of such event to the last day of the then current Interest
Period therefor (or, in the case of a failure to borrow, convert or continue,
for the period that would have been the Interest Period for such Loan), over
(ii) the amount of interest which would accrue on such principal amount for such
period at the interest rate which such Lender would bid were it to bid, at the
commencement of such period, for dollar deposits of a comparable amount and
period from other banks in the eurodollar market. A certificate of any Lender
setting forth any amount or amounts that such Lender is entitled to receive
pursuant to this Section shall be delivered to the relevant Borrower and shall
be conclusive absent manifest error. Such Borrower shall pay such Lender the
amount shown as due on any such certificate within 10 days after receipt
thereof.
SECTION 2.15. Taxes.
(a) Any and all payments by or on account of any obligation of
each Borrower hereunder shall be made free and clear of and without deduction
for any Indemnified Taxes or Other Taxes; provided that if either Borrower shall
be required to deduct any Indemnified Taxes or Other Taxes from such payments,
then (i) the sum payable shall be increased as necessary so that after making
all required deductions (including deductions applicable to additional sums
payable under this Section) the Administrative Agent or Lender (as the case may
be) receives an amount equal to the sum it would have received had no such
deductions been made, (ii) such Borrower shall make such deductions and (iii)
such Borrower shall pay the full amount deducted to the relevant Governmental
Authority in accordance with applicable law.
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(b) In addition, each Borrower shall pay any Other Taxes to the
relevant Governmental Authority in accordance with applicable law.
(c) Each Borrower shall indemnify the Administrative Agent and
each Lender within 10 days after written demand therefor, for the full amount of
any Indemnified Taxes or Other Taxes paid by the Administrative Agent or such
Lender, as the case may be, on or with respect to any payment by or on account
of any obligation of such Borrower hereunder (including Indemnified Taxes or
Other Taxes imposed or asserted on or attributable to amounts payable under this
Section) and any penalties, interest and reasonable expenses arising therefrom
or with respect thereto, whether or not such Indemnified Taxes or Other Taxes
were correctly or legally imposed or asserted by the relevant Governmental
Authority. A certificate as to the amount of such payment or liability delivered
to the relevant Borrower by a Lender, or by the Administrative Agent on its own
behalf or on behalf of a Lender, shall be conclusive absent manifest error.
(d) As soon as practicable after any payment of Indemnified Taxes
or Other Taxes by the relevant Borrower to a Governmental Authority, such
Borrower shall deliver to the Administrative Agent the original or a certified
copy of a receipt issued by such Governmental Authority evidencing such payment,
a copy of the return reporting such payment or other evidence of such payment
reasonably satisfactory to the Administrative Agent.
(e) Any Foreign Lender that is entitled to an exemption from or
reduction of withholding tax under the law of the jurisdiction in which the
relevant Borrower is located, or any treaty to which such jurisdiction is a
party, with respect to payments under this Agreement shall deliver to such
Borrower (with a copy to the Administrative Agent), at the time or times
prescribed by applicable law, such properly completed and executed documentation
prescribed by applicable law or reasonably requested by such Borrower as will
permit such payments to be made without withholding or at a reduced rate.
SECTION 2.16. Payments Generally; Pro Rata Treatment; Sharing of
Set-offs.
(a) Each Borrower shall make each payment required to be made by
it hereunder (whether of principal, interest or fees, or of amounts payable
under Section 2.13, 2.14 or 2.15, or otherwise) prior to noon, New York City
time, on the date when due, in immediately available funds, without set-off or
counterclaim. Any amounts received after such time on any date may, in the
discretion of the Administrative Agent, be deemed to have been received on the
next succeeding Business Day for purposes of calculating interest thereon. All
such payments shall be made to the Administrative Agent at its offices at 270
Park Avenue, New York, New York, except that payments pursuant to Sections 2.13,
2.14, 2.15 and 9.03 shall be made directly to the Persons entitled thereto. The
Administrative Agent shall distribute any such payments received by it for the
account of any other Person to the appropriate recipient promptly following
receipt thereof. If any payment hereunder shall be due on a day that is not a
Business Day, the date for payment shall be extended to the next succeeding
Business Day, and, in the case of any payment accruing interest, interest
thereon shall be payable for the period of such extension. All payments
hereunder shall be made in dollars.
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(b) If at any time insufficient funds are received by and
available to the Administrative Agent to pay fully all amounts of principal,
interest and fees then due hereunder, such funds shall be applied (i) first,
towards payment of interest and fees then due hereunder, ratably among the
parties entitled thereto in accordance with the amounts of interest and fees
then due to such parties, and (ii) second, towards payment of principal then due
hereunder, ratably among the parties entitled thereto in accordance with the
amounts of principal then due to such parties.
(c) If any Lender shall, by exercising any right of set-off or
counterclaim or otherwise, obtain payment in respect of any principal of or
interest on any of its Revolving Loans resulting in such Lender receiving
payment of a greater proportion of the aggregate amount of its Revolving Loans
and accrued interest thereon than the proportion received by any other Lender,
then the Lender receiving such greater proportion shall purchase (for cash at
face value) participations in the Revolving Loans of other Lenders to the extent
necessary so that the benefit of all such payments shall be shared by the
Lenders ratably in accordance with the aggregate amount of principal of and
accrued interest on their respective Revolving Loans; provided that (i) if any
such participations are purchased and all or any portion of the payment giving
rise thereto is recovered, such participations shall be rescinded and the
purchase price restored to the extent of such recovery, without interest, and
(ii) the provisions of this paragraph shall not be construed to apply to any
payment made by either Borrower pursuant to and in accordance with the express
terms of this Agreement or any payment obtained by a Lender as consideration for
the assignment of or sale of a participation in any of its Loans to any assignee
or participant, other than to the Company or any Subsidiary or Affiliate thereof
(as to which the provisions of this paragraph shall apply). Each Borrower
consents to the foregoing and agrees, to the extent it may effectively do so
under applicable law, that any Lender acquiring a participation pursuant to the
foregoing arrangements may exercise against such Borrower rights of set-off and
counterclaim with respect to such participation as fully as if such Lender were
a direct creditor of such Borrower in the amount of such participation.
(d) Unless the Administrative Agent shall have received notice
from the relevant Borrower prior to the date on which any payment is due to the
Administrative Agent for the account of the Lenders hereunder that such Borrower
will not make such payment, the Administrative Agent may assume that such
Borrower has made such payment on such date in accordance herewith and may, in
reliance upon such assumption, distribute to the Lenders, the amount due. In
such event, if such Borrower has not in fact made such payment, then each of the
Lenders, severally agrees to repay to the Administrative Agent forthwith on
demand the amount so distributed to such Lender with interest thereon, for each
day from and including the date such amount is distributed to it to but
excluding the date of payment to the Administrative Agent, at the greater of the
Federal Funds Effective Rate and a rate determined by the Administrative Agent
in accordance with banking industry rules on interbank compensation.
(e) If any Lender shall fail to make any payment required to be
made by it pursuant to Section 2.05(b) or 2.16(d), then the Administrative Agent
may, in its discretion (notwithstanding any contrary provision hereof), apply
any amounts thereafter received by the Administrative Agent for the account of
such Lender to satisfy such Lender's obligations under such Sections until all
such unsatisfied obligations are fully paid.
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SECTION 2.17. Mitigation Obligations; Replacement of Lenders.
(a) If any Lender requests compensation under Section 2.13, or if
either Borrower is required to pay any additional amount to any Lender or any
Governmental Authority for the account of any Lender pursuant to Section 2.15,
then such Lender shall, upon the request of such Borrower, use reasonable
efforts to designate a different lending office for funding or booking its Loans
hereunder or to assign its rights and obligations hereunder to another of its
offices, branches or affiliates, if, in the judgment of such Lender, such
designation or assignment (i) would eliminate or reduce amounts payable pursuant
to Section 2.13 or 2.15, as the case may be, in the future and (ii) would not
subject such Lender to any unreimbursed cost or expense and would not otherwise
be disadvantageous to such Lender. Each Borrower hereby agrees to pay all
reasonable costs and expenses incurred by any Lender in connection with any such
designation or assignment.
(b) If any Lender (or any Participant in Loans made by such
Lender) requests compensation under Section 2.13, or if either Borrower is
required to pay any additional amount to any Lender (or any Participant in Loans
made by such Lender) or any Governmental Authority for account of any Lender (or
any Participant in Loans made by such Lender) pursuant to Section 2.15, or if
any Lender defaults in its obligation to fund Loans hereunder, then the Company
may, at its sole expense and effort, upon notice to such Lender and the
Administrative Agent, require such Lender to assign and delegate, without
recourse (in accordance with and subject to the restrictions contained in
Section 9.04), all its interests, rights and obligations under this Agreement
(other than any outstanding Competitive Loans held by it) to an assignee that
shall assume such obligations (which assignee may be another Lender, if a Lender
accepts such assignment); provided that (i) the Company shall have received the
prior written consent of the Administrative Agent, which consent shall not
unreasonably be withheld, (ii) such Lender shall have received payment of an
amount equal to the outstanding principal of its Loans (other than Competitive
Loans), accrued interest thereon, accrued fees and all other amounts payable to
it hereunder, from the assignee (to the extent of such outstanding principal and
accrued interest and fees) or the relevant Borrower (in the case of all other
amounts) and (iii) in the case of any such assignment resulting from a claim for
compensation under Section 2.13 or payments required to be made pursuant to
Section 2.15, such assignment will result in a reduction in such compensation or
payments. A Lender shall not be required to make any such assignment and
delegation if, prior thereto, as a result of a waiver by such Lender or
otherwise, the circumstances entitling the Company to require such assignment
and delegation cease to apply.
SECTION 2.18. Increase in Commitments. The Company shall have the
right, so long as no Default shall have occurred and be continuing, without the
consent of any Lender (except as described in clause (i) below) but with the
consent of the Administrative Agent (which consent shall not be unreasonably
withheld), at any time prior to the Maturity Date, to increase the total
aggregate amount of the Commitments hereunder by (a) adding a lender or lenders
hereto with a Commitment or Commitments of up to the amount (or aggregate
amount) of such increase (which lender or lenders shall thereupon become
"Lenders" hereunder) and/or (b) enabling any Lender or Lenders to increase its
(or their) Commitment (or Commitments) up to the amount of any such increase;
provided that: (i) in no event shall any Lender's Commitment be increased
without the consent of such Lender, (ii) if any Revolving
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Loans are outstanding hereunder on the date that any such increase is to be
effective, the principal amount of any such Revolving Loans shall on or prior to
the effectiveness of such increase, at the option of the Borrowers, either (A)
be repaid, together with accrued interest thereon and any costs incurred by any
Lender in accordance with Section 2.14 (but all such Loans may, on the terms and
conditions hereof, be reborrowed on the date that any such increase becomes
effective pro rata among all of the Lenders) or (B) be converted into
Competitive Loans with the same terms (including, without limitation, interest
rate) and maturity of such Revolving Loans, provided that the Competitive Loans
into which such Revolving Loans are converted shall constitute a utilization of
the Commitments, (iii) any such increase shall be in an integral multiple of
$50,000,000, (iv) in no event shall any increase result in the total aggregate
amount of the Commitments exceeding $1,250,000,000, (v) no increase in
Commitments contemplated by this Section 2.18 shall result in any one Lender
having a Commitment in an amount which equals more than 20% of the aggregate
amount of the Commitments hereunder, and (vi) no increase in Commitments shall
occur within 12 months of a reduction in the Commitments pursuant to Section
2.07.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
The Company represents and warrants to the Lenders that:
SECTION 3.01. Organization; Powers. The Company and each of its
Material Subsidiaries is duly organized, validly existing and in good standing
under the laws of the jurisdiction of its organization, has all requisite power
and authority to carry on its business as now conducted and, except where the
failure to do so, individually or in the aggregate, could not reasonably be
expected to result in a Material Adverse Change, is qualified to do business in,
and is in good standing in, every jurisdiction where such qualification is
required.
SECTION 3.02. Authorization; Enforceability. The Transactions are
within each Borrower's corporate powers and have been duly authorized by all
necessary corporate action. This Agreement and the Support Agreement have been
duly executed and delivered by each Borrower and each constitutes a legal, valid
and binding obligation of each Borrower, enforceable in accordance with its
terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium
or other laws affecting creditors' rights generally and subject to general
principles of equity, regardless of whether considered in a proceeding in equity
or at law.
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SECTION 3.03. Governmental Approvals; No Conflicts. The
Transactions (a) do not require any consent or approval of, registration or
filing with, or any other action by, any Governmental Authority, except such as
have been obtained or made and are in full force and effect, (b) will not
violate any applicable law or regulation or the charter, by-laws or other
organizational documents of either Borrower or any order of any Governmental
Authority, and (c) will not violate or result in a default under any indenture,
agreement or other instrument binding upon either Borrower or its assets, or
give rise to a right thereunder to require any payment to be made by either
Borrower.
SECTION 3.04. Financial Condition; No Material Adverse Change.
(a) The Company has heretofore furnished to the Lenders its
audited consolidated balance sheet and statements of earnings, equity and cash
flows (i) as of and for the fiscal year ended December 31, 1997, reported on by
Deloitte & Touche, LLP, independent public accountants. Such financial
statements present fairly, in all material respects, the financial position and
results of operations and cash flows of the Company and its consolidated
Subsidiaries, as of the date thereof and for such fiscal year, in accordance
with GAAP.
(b) The Company has heretofore furnished to each of the Lenders
the annual Statutory Statement of the Company as at and for the year ended
December 31, 1997, as filed with the Applicable Insurance Regulatory Authority.
Such Statutory Statement presents fairly, in all material respects, the
financial position and results of operations of the Company , as of the date
thereof and for such year, in accordance with SAP.
(c) Since December 31, 1997, there has been no material adverse
change in the business, assets, property, condition (financial or otherwise) or
prospects of the Company and its Subsidiaries taken as a whole from that set
forth in the respective financial statements referred to in Section 3.04(a).
SECTION 3.05. Properties.
(a) The Company and each of its Material Subsidiaries has good
title to, or valid leasehold interests in, all its real and personal property
material to its business, except for minor defects in title that, individually
or in the aggregate, could not reasonably be expected to result in a Material
Adverse Change.
(b) The Company and each of its Material Subsidiaries owns, or is
licensed to use, all trademarks, tradenames, copyrights, patents and other
intellectual property material to its business, and the use thereof by the
Company and its Material Subsidiaries does not infringe upon the rights of any
other Person, except for any such infringements that, individually or in the
aggregate, could not reasonably be expected to result in a Material Adverse
Change.
SECTION 3.06. Litigation and Environmental Matters.
(a) There are no actions, suits or proceedings by or before any
arbitrator or Governmental Authority pending against or, to the knowledge of the
Company or Funding,
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threatened against or affecting the Company or any of its Material Subsidiaries
(i) as to which there is a reasonable possibility of an adverse determination
and that, if adversely determined, is reasonably likely, individually or in the
aggregate, to result in a Material Adverse Change (other than the Disclosed
Matters) or (ii) that involve this Agreement or the Transactions.
(b) Except for the Disclosed Matters and except with respect to
any other matters that, individually or in the aggregate, could not reasonably
be expected to result in a Material Adverse Change, neither the Company nor any
of its Material Subsidiaries (i) has failed to comply with any Environmental Law
or to obtain, maintain or comply with any permit, license or other approval
required under any Environmental Law, (ii) has become subject to any
Environmental Liability, (iii) has received notice of any claim with respect to
any Environmental Liability or (iv) knows of any basis for any Environmental
Liability.
SECTION 3.07. Compliance with Laws and Agreements. The Company
and each of its Material Subsidiaries is in compliance with all laws,
regulations and orders of any Governmental Authority applicable to it or its
property and all indentures, agreements and other instruments binding upon it or
its property, except where the failure to do so, individually or in the
aggregate, could not reasonably be expected to result in a Material Adverse
Change. No Default has occurred and is continuing.
SECTION 3.08. Investment and Holding Company Status. Neither the
Company nor any of its Material Subsidiaries (other than Funding) is an
"investment company" as defined in, or subject to regulation under, the
Investment Company Act of 1940, and Funding is an "investment company" as
defined in such Act that is exempt from the requirements of such Act. Neither
the Company nor any of its Material Subsidiaries is a "holding company" as
defined in, or subject to regulation under, the Public Utility Holding Company
Act of 1935.
SECTION 3.09. Taxes. The Company and each of its Subsidiaries has
timely filed or caused to be filed all tax returns and reports required to have
been filed and has paid or caused to be paid all Taxes required to have been
paid by it, except (a) Taxes that are being contested in good faith by
appropriate proceedings and for which the Company or such Subsidiary, as
applicable, has set aside on its books adequate reserves or (b) to the extent
that the failure to do so could not reasonably be expected to result in a
Material Adverse Change.
SECTION 3.10. ERISA. Each Plan and, to the knowledge of the
Company, each Multiemployer Plan, is in compliance in all material respects
with, and has been administered in all material respects with, the applicable
provisions of ERISA, the Code and any other Federal or State law, and no ERISA
Event has occurred or is reasonably expected to occur that, when taken together
with all other such ERISA Events for which liability is reasonably expected to
occur, could reasonably be expected to result in a Material Adverse Change.
SECTION 3.11. Disclosure. None of the reports, financial
statements, certificates or other information furnished by or on behalf of the
Company to the Administrative Agent or any Lender in connection with the
negotiation of this Agreement or delivered hereunder (as modified or
supplemented by other information so furnished) contains any material
misstatement of fact or omits to state any material fact necessary to make the
statements therein,
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in the light of the circumstances under which they were made, not misleading;
provided that (a) with respect to projected financial information, the Company
represents only that such information was prepared in good faith based upon
assumptions believed to be reasonable at the time, and (b) the Company is
considering selling its existing U.S. commercial finance operations.
SECTION 3.12. Margin Stock. No part of the proceeds of any Loan
hereunder will be used, whether directly or indirectly, for any purpose that
entails a violation of any of the Regulations of the Board, including
Regulations U and X. Not more than 25% of the value (as determined by any
reasonable method) of the assets of either the Company or Funding is represented
by Margin Stock.
SECTION 3.13. Year 2000. Substantially all programming required
to handle all material dates and date processing, in and following the year
2000, of (i) the Company's and each of its Material Subsidiaries' computer
systems and (ii) equipment containing embedded microchips (including systems and
equipment supplied by others or with which the Company's or such Material
Subsidiaries' systems interface) and the testing of all such systems and
equipment, as so reprogrammed, will be substantially completed by July 1, 1999.
The expected cost to the Company and its Material Subsidiaries of such
reprogramming and testing and of the reasonably foreseeable consequences of year
2000 to the Company and its Material Subsidiaries (including, without
limitation, reprogramming errors and the failure of others' systems or
equipment) is not anticipated to result in a Default or a Material Adverse
Change.
ARTICLE IV
CONDITIONS
SECTION 4.01. Effective Date. The obligations of the Lenders to
make Loans hereunder shall not become effective until the date on which each of
the following conditions is satisfied (or waived in accordance with Section
9.02):
(a) The Administrative Agent (or its counsel) shall have received
from each party hereto either (i) a counterpart of this Agreement signed on
behalf of such party or (ii) written evidence satisfactory to the Administrative
Agent (which may include telecopy transmission of a signed signature page of
this Agreement) that such party has signed a counterpart of this Agreement.
(b) The Administrative Agent shall have received an opinion,
addressed to it and the Lenders and dated the Effective Date, of Ruth R. Gluck,
Esq., Associate General Counsel to the Company and Assistant General Counsel to
Funding, substantially in the form of Exhibit B, and covering such other matters
relating to the Borrowers, this Agreement or the Transactions as the Required
Lenders shall reasonably request. The Borrowers hereby request such counsel to
deliver such opinion.
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(c) The Administrative Agent shall have received an opinion,
addressed to it and the Lenders and dated the Effective Date, or Milbank, Tweed,
Hadley and McCloy, special New York counsel to Chase, substantially in the form
of Exhibit C. Chase hereby instructs such counsel to deliver such opinion to the
Lenders and the Administrative Agent.
(d) The Administrative Agent shall have received such documents
and certificates as the Administrative Agent, its counsel or any Lender may
reasonably request relating to the organization, existence and good standing of
each of the Borrowers, the authorization of the Transactions and any other legal
matters relating to the Borrowers, this Agreement or the Transactions, all in
form and substance satisfactory to the Administrative Agent and its counsel.
(e) The Administrative Agent shall have received all fees and
other amounts due and payable on or prior to the Effective Date, including, to
the extent invoiced, reimbursement or payment of all out-of-pocket expenses
required to be reimbursed or paid by the Borrowers hereunder.
The Administrative Agent shall notify the Borrowers and the Lenders of the
Effective Date, and such notice shall be conclusive and binding. Notwithstanding
the foregoing, the obligations of the Lenders to make Loans hereunder shall not
become effective unless each of the foregoing conditions is satisfied (or waived
pursuant to Section 9.02) at or prior to 3:00 p.m., New York City time, on April
28, 1998 (and, in the event such conditions are not so satisfied or waived, the
Commitments shall terminate at such time).
SECTION 4.02. Each Credit Event. The obligation of each Lender to
make a Loan on the occasion of any Borrowing, is subject to the satisfaction of
the following conditions:
(a) The representations and warranties of each of the
Borrowers set forth in this Agreement (other than, after the Effective
Date, in Section 3.04(c) and in Section 3.06) shall be true and correct
on and as of the date of such Borrowing.
(b) At the time of and immediately after giving effect to such
Borrowing, no Default shall have occurred and be continuing.
Each Borrowing shall be deemed to constitute a representation and warranty by
each Borrower on the date thereof as to the matters specified in paragraphs (a)
and (b) of this Section.
ARTICLE V
AFFIRMATIVE COVENANTS
Until the Commitments have expired or been terminated and the
principal of and interest on each Loan and all fees payable hereunder shall have
been paid in full, each Borrower covenants and agrees with the Lenders that:
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SECTION 5.01. Financial Statements and Other Information. The
Company will furnish to the Administrative Agent and each Lender:
(a) as soon as they are available but in any event within 120
days after the end of each fiscal year of the Company, its audited
consolidated balance sheet and related statements of earnings, equity
and cash flows as of the end of and for such year, setting forth in
each case in comparative form the figures for the previous fiscal year,
all reported on by Deloitte & Touche, LLP or other independent public
accountants of recognized national standing (without a "going concern"
or like qualification or exception and without any qualification or
exception as to the scope of such audit) to the effect that such
consolidated financial statements present fairly in all material
respects the financial condition and results of operations of the
Company and its consolidated Subsidiaries on a consolidated basis in
accordance with GAAP consistently applied;
(b) concurrently with any delivery of financial statements
under clause (a) above or (except as to clause (ii) of this paragraph
(b)) clause (c) or (d) below, a certificate of a Financial Officer of
the Company (i) certifying as to whether a Default has occurred and, if
a Default has occurred, specifying the details thereof and any action
taken or proposed to be taken with respect thereto, (ii) setting forth
reasonably detailed calculations demonstrating compliance with Section
6.04 and (iii) stating whether any change in GAAP or SAP, as the case
may be, or in the application thereof has occurred since the date of
the financial statements referred to in Section 3.04 and, if any such
change has occurred, specifying the effect of such change on the
financial statements accompanying such certificate;
(c) within 5 days after filing with the Applicable Insurance
Regulatory Authority and in any event within 60 days after the end of
each year, the annual Statutory Statement of the Company for such year,
certified by one of its Financial Officers as presenting fairly in all
material respects the financial position of the Company for such year
in accordance with SAP;
(d) within 5 days after filing with the Applicable Insurance
Regulatory Authority and in any event within 60 days after the end of
each of the first three quarterly periods of each year, the quarterly
Statutory Statement of the Company for such period, certified by one of
its Financial Officers as presenting fairly in all material respects
the financial position of the Company for such period in accordance
with SAP; and
(e) promptly following any request therefor, such other
information regarding the operations, business affairs and financial
condition of the Company or any of its Subsidiaries, or compliance with
the terms of this Agreement, as the Administrative Agent or any Lender
may reasonably request.
SECTION 5.02. Notices of Defaults. The Borrowers will furnish to
the Administrative Agent and each Lender prompt written notice of the occurrence
of any Default. Each such notice shall be accompanied by a statement of a
Financial Officer or other executive
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officer of the Company setting forth the details of the event or development
requiring such notice and any action taken or proposed to be taken with respect
thereto.
SECTION 5.03. Existence; Conduct of Business. The Company will,
and will cause each of its Material Subsidiaries to, do or cause to be done all
things necessary to preserve, renew and keep in full force and effect its legal
existence and the rights, licenses, permits, privileges and franchises material
to the conduct of its business; provided that the foregoing shall not prohibit
any merger, consolidation, liquidation, dissolution or other transaction
permitted under Section 6.02.
SECTION 5.04. Payment of Obligations. The Company will, and will
cause each of its Material Subsidiaries to, pay its obligations, including Tax
liabilities, that, if not paid, could result in a Material Adverse Change before
the same shall become delinquent or in default, except where (a) the validity or
amount thereof is being contested in good faith by appropriate proceedings, (b)
the Company or such Material Subsidiary has set aside on its books adequate
reserves with respect thereto in accordance with GAAP and (c) the failure to
make payment pending such contest could not reasonably be expected to result in
a Material Adverse Change.
SECTION 5.05. Maintenance of Properties; Insurance. The Company
will, and will cause each of its Material Subsidiaries to, (a) keep and maintain
all property material to the conduct of its business in good working order and
condition, ordinary wear and tear excepted, and (b) maintain, with financially
sound and reputable insurance companies, insurance in such amounts and against
such risks as are customarily maintained by companies engaged in the same or
similar businesses operating in the same or similar locations.
SECTION 5.06. Books and Records; Inspection Rights. The Company
will, and will cause each of its Material Subsidiaries to, keep proper books of
record and account in which full, true and correct entries are made of all
dealings and transactions in relation to its business and activities. The
Company will, and will cause each of its Material Subsidiaries to, permit any
representative designated by the Administrative Agent (and, if a Default shall
have occurred and be continuing, any representatives designated by any Lender),
upon reasonable prior notice, to visit and inspect its properties, to examine
and make extracts from its books and records, and to discuss its affairs,
finances and condition with its officers and independent accountants, all at
such reasonable times and as often as reasonably requested.
SECTION 5.07. Compliance with Laws. The Company will, and will
cause each of its Material Subsidiaries to, comply with all laws, rules,
regulations and orders of any Governmental Authority applicable to it or its
property, except where the failure to do so, individually or in the aggregate,
could not reasonably be expected to result in a Material Adverse Change.
SECTION 5.08. Use of Proceeds. The proceeds of the Loans will be
used only for general corporate purposes (including the back-up of commercial
paper) of the Company and its Subsidiaries in the ordinary course of business;
provided that no part of the proceeds of any Loan will be used, whether directly
or indirectly, for any purpose that entails a violation of any of the
Regulations of the Board, including Regulations U and X; provided
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further that no part of the proceeds of any Loan will be used, whether directly
or indirectly, to acquire the capital stock or business of any other Person
without the consent of such Person; and provided further that neither the
Administrative Agent nor any Lender shall have any responsibility as to the use
of any such proceeds.
SECTION 5.09. Support Agreement. The Borrowers will maintain the
Support Agreement in full force and effect, and comply with the provisions
thereof, and will not modify, supplement or waive any of its provisions without
the prior consent of the Administrative Agent (with the approval of the Required
Lenders); provided that any modification, supplement or waiver that reduces or
impairs the support provided to Funding shall require the approval of all
Lenders.
ARTICLE VI
NEGATIVE COVENANTS
Until the Commitments have expired or terminated and the
principal of and interest on each Loan and all fees payable hereunder have been
paid in full, each Borrower covenants and agrees with the Lenders that:
SECTION 6.01. Liens. Neither Borrower will create, incur, assume
or permit to exist any Lien on any property or asset now owned or hereafter
acquired by it, or assign or sell any income or revenues (including accounts
receivable) or rights in respect of any thereof, except:
(a) Permitted Encumbrances;
(b) any Lien existing on any property or asset prior to the
acquisition thereof by such Borrower; provided that (i) such Lien is
not created in contemplation of or in connection with such acquisition,
(ii) such Lien shall not apply to any other property or assets of such
Borrower, and (iii) such Lien shall secure only those obligations which
it secures on the date of such acquisition;
(c) Liens on assets acquired, constructed or improved by such
Borrower; provided that (i) such security interests and the
Indebtedness secured thereby are incurred prior to or within 360 days
after such acquisition or the completion of such construction or
improvement, (ii) the Indebtedness secured thereby does not exceed the
cost of acquiring, constructing or improving such assets, and (iii)
such security interests shall not apply to any other property or assets
of such Borrower;
(d) Liens on any property or assets of any Person existing at
the time such Person is merged or consolidated with or into such
Borrower and not created in contemplation of such event;
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(e) Liens on any real property securing Indebtedness in
respect of which (i) the recourse of the holder of such Indebtedness
(whether direct or indirect and whether contingent or otherwise) under
the instrument creating the Lien or providing for the Indebtedness
secured by the Lien is limited to such real property directly securing
such Indebtedness and (ii) such holder may not under the instrument
creating the Lien or providing for the Indebtedness secured by the Lien
collect by levy of execution or otherwise against assets or property of
such Borrower (other than such real property directly securing such
Indebtedness) if such Borrower fails to pay such Indebtedness when due
and such holder obtains a judgement with respect thereto;
(f) Liens arising out of Securities Transactions entered into
in the ordinary course of business and on ordinary business terms;
(g) Liens arising out of Asset Securitizations;
(h) Liens on Separate Accounts Assets;
(i) Liens arising out of the ordinary course of the Company's
business that do not secure any Indebtedness; provided that the
obligations of the Company secured such Liens shall not exceed
$2,000,000,000 at any one time outstanding;
(j) Liens not otherwise permitted by the foregoing clauses of
this Section 6.01; provided that the aggregate principal amount of the
Indebtedness secured such Liens shall not exceed $3,000,000,000 at any
one time outstanding; and
(k) any extension, renewal or replacement of the foregoing;
provided that the Liens permitted hereunder shall not be spread to
cover any additional Indebtedness or assets (other than a substitution
of like assets) unless such additional Indebtedness or assets would
have been permitted in connection with the original creation,
incurrence or assumption of such Lien.
SECTION 6.02. Fundamental Changes (a) Neither Borrower will merge
into or consolidate with any other Person, or permit any other Person to merge
into or consolidate with it, or sell, transfer, lease or otherwise dispose of
(in one transaction or in a series of transactions) all or any substantial part
of its assets (excluding assets sold or disposed of in the ordinary course of
business), or (in the case of the Company) all or any substantial part of the
stock of Funding (in each case, whether now owned or hereafter acquired), or
liquidate or dissolve; provided that, if at the time thereof and immediately
after giving effect thereto no Default shall have occurred and be continuing (i)
any Subsidiary of the Company may merge into the Company in a transaction in
which the Company is the surviving corporation, (ii) Funding may sell, transfer,
lease or otherwise dispose of its assets to the Company, (iii) the Company may
sell, transfer, lease or otherwise dispose of (a "Disposition") any of its
assets (other than any substantial part of the stock of Funding) so long as (x)
the Net Available Proceeds of such Disposition, together with the Net Available
Proceeds of all prior Dispositions since the date hereof, shall not exceed an
aggregate amount equal to 50% of Net Worth as set out in the most recent
consolidated financial statements of the Company delivered pursuant to
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Section 3.04(a) or Section 5.01(b), as the case may be, prior to such
Disposition, or (y) such Disposition occurs in connection with the
reorganization of the Company and its Subsidiaries in connection with the
establishment of a mutual holding company, (iv) the Company may merge or
consolidate with any other Person if the Company is the surviving corporation,
(v) the Company may demutualize, and (vi) in addition to any Dispositions
permitted under clause (iii), the Company may sell its existing U.S. commercial
finance operations and its existing Canadian operations.
(b) The Company will not, and will not permit any of its Material
Subsidiaries to, engage to any material extent in any business other than (i)
businesses of the type conducted by the Company and its Material Subsidiaries on
the date of execution of this Agreement and businesses reasonably related
thereto or (ii) the business of providing financial services.
SECTION 6.03. Transactions with Affiliates. The Company will not,
and will not permit any of its Material Subsidiaries to, sell, lease or
otherwise transfer any property or assets to, or purchase, lease or otherwise
acquire any property or assets from, or otherwise engage in any other
transactions with, any of its Affiliates, except (a) in the ordinary course of
business at prices and on terms and conditions not less favorable to the Company
or such Material Subsidiary than could be obtained on an arm's-length basis from
unrelated third parties, and (b) transactions between or among the Company and
its wholly-owned Subsidiaries not involving any other Affiliate.
SECTION 6.04. Net Worth. The Company will not, at any time,
permit Net Worth to be less than $8,500,000,000.
ARTICLE VII
EVENTS OF DEFAULT
If any of the following events ("Events of Default") shall occur:
(a) either Borrower shall fail to pay any principal of any
Loan when and as the same shall become due and payable, whether at the
due date thereof or at a date fixed for prepayment thereof or
otherwise;
(b) either Borrower shall fail to pay any interest on any Loan
or any fee or any other amount (other than an amount referred to in
clause (a) of this Article) payable under this Agreement, when and as
the same shall become due and payable, and such failure shall continue
unremedied for a period of five or more Business Days;
(c) any representation or warranty made or deemed made by or
on behalf of the Company or any of its Material Subsidiaries in or in
connection with this Agreement or any amendment or modification hereof
or waiver hereunder, or in any report, certificate, financial statement
or other document furnished pursuant to or in connection with this
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Agreement or any amendment or modification hereof or waiver hereunder,
shall prove to have been incorrect in any material respect when made or
deemed made;
(d) either Borrower shall fail to observe or perform any
covenant, condition or agreement contained in Section 5.02, 5.03 (with
respect to such Borrower's existence), 5.08 or 5.09 or in Article VI;
(e) either Borrower shall fail to observe or perform any
covenant, condition or agreement contained in this Agreement (other
than those specified in clause (a), (b) or (d) of this Article), and
such failure shall continue unremedied for a period of 30 days after
notice thereof from the Administrative Agent to the relevant Borrower
(which notice will be given at the request of any Lender);
(f) the Company or any of its Material Subsidiaries shall fail
to make any payment (whether of principal or interest and regardless of
amount) in respect of any Material Indebtedness, when and as the same
shall become due and payable;
(g) any event or condition occurs that results in any Material
Indebtedness becoming due prior to its scheduled maturity or that
enables or permits (with or without the giving of notice, the lapse of
time or both) the holder or holders of any Material Indebtedness or any
trustee or agent on its or their behalf to cause any Material
Indebtedness to become due, or to require the prepayment, repurchase,
redemption or defeasance thereof, prior to its scheduled maturity;
provided that this clause (g) shall not apply to secured Indebtedness
that becomes due as a result of the voluntary sale or transfer of the
property or assets securing such Indebtedness;
(h) an involuntary proceeding shall be commenced or an
involuntary petition shall be filed seeking (i) liquidation,
reorganization or other relief in respect of the Company or any of its
Material Subsidiaries or its debts, or of a substantial part of its
assets, under any Federal, state or foreign bankruptcy, insolvency,
receivership or similar law now or hereafter in effect or (ii) the
appointment of a receiver, trustee, custodian, sequestrator,
conservator or similar official for the Company or any or its Material
Subsidiaries or for a substantial part of its assets, and, in any such
case, such proceeding or petition shall continue undismissed for 60
days or an order or decree approving or ordering any of the foregoing
shall be entered;
(i) the Company or any of its Material Subsidiaries shall (i)
voluntarily commence any proceeding or file any petition seeking
liquidation, reorganization or other relief under any Federal, state or
foreign bankruptcy, insolvency, receivership or similar law now or
hereafter in effect, (ii) consent to the institution of, or fail to
contest in a timely and appropriate manner, any proceeding or petition
described in clause (h) of this Article, (iii) apply for or consent to
the appointment of a receiver, trustee, custodian, sequestrator,
conservator or similar official for the Company or any or its Material
Subsidiaries or for a substantial part of its assets, (iv) file an
answer admitting the material allegations of a petition filed against
it in any such proceeding, (v) make a
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general assignment for the benefit of creditors or (vi) take any
action for the purpose of effecting any of the foregoing;
(j) the Company or any of its Material Subsidiaries shall
become unable, admit in writing or fail generally to pay its debts as
they become due;
(k) one or more judgments for the payment of money in an
aggregate amount in excess of $200,000,000 (or its equivalent in any
other currency) shall be rendered against the Company, any Material
Subsidiary of the Company or any combination thereof and the same shall
remain undischarged for a period of 30 consecutive days during which
execution shall not be effectively stayed; or
(l) an ERISA Event shall have occurred that, in the opinion of
the Required Lenders, when taken together with all other ERISA Events
that have occurred, could reasonably be expected to result in liability
of the Company and its Material Subsidiaries in an aggregate amount
exceeding $100,000,000 in any year;
then, and in every such event (other than an event with respect to either
Borrower described in clause (h) or (i) of this Article), and at any time
thereafter during the continuance of such event, (A) the Administrative Agent
may, and at the request of the Required Lenders shall, by notice to the
Borrowers, terminate the Commitments, and thereupon the Commitments shall
terminate immediately, and (B) the Administrative Agent may, and at the request
of the Lenders holding more than 50% of the aggregate outstanding principal
amount of the Loans shall, by notice to the Borrowers, declare the Loans then
outstanding to be due and payable in whole (or in part, in which case any
principal not so declared to be due and payable may thereafter be declared to be
due and payable), and thereupon the principal of the Loans so declared to be due
and payable, together with accrued interest thereon and all fees and other
obligations of the Borrowers accrued hereunder, shall become due and payable
immediately, without presentment, demand, protest or other notice of any kind,
all of which are hereby waived by the Borrowers; and in case of any event with
respect to either Borrower described in clause (h) or (i) of this Article, the
Commitments shall automatically terminate and the principal of the Loans then
outstanding, together with accrued interest thereon and all fees and other
obligations of the Borrowers accrued hereunder, shall automatically become due
and payable, without presentment, demand, protest or other notice of any kind,
all of which are hereby waived by the Borrowers.
ARTICLE VIII
AGENTS
SECTION 8.01. Administrative Agent.
(a) Each of the Lenders hereby irrevocably appoints the
Administrative Agent as its agent and authorizes the Administrative Agent to
take such actions on its behalf and to exercise such powers as are delegated to
the Administrative Agent by the terms hereof, together with such actions and
powers as are reasonably incidental thereto.
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(b) The Person serving as the Administrative Agent hereunder
shall have the same rights and powers in its capacity as a Lender as any other
Lender and may exercise the same as though it were not the Administrative Agent,
and such Person and its Affiliates may accept deposits from, lend money to and
generally engage in any kind of business with the Company or any Subsidiary or
other Affiliate thereof as if it were not the Administrative Agent hereunder.
(c) The Administrative Agent shall not have any duties or
obligations except those expressly set forth herein. Without limiting the
generality of the foregoing (a) the Administrative Agent shall not be subject to
any fiduciary or other implied duties, regardless of whether a Default has
occurred and is continuing, (b) the Administrative Agent shall not have any duty
to take any discretionary action or exercise any discretionary powers, except
discretionary rights and powers expressly contemplated hereby that the
Administrative Agent is required to exercise in writing by the Required Lenders
(or such other number or percentage of the Lenders as shall be necessary under
the circumstances as provided in Section 9.02), and (c) except as expressly set
forth herein, the Administrative Agent shall not have any duty to disclose, and
shall not be liable for the failure to disclose, any information relating to the
Company or any of its Subsidiaries that is communicated to or obtained by the
Person serving as Administrative Agent or any of its Affiliates in any capacity.
The Administrative Agent shall not be liable for any action taken or not taken
by it with the consent or at the request of the Required Lenders (or such other
number or percentage of the Lenders as shall be necessary under the
circumstances as provided in Section 9.02) or in the absence of its own gross
negligence or wilful misconduct. The Administrative Agent shall be deemed not to
have knowledge of any Default unless and until written notice thereof is given
to the Administrative Agent by the Borrowers or a Lender, and the Administrative
Agent shall not be responsible for or have any duty to ascertain or inquire into
(i) any statement, warranty or representation made by any other Person in or in
connection with this Agreement, (ii) the contents of any certificate, report or
other document delivered hereunder or in connection herewith, (iii) the
performance or observance of any of the covenants, agreements or other terms or
conditions set forth herein, (iv) the validity, enforceability, effectiveness or
genuineness of this Agreement or any other agreement, instrument or document, or
(v) the satisfaction of any condition set forth in Article IV or elsewhere
herein, other than to confirm receipt of items expressly required to be
delivered to the Administrative Agent.
(d) The Administrative Agent shall be entitled to rely upon, and
shall not incur any liability for relying upon, any notice, request,
certificate, consent, statement, instrument, document or other writing
reasonably believed by it to be genuine and to have been signed or sent by the
proper Person. The Administrative Agent also may rely upon any statement made to
it orally or by telephone and believed by it to be made by the proper Person,
and shall not incur any liability for relying thereon. The Administrative Agent
may consult with legal counsel (who may be counsel for the Borrowers),
independent accountants and other experts selected by it, and shall not be
liable for any action taken or not taken by it in accordance with the advice of
any such counsel, accountants or experts.
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(e) The Administrative Agent may perform any and all its duties
and exercise its rights and powers by or through any one or more sub-agents
appointed by the Administrative Agent. The Administrative Agent and any such
sub-agent may perform any and all its duties and exercise its rights and powers
through their respective Related Parties. The exculpatory provisions of the
preceding paragraphs shall apply to any such sub-agent and to the Related
Parties of the Administrative Agent and any such sub-agent, and shall apply to
their respective activities in connection with the syndication of the credit
facilities provided for herein as well as activities as Administrative Agent.
(f) Subject to the appointment and acceptance of a successor
Administrative Agent as provided in this paragraph, the Administrative Agent may
resign at any time by notifying the Lenders and the Borrowers. Upon any such
resignation, the Required Lenders shall have the right, in consultation with the
Borrowers, to appoint a successor. If no successor shall have been so appointed
by the Required Lenders and shall have accepted such appointment within 30 days
after the retiring Administrative Agent gives notice of its resignation, then
the retiring Administrative Agent may, on behalf of the Lenders, appoint a
successor Administrative Agent which shall be a bank with an office in New York,
New York, or an Affiliate of any such bank. Upon the acceptance of its
appointment as Administrative Agent hereunder by a successor, such successor
shall succeed to and become vested with all the rights, powers, privileges and
duties of the retiring Administrative Agent and the retiring Administrative
Agent shall be discharged from its duties and obligations hereunder. The fees
payable by the Borrowers to a successor Administrative Agent shall be the same
as those payable to its predecessor unless otherwise agreed between the
Borrowers and such successor. After the Administrative Agent's resignation
hereunder, the provisions of this Section 8.01 and Section 9.03 shall continue
in effect for the benefit of such retiring Administrative Agent, its sub-agents
and their respective Related Parties in respect of any actions taken or omitted
to be taken by any of them while it was acting as Administrative Agent.
(g) Each Lender acknowledges that it has, independently and
without reliance upon the Administrative Agent or any other Lender and based on
such documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement. Each Lender also
acknowledges that it will, independently and without reliance upon the
Administrative Agent or any other Lender and based on such documents and
information as it shall from time to time deem appropriate, continue to make its
own decisions in taking or not taking action under or based upon this Agreement,
any related agreement or any document furnished hereunder or thereunder.
SECTION 8.02. Syndication Agent and Co-Arranger. The Syndication
Agent and Co-Arranger named on the cover page of this Agreement, in its capacity
as such, shall have no obligation, responsibility or required performance
hereunder and shall not become liable in any manner to any party hereto. No
party hereto shall have any obligation or liability, or owe any performance,
hereunder, to the Syndication Agent and Co-Arranger in its capacity as such.
SECTION 8.03. Documentation Agents. The Documentation Agents
named on the cover page of this Agreement, in their capacities as such, shall
have no obligation, responsibility or required performance hereunder and shall
not become liable in any manner to
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any party hereto. No party hereto shall have any obligation or liability, or owe
any performance, hereunder, to the Documentation Agents, in their capacities as
such.
ARTICLE IX
MISCELLANEOUS
SECTION 9.01. Notices.
Except in the case of notices and other communications expressly
permitted to be given by telephone, all notices and other communications
provided for herein shall be in writing and shall be delivered by hand or
overnight courier service, mailed by certified or registered mail or sent by
telecopy, as follows:
(a) if to the Company or Funding, to it at 1 Madison Avenue,
New York, NY 10010, Attention of William J. Wheeler, Senior Vice
President and Treasurer (Telecopy No. (212) 578-0266), with a copy to
the Company, 1 Madison Avenue, New York, NY 10010, Attention of William
H. Nugent, Assistant Vice President (Telecopy No. (212) 578-8321);
(b) if to the Administrative Agent, to The Chase Manhattan
Bank, The Loan & Agency Services Group, One Chase Manhattan Plaza, 8th
Floor, New York, New York, 10081, Attention of Laura Rebecca (Telecopy
No. (212) 552-7490), with a copy to The Chase Manhattan Bank, 270 Park
Avenue, 20th Floor, New York, New York 10017, Attention of Heather A.
Lindstrom (Telecopy No. (212) 270-0670); and
(c) if to any Lender, to it at its address (or telecopy
number) set forth in its Administrative Questionnaire.
Any party hereto may change its address or telecopy number for notices and other
communications hereunder by notice to the other parties hereto. All notices and
other communications given to any party hereto in accordance with the provisions
of this Agreement shall be deemed to have been given on the date of receipt.
SECTION 9.02. Waivers; Amendments.
(a) No failure or delay by the Administrative Agent or any
Lender in exercising any right or power hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right or power, or
any abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or the exercise of any other
right or power. The rights and remedies of the Administrative Agent and the
Lenders hereunder are cumulative and are not exclusive of any rights or remedies
that they would otherwise have. No waiver of any provision of this Agreement or
consent to any departure by the Borrowers therefrom shall in any event be
effective unless the same shall be permitted by paragraph (b) of this Section,
and then such waiver or consent shall be effective only in the specific instance
and for the purpose for which given. Without limiting the generality of the
foregoing, the making of a Loan shall not be construed as a waiver of any
Default, regardless of whether the
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Administrative Agent or any Lender may have had notice or knowledge of such
Default at the time.
(b) Neither this Agreement nor any provision hereof may be
waived, amended or modified except pursuant to an agreement or agreements in
writing entered into by the Borrowers and the Required Lenders or by the
Borrowers and the Administrative Agent with the consent of the Required Lenders;
provided that no such agreement shall (i) increase the Commitment of any Lender
without the written consent of such Lender, (ii) reduce the principal amount of
any Loan or reduce the rate of interest thereon, or reduce any fees payable
hereunder, without the written consent of each Lender affected thereby, (iii)
postpone the scheduled date of payment of the principal amount of any Loan, or
any interest thereon, or any fees payable hereunder, or reduce the amount of,
waive or excuse any such payment, or postpone the scheduled date of expiration
of any Commitment, without the written consent of each Lender affected thereby,
(iv) change Section 2.16(b) or (c) in a manner that would alter the pro rata
sharing of payments required thereby, without the written consent of each
Lender, or (v) change any of the provisions of this Section or the definition of
"Required Lenders" or any other provision hereof specifying the number or
percentage of Lenders required to waive, amend or modify any rights hereunder or
make any determination or grant any consent hereunder, without the written
consent of each Lender; provided further that no such agreement shall amend,
modify or otherwise affect the rights or duties of the Administrative Agent
hereunder without the prior written consent of the Administrative Agent.
SECTION 9.03. Expenses; Indemnity: Damage; Waiver.
(a) The Company shall pay (i) all reasonable out-of-pocket
expenses incurred by the Administrative Agent and its Affiliates, including the
reasonable fees, charges and disbursements of counsel for the Administrative
Agent, in connection with the syndication of the credit facilities provided for
herein, the preparation and administration of this Agreement or any amendments,
modifications or waivers of the provisions hereof (whether or not the
transactions contemplated hereby or thereby shall be consummated), and (ii) all
out-of-pocket expenses incurred by the Administrative Agent or any Lender,
including the fees, charges and disbursements of any counsel for the
Administrative Agent or any Lender, in connection with the enforcement or
protection of its rights in connection with this Agreement, including its rights
under this Section, or in connection with the Loans made hereunder, including
all such out-of-pocket expenses incurred during any workout, restructuring or
negotiations in respect of such Loans.
(b) The Company shall indemnify the Administrative Agent and each
Lender, and each Related Party of any of the foregoing Persons (each such Person
being called an "Indemnitee") against, and hold each Indemnitee harmless from,
any and all losses, claims, damages, liabilities and related expenses, including
the fees, charges and disbursements of any counsel for any Indemnitee, incurred
by or asserted against any Indemnitee arising out of, in connection with, or as
a result of (i) the use or proposed use of the proceeds of any Loan, or (ii) any
actual or prospective claim, litigation, investigation or proceeding relating
thereto, whether based on contract, tort or any other theory and regardless of
whether any Indemnitee is a party thereto; provided that such indemnity shall
not, as to any Indemnitee, be available to the extent
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that such losses, claims, damages, liabilities or related expenses resulted from
the gross negligence or wilful misconduct of such Indemnitee.
(c) To the extent that the Company fails to pay any amount
required to be paid by it to the Administrative Agent under paragraph (a) or (b)
of this Section, each Lender severally agrees to pay to the Administrative Agent
such Lender's Applicable Percentage (determined as of the time that the
applicable unreimbursed expense or indemnity payment is sought) of such unpaid
amount; provided that the unreimbursed expense or indemnified loss, claim,
damage, liability or related expense, as the case may be, was incurred by or
asserted against the Administrative Agent, in its capacity as such.
(d) To the extent permitted by applicable law, the Borrowers
shall not assert, and each Borrower hereby waives, any claim against any
Indemnitee, on any theory of liability, for special, indirect, consequential or
punitive damages (as opposed to direct or actual damages) arising out of, in
connection with, or as a result of, this Agreement or any agreement or
instrument contemplated hereby, the Transactions, any Loan or the use of the
proceeds thereof.
(e) All amounts due under this Section shall be payable not later
than 10 days after written demand therefor.
SECTION 9.04. Successors and Assigns.
(a) The provisions of this Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns permitted hereby, except that the Borrowers may not assign or otherwise
transfer any of their respective rights or obligations hereunder without the
prior written consent of each Lender (and any attempted assignment or transfer
by either Borrower without such consent shall be null and void). Nothing in this
Agreement, expressed or implied, shall be construed to confer upon any Person
(other than the parties hereto, their respective successors and assigns
permitted hereby and, to the extent expressly contemplated hereby, the Related
Parties of each of the Administrative Agent, and the Lenders) any legal or
equitable right, remedy or claim under or by reason of this Agreement.
(b) Any Lender may assign to one or more assignees all or a
portion of its rights and obligations under this Agreement (including all or a
portion of its Commitment and the Loans at the time owing to it); provided that
(i) except in the case of an assignment to a Lender or an Affiliate of a Lender,
each of the Company and the Administrative Agent must give their prior written
consent to such assignment (which consent shall not be unreasonably withheld),
(ii) except in the case of an assignment to a Lender or an Affiliate of a Lender
or an assignment of the entire remaining amount of the assigning Lender's
Commitment, the amount of the Commitment of the assigning Lender subject to each
such assignment (determined as of the date the Assignment and Acceptance with
respect to such assignment is delivered to the Administrative Agent) shall not
be less than $5,000,000 unless each of the Company and the Administrative Agent
otherwise consent, (iii) each partial assignment shall be made as an assignment
of a proportionate part of all the assigning Lender's rights and obligations
under this Agreement, except that this clause (iii) shall not apply to rights in
respect of outstanding Competitive Loans, (iv) the parties to each assignment
shall execute and deliver to the
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Administrative Agent an Assignment and Acceptance, together with a processing
and recordation fee of $3,500, and (v) the assignee, if it shall not be a
Lender, shall deliver to the Administrative Agent an Administrative
Questionnaire; provided further that any consent of the Company otherwise
required under this paragraph shall not be required if an Event of Default under
clause (h) or (i) of Article VII has occurred and is continuing. Subject to
acceptance and recording thereof pursuant to paragraph (d) of this Section, from
and after the effective date specified in each Assignment and Acceptance the
assignee thereunder shall be a party hereto and, to the extent of the interest
assigned by such Assignment and Acceptance, have the rights and obligations of a
Lender under this Agreement, and the assigning Lender thereunder shall, to the
extent of the interest assigned by such Assignment and Acceptance, be released
from its obligations under this Agreement (and, in the case of an Assignment and
Acceptance covering all of the assigning Lender's rights and obligations under
this Agreement, such Lender shall cease to be a party hereto but shall continue
to be entitled to the benefits of Sections 2.13, 2.14, 2.15 and 9.03). Any
assignment or transfer by a Lender of rights or obligations under this Agreement
that does not comply with this paragraph shall be treated for purposes of this
Agreement as a sale by such Lender of a participation in such rights and
obligations in accordance with paragraph (e) of this Section.
(c) The Administrative Agent, acting for this purpose as an agent
of the Borrowers, shall maintain at one of its offices in the City of New York a
copy of each Assignment and Acceptance delivered to it and a register for the
recordation of the names and addresses of the Lenders, and the Commitment of,
and principal amount of the Loans owing to, each Lender pursuant to the terms
hereof from time to time (the "Register"). The entries in the Register shall be
conclusive, and the Borrowers, the Administrative Agent and the Lenders may
treat each Person whose name is recorded in the Register pursuant to the terms
hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding
notice to the contrary. The Register shall be available for inspection by the
Borrowers and any Lender, at any reasonable time and from time to time upon
reasonable prior notice.
(d) Upon its receipt of a duly completed Assignment and
Acceptance executed by an assigning Lender and an assignee, the assignee's
completed Administrative Questionnaire (unless the assignee shall already be a
Lender hereunder), the processing and recordation fee referred to in paragraph
(b) of this Section and any written consent to such assignment required by
paragraph (b) of this Section, the Administrative Agent shall accept such
Assignment and Acceptance and record the information contained therein in the
Register. No assignment shall be effective for purposes of this Agreement unless
it has been recorded in the Register as provided in this paragraph.
(e) Any Lender may, without the consent of the Borrowers or the
Administrative Agent, sell participations to one or more banks or other entities
(a "Participant") in all or a portion of such Lender's rights and obligations
under this Agreement (including all or a portion of its Commitment and the Loans
owing to it); provided that (i) such Lender's obligations under this Agreement
shall remain unchanged, (ii) such Lender shall remain solely responsible to the
other parties hereto for the performance of such obligations and (iii) the
Borrowers, the Administrative Agent and the other Lenders shall continue to deal
solely and directly with such Lender in connection with such Lender's rights and
obligations under this Agreement. Any
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agreement or instrument pursuant to which a Lender sells such a participation
shall provide that such Lender shall retain the sole right to enforce this
Agreement and to approve any amendment, modification or waiver of any provision
of this Agreement; provided that such agreement or instrument may provide that
such Lender will not, without the consent of the Participant, agree to any
amendment, modification or waiver described in the first proviso to Section
9.02(b) that affects such Participant. Subject to paragraph (f) of this Section,
each Borrower agrees that each Participant shall be entitled to the benefits of
Sections 2.13, 2.14 and 2.15 to the same extent as if it were a Lender and had
acquired its interest by assignment pursuant to paragraph (b) of this Section.
To the extent permitted by law, each Participant also shall be entitled to the
benefits of Section 9.08 as though it were a Lender, provided such Participant
agrees to be subject to Section 2.16(c) as though it were a Lender.
(f) A Participant shall not be entitled to receive any greater
payment under Section 2.13 or 2.15 than the applicable Lender would have been
entitled to receive with respect to the participation sold to such Participant,
unless the sale of the participation to such Participant is made with the
Company's prior written consent. A Participant that would be a Foreign Lender if
it were a Lender shall not be entitled to the benefits of Section 2.15 unless
the Company is notified of the participation sold to such Participant and such
Participant agrees, for the benefit of the Borrowers, to comply with Section
2.15(e) as though it were a Lender.
(g) Any Lender may at any time pledge or assign a security
interest in all or any portion of its rights under this Agreement to secure
obligations of such Lender, including any pledge or assignment to secure
obligations to a Federal Reserve Bank, and this Section shall not apply to any
such pledge or assignment of a security interest; provided that no such pledge
or assignment of a security interest shall release a Lender from any of its
obligations hereunder or substitute any such pledgee or assignee for such Lender
as a party hereto.
(h) Anything in this Section to the contrary notwithstanding, no
Lender may assign or participate any interest in any Loan held by it hereunder
to the Company or any Affiliate or Subsidiary thereof without the prior written
consent of each Lender.
SECTION 9.05. Survival. All covenants, agreements,
representations and warranties made by the Borrowers herein and in the
certificates or other instruments delivered in connection with or pursuant to
this Agreement shall be considered to have been relied upon by the other parties
hereto and shall survive the execution and delivery of this Agreement and the
making of any Loans, regardless of any investigation made by any such other
party or on its behalf and notwithstanding that the Administrative Agent or any
Lender may have had notice or knowledge of any Default or incorrect
representation or warranty at the time any credit is extended hereunder, and
shall continue in full force and effect as long as the principal of or any
accrued interest on any Loan or any fee or any other amount payable under this
Agreement is outstanding and unpaid and so long as the Commitments have not
expired or terminated. The provisions of Sections 2.13, 2.14, 2.15 and 9.03 and
Article VIII shall survive and remain in full force and effect regardless of the
consummation of the transactions contemplated hereby, the repayment of the
Loans, the expiration or termination of the Commitments or the termination of
this Agreement or any provision hereof.
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SECTION 9.06. Counterparts; Integration; Effectiveness. This
Agreement may be executed in counterparts (and by different parties hereto on
different counterparts), each of which shall constitute an original, but all of
which when taken together shall constitute a single contract. This Agreement and
any separate letter agreements with respect to fees payable to the
Administrative Agent constitute the entire contract among the parties relating
to the subject matter hereof and supersede any and all previous agreements and
understandings, oral or written, relating to the subject matter hereof. Except
as provided in Section 4.01, this Agreement shall become effective when it shall
have been executed by the Administrative Agent and when the Administrative Agent
shall have received counterparts hereof which, when taken together, bear the
signatures of each of the other parties hereto, and thereafter shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and assigns. Delivery of an executed counterpart of a signature page
of this Agreement by telecopy shall be effective as delivery of a manually
executed counterpart of this Agreement.
SECTION 9.07. Severability. Any provision of this Agreement held
to be invalid, illegal or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such invalidity, illegality or
unenforceability without affecting the validity, legality and enforceability of
the remaining provisions hereof; and the invalidity of a particular provision in
a particular jurisdiction shall not invalidate such provision in any other
jurisdiction.
SECTION 9.08. Right of Setoff. If an Event of Default shall have
occurred and be continuing, each Lender and each of its Affiliates is hereby
authorized at any time and from time to time, to the fullest extent permitted by
law, to set off and apply any and all deposits (general or special, time or
demand, provisional or final) at any time held and other obligations at any time
owing by such Lender or Affiliate to or for the credit or the account of the
relevant Borrower against any of and all the obligations of such Borrower now or
hereafter existing under this Agreement held by such Lender, irrespective of
whether or not such Lender shall have made any demand under this Agreement and
although such obligations may be unmatured. The rights of each Lender under this
Section are in addition to other rights and remedies (including other rights of
setoff) which such Lender may have.
SECTION 9.09. Governing Law; Jurisdiction; Consent to Service of
Process.
(a) This Agreement shall be construed in accordance with and
governed by the law of the State of New York.
(b) Each Borrower hereby irrevocably and unconditionally submits,
for itself and its property, to the nonexclusive jurisdiction of the Supreme
Court of the State of New York sitting in New York County and of the United
States District Court of the Southern District of New York, and any appellate
court from any thereof, in any action or proceeding arising out of or relating
to this Agreement, or for recognition or enforcement of any judgment, and each
of the parties hereto hereby irrevocably and unconditionally agrees that all
claims in respect of any such action or proceeding may be heard and determined
in such New York State or, to the extent permitted by law, in such Federal
court. Each of the parties hereto agrees that a final judgment in any such
action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
Nothing in this Agreement
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shall affect any right that the Administrative Agent or any Lender may otherwise
have to bring any action or proceeding relating to this Agreement against the
Borrowers or their respective properties in the courts of any jurisdiction.
(c) Each Borrower hereby irrevocably and unconditionally waives,
to the fullest extent it may legally and effectively do so, any objection which
it may now or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this Agreement in any court referred to
in paragraph (b) of this Section. Each of the parties hereto hereby irrevocably
waives, to the fullest extent permitted by law, the defense of an inconvenient
forum to the maintenance of such action or proceeding in any such court.
(d) Each party to this Agreement irrevocably consents to service
of process in the manner provided for notices in Section 9.01. Nothing in this
Agreement will affect the right of any party to this Agreement to serve process
in any other manner permitted by law.
SECTION 9.10. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE
TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF
OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER
BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES
THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF
LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT
AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY,
AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
SECTION 9.11. Headings. Article and Section headings and the
Table of Contents used herein are for convenience of reference only, are not
part of this Agreement and shall not affect the construction of, or be taken
into consideration in interpreting, this Agreement.
SECTION 9.12. Confidentiality. Each of the Administrative Agent
and the Lenders agrees to maintain the confidentiality of the Information (as
defined below), except that Information may be disclosed (a) to its and its
Affiliates' directors, officers, employees and agents, including accountants,
legal counsel and other advisors (it being understood that the Persons to whom
such disclosure is made will be informed of the confidential nature of such
Information and instructed to keep such Information confidential), (b) to the
extent requested by any regulatory authority, (c) to the extent required by
applicable laws or regulations or by any subpoena or similar legal process, (d)
to any other party to this Agreement, (e) in connection with the exercise of any
remedies hereunder or any suit, action or proceeding relating to this Agreement
or the enforcement of rights hereunder, (f) subject to an agreement containing
provisions substantially the same as those of this Section, to any assignee of
or Participant in, or any prospective assignee of or Participant in, any of its
rights or obligations under this Agreement, (g) with the consent of the Company
or (h) to the extent such Information (i) becomes publicly available other than
as a result of a breach of this Section or (ii) becomes
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available to the Administrative Agent or any Lender on a nonconfidential basis
from a source other than the Company. For the purposes of this Section,
"Information" means all information received from the Company relating to the
Company or its business, other than any such information that is available to
the Administrative Agent or any Lender on a nonconfidential basis prior to
disclosure by the Company; provided that, in the case of information received
from the Company after the date hereof, such information is clearly identified
at the time of delivery as confidential. Any Person required to maintain the
confidentiality of Information as provided in this Section shall be considered
to have complied with its obligation to do so if such Person has exercised the
same degree of care to maintain the confidentiality of such Information as such
Person would accord to its own confidential information.
SECTION 9.13. Bilateral Lines. On the date of the execution and
delivery of this Agreement by the parties hereto, any existing bilateral line of
credit provided by any Lender to either or both of the Borrowers shall
automatically terminate and all fees payable to such Lender in connection
therewith accrued to such date shall immediately be due and payable.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed by their respective authorized officers as of the day and
year first above written.
METROPOLITAN LIFE INSURANCE COMPANY
By /s/ William J. Wheeler
--------------------------------------
Title: Senior Vice President and Treasurer
METLIFE FUNDING, INC.
By /s/ William H. Nugent
--------------------------------------
Title: Vice President and Treasurer
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THE CHASE MANHATTAN BANK,
individually and as
Administrative Agent,
By /s/ Heather A. Lindstrom
--------------------------------------
Title: Vice President
CREDIT SUISSE FIRST BOSTON
By /s/ Jay Chall
--------------------------------------
Title: Director
By /s/ Robert N. Finney
--------------------------------------
Title: Managing Director
THE BANK OF NEW YORK
By /s/ Joseph M. Morgan
--------------------------------------
Title: Vice President
CITIBANK, N.A.
By /s/ Laughton Sherman
--------------------------------------
Title: Attorney-in-Fact
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BANK OF TOKYO-MITSUBISHI TRUST
COMPANY
By /s/ John Beckwith
--------------------------------------
Title: Vice President
THE FIRST NATIONAL BANK OF CHICAGO
By /s/ Samuel W. Bridges
--------------------------------------
Title: First Vice President
FIRST UNION NATIONAL BANK
By /s/ Gail M. Golightly
--------------------------------------
Title: Senior Vice President
FLEET NATIONAL BANK
By /s/ Vijay J. Nazareth
--------------------------------------
Title: Vice President
MELLON BANK, N.A.
By /s/ Susan M. Whitewood
--------------------------------------
Title: Vice President
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BANCO SANTANDER
By /s/ Valerie Merrin
--------------------------------------
Title: Vice President
By /s/ D. Rodriguez
--------------------------------------
Title: Vice President
BANK OF AMERICA NATIONAL
TRUST AND SAVINGS ASSOCIATION
By /s/ Elizabeth W. F. Bishop
--------------------------------------
Title: Vice President
BANKBOSTON, N.A.
By /s/ Lawrence C. Bigelow
--------------------------------------
Title: Managing Director
DEUTSCHE BANK
By /s/ Eckard Osenberg
--------------------------------------
Title: Vice President
By /s/ John S. McGill
--------------------------------------
Title: Vice President
NATIONSBANK OF TEXAS, N.A.
By /s/ Jim V. Miller
--------------------------------------
Title: Senior Vice President
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STATE STREET BANK AND TRUST
COMPANY
By /s/ Edward M. Anderson
--------------------------------------
Title: Vice President
SUNTRUST BANK, ATLANTA
By /s/ David Wisdom
--------------------------------------
Title: Group Vice President
By /s/ Laura G Harrison
--------------------------------------
Title: Assistant Vice President
WACHOVIA BANK
By /s/ Terence A. Snelling
--------------------------------------
Title: Senior Vice President
BARCLAYS BANK
By /s/ Karen M. Wagner
--------------------------------------
Title: Associate Director
KEY BANK NATIONAL ASSOCIATION
By /s/ Sharon F. Weinstein
--------------------------------------
Title: Vice President
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NORTHERN TRUST COMPANY
By /s/ Marcia P. Saper
--------------------------------------
Title: Vice President
ISTITUTO BANCARIO SAN PAOLO DI
TORINO S.P.A.
By /s/ Wendell Jones
--------------------------------------
Title: Vice President
By /s/ Ettore Viazzo
--------------------------------------
Title: Vice President
U.S. BANK NATIONAL ASSOCIATION
By /s/ Allen G. Highum
--------------------------------------
Title: Vice President
BANK OF MONTREAL
By /s/ Charles W. Reed
--------------------------------------
Title: Director
BANK ONE TEXAS, N.A.
By /s/ Barry J. Fields
--------------------------------------
Title: Vice President
Five-Year Credit Agreement
<PAGE> 62
-58-
BANKERS TRUST COMPANY
By /s/ Vincent J. Abruzzini
--------------------------------------
Title: Managing Director
BANQUE NATIONALE DE PARIS
By /s/ Frances A. Meville
--------------------------------------
Title: Assistant Treasurer
By /s/ Riva L. Howard
--------------------------------------
Title: Vice President
DEN DANSKE BANK AKTIESELSKAB
CAYMAN ISLANDS BRANCH
By /s/ John A. O'Neill
--------------------------------------
Title: Vice President
By /s/ Sonia Kataria
--------------------------------------
Title: Vice President
PNC BANK NATIONAL ASSOCIATION
By /s/ Eileen McDonald
--------------------------------------
Title: Vice President
Five-Year Credit Agreement
<PAGE> 63
SCHEDULE 3.06
DISCLOSED MATTERS
[See Section 3.06]
The Company is currently a defendant in numerous state and
federal lawsuits (including individual suits and putative class actions) raising
allegations of improper marketing of individual life insurance. Litigation
seeking compensatory and/or punitive damages relating to the marketing by the
Company of individual life insurance (including putative class and individual
actions) continues to be brought by or on behalf of policyholders and others.
These cases, most of which are in the early stages of litigation, seek
substantial damages, including in some cases claims for punitive and treble
damages and attorneys' fees, and raise, among other claims, allegations that
individual life insurance policies were improperly sold in replacement
transactions or with inadequate or inaccurate disclosure as to the period for
which premiums would be payable, or were misleadingly sold as savings or
retirement plans. Putative classes have been certified, conditionally or subject
to appeal, in state court actions covering certain policyholders in California
and West Virginia; class certification has been denied in a state court action
in Ohio thus far. A number of the federal cases alleging improper marketing of
individual life insurance have been consolidated in the united States District
Court for the Western District of Pennsylvania and the United States District
Court in Massachusetts for pretrial proceedings. Additional litigation relating
to the Company's marketing of individual life insurance may be commenced in the
future. The Company is vigorously defending itself in these actions.
Regulatory authorities in a small number of states, including
both insurance departments and attorneys general, have ongoing investigations of
the Company's sales of individual life insurance, including investigations of
alleged improper replacement transactions and alleged improper sales of
insurance with inaccurate or inadequate disclosure as to the period for which
premiums would be payable. In addition, an investigation by the Office of the
United States Attorney for the Middle District of Florida, which commenced in
1994, into certain of the retirement and savings plan selling allegations that
had been a subject of regulatory inquiries, has not been closed.
In addition to the foregoing matters, the Company is a defendant
in a large number of asbestos lawsuits relating to allegations regarding certain
research, advice and publication activity that occurred decades ago. While the
Company believes that it has significant defenses to these claims and has
effected settlements in many of these cases and has prevailed in certain cases,
it is not possible to predict the number of such cases that may be brought or
the aggregate amount of any liability that may ultimately be incurred by the
Company.
Various litigation, claims and assessments against the Company,
in addition to the aforementioned and those otherwise provided for in the
Company's financial statements, have arisen in the course of the Company's
business, including in connection with its activities as an insurer, employer,
investor and taxpayer. Further, state insurance regulatory authorities and
Schedule 3.06 - Disclosed Matters
<PAGE> 64
-2-
other state authorities regularly make inquiries and conduct investigations
concerning the Company's compliance with applicable insurance and other laws and
regulations.
In certain of the matters referred to above, very large and/or
indeterminate amounts, including punitive and treble damages, are sought. While
it is not feasible to predict or determine the ultimate outcome of all pending
investigations and legal proceedings or to make a meaningful estimate of the
amount or range of loss that could result from an unfavorable outcome in all
such matters, it is the opinion of the Company's management that their outcome,
after consideration of the provisions made in the Company's financial
statements, is not likely to have a material adverse effect on the Company's
financial position.
Schedule 3.06 - Disclosed Matters
<PAGE> 65
EXHIBIT A
[FORM OF]
ASSIGNMENT AND ACCEPTANCE
Reference is made to the Credit Agreement dated as of April 27,
1998 (as amended and in effect on the date hereof, the "Credit Agreement"),
among Metropolitan Life Insurance Company, MetLife Funding, Inc.; the Lenders
named therein and The Chase Manhattan Bank, as Administrative Agent for the
Lenders. Terms defined in the Credit Agreement are used herein with the same
meanings.
The Assignor named on the reverse hereof hereby sells and
assigns, without recourse, to the Assignee named on the reverse hereof, and the
Assignee hereby purchases and assumes, without recourse, from the Assignor,
effective as of the Assignment Date set forth on the reverse hereof, the
interests set forth on the reverse hereof (the "Assigned Interest") in the
Assignor's rights and obligations under the Credit Agreement, including, without
limitation, the interests set forth on the reverse hereof in the Commitment of
the Assignor on the Assignment Date and Competitive Loans and Revolving Loans
owing to the Assignor which are outstanding on the Assignment Date, excluding
accrued interest and fees to and excluding the Assignment Date. The Assignee
hereby acknowledges receipt of a copy of the Credit Agreement. From and after
the Assignment Date (i) the Assignee shall be a party to and be bound by the
provisions of the Credit Agreement and, to the extent of the Assigned Interest,
have the rights and obligations of a Lender thereunder and (ii) the Assignor
shall, to the extent of the Assigned Interest, relinquish its rights and be
released from its obligations under the Credit Agreement.
This Assignment and Acceptance is being delivered to the
Administrative Agent together with (i) if the Assignee is a Foreign Lender, any
documentation required to be delivered by the Assignee pursuant to Section
2.15(e) of the Credit Agreement, duly completed and executed by the Assignee,
and (ii) if the Assignee is not already a Lender under the Credit Agreement, an
Administrative Questionnaire in the form supplied by the Administrative Agent,
duly completed by the Assignee. The [Assignee/Assignor] shall pay the fee
payable to the Administrative Agent pursuant to Section 9.04(b) of the Credit
Agreement.
This Assignment and Acceptance shall be governed by and construed
in accordance with the laws of the State of New York.
Assignment and Acceptance
<PAGE> 66
-2-
Date of Assignment:
Legal Name of Assignor:
Legal Name of Assignee:
Assignee's Address for Notices:
Effective Date of Assignment
("Assignment Date")(1):
<TABLE>
<CAPTION>
Percentage Assigned of
Facility/Commitment
(set forth, to at
Principal Amount least 8 decimals, as a
Assigned (and percentage of the
identifying Facility and the
information as to aggregate Commitments
individual of all Lenders
Facility Competitive Loans) thereunder) ___
- -------- ------------------- ------------------------
<S> <C> <C>
Commitment Assigned: $ %
Revolving Loans:
Competitive Loans:
</TABLE>
The terms set forth above and on the reverse side hereof are hereby agreed to:
[Name of Assignor], as Assignor
By:__________________________________
Name:
Title:
- -----------------
(1) Must be at least five Business Days after execution hereof by all required
parties.
Assignment and Acceptance
<PAGE> 67
-3-
[Name of Assignee], as Assignee
By:__________________________________
Name:
Title:
The undersigned hereby consent to the within assignment:(2)
[Name of Borrower], The Chase Manhattan Bank,
as Administrative Agent,
By:_________________________ By:_________________________
Name: Name:
Title: Title:
- -----------------
(2) Consents to be included to the extent required by Section 9.04(b) of the
Credit Agreement.
Assignment and Acceptance
<PAGE> 68
EXHIBIT B
[Form of Opinion of Counsel for the Borrowers]
April 27, 1998
To the Lenders Referred to Below and
The Chase Manhattan Bank, as
Administrative Agent
270 Park Avenue
New York, New York 10017
Dear Sirs:
I am the Associate General Counsel of Metropolitan Life Insurance
Company (the "Company"), a New York corporation, and the Assistant General
Counsel of and MetLife Funding, Inc., a Delaware corporation ("Funding, and
together with the Company, the "Borrowers"), and in such capacities have
represented the Borrowers in connection with the Five-Year Credit Agreement
dated as of April 27, 1998 (the "Credit Agreement"), among the Borrowers, the
lenders named therein, and The Chase Manhattan Bank, as Administrative Agent,
providing for loans to be made by said lenders to the Borrowers in an aggregate
principal amount not to exceed $1,000,000,000 (as the same may be increased
pursuant to Section 2.18 thereof). Terms defined in the Credit Agreement are
used herein with the same meanings. This opinion is being delivered pursuant to
Section 4.01(b) of the Credit Agreement.
In rendering the opinions expressed below, I have examined
originals or copies, certified or otherwise identified to my satisfaction, of
such documents, corporate records, certificates of public officials and other
instruments and have conducted such other investigations of fact and law as I
have deemed necessary or advisable for purposes of this opinion.
Upon the basis of the foregoing, I am of the opinion that:
1. The Company (a) is a corporation duly organized, validly
existing and in good standing under the laws of New York, (b) Funding
is a corporation duly organized, validly existing and in good standing
under the laws of Delaware, (c) each of the Company and Funding has all
requisite power and authority to carry on its business as now conducted
and (c) except where the failure to do so, individually or in the
aggregate, could not reasonably be expected to result in a Material
Adverse Change, the Company
Opinion of Counsel for the Borrowers
<PAGE> 69
and each of its Material Subsidiaries is qualified to do business in,
and is in good standing in, every jurisdiction where such qualification
is required.
2. The Transactions are within each Borrower's corporate
powers and have been duly authorized by all necessary corporate action.
The Credit Agreement has been duly executed and delivered by each
Borrower and constitutes a legal, valid and binding obligation of such
Borrower, enforceable in accordance with its terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium or other
laws affecting creditors' rights generally and subject to general
principles of equity, regardless of whether considered in a proceeding
in equity or at law.
3. The Transactions (a) do not require any consent or approval
of, registration or filing with, or any other action by, any
Governmental Authority, except such as have been obtained or made and
are in full force and effect, (b) will not violate any applicable law
or regulation or the charter, by-laws or other organizational documents
of the Company or any of its Subsidiaries or any order of any
Governmental Authority, and (c) will not violate or result in a default
under any indenture, agreement or other instrument binding upon the
Company or any of its Material Subsidiaries or its assets, or give rise
to a right thereunder to require any payment to be made by the Company
or any of its Subsidiaries.
4. There are no actions, suits or proceedings by or before any
arbitrator or Governmental Authority pending against or, to my
knowledge, threatened against or affecting the Company or any of its
Material Subsidiaries (a) as to which there is a reasonable possibility
of an adverse determination and that, if adversely determined, is
reasonably likely, individually or in the aggregate, to have a Material
Adverse Change (other than the Disclosed Matters) or (b) that involve
the Credit Agreement or the Transactions.
5. Neither the Company nor any of its Material Subsidiaries
(other than Funding) is an "investment company" as defined in, or
subject to regulation under, the Investment Company Act of 1940, and
Funding is an "investment company" as defined in such Act that is
exempt from the requirements of such Act. Neither the Company nor any
of its Material Subsidiaries is a "holding company" as defined in, or
subject to regulation under, the Public Utility Holding Company Act of
1935.
The foregoing opinions are subject to the following comments
and qualifications:
(A) The enforceability of Section 9.03 of the Credit Agreement
may be limited by laws limiting the enforceability of provisions
exculpating or exempting a party, or requiring indemnification of a
party for, liability for its own action or inaction, to the extent the
action or inaction involves gross negligence, recklessness, willful
misconduct or unlawful conduct.
Opinion of Counsel for the Borrowers
<PAGE> 70
(B) The enforceability of provisions of the Credit Agreement to
the effect that terms may not be waived or modified except in writing
may be limited under certain circumstances.
(C) I express no opinion as to (i) the effect of the laws of any
jurisdiction in which any Bank is located (other than the State of
New York) that limit the interest, fees or other charges such Banks
may impose, (ii) the last sentence of Section 2.16(c) of the Credit
Agreement, and (iii) the first sentence of Section 9.09(b) of the
Credit Agreement, insofar as such sentence relates to the subject
matter jurisdiction of the United States District Court for the
Southern District of New York to adjudicate any controversy related
to the Credit Agreement.
The foregoing opinions are limited to matters involving the
Federal laws of the United States of America and the law of the State of New
York, and I do not express any opinion as to the laws of any other jurisdiction.
This opinion is rendered solely to you in connection with the
above matter. This opinion may not be relied upon by you for any other purpose
or relied upon by any other Person (other than your successors and assigns as
Lenders and Persons that acquire participations in your Loans) without our prior
written consent.
Very truly yours,
Opinion of Counsel for the Borrowers
<PAGE> 71
EXHIBIT C
[Form of Opinion of Special New York Counsel to Chase]
April 27, 1998
To the Lenders Referred to Below
and The Chase Manhattan Bank,
as Administrative Agent
270 Park Avenue
New York, New York 10017
Ladies and Gentlemen:
We have acted as special New York counsel to The Chase Manhattan
Bank ("Chase") in connection with the Five-Year Credit Agreement dated as of
April 27, 1998 (the "Credit Agreement") between Metropolitan Life Insurance
Company (the "Company"), MetLife Funding, Inc. ("Funding", and together with the
Company, the "Borrowers"), the lenders named therein, and Chase, as
Administrative Agent, providing for loans to be made by said lenders to the
Company in an aggregate principal amount not to exceed $1,00,000,000 (as the
same may be increased pursuant to Section 2.18 thereof) at any one time
outstanding. Terms defined in the Credit Agreement are used herein as defined
therein. This opinion is being delivered pursuant to Section 4.01(c) of the
Credit Agreement.
In rendering the opinions expressed below, we have examined an
executed copy of the Credit Agreement and assumed its authenticity. When
relevant facts were not independently established, we have relied upon
representations made in or pursuant to the Credit Agreement.
In rendering the opinions expressed below, we have assumed that:
(i) the Credit Agreement has been duly authorized by, has been
duly executed and delivered by, and (except to the extent
expressly set forth in the opinions below as to the
Borrowers) constitutes the legal, valid, binding and
enforceable obligations of, all of the parties thereto;
(ii) all signatories to the Credit Agreement have been duly
authorized; and
(iii) all of the parties to the Credit Agreement are duly
organized and validly existing and have the power and
authority (corporate or other) to execute, deliver and
perform the Credit Agreement.
Opinion of Special Counsel to Chase
<PAGE> 72
-2-
Based upon and subject to the foregoing and subject also to the
comments and qualifications set forth below, and having considered such
questions of law as we have deemed necessary as a basis for the opinions
expressed below, we are of the opinion that the Credit Agreement constitutes the
legal, valid and binding obligation of each Borrower, enforceable against such
Borrower in accordance with its terms, except as may be limited by bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance or transfer or
other similar laws and except as the enforceability of the Credit Agreement is
subject to the application of general principles of equity (regardless of
whether considered in a proceeding in equity or at law), including, without
limitation, (a) the possible unavailability of specific performance, injunctive
relief or any other equitable remedy and (b) concepts of materiality,
reasonableness, good faith and fair dealing.
The foregoing opinions are subject to the following comments and
qualifications:
(A) The enforceability of Section 9.03 of the Credit Agreement
may be limited by laws limiting the enforceability of provisions
exculpating or exempting a party, or requiring indemnification of a
party for, liability for its own action or inaction, to the extent the
action or inaction involves gross negligence, recklessness, willful
misconduct or unlawful conduct.
(B) The enforceability of provisions in the Credit Agreement
to the effect that terms may not be waived or modified except in
writing may be limited under certain circumstances.
(C) We express no opinion as to (i) the effect of the laws of
any jurisdiction in which any Bank is located (other than the State of
New York) that limit the interest, fees or other charges such Bank may
impose, (ii) the last sentence of Section 2.16(c) of the Credit
Agreement, (iii) the first sentence of Section 9.09(b) of the Credit
Agreement, insofar as such sentence relates to the subject matter
jurisdiction of the United States District Court for the Southern
District of New York to adjudicate any controversy related to the
Credit Agreement, and (iv) the waiver of inconvenient forum set forth
in Section 9.09(c) of the Credit Agreement with respect to proceedings
in the United States District Court for the Southern District of New
York.
The foregoing opinions are limited to matters involving the
Federal laws of the United States of America and the law of the State of New
York, and we do not express any opinion as to the laws of any other
jurisdiction.
This opinion letter is, pursuant to Section 4.01(c) of the Credit
Agreement, provided to you by us in our capacity as special New York counsel to
Chase and may not be relied upon by any Person for any purpose other than in
connection with the transactions contemplated by the Credit Agreement without,
in each instance, our prior written consent.
Very truly yours,
CDP/RJW
Opinion of Special Counsel to Chase
<PAGE> 73
AMENDMENT NO. 1
AMENDMENT NO. 1 dated as of April 26, 1999, among METROPOLITAN
LIFE INSURANCE COMPANY (the "Company"), METLIFE FUNDING INC. ("Funding" and
together with the Company, the "Borrowers"); each of the banks and financial
institutions that is a signatory hereto (individually, a "Lender" and,
collectively, the "Lenders"); and THE CHASE MANHATTAN BANK as administrative
agent for the Lenders (in such capacity, together with its successors in such
capacity, the "Administrative Agent").
The Borrowers, the Lenders and the Administrative Agent are party
to a Five-Year Credit Agreement dated as of April 27, 1998 (as heretofore
modified and supplemented and in effect on the date hereof, the "Credit
Agreement"), providing, subject to the terms and conditions thereof, for the
making of loans by the Lenders to the Borrowers in an aggregate principal amount
up to $1,000,000,000 (as the same may be increased pursuant to Section 2.18
thereof).
The Borrowers, the Lenders and the Administrative Agent wish to
amend the Credit Agreement in certain respects, and accordingly, the parties
hereto hereby agree as follows:
Section 1. Definitions. Except as otherwise defined in this
Amendment No. 1, terms defined in the Credit Agreement are used herein as
defined therein.
Section 2. Amendments. Subject to the satisfaction of the
conditions precedent specified in Section 3 below, but effective as of the date
hereof, the Credit Agreement shall be amended as follows:
2.01. References in the Credit Agreement (including references to
the Credit Agreement as amended hereby) to "this Agreement" (and indirect
references such as "hereunder", "hereby", "herein" and "hereof") shall be deemed
to be references to the Credit Agreement as amended hereby.
2.02. The definition of "Change in Control" in Section 1.01 of
the Credit Agreement shall be amended to read as follows:
"Change in Control" means (a) the acquisition of ownership,
directly or indirectly, beneficially or of record, by any Person or
group (within the meaning of the Securities Exchange Act of 1934 and
the rules of the Securities and Exchange Commission thereunder as in
effect on the date hereof), of shares representing more than 25% of the
aggregate ordinary voting power represented by the issued and
outstanding capital stock of the Company or (b) occupation of a
majority of the seats (other than vacant seats) on the board of
directors of the Company by Persons who were neither (i) nominated by
the
Amendment No. 1
<PAGE> 74
-2-
board of directors of the Company nor (ii) appointed by directors so
nominated. Notwithstanding the foregoing, it shall not constitute a
"Change in Control" hereunder if in connection with a demutualization
of the Company, the Company shall become a wholly owned Subsidiary of
another Person (the "Holding Entity") which, immediately prior to the
effectiveness of such demutualization, is wholly owned by the Company
and in which the eligible policyholders of the Company or other Persons
shall acquire equity or other interests upon such demutualization,
provided that in such event, (A) each reference in clause (a) of the
first sentence of this definition to the Company shall be deemed to be
a reference to the Holding Entity, (B) each reference in clause (b) of
the first sentence of this definition to the Company shall be deemed to
be a reference to the Company and the Holding Entity, and (C) it shall
be a Change in Control after such demutualization if the Company shall
cease to be a wholly owned Subsidiary of the Holding Entity.
2.03. Section 1.01 of the Credit Agreement shall be amended by
adding the following new definition and inserting the same in the appropriate
alphabetical location:
"demutualization" means the conversion of the Company into a
stock life insurance company pursuant to Section 7312 of the New York
Insurance Law, as amended from time to time. The term "demutualize"
shall have a correlative meaning.
2.04. Section 6.04 of the Credit Agreement shall be amended to
read in its entirety as follows:
"Section 6.04 Net Worth. The Company will not, at any time,
permit Net Worth to be less than $9,300,000,000."
Section 3. Conditions Precedent. The amendments to the Credit
Agreement set forth in Section 2 hereof shall become effective, as of the date
hereof, upon the execution and delivery of this Amendment No. 1 by the
Borrowers, the Required Lenders and the Administrative Agent.
Section 4. Miscellaneous. Except as herein provided, the Credit
Agreement shall remain unchanged and in full force and effect. This Amendment
No. 1 may be executed in any number of counterparts, all of which taken together
shall constitute one and the same amendatory instrument and any of the parties
hereto may execute this Amendment No. 1 by signing any such counterpart. This
Amendment No. 1 shall be governed by, and construed in accordance with, the law
of the State of New York.
Amendment No. 1
<PAGE> 75
-3-
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 1 to be
duly executed and delivered as of the day and year first above written.
METROPOLITAN LIFE INSURANCE COMPANY
By
------------------------------------
Title:
METLIFE FUNDING, INC.
By
------------------------------------
Title:
Amendment No. 1
<PAGE> 76
-4-
THE CHASE MANHATTAN BANK,
individually and as Administrative Agent,
By
------------------------------------
Title:
CREDIT SUISSE FIRST BOSTON
By
------------------------------------
Title:
By
------------------------------------
Title:
THE BANK OF NEW YORK
By
------------------------------------
Title:
CITIBANK, N.A.
By
------------------------------------
Title:
Amendment No. 1
<PAGE> 77
-5-
BANK OF TOKYO-MITSUBISHI TRUST
COMPANY
By
------------------------------------
Title:
THE FIRST NATIONAL BANK OF CHICAGO
By
------------------------------------
Title:
FIRST UNION NATIONAL BANK
By
------------------------------------
Title:
FLEET NATIONAL BANK
By
------------------------------------
Title:
MELLON BANK, N.A.
By
------------------------------------
Title:
Amendment No. 1
<PAGE> 78
-6-
BANCO SANTANDER
By
------------------------------------
Title:
By
------------------------------------
Title:
BANK OF AMERICA NATIONAL
TRUST AND SAVINGS ASSOCIATION
By
------------------------------------
Title:
BANKBOSTON, N.A.
By
------------------------------------
Title:
DEUTSCHE BANK
By
------------------------------------
Title:
By
------------------------------------
Title:
Amendment No. 1
<PAGE> 79
-7-
NATIONSBANK OF TEXAS, N.A.
By
------------------------------------
Title:
STATE STREET BANK AND TRUST
COMPANY
By
------------------------------------
Title:
SUNTRUST BANK, ATLANTA
By
------------------------------------
Title:
By
------------------------------------
Title:
WACHOVIA BANK
By
------------------------------------
Title:
Amendment No. 1
<PAGE> 80
-8-
BARCLAYS BANK
By
------------------------------------
Title:
KEY BANK NATIONAL ASSOCIATION
By
------------------------------------
Title:
NORTHERN TRUST COMPANY
By
------------------------------------
Title:
ISTITUTO BANCARIO SAN PAOLO DI
TORINO-ISTITUTO MOBILIARE ITALIANO SPA
By
------------------------------------
Title:
By
------------------------------------
Title:
Amendment No. 1
<PAGE> 81
-9-
U.S. BANK NATIONAL ASSOCIATION
By
------------------------------------
Title:
BANK OF MONTREAL
By
------------------------------------
Title:
BANKERS TRUST COMPANY
By
------------------------------------
Title:
BANQUE NATIONALE DE PARIS
By
------------------------------------
Title:
By
------------------------------------
Title:
Amendment No. 1
<PAGE> 82
-10-
DEN DANSKE BANK AKTIESELSKAB
CAYMAN ISLANDS BRANCH
By
------------------------------------
Title:
By
------------------------------------
Title:
PNC BANK NATIONAL ASSOCIATION
By
------------------------------------
Title:
Amendment No. 1
<PAGE> 83
-11-
BANK ONE TEXAS, N.A.
By
------------------------------------
Title:
Amendment No. 1
<PAGE> 1
Exhibit 10.19
CONFORMED COPY
364-DAY CREDIT AGREEMENT
dated as of
April 27, 1998
among
METROPOLITAN LIFE INSURANCE COMPANY
METLIFE FUNDING, INC.,
as Borrowers
The LENDERS Party Hereto
CREDIT SUISSE FIRST BOSTON,
as Syndication Agent and Co-Arranger
CITIBANK, N.A.
THE BANK OF NEW YORK,
as Documentation Agents
and
THE CHASE MANHATTAN BANK,
as Administrative Agent
-------------------------
$1,000,000,000
-------------------------
CHASE SECURITIES INC.,
as Arranger
Exhibits B and C are photocopies of the documents as delivered
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
ARTICLE I Definitions........................................................................................... 1
SECTION 1.01. DEFINED TERMS...................................................................... 1
SECTION 1.02. CLASSIFICATION OF LOANS AND BORROWINGS............................................. 15
SECTION 1.03. TERMS GENERALLY.................................................................... 15
SECTION 1.04. ACCOUNTING TERMS; GAAP; SAP........................................................ 15
ARTICLE II The Credits.......................................................................................... 15
SECTION 2.01. COMMITMENTS........................................................................ 15
SECTION 2.02. LOANS AND BORROWINGS............................................................... 16
SECTION 2.03. REQUESTS FOR REVOLVING BORROWINGS.................................................. 16
SECTION 2.04. COMPETITIVE BID PROCEDURE.......................................................... 17
SECTION 2.05. FUNDING OF BORROWINGS.............................................................. 19
SECTION 2.06. INTEREST ELECTIONS................................................................. 20
SECTION 2.07. TERMINATION AND REDUCTION OF COMMITMENTS........................................... 21
SECTION 2.08. REPAYMENT OF LOANS; EVIDENCE OF DEBT............................................... 22
SECTION 2.09. PREPAYMENT OF LOANS................................................................ 23
SECTION 2.10. FEES............................................................................... 23
SECTION 2.11. INTEREST........................................................................... 24
SECTION 2.12. ALTERNATE RATE OF INTEREST......................................................... 25
SECTION 2.13. INCREASED COSTS.................................................................... 25
SECTION 2.14. BREAK FUNDING PAYMENTS............................................................. 26
SECTION 2.15. TAXES.............................................................................. 27
SECTION 2.16. PAYMENTS GENERALLY; PRO RATA TREATMENT; SHARING OF SET-OFFS........................ 29
SECTION 2.17. MITIGATION OBLIGATIONS; REPLACEMENT OF LENDERS..................................... 29
SECTION 2.18. EXTENSION OF MATURITY DATE......................................................... 30
SECTION 2.19. INCREASE IN COMMITMENTS............................................................ 31
ARTICLE III Representations and Warranties...................................................................... 32
SECTION 3.01. ORGANIZATION; POWERS............................................................... 32
SECTION 3.02. AUTHORIZATION; ENFORCEABILITY...................................................... 32
SECTION 3.03. GOVERNMENTAL APPROVALS; NO CONFLICTS............................................... 32
SECTION 3.04. FINANCIAL CONDITION; NO MATERIAL ADVERSE CHANGE.................................... 33
SECTION 3.05. PROPERTIES......................................................................... 33
SECTION 3.06. LITIGATION AND ENVIRONMENTAL MATTERS............................................... 33
SECTION 3.07. COMPLIANCE WITH LAWS AND AGREEMENTS................................................ 34
</TABLE>
(i)
<PAGE> 3
<PAGE> 4
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 3.08. INVESTMENT AND HOLDING COMPANY STATUS.............................................. 34
SECTION 3.09. TAXES.............................................................................. 34
SECTION 3.10. ERISA.............................................................................. 34
SECTION 3.11. DISCLOSURE......................................................................... 34
SECTION 3.12. MARGIN STOCK....................................................................... 35
SECTION 3.13. YEAR 2000.......................................................................... 35
ARTICLE IV Conditions........................................................................................... 35
SECTION 4.01. EFFECTIVE DATE..................................................................... 35
SECTION 4.02. EACH CREDIT EVENT.................................................................. 36
ARTICLE V Affirmative Covenants................................................................................. 36
SECTION 5.01. FINANCIAL STATEMENTS AND OTHER INFORMATION......................................... 36
SECTION 5.02. NOTICES OF DEFAULTS................................................................ 37
SECTION 5.03. EXISTENCE; CONDUCT OF BUSINESS..................................................... 38
SECTION 5.04. PAYMENT OF OBLIGATIONS............................................................. 38
SECTION 5.05. MAINTENANCE OF PROPERTIES; INSURANCE............................................... 38
SECTION 5.06. BOOKS AND RECORDS; INSPECTION RIGHTS............................................... 38
SECTION 5.07. COMPLIANCE WITH LAWS............................................................... 38
SECTION 5.08. USE OF PROCEEDS.................................................................... 38
SECTION 5.09. SUPPORT AGREEMENT.................................................................. 39
ARTICLE VI Negative Covenants................................................................................... 39
SECTION 6.01. LIENS.............................................................................. 39
SECTION 6.02. FUNDAMENTAL CHANGES................................................................ 40
SECTION 6.03. TRANSACTIONS WITH AFFILIATES....................................................... 41
SECTION 6.04. NET WORTH.......................................................................... 41
ARTICLE VII Events of Default................................................................................... 41
ARTICLE VIII Agents............................................................................................. 43
SECTION 8.01. ADMINISTRATIVE AGENT............................................................... 43
SECTION 8.02. SYNDICATION AGENT AND CO-ARRANGER.................................................. 45
SECTION 8.03. DOCUMENTATION AGENTS............................................................... 45
ARTICLE IX Miscellaneous........................................................................................ 46
SECTION 9.01. NOTICES............................................................................ 46
SECTION 9.02. WAIVERS; AMENDMENTS................................................................ 46
SECTION 9.03. EXPENSES; INDEMNITY: DAMAGE; WAIVER................................................ 47
</TABLE>
(ii)
<PAGE> 5
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 9.04. SUCCESSORS AND ASSIGNS............................................................. 48
SECTION 9.05. SURVIVAL........................................................................... 50
SECTION 9.06. COUNTERPARTS; INTEGRATION; EFFECTIVENESS........................................... 50
SECTION 9.07. SEVERABILITY....................................................................... 51
SECTION 9.08. RIGHT OF SETOFF.................................................................... 51
SECTION 9.09. GOVERNING LAW; JURISDICTION; CONSENT TO SERVICE OF PROCESS......................... 51
SECTION 9.10. WAIVER OF JURY TRIAL............................................................... 52
SECTION 9.11. HEADINGS........................................................................... 52
SECTION 9.12. CONFIDENTIALITY.................................................................... 52
SECTION 9.13. BILATERAL LINES.................................................................... 53
</TABLE>
SCHEDULES:
Schedule 2.01 -- Commitments
Schedule 3.06 -- Disclosed Matters
EXHIBITS:
Exhibit A -- Form of Assignment and Acceptance
Exhibit B -- Form of Opinion of Counsel to the Borrowers
Exhibit C -- Form of Opinion of Special New York Counsel to Chase
(iii)
<PAGE> 6
364-DAY CREDIT AGREEMENT dated as of April 27, 1998, among:
METROPOLITAN LIFE INSURANCE COMPANY (the "Company") and METLIFE FUNDING INC.
("Funding" and together with the Company, the "Borrowers"); the LENDERS party
hereto; and THE CHASE MANHATTAN BANK, as Administrative Agent.
The parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Defined Terms. As used in this Agreement, the
following terms have the meanings specified below:
"ABR", when used in reference to any Loan or Borrowing, refers
to whether such Loan, or the Loans comprising such Borrowing, are bearing
interest at a rate determined by reference to the Alternate Base Rate.
"Additional Commitment Lender" has the meaning set forth in
Section 2.18.
"Adjusted LIBO Rate" means, with respect to any Eurodollar
Borrowing for any Interest Period, an interest rate per annum (rounded upwards,
if necessary, to the next 1/16 of 1%) equal to (a) the LIBO Rate for such
Interest Period multiplied by (b) the Statutory Reserve Rate.
"Administrative Agent" means The Chase Manhattan Bank, in its
capacity as administrative agent for the Lenders hereunder.
"Administrative Questionnaire" means an Administrative
Questionnaire in a form supplied by the Administrative Agent.
"Affiliate" means, with respect to a specified Person, another
Person that directly, or indirectly through one or more intermediaries, Controls
or is Controlled by or is under common Control with the Person specified;
provided that, for the purposes of Section 9.04(b), any special purpose funding
vehicle that funds itself principally in the commercial paper market shall not
constitute an Affiliate of any Lender.
"Alternate Base Rate" means, for any day, a rate per annum
equal to the greatest of (a) the Prime Rate in effect on such day, (b) the Base
CD Rate in effect on such day plus 1% and (c) the Federal Funds Effective Rate
in effect on such day plus 1/2 of 1%. Any change in the Alternate Base Rate due
to a change in the Prime Rate, the Base CD Rate or the Federal Funds
364-Day Credit Agreement
<PAGE> 7
-2-
Effective Rate shall be effective from and including the effective date of such
change in the Prime Rate, the Base CD Rate or the Federal Funds Effective Rate,
respectively.
"Applicable Insurance Regulatory Authority" means the
insurance department or similar insurance regulatory or administrative authority
or agency of the jurisdiction in which the Company is domiciled.
"Applicable Percentage" means, with respect to any Lender, the
percentage of the total Commitments represented by such Lender's Commitment. If
the Commitments have terminated or expired, the Applicable Percentages shall be
determined based upon the Commitments most recently in effect, giving effect to
any assignments.
"Applicable Rate" means, for any day, with respect to any
Eurodollar Revolving Loan, or with respect to the facility fees payable
hereunder, as the case may be, the applicable rate per annum set forth below
under the caption "Eurodollar Spread" or "Facility Fee Rate", as the case may
be, based upon the ratings by S&P applicable on such date to the Index Debt:
<TABLE>
<CAPTION>
Index Debt Rating: Eurodollar Facility Fee
------------------ ---------- ------------
<S> <C> <C> <C>
Category 1 0.120% 0.030%
Category 2 0.155% 0.045%
Category 3 0.180% 0.070%
Category 4 0.210% 0.090%
</TABLE>
For purposes of determining the applicable Index Debt Rating: (a) Category 1
shall be deemed to be applicable if (i) no Event of Default shall have occurred
and be continuing and (ii) the Index Debt is rated AA+ (or its equivalent) or
higher by S&P; (b) Category 2 shall be deemed to be applicable if (i) no Event
of Default shall have occurred and be continuing, (ii) Category 1 is not
applicable and (iii) the Index Debt is rated AA- (or its equivalent) or higher
by S&P; (c) Category 3 shall be deemed to be applicable if (i) no Event of
Default shall have occurred and be continuing, (ii) neither Category 1 nor
Category 2 is applicable and (iii) the Index Debt is rated A (or its equivalent)
or higher by S&P; and (d) Category 4 shall be deemed to be applicable if no
other Category is applicable. If S&P shall not have in effect a rating for the
Index Debt (other than by reason of the circumstances referred to in the last
sentence of this definition), then S&P shall be deemed to have established a
rating in Category 4. If the rating established or deemed to have been
established by S&P for the Index Debt shall be changed (other than as a result
of a change in the rating system of S&P), such change shall be effective as of
the date on which it is first announced by S&P. Each change in the Applicable
Rate shall apply during the period commencing on the effective date of such
change and ending on the date immediately preceding the effective date of the
next such change. If the rating system of S&P shall change, or if S&P shall
cease to be in the business of rating corporate debt obligations, the Borrowers
and the Lenders shall negotiate in good faith to amend this definition to
reflect such changed rating system or the unavailability of ratings from such
rating agency and, pending the effectiveness of any such amendment, the
Applicable Rate shall be determined by reference to the rating most recently in
effect prior to such change or cessation.
364-Day Credit Agreement
<PAGE> 8
-3-
"Assessment Rate" means, for any day, the annual assessment
rate in effect on such day that is payable by a member of the Bank Insurance
Fund classified as "well-capitalized" and within supervisory subgroup "B" (or a
comparable successor risk classification) within the meaning of 12 C.F.R. Part
327 (or any successor provision) to the Federal Deposit Insurance Corporation
for insurance by such Corporation of time deposits made in dollars at the
offices of such member in the United States; provided that if, as a result of
any change in any law, rule or regulation, it is no longer possible to determine
the Assessment Rate as aforesaid, then the Assessment Rate shall be such annual
rate as shall be determined by the Administrative Agent to be representative of
the cost of such insurance to the Lenders.
"Asset Securitization" means a public or private transfer of
installment receivables, credit card receivables, lease receivables or any other
type of secured or unsecured financial assets, which transfer is recorded as a
sale according to GAAP as of the date of such transfer.
"Assignment and Acceptance" means an assignment and acceptance
entered into by a Lender and an assignee (with the consent of any party whose
consent is required by Section 9.04), and accepted by the Administrative Agent,
in the form of Exhibit A or any other form approved by the Administrative Agent.
"Availability Period" means the period from and including the
Effective Date to but excluding the earlier of the Maturity Date and the date of
termination of the Commitments.
"Base CD Rate" means the sum of (a) the Three-Month Secondary
CD Rate multiplied by the Statutory Reserve Rate plus (b) the Assessment Rate.
"Board" means the Board of Governors of the Federal Reserve
System of the United States of America.
"Borrowing" means (a) Revolving Loans of the same Type, made,
converted or continued on the same date and, in the case of Eurodollar Loans, as
to which a single Interest Period is in effect, or (b) a Competitive Loan or
group of Competitive Loans of the same Type made on the same date and as to
which a single Interest Period is in effect.
"Borrowing Request" means a request by the Borrower for a
Revolving Borrowing in accordance with Section 2.03.
"Business Day" means any day that is not a Saturday, Sunday or
other day on which commercial banks in New York City are authorized or required
by law to remain closed; provided that, when used in connection with a
Eurodollar Loan, the term "Business Day" shall also exclude any day on which
banks are not open for dealings in dollar deposits in the London interbank
market.
"Capital Lease Obligations" of any Person means the
obligations of such Person to pay rent or other amounts under any lease of (or
other arrangement conveying the right to use)
364-Day Credit Agreement
<PAGE> 9
-4-
real or personal property, or a combination thereof, which obligations are
required to be classified and accounted for as capital leases on a balance sheet
of such Person under GAAP, and the amount of such obligations shall be the
capitalized amount thereof determined in accordance with GAAP.
"Change in Control" means (a) the acquisition of ownership,
directly or indirectly, beneficially or of record, by any Person or group
(within the meaning of the Securities Exchange Act of 1934 and the rules of the
Securities and Exchange Commission thereunder as in effect on the date hereof),
of shares representing more than 25% of the aggregate ordinary voting power
represented by the issued and outstanding capital stock of the Company, or (b)
occupation of a majority of the seats (other than vacant seats) on the board of
directors of the Company by Persons who were neither (i) nominated by the board
of directors of the Company nor (ii) appointed by directors so nominated.
"Change in Law" means (a) the adoption of any law, rule or
regulation after the date of this Agreement, (b) any change in any law, rule or
regulation or in the interpretation or application thereof by any Governmental
Authority after the date of this Agreement or (c) compliance by any Lender (or,
for purposes of Section 2.13(b), by any lending office of such Lender or by such
Lender's holding company, if any) with any request, guideline or directive
(whether or not having the force of law) of any Governmental Authority made or
issued after the date of this Agreement.
"Chase" means The Chase Manhattan Bank.
"Class", when used in reference to any Loan or Borrowing,
refers to whether such Loan, or the Loans comprising such Borrowing, are
Revolving Loans or Competitive Loans.
"Code" means the Internal Revenue Code of 1986, as amended
from time to time.
"Commitment" means, with respect to each Lender, the
commitment of such Lender to make Revolving Loans hereunder, expressed as an
amount representing the maximum aggregate amount of such Lender's Revolving
Credit Exposure hereunder, as such commitment may be (a) reduced from time to
time pursuant to Section 2.07, (b) increased pursuant to Section 2.19, and (c)
reduced or increased from time to time pursuant to assignments by or to such
Lender pursuant to Section 9.04. The initial amount of each Lender's Commitment
is set forth on Schedule 2.01, or in the Assignment and Acceptance pursuant to
which such Lender shall have assumed its Commitment, as applicable. The initial
aggregate amount of the Lenders' Commitments is $1,000,000,000.
"Competitive Bid" means an offer by a Lender to make a
Competitive Loan in accordance with Section 2.04.
"Competitive Bid Rate" means, with respect to any Competitive
Bid, the Margin or the Fixed Rate, as applicable, offered by the Lender making
such Competitive Bid.
364-Day Credit Agreement
<PAGE> 10
-5-
"Competitive Bid Request" means a request by the Borrower for
Competitive Bids in accordance with Section 2.04.
"Competitive Loan" means a Loan made pursuant to Section 2.04.
"Consent Date" has the meaning assigned to such term in
Section 2.18.
"Control" means the possession, directly or indirectly, of the
power to direct or cause the direction of the management or policies of a
Person, whether through the ability to exercise voting power, by contract or
otherwise. "Controlling" and "Controlled" have meanings correlative thereto.
"Default" means any event or condition which constitutes an
Event of Default or which upon notice, lapse of time or both would, unless cured
or waived, become an Event of Default.
"Disclosed Matters" means the actions, suits and proceedings
and the environmental matters disclosed in Schedule 3.06.
"Disposition" has the meaning assigned to such term in Section
6.02.
"dollars" or "$" refers to lawful money of the United States
of America.
"Effective Date" means the date on which the conditions
specified in Section 4.01 are satisfied (or waived in accordance with Section
9.02).
"Environmental Laws" means all laws, rules, regulations,
codes, ordinances, orders, decrees, judgments, injunctions, notices or binding
agreements issued, promulgated or entered into by any Governmental Authority,
relating in any way to the environment, preservation or reclamation of natural
resources, the management, release or threatened release of any Hazardous
Material or to health and safety matters.
"Environmental Liability" means any liability, contingent or
otherwise (including any liability for damages, costs of environmental
remediation, fines, penalties or indemnities), of the Company or any of its
Subsidiaries directly or indirectly resulting from or based upon (a) violation
of any Environmental Law, (b) the generation, use, handling, transportation,
storage, treatment or disposal of any Hazardous Materials, (c) exposure to any
Hazardous Materials, (d) the release or threatened release of any Hazardous
Materials into the environment or (e) any contract, agreement or other
consensual arrangement pursuant to which liability is assumed or imposed with
respect to any of the foregoing.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) that, together with the Company, is treated as a single employer
under Section 414(b) or (c) of the
364-Day Credit Agreement
<PAGE> 11
-6-
Code or, solely for purposes of Section 302 of ERISA and Section 412 of the
Code, is treated as a single employer under Section 414 of the Code.
"ERISA Event" means (a) any "reportable event", as defined in
Section 4043 of ERISA or the regulations issued thereunder with respect to a
Plan (other than an event for which the 30-day notice period is waived); (b) the
existence with respect to any Plan of an "accumulated funding deficiency" (as
defined in Section 412 of the Code or Section 302 of ERISA), whether or not
waived; (c) the filing pursuant to Section 412(d) of the Code or Section 303(d)
of ERISA of an application for a waiver of the minimum funding standard with
respect to any Plan; (d) the incurrence by the Company or any of its ERISA
Affiliates of any liability under Title IV of ERISA with respect to the
termination of any Plan; (e) the receipt by the Company or any ERISA Affiliate
from the PBGC or a plan administrator of any notice relating to an intention to
terminate any Plan or Plans or to appoint a trustee to administer any Plan; (f)
the incurrence by the Company or any of its ERISA Affiliates of any liability
with respect to the withdrawal or partial withdrawal from any Plan or
Multiemployer Plan; or (g) the receipt by the Company or any ERISA Affiliate of
any notice, or the receipt by any Multiemployer Plan from the Company or any
ERISA Affiliate of any notice, concerning the imposition of Withdrawal Liability
or a determination that a Multiemployer Plan is, or is expected to be, insolvent
or in reorganization, within the meaning of Title IV of ERISA.
"Eurodollar", when used in reference to any Loan or Borrowing,
refers to whether such Loan, or the Loans comprising such Borrowing, are bearing
interest at a rate determined by reference to the Adjusted LIBO Rate (or, in the
case of a Competitive Loan, the LIBO Rate).
"Event of Default" has the meaning assigned to such term in
Article VII.
"Excluded Taxes" means, with respect to the Administrative
Agent, any Lender or any other recipient of any payment to be made by or on
account of any obligation of either Borrower hereunder, (a) income or franchise
taxes imposed on (or measured by) its net income by the United States of
America, or by the jurisdiction under the laws of which such recipient is
organized or in which its principal office is located or, in the case of any
Lender, in which its applicable lending office is located, (b) any branch
profits taxes imposed by the United States of America or any similar tax imposed
by any other jurisdiction in which either Borrower is located and (c) in the
case of a Foreign Lender (other than an assignee pursuant to a request by the
Company under Section 2.17(b)), any withholding tax that is imposed on amounts
payable to such Foreign Lender at the time such Foreign Lender becomes a party
to this Agreement (or designates a new lending office) or is attributable to
such Foreign Lender's failure to comply with Section 2.15(e), except to the
extent that such Foreign Lender (or its assignor, if any) was entitled, at the
time of designation of a new lending office (or assignment), to receive
additional amounts from such Borrower with respect to such withholding tax
pursuant to Section 2.15(a).
"Existing Maturity Date" has the meaning assigned to such term
in Section 2.18.
"Federal Funds Effective Rate" means, for any day, the
weighted average (rounded upwards, if necessary, to the next 1/100 of 1%) of the
rates on overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers, as
364-Day Credit Agreement
<PAGE> 12
-7-
published on the next succeeding Business Day by the Federal Reserve Bank of New
York, or, if such rate is not so published for any day that is a Business Day,
the average (rounded upwards, if necessary, to the next 1/100 of 1%) of the
quotations for such day for such transactions received by Chase from three
Federal funds brokers of recognized standing selected by it.
"Financial Officer" means the chief financial officer,
principal accounting officer, treasurer or controller of the Company.
"Fixed Rate" means, with respect to any Competitive Loan
(other than a Eurodollar Competitive Loan), the fixed rate of interest per annum
specified by the Lender making such Competitive Loan in its related Competitive
Bid.
"Fixed Rate Loan" means a Competitive Loan bearing interest at
a Fixed Rate.
"Foreign Lender" means any Lender that is organized under the
laws of a jurisdiction other than that in which either Borrower is located. For
purposes of this definition, the United States of America, each State thereof
and the District of Columbia shall be deemed to constitute a single
jurisdiction.
"Funding" means MetLife Funding, Inc., a Delaware corporation.
"GAAP" means generally accepted accounting principles in the
United States of America.
"Governmental Authority" means the government of the United
States of America, any other nation or any political subdivision thereof,
whether state or local, and any agency, authority, instrumentality, regulatory
body, court, central bank or other entity exercising executive, legislative,
judicial, taxing, regulatory or administrative powers or functions of or
pertaining to government.
"Guarantee" of or by any Person (the "guarantor") means any
obligation, contingent or otherwise, of the guarantor guaranteeing or having the
economic effect of guaranteeing any Indebtedness or other obligation of any
other Person (the "primary obligor") in any manner, whether directly or
indirectly, and including any obligation of the guarantor, direct or indirect,
(a) to purchase or pay (or advance or supply funds for the purchase or payment
of) such Indebtedness or other obligation or to purchase (or to advance or
supply funds for the purchase of) any security for the payment thereof, (b) to
purchase or lease property, securities or services for the purpose of assuring
the owner of such Indebtedness or other obligation of the payment thereof, (c)
to maintain working capital, equity capital or any other financial statement
condition or liquidity of the primary obligor so as to enable the primary
obligor to pay such Indebtedness or other obligation or (d) as an account party
in respect of any letter of credit or letter of guaranty issued to support such
Indebtedness or obligation; provided, that the term Guarantee shall not include
endorsements for collection or deposit in the ordinary course of business.
364-Day Credit Agreement
<PAGE> 13
-8-
"Hazardous Materials" means all explosive or radioactive
substances or wastes and all hazardous or toxic substances, wastes or other
pollutants, including petroleum or petroleum distillates, asbestos or asbestos
containing materials, polychlorinated biphenyls, radon gas, infectious or
medical wastes and all other substances or wastes of any nature regulated
pursuant to any Environmental Law.
"Hedging Agreement" means any interest rate protection
agreement, foreign currency exchange agreement, commodity price protection
agreement or other interest or currency exchange rate or commodity price hedging
arrangement.
"Indebtedness" of any Person means, without duplication, (a)
all obligations of such Person for borrowed money or with respect to deposits or
advances of any kind, (b) all obligations of such Person evidenced by bonds,
debentures, notes or similar instruments, (c) all obligations of such Person
upon which interest charges are customarily paid, (d) all obligations of such
Person under conditional sale or other title retention agreements relating to
property acquired by such Person, (e) all obligations of such Person in respect
of the deferred purchase price of property or services (excluding current
accounts payable incurred in the ordinary course of business), (f) all
Indebtedness of others secured by (or for which the holder of such Indebtedness
has an existing right, contingent or otherwise, to be secured by) any Lien on
property owned or acquired by such Person, whether or not the Indebtedness
secured thereby has been assumed, (g) all Guarantees by such Person of
Indebtedness of others, (h) all Capital Lease Obligations of such Person, (i)
all obligations, contingent or otherwise, of such Person as an account party in
respect of letters of credit and letters of guaranty, (j) all obligations,
contingent or otherwise, of such Person in respect of bankers' acceptances, and
(k) all Surplus Relief Reinsurance ceded by such Person. The Indebtedness of any
Person shall include the Indebtedness of any other entity (including any
partnership in which such Person is a general partner) to the extent such Person
is liable therefor as a result of such Person's ownership interest in or other
relationship with such entity, except to the extent the terms of such
Indebtedness provide that such Person is not liable therefor.
"Indemnified Taxes" means Taxes other than Excluded Taxes.
"Index Debt" means senior, unsecured, long-term indebtedness
for borrowed money of the Company that is not guaranteed by any other Person or
subject to any other credit enhancement.
"Interest Election Request" means a request by the Borrower to
convert or continue a Revolving Borrowing in accordance with Section 2.06.
"Interest Payment Date" means (a) with respect to any ABR
Loan, the last day of each March, June, September and December, (b) with respect
to any Eurodollar Loan, the last day of the Interest Period applicable to the
Borrowing of which such Loan is a part and, in the case of a Eurodollar
Borrowing with an Interest Period of more than three months' duration, each day
prior to the last day of such Interest Period that occurs at intervals of three
months' duration after the first day of such Interest Period, and (c) with
respect to any Fixed Rate Loan, the last day of the Interest Period applicable
to the Borrowing of which such Loan is a part and, in the
364-Day Credit Agreement
<PAGE> 14
-9-
case of a Fixed Rate Borrowing with an Interest Period of more than 90 days'
duration (unless otherwise specified in the applicable Competitive Bid Request),
each day prior to the last day of such Interest Period that occurs at intervals
of 90 days' duration after the first day of such Interest Period, and any other
dates that are specified in the applicable Competitive Bid Request as Interest
Payment Dates with respect to such Borrowing.
"Interest Period" means (a) with respect to any Eurodollar
Revolving Borrowing, the period commencing on the date of such Borrowing and
ending on the numerically corresponding day in the calendar month that is one,
two, three or six months thereafter, as the Borrower may elect, (b) with respect
to any Eurodollar Competitive Borrowing, the period commencing on the date of
such Borrowing and ending on the numerically corresponding day in the calendar
month that is one, two, three or six months thereafter, as specified in the
applicable Competitive Loan Request and (c) with respect to any Fixed Rate
Borrowing, the period (which shall not be less than 7 days or more than 360
days) commencing on the date of such Borrowing and ending on the date specified
in the applicable Competitive Bid Request; provided, that (i) if any Interest
Period would end on a day other than a Business Day, such Interest Period shall
be extended to the next succeeding Business Day unless, in the case of a
Eurodollar Borrowing only, such next succeeding Business Day would fall in the
next calendar month, in which case such Interest Period shall end on the next
preceding Business Day, (ii) any Interest Period pertaining to a Eurodollar
Borrowing that commences on the last Business Day of a calendar month (or on a
day for which there is no numerically corresponding day in the last calendar
month of such Interest Period) shall end on the last Business Day of the last
calendar month of such Interest Period and (iii) any Interest Period that would
otherwise end after the Maturity Date shall not be available hereunder. For
purposes hereof, the date of a Borrowing initially shall be the date on which
such Borrowing is made and, in the case of a Revolving Borrowing, thereafter
shall be the effective date of the most recent conversion or continuation of
such Borrowing.
"Lenders" means the Persons listed on Schedule 2.01 and any
other Person that shall have become a party hereto pursuant to an Assignment and
Acceptance, other than any such Person that ceases to be a party hereto pursuant
to an Assignment and Acceptance.
"LIBO Rate" means, with respect to any Eurodollar Borrowing
for any Interest Period, the rate per annum appearing on the Screen at
approximately 11:00 a.m., London time (or as soon thereafter as practicable),
two Business Days prior to the commencement of such Interest Period, as LIBOR
with a maturity comparable to such Interest Period. In the event that the Screen
shall cease to report such LIBOR or, in the reasonable judgement of the Required
Lenders, shall cease to accurately reflect such LIBOR (as reported by any
publicly available source of similar market data selected by such Required
Lenders), then the "LIBO Rate" with respect to such Eurodollar Borrowing for
such Interest Period shall be the rate per annum at which dollar deposits of
$5,000,000 and for a maturity comparable to such Interest Period are offered by
the principal London office of Chase in immediately available funds in the
London interbank market at approximately 11:00 a.m., London time, two Business
Days prior to the commencement of such Interest Period.
"LIBOR" means the rate at which deposits in dollars are
offered to leading banks in the London interbank market.
364-Day Credit Agreement
<PAGE> 15
-10-
"Lien" means, with respect to any asset, (a) any mortgage,
deed of trust, lien, pledge, hypothecation, encumbrance, charge or security
interest in, on or of such asset, (b) the interest of a vendor or a lessor under
any conditional sale agreement, capital lease or title retention agreement (or
any financing lease having substantially the same economic effect as any of the
foregoing) relating to such asset and (c) in the case of securities, any
purchase option, call or similar right of a third party with respect to such
securities.
"Loans" means the loans made by the Lenders to the Borrowers
pursuant to this Agreement.
"Margin" means, with respect to any Competitive Loan bearing
interest at a rate based on the LIBO Rate, the marginal rate of interest, if
any, to be added to or subtracted from the LIBO Rate to determine the rate of
interest applicable to such Loan, as specified by the Lender making such Loan in
its related Competitive Bid.
"Margin Stock" means "margin stock" within the meaning of
Regulations U and X.
"Material Adverse Change" means any event, development or
circumstance that has had or could reasonably be expected to have a material
adverse effect on (a) the business, assets, property, condition (financial or
otherwise) or prospects of the Company and its Subsidiaries taken as a whole, or
(b) the validity or enforceability of this Agreement or the rights and remedies
of the Administrative Agent and the Lenders hereunder.
"Material Indebtedness" means Indebtedness (other than the
Loans), or obligations in respect of one or more Hedging Agreements, of the
Company or any of its Material Subsidiaries in an aggregate principal amount
exceeding $200,000,000 (or its equivalent in any other currency). For purposes
of determining Material Indebtedness, the "principal amount" of the obligations
of the Company or any of its Material Subsidiaries in respect of any Hedging
Agreement at any time shall be the maximum aggregate amount (giving effect to
any netting agreements) that the Company or such Material Subsidiary would be
required to pay if such Hedging Agreement were terminated at such time.
"Material Subsidiary" means, at any time, (i) Funding and (ii)
each Subsidiary of the Company that as of such time meets the definition of
"significant subsidiary" contained as of the date hereof in Regulation S-X of
the SEC.
"Maturity Date" means April 26, 1999, as such date may be
extended pursuant to Section 2.18 hereof.
"Multiemployer Plan" means a multiemployer plan as defined in
Section 4001(a)(3) of ERISA.
"NAIC" means the National Association of Insurance
Commissioners and any successor thereto.
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"Net Available Proceeds" means, with respect to any
Disposition, the aggregate amount of all cash proceeds, and the fair market
value of all non-cash consideration, received by the Company directly or
indirectly in connection with such Disposition, net of (a) the amount of any
legal, title and recording tax expenses, commissions and other fees and expenses
paid by the Company as a result of such Disposition, (b) any Federal, state or
local or other taxes payable by the Company as a result of such Disposition, (c)
any repayments by the Company of Indebtedness to the extent that (i) such
Indebtedness is secured by a Lien on the assets that are the subject of such
Disposition and (ii) the transferee (or holder of a Lien on) such assets require
that such Indebtedness be repaid as a condition to the purchase of assets and
(d) any liabilities associated with the assets that are the subject of the
Disposition to the extent such liabilities are retained by the Company.
"Net Worth" means, as at any date, the total amount of equity
of the Company and its Subsidiaries determined on a consolidated basis without
duplication in accordance with GAAP (calculated without giving effect to any
changes from and after the date hereof required by Statement of Financial
Accounting Standards No. 115, Accounting for Certain Investments in Debt and
Equity Securities ).
"Non-extending Lender" has the meaning set forth in Section
2.18.
"Other Taxes" means any and all present or future stamp or
documentary taxes or any other excise or property taxes, charges or similar
levies arising from any payment made hereunder or from the execution, delivery
or enforcement of, or otherwise with respect to, this Agreement.
"Participant" has the meaning set forth in Section 9.04(e).
"PBGC" means the Pension Benefit Guaranty Corporation referred
to and defined in ERISA and any successor entity performing similar functions.
"Permitted Encumbrances" means:
(a) Liens imposed by law for taxes that are not yet due or are
being contested in compliance with Section 5.04;
(b) carriers', warehousemen's, mechanics', materialmen's,
repairmen's and other like Liens imposed by law, arising in the
ordinary course of business and securing obligations that are not
overdue by more than 30 days or are being contested in compliance with
Section 5.04;
(c) pledges and deposits made in the ordinary course of
business in compliance with workers' compensation, unemployment
insurance and other social security laws or regulations;
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(d) deposits to secure the performance of bids, trade
contracts, leases, statutory obligations, surety and appeal bonds,
performance bonds and other obligations of a like nature, in each case
in the ordinary course of business; and
(e) easements, zoning restrictions, rights-of-way and similar
encumbrances on real property imposed by law or arising in the ordinary
course of business that do not secure any monetary obligations and do
not materially detract from the value of the affected property or
interfere with the ordinary conduct of business of any Borrower;
provided that the term "Permitted Encumbrances" shall not include any Lien
securing Indebtedness.
"Person" means any natural person, corporation, limited
liability company, trust, joint venture, association, company, partnership,
Governmental Authority or other entity.
"Plan" means any employee pension benefit plan (other than a
Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section
412 of the Code or Section 302 of ERISA, and in respect of which the Company or
any ERISA Affiliate is (or, if such plan were terminated, would under Section
4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of
ERISA.
"Prime Rate" means the rate of interest per annum publicly
announced from time to time by Chase as its prime rate in effect at its
principal office in New York City; each change in the Prime Rate shall be
effective from and including the date such change is publicly announced as being
effective.
"Register" has the meaning set forth in Section 9.04(c).
"Regulations D, U and X" means, respectively, Regulations D, U
and X of the Board (or any successor), as the same may be modified and
supplemented and in effect from time to time.
"Related Parties" means, with respect to any specified Person,
such Person's Affiliates and the respective directors, officers, employees,
agents and advisors of such Person and such Person's Affiliates.
"Required Lenders" means, at any time, Lenders having
Revolving Credit Exposures and unused Commitments representing more than 50% of
the sum of the total Revolving Credit Exposures and unused Commitments at such
time; provided that, for all purposes after the Commitments expire or terminate,
the outstanding Competitive Loans of the Lenders shall be included in their
respective Revolving Credit Exposures in determining the Required Lenders.
"Revolving Credit Exposure" means, with respect to any Lender
at any time, the sum of the outstanding principal amount of such Lender's
Revolving Loans.
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"Revolving Loan" means a Loan made pursuant to Section 2.01.
"SAP" means the accounting procedures and practices prescribed
or permitted by the Applicable Insurance Regulatory Authority or the NAIC.
"S&P" means Standard & Poor's Ratings Group, a division of The
McGraw-Hill Companies, Inc. , and any successor thereto.
"Screen" means the display page 3750 for LIBOR on the Dow
Jones Markets (Telerate) Service (or on any successor or substitute page of such
Service, as determined by the Administrative Agent); provided that if the
Administrative Agent determines that there is no such relevant display page for
LIBOR, "Screen" shall mean the relevant display page for LIBOR (as determined by
the Administrative Agent) on the Reuter Monitor Money Rates Service.
"SEC" means the Securities and Exchange Commission or any
governmental authority succeeding to its principal functions.
"Securities Transactions" means (a) securities lending
arrangements, and (b) repurchase and reverse repurchase arrangements with
respect to securities and financial instruments.
"Separate Accounts Assets" means, as at any date, the
"Separate Accounts assets" of the Company, determined in accordance with SAP,
reported as such in the Statutory Statements of the Company.
"Statutory Reserve Rate" means a fraction (expressed as a
decimal), the numerator of which is the number one and the denominator of which
is the number one minus the aggregate of the maximum reserve percentages
(including any marginal, special, emergency or supplemental reserves) expressed
as a decimal established by the Board to which the Administrative Agent is
subject (a) with respect to the Base CD Rate, for new negotiable nonpersonal
time deposits in dollars of over $100,000 with maturities approximately equal to
three months and (b) with respect to the Adjusted LIBO Rate, for eurocurrency
funding (currently referred to as "Eurocurrency Liabilities" in Regulation D).
Such reserve percentages shall include those imposed pursuant to Regulation D.
Eurodollar Loans shall be deemed to constitute eurocurrency funding and to be
subject to such reserve requirements without benefit of or credit for proration,
exemptions or offsets that may be available from time to time to any Lender
under Regulation D or any comparable regulation. The Statutory Reserve Rate
shall be adjusted automatically on and as of the effective date of any change in
any reserve percentage.
"Statutory Statement" means a statement of the condition and
affairs of the Company, prepared in accordance with SAP, and filed with the
Applicable Insurance Regulatory Authority.
"Subsidiary" means, with respect to any Person (the "parent")
at any date, any corporation, limited liability company, partnership,
association or other entity the accounts of which would be consolidated with
those of the parent in the parent's consolidated financial
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statements if such financial statements were prepared in accordance with GAAP as
of such date, as well as any other corporation, limited liability company,
partnership, association or other entity (a) of which securities or other
ownership interests representing more than 50% of the equity or more than 50% of
the ordinary voting power or, in the case of a partnership, more than 50% of the
general partnership interests are, as of such date, owned, controlled or held,
or (b) that is, as of such date, otherwise Controlled, by the parent or one or
more subsidiaries of the parent or by the parent and one or more subsidiaries of
the parent.
"Support Agreement" means the Support Agreement dated as of
November 30, 1984 between the Company and Funding, as amended and restated
effective as of that date on July 2, 1985.
"Surplus Relief Reinsurance" means any transaction in which
the Company or any Subsidiary of the Company cedes business under a reinsurance
agreement that would be considered a "financing-type" reinsurance agreement as
determined by the independent certified public accountants of the Company in
accordance with principles published by the Financial Accounting Standards Board
or the Second Edition of the AICPA Audit Guide for Stock Life Insurance
Companies (pp. 91-92), as the same may be revised from time to time.
"Taxes" means any and all present or future taxes, levies,
imposts, duties, deductions, charges or withholdings imposed by any Governmental
Authority.
"Three-Month Secondary CD Rate" means, for any day, the
secondary market rate for three-month certificates of deposit reported as being
in effect on such day (or, if such day is not a Business Day, the next preceding
Business Day) by the Board through the public information telephone line of the
Federal Reserve Bank of New York (which rate will, under the current practices
of the Board, be published in Federal Reserve Statistical Release H.15(519)
during the week following such day) or, if such rate is not so reported on such
day or such next preceding Business Day, the average of the secondary market
quotations for three-month certificates of deposit of major money center banks
in New York City received at approximately 10:00 a.m., New York City time, on
such day (or, if such day is not a Business Day, on the next preceding Business
Day) by the Administrative Agent from three negotiable certificate of deposit
dealers of recognized standing selected by it.
"Transactions" means the execution, delivery and performance
by the Borrowers of this Agreement, the borrowing of Loans and the use of the
proceeds thereof.
"Type", when used in reference to any Loan or Borrowing,
refers to whether the rate of interest on such Loan, or on the Loans comprising
such Borrowing, is determined by reference to the Adjusted LIBO Rate, the
Alternate Base Rate or, in the case of a Competitive Loan or Borrowing, the LIBO
Rate or a Fixed Rate.
"Withdrawal Liability" means liability to a Multiemployer Plan
as a result of a complete or partial withdrawal from such Multiemployer Plan, as
such terms are defined in Part I of Subtitle E of Title IV of ERISA.
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SECTION 1.02. Classification of Loans and Borrowings. For
purposes of this Agreement, Loans may be classified and referred to by Class
(e.g., a "Revolving Loan") or by Type (e.g., a "Eurodollar Loan") or by Class
and Type (e.g., a "Eurodollar Revolving Loan"). Borrowings also may be
classified and referred to by Class (e.g., a "Revolving Borrowing") or by Type
(e.g., a "Eurodollar Borrowing") or by Class and Type (e.g., a "Eurodollar
Revolving Borrowing").
SECTION 1.03. Terms Generally. The definitions of terms herein
shall apply equally to the singular and plural forms of the terms defined.
Whenever the context may require, any pronoun shall include the corresponding
masculine, feminine and neuter forms. The words "include", "includes" and
"including" shall be deemed to be followed by the phrase "without limitation".
The word "will" shall be construed to have the same meaning and effect as the
word "shall". Unless the context requires otherwise (a) any definition of or
reference to any agreement, instrument or other document herein shall be
construed as referring to such agreement, instrument or other document as from
time to time amended, supplemented or otherwise modified (subject to any
restrictions on such amendments, supplements or modifications set forth herein),
(b) any reference herein to any Person shall be construed to include such
Person's successors and assigns, (c) the words "herein", "hereof" and
"hereunder", and words of similar import, shall be construed to refer to this
Agreement in its entirety and not to any particular provision hereof, (d) all
references herein to Articles, Sections, Exhibits and Schedules shall be
construed to refer to Articles and Sections of, and Exhibits and Schedules to,
this Agreement and (e) the words "asset" and "property" shall be construed to
have the same meaning and effect and to refer to any and all tangible and
intangible assets and properties, including cash, securities, accounts and
contract rights.
SECTION 1.04. Accounting Terms; GAAP; SAP. Except as otherwise
expressly provided herein, all terms of an accounting or financial nature shall
be construed in accordance with GAAP or SAP, as the case may be, as in effect
from time to time; provided that, if the Company notifies the Administrative
Agent that the Company requests an amendment to any provision hereof to
eliminate the effect of any change occurring after the date hereof in GAAP or
SAP, as the case may be, or in the application thereof on the operation of such
provision (or if the Administrative Agent notifies the Company that the Required
Lenders request an amendment to any provision hereof for such purpose),
regardless of whether any such notice is given before or after such change in
GAAP or SAP, as the case may be, or in the application thereof, then such
provision shall be interpreted on the basis of GAAP or SAP, as the case may be,
as in effect and applied immediately before such change shall have become
effective until such notice shall have been withdrawn or such provision amended
in accordance herewith.
ARTICLE II
THE CREDITS
SECTION 2.01. Commitments. Subject to the terms and conditions
set forth herein, each Lender agrees to make Revolving Loans to the Borrowers
from time to time during the Availability Period in an aggregate principal
amount that will not result in (a) such
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Lender's Revolving Credit Exposure exceeding such Lender's Commitment or (b) the
sum of the total Revolving Credit Exposures plus the aggregate principal amount
of outstanding Competitive Loans exceeding the total Commitments. Within the
foregoing limits and subject to the terms and conditions set forth herein,
either Borrower or both Borrowers may borrow, prepay and reborrow Revolving
Loans.
SECTION 2.02. Loans and Borrowings.
(a) Each Revolving Loan shall be made as part of a Borrowing
consisting of Revolving Loans made by the Lenders ratably in accordance with
their respective Commitments. Each Competitive Loan shall be made in accordance
with the procedures set forth in Section 2.04. The failure of any Lender to make
any Loan required to be made by it shall not relieve any other Lender of its
obligations hereunder; provided that the Commitments and Competitive Bids of the
Lenders are several and not joint, and no Lender shall be responsible for any
other Lender's failure to make Loans as required.
(b) Subject to Section 2.12, (i) each Revolving Borrowing
shall be comprised entirely of ABR Loans or Eurodollar Loans as the relevant
Borrower may request in accordance herewith, and (ii) each Competitive Borrowing
shall be comprised entirely of Eurodollar Loans or Fixed Rate Loans as the
relevant Borrower may request in accordance herewith. Each Lender at its option
may make any Eurodollar Loan by causing any domestic or foreign branch or
Affiliate of such Lender to make such Loan; provided that any exercise of such
option shall not affect the obligation of the relevant Borrower to repay such
Loan in accordance with the terms of this Agreement.
(c) At the commencement of each Interest Period for any
Eurodollar Revolving Borrowing, such Borrowing shall be in an aggregate amount
that is an integral multiple of $1,000,000 and not less than $10,000,000. At the
time that each ABR Revolving Borrowing is made, such Borrowing shall be in an
aggregate amount that is an integral multiple of $1,000,000 and not less than
$5,000,000; provided that an ABR Revolving Borrowing may be in an aggregate
amount that is equal to the entire unused balance of the total Commitments. Each
Competitive Borrowing shall be in an aggregate amount that is an integral
multiple of $1,000,000 and not less than $10,000,000. Borrowings of more than
one Type and Class may be outstanding at the same time; provided that there
shall not at any time be more than a total of 10 Eurodollar Revolving Borrowings
outstanding.
(d) Notwithstanding any other provision of this Agreement, the
Borrowers shall not be entitled to request, or to elect to convert or continue,
any Borrowing if the Interest Period requested with respect thereto would end
after the Maturity Date.
SECTION 2.03. Requests for Revolving Borrowings. To request a
Revolving Borrowing, the relevant Borrower shall notify the Administrative Agent
of such request by telephone (a) in the case of a Eurodollar Borrowing, not
later than 11:00 a.m., New York City time, three Business Days before the date
of the proposed Borrowing or (b) in the case of an ABR Borrowing, not later than
11:00 a.m., New York City time, one Business Day before the date of the proposed
Borrowing. Each such telephonic Borrowing Request shall be irrevocable and shall
be confirmed promptly by hand delivery or telecopy to the Administrative
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Agent of a written Borrowing Request in a form approved by the Administrative
Agent and signed by the relevant Borrower. Each such telephonic and written
Borrowing Request shall specify the following information in compliance with
Section 2.02:
(i) the name of the Borrower and aggregate amount of the
requested Borrowing;
(ii) the date of such Borrowing, which shall be a Business
Day;
(iii) whether such Borrowing is to be an ABR Borrowing or a
Eurodollar Borrowing;
(iv) in the case of a Eurodollar Borrowing, the initial
Interest Period to be applicable thereto, which shall be a period
contemplated by the definition of the term "Interest Period"; and
(v) the location and number of the relevant Borrower's account
to which funds are to be disbursed, which shall comply with the
requirements of Section 2.05.
If no election as to the Type of Revolving Borrowing is specified, then the
requested Revolving Borrowing shall be an ABR Borrowing. If no Interest Period
is specified with respect to any requested Eurodollar Revolving Borrowing, then
the relevant Borrower shall be deemed to have selected an Interest Period of one
month's duration. Promptly following receipt of a Borrowing Request in
accordance with this Section, the Administrative Agent shall advise each Lender
of the details thereof and of the amount of such Lender's Loan to be made as
part of the requested Borrowing.
SECTION 2.04. Competitive Bid Procedure.
(a) Subject to the terms and conditions set forth herein, from
time to time during the Availability Period either Borrower or both Borrowers
may request Competitive Bids and may (but shall not have any obligation to)
accept Competitive Bids and borrow Competitive Loans; provided that the sum of
the total Revolving Credit Exposures plus the aggregate principal amount of
outstanding Competitive Loans at any time shall not exceed the total
Commitments. To request Competitive Bids, the relevant Borrower shall notify the
Administrative Agent of such request by telephone, in the case of a Eurodollar
Borrowing, not later than 11:00 a.m., New York City time, four Business Days
before the date of the proposed Borrowing and, in the case of a Fixed Rate
Borrowing, not later than 10:00 a.m., New York City time, one Business Day
before the date of the proposed Borrowing; provided that the Borrowers may
submit up to (but not more than) three Competitive Bid Requests on the same day,
but a Competitive Bid Request shall not be made within five Business Days after
the date of any previous Competitive Bid Request, unless any and all such
previous Competitive Bid Requests shall have been withdrawn or all Competitive
Bids received in response thereto rejected. Each such telephonic Competitive Bid
Request shall be confirmed promptly by hand delivery or telecopy to the
Administrative Agent of a written Competitive Bid Request in a form approved by
the Administrative Agent and signed by the relevant Borrower. Each such
telephonic and
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written Competitive Bid Request shall specify the following information in
compliance with Section 2.02:
(i) the name of the Borrower and aggregate amount of the
requested Borrowing;
(ii) the date of such Borrowing, which shall be a Business
Day;
(iii) whether such Borrowing is to be a Eurodollar Borrowing
or a Fixed Rate Borrowing;
(iv) the Interest Period to be applicable to such Borrowing,
which shall be a period contemplated by the definition of the term "Interest
Period"; and
(v) the location and number of the relevant Borrower's account
to which funds are to be disbursed, which shall comply with the requirements of
Section 2.05.
Promptly following receipt of a Competitive Bid Request in
accordance with this Section, the Administrative Agent shall notify the Lenders
of the details thereof by telecopy, inviting the Lenders to submit Competitive
Bids.
(b) Each Lender may (but shall not have any obligation to)
make one or more Competitive Bids to the relevant Borrower in response to a
Competitive Bid Request. Each Competitive Bid by a Lender must be in a form
approved by the Administrative Agent and must be received by the Administrative
Agent by telecopy, in the case of a Eurodollar Competitive Borrowing, not later
than 9:30 a.m., New York City time, three Business Days before the proposed date
of such Competitive Borrowing, and in the case of a Fixed Rate Borrowing, not
later than 9:30 a.m., New York City time, on the proposed date of such
Competitive Borrowing. Competitive Bids that do not conform substantially to the
form approved by the Administrative Agent may be rejected by the Administrative
Agent, and the Administrative Agent shall notify the applicable Lender as
promptly as practicable. Each Competitive Bid shall specify (i) the principal
amount (which shall be a minimum of $10,000,000 and an integral multiple of
$1,000,000 and which may equal the entire principal amount of the Competitive
Borrowing requested by the relevant Borrower) of the Competitive Loan or Loans
that the Lender is willing to make, (ii) the Competitive Bid Rate or Rates at
which the Lender is prepared to make such Loan or Loans (expressed as a
percentage rate per annum in the form of a decimal to no more than four decimal
places), and (iii) the Interest Period applicable to each such Loan and the last
day thereof.
(c) The Administrative Agent shall promptly notify the
relevant Borrower by telecopy of the Competitive Bid Rate and the principal
amount specified in each Competitive Bid and the identity of the Lender that
shall have made such Competitive Bid.
(d) Subject only to the provisions of this paragraph, the
relevant Borrower may accept or reject any Competitive Bid. Such Borrower shall
notify the Administrative Agent by telephone, confirmed by telecopy in a form
approved by the Administrative Agent, whether and to what extent it has decided
to accept or reject each Competitive Bid, in the case of a Eurodollar
Competitive Borrowing, not later than 10:30 a.m., New York City time, three
Business Days
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before the date of the proposed Competitive Borrowing, and in the case of a
Fixed Rate Borrowing, not later than 10:30 a.m., New York City time, on the
proposed date of the Competitive Borrowing; provided that (i) the failure of
such Borrower to give such notice shall be deemed to be a rejection of each
Competitive Bid, (ii) such Borrower shall not accept a Competitive Bid made at a
particular Competitive Bid Rate if such Borrower rejects a Competitive Bid made
at a lower Competitive Bid Rate, (iii) the aggregate amount of the Competitive
Bids accepted by such Borrower shall not exceed the aggregate amount of the
requested Competitive Borrowing specified in the related Competitive Bid
Request, (iv) to the extent necessary to comply with clause (iii) above, such
Borrower may accept Competitive Bids at the same Competitive Bid Rate in part,
which acceptance, in the case of multiple Competitive Bids at such Competitive
Bid Rate, shall be made by such Borrower in consultation with the Administrative
Agent pro rata in accordance with the amount of each such Competitive Bid, and
(v) except pursuant to clause (iv) above, no Competitive Bid shall be accepted
for a Competitive Loan unless such Competitive Loan is in a minimum principal
amount of $5,000,000 and an integral multiple of $1,000,000; and provided
further that if a Competitive Loan must be in an amount less than $5,000,000
because of the provisions of clause (iv) above, such Competitive Loan may be for
a minimum of $1,000,000 or any integral multiple thereof, and in calculating the
pro rata allocation of acceptances of portions of multiple Competitive Bids at a
particular Competitive Bid Rate pursuant to clause (iv) the amounts shall be
rounded to integral multiples of $1,000,000 in a manner determined by the
relevant Borrower in consultation with the Administrative Agent. A notice given
by the relevant Borrower pursuant to this paragraph shall be irrevocable.
(e) The Administrative Agent shall promptly notify each
bidding Lender by telecopy whether or not its Competitive Bid has been accepted
(and, if so, the amount and Competitive Bid Rate so accepted), and each
successful bidder will thereupon become bound, subject to the terms and
conditions hereof, to make the Competitive Loan in respect of which its
Competitive Bid has been accepted.
(f) If the Administrative Agent shall elect to submit a
Competitive Bid in its capacity as a Lender, it shall submit such Competitive
Bid directly to the relevant Borrower at least one quarter of an hour earlier
than the time by which the other Lenders are required to submit their
Competitive Bids to the Administrative Agent pursuant to paragraph (b) of this
Section.
SECTION 2.05. Funding of Borrowings.
(a) Each Lender shall make each Loan to be made by it
hereunder on the proposed date thereof by wire transfer of immediately available
funds by noon, New York City time, to the account of the Administrative Agent
most recently designated by it for such purpose by notice to the Lenders. The
Administrative Agent will make such Loans available to the relevant Borrower by
promptly crediting the amounts so received, in immediately available funds, to
an account of such Borrower maintained with the Administrative Agent in New York
City and designated by such Borrower in the applicable Borrowing Request or
Competitive Bid Request.
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(b) Unless the Administrative Agent shall have received notice
from a Lender prior to the proposed date of any Borrowing that such Lender will
not make available to the Administrative Agent such Lender's share of such
Borrowing, the Administrative Agent may assume that such Lender has made such
share available on such date in accordance with paragraph (a) of this Section
and may, in reliance upon such assumption, make available to the relevant
Borrower a corresponding amount. In such event, if a Lender has not in fact made
its share of the applicable Borrowing available to the Administrative Agent,
then the applicable Lender and the relevant Borrower severally agree to pay to
the Administrative Agent forthwith on demand such corresponding amount with
interest thereon, for each day from and including the date such amount is made
available to such Borrower to but excluding the date of payment to the
Administrative Agent, at (i) in the case of such Lender, the greater of the
Federal Funds Effective Rate and a rate determined by the Administrative Agent
in accordance with banking industry rules on interbank compensation or (ii) in
the case of such Borrower, the interest rate applicable to ABR Loans. If such
Lender pays such amount to the Administrative Agent, then such amount shall
constitute such Lender's Loan included in such Borrowing.
SECTION 2.06. Interest Elections.
(a) Each Revolving Borrowing initially shall be of the Type
specified in the applicable Borrowing Request and, in the case of a Eurodollar
Revolving Borrowing, shall have an initial Interest Period as specified in such
Borrowing Request. Thereafter, the relevant Borrower may elect to convert such
Borrowing to a different Type or to continue such Borrowing and, in the case of
a Eurodollar Revolving Borrowing, may elect Interest Periods therefor, all as
provided in this Section. The relevant Borrower may elect different options with
respect to different portions of the affected Borrowing, in which case each such
portion shall be allocated ratably among the Lenders holding the Loans
comprising such Borrowing, and the Loans comprising each such portion shall be
considered a separate Borrowing. This Section shall not apply to Competitive
Borrowings, which may not be converted or continued.
(b) To make an election pursuant to this Section, the relevant
Borrower shall notify the Administrative Agent of such election by telephone by
the time that a Borrowing Request would be required under Section 2.03 if such
Borrower were requesting a Revolving Borrowing of the Type resulting from such
election to be made on the effective date of such election. Each such telephonic
Interest Election Request shall be irrevocable and shall be confirmed promptly
by hand delivery or telecopy to the Administrative Agent of a written Interest
Election Request in a form approved by the Administrative Agent and signed by
the relevant Borrower.
(c) Each telephonic and written Interest Election Request
shall specify the following information in compliance with Section 2.02:
(i) the name of the Borrower and Borrowing to which such
Interest Election Request applies and, if different options are being
elected with respect to different portions thereof, the portions
thereof to be allocated to each resulting Borrowing (in which case the
information to be specified pursuant to clauses (iii) and (iv) below
shall be specified for each resulting Borrowing);
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(ii) the effective date of the election made pursuant to such
Interest Election Request, which shall be a Business Day;
(iii) whether the resulting Borrowing is to be an ABR
Borrowing or a Eurodollar Borrowing; and
(iv) if the resulting Borrowing is a Eurodollar Borrowing, the
Interest Period to be applicable thereto after giving effect to such
election, which shall be a period contemplated by the definition of the
term "Interest Period".
If any such Interest Election Request requests a Eurodollar Borrowing but does
not specify an Interest Period, then the relevant Borrower shall be deemed to
have selected an Interest Period of one month's duration.
(d) Promptly following receipt of an Interest Election
Request, the Administrative Agent shall advise each Lender of the details
thereof and of such Lender's portion of each resulting Borrowing.
(e) If the relevant Borrower fails to deliver a timely
Interest Election Request with respect to a Eurodollar Revolving Borrowing prior
to the end of the Interest Period applicable thereto, then, unless such
Borrowing is repaid as provided herein, at the end of such Interest Period such
Borrowing shall be converted to an ABR Revolving Borrowing. Notwithstanding any
contrary provision hereof, if an Event of Default has occurred and is continuing
and the Administrative Agent, at the request of the Required Lenders, so
notifies the relevant Borrower, then, so long as an Event of Default is
continuing (i) no outstanding Revolving Borrowing may be converted to or
continued as a Eurodollar Borrowing and (ii) unless repaid, each Eurodollar
Revolving Borrowing shall be converted to an ABR Borrowing at the end of the
Interest Period applicable thereto.
SECTION 2.07. Termination and Reduction of Commitments.
(a) Unless previously terminated, the Commitments shall
terminate on the Maturity Date. In addition, the Commitments are subject to
reduction as provided in Section 2.18(c).
(b) Upon the occurrence of either (i) a Change in Control or
(ii) a Disposition of all or any substantial part of the assets of the Company
in connection with a reorganization of the Company and its Subsidiaries in
connection with the establishment of a mutual holding company, the
Administrative Agent shall, at the request of the Required Lenders, by notice to
the Borrowers, terminate the Commitments, and thereupon the Commitments shall
terminate immediately.
(c) The Borrowers may at any time terminate, or from time to
time reduce, the Commitments; provided that (i) each reduction of the
Commitments shall be in an amount that is an integral multiple of $10,000,000
and (ii) the Borrowers shall not terminate or reduce the Commitments if, after
giving effect to any concurrent prepayment of the Loans in accordance
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with Section 2.09, the sum of the Revolving Credit Exposures plus the aggregate
principal amount of outstanding Competitive Loans would exceed the total
Commitments.
(d) The Borrowers shall notify the Administrative Agent of any
election to terminate or reduce the Commitments under paragraph (c) of this
Section at least three Business Days prior to the effective date of such
termination or reduction, specifying such election and the effective date
thereof. Promptly following receipt of any notice, the Administrative Agent
shall advise the Lenders of the contents thereof. Each notice delivered by the
Borrowers pursuant to this Section shall be irrevocable; provided that a notice
of termination of the Commitments delivered by the Borrowers may state that such
notice is conditioned upon the effectiveness of other credit facilities, in
which case such notice may be revoked by the Borrowers (by notice to the
Administrative Agent on or prior to the specified effective date) if such
condition is not satisfied. Any termination or reduction of the Commitments
shall be permanent. Each reduction of the Commitments shall be made ratably
among the Lenders in accordance with their respective Commitments.
SECTION 2.08. Repayment of Loans; Evidence of Debt.
(a) Each Borrower hereby unconditionally promises to pay (i)
to the Administrative Agent for account of each Lender the then unpaid principal
amount of each Revolving Loan made to such Borrower hereunder on the Maturity
Date, and (ii) to the Administrative Agent for account of each Lender the then
unpaid principal amount of each Competitive Loan made to such Borrower on the
last day of the Interest Period applicable to such Loan.
(b) Each Lender shall maintain in accordance with its usual
practice an account or accounts evidencing the indebtedness of each Borrower to
such Lender resulting from each Loan made by such Lender, including the amounts
of principal and interest payable and paid to such Lender from time to time
hereunder.
(c) The Administrative Agent shall maintain accounts in which
it shall record (i) the name of the Borrower and amount of each Loan made
hereunder, the Class and Type thereof and the Interest Period applicable
thereto, (ii) the amount of any principal or interest due and payable or to
become due and payable from each Borrower to each Lender hereunder and (iii) the
amount of any sum received by the Administrative Agent from either Borrower
hereunder for the account of the Lenders and each Lender's share thereof.
(d) The entries made in the accounts maintained pursuant to
paragraph (b) or (c) of this Section shall be prima facie evidence of the
existence and amounts of the obligations recorded therein; provided that the
failure of any Lender or the Administrative Agent to maintain such accounts or
any error therein shall not in any manner affect the obligation of either
Borrower to repay its Loans in accordance with the terms of this Agreement.
(e) Any Lender may request that Loans made by it be evidenced
by a promissory note. In such event, the relevant Borrower shall prepare,
execute and deliver to such Lender a promissory note payable to the order of
such Lender (or, if requested by such Lender, to such Lender and its registered
assigns) and in a form approved by the Administrative Agent.
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Thereafter, the Loans evidenced by such promissory note and interest thereon
shall at all times (including after assignment pursuant to Section 9.04) be
represented by one or more promissory notes in such form payable to the order of
the payee named therein (or, if such promissory note is a registered note, to
such payee and its registered assigns).
SECTION 2.09. Prepayment of Loans.
(a) Each Borrower shall have the right at any time and from
time to time to prepay any Borrowing of such Borrower in whole or in part,
subject to prior notice in accordance with paragraph (b) of this Section;
provided that no Borrower shall have the right to prepay any Competitive Loan
without the prior consent of the Lender thereof.
(b) The Borrowers shall notify the Administrative Agent by
telephone (confirmed by telecopy) of any prepayment hereunder (i) in the case of
prepayment of a Eurodollar Revolving Borrowing, not later than 11:00 a.m., New
York City time, three Business Days before the date of prepayment, or (ii) in
the case of prepayment of an ABR Revolving Borrowing, not later than 11:00 a.m.,
New York City time, one Business Day before the date of prepayment. Each such
notice shall be irrevocable and shall specify the name of the Borrower, the
prepayment date and the principal amount of each Borrowing or portion thereof to
be prepaid; provided that, if a notice of prepayment is given in connection with
a conditional notice of termination of the Commitments as contemplated by
Section 2.07, then such notice of prepayment may be revoked if such notice of
termination is revoked in accordance with Section 2.07. Promptly following
receipt of any such notice relating to a Revolving Borrowing, the Administrative
Agent shall advise the Lenders of the contents thereof. Each partial prepayment
of any Revolving Borrowing shall be in an amount that would be permitted in the
case of an advance of a Revolving Borrowing of the same Type as provided in
Section 2.02. Each prepayment of a Revolving Borrowing shall be applied ratably
to the Loans included in the prepaid Borrowing. Prepayments shall be accompanied
by accrued interest to the extent required by Section 2.11.
(c) Upon the occurrence of either (i) a Change in Control, or
(ii) a Disposition of all or any substantial part of the assets of the Company
in connection with a reorganization of the Company and its Subsidiaries in
connection with the establishment of a mutual holding company, each Borrower
agrees that if requested by the Administrative Agent (acting at the request of
Lenders holding more than 50% of the aggregate principal amount of Loans
outstanding hereunder), such Borrower will promptly prepay each Loan, together
with accrued interest; provided that no prepayment of any Competitive Loan shall
be made without the prior consent of the Lender thereof.
SECTION 2.10. Fees.
(a) The Company agrees to pay to the Administrative Agent for
account of each Lender a facility fee, which shall accrue at the Applicable Rate
on the daily amount of the Commitment of such Lender (whether used or unused)
during the period from and including the date hereof to but excluding the date
on which such Commitment terminates; provided that, if such Lender continues to
have any Revolving Credit Exposure after its Commitment terminates,
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then such facility fee shall continue to accrue on the daily amount of such
Lender's Revolving Credit Exposure from and including the date on which its
Commitment terminates to but excluding the date on which such Lender ceases to
have any Revolving Credit Exposure. Accrued facility fees shall be payable in
arrears on the last day of March, June, September and December of each year and
on the date on which the Commitments terminate, commencing on the first such
date to occur after the date hereof; provided that any facility fees accruing
after the date on which the Commitments terminate shall be payable on demand.
All facility fees shall be computed on the basis of a year of 360 days and shall
be payable for the actual number of days elapsed (including the first day but
excluding the last day).
(b) Each Borrower agrees to pay to the Administrative Agent
for its own account a fee for each Competitive Bid Request submitted by such
Borrower under Section 2.04 in an amount equal to $2,500.
(c) The Borrowers agree to pay to the Administrative Agent,
for its own account, fees payable in the amounts and at the times separately
agreed upon between the Borrowers and the Administrative Agent.
(d) All fees payable hereunder shall be paid on the dates due,
in immediately available funds, to the Administrative Agent for distribution, in
the case of facility fees, to the Lenders. Fees paid shall not be refundable
under any circumstances.
SECTION 2.11. Interest.
(a) The Loans comprising each ABR Borrowing shall bear
interest at the Alternate Base Rate.
(b) The Loans comprising each Eurodollar Borrowing shall bear
interest (i) in the case of a Eurodollar Revolving Loan, the Adjusted LIBO Rate
for the Interest Period in effect for such Borrowing plus the Applicable Rate,
or (ii) in the case of a Eurodollar Competitive Loan, the LIBO Rate for the
Interest Period in effect for such Borrowing plus (or minus, as applicable) the
Margin applicable to such Loan.
(c) Each Fixed Rate Loan shall bear interest at the Fixed Rate
applicable to such Loan.
(d) Notwithstanding the foregoing, if any principal of or
interest on any Loan or any fee or other amount payable by either Borrower
hereunder is not paid when due, whether at stated maturity, upon acceleration or
otherwise, such overdue amount shall bear interest, after as well as before
judgment, at a rate per annum equal to (i) in the case of overdue principal of
any Loan, 2% plus the rate otherwise applicable to such Loan as provided in the
preceding paragraphs of this Section or (ii) in the case of any other amount, 2%
plus the rate applicable to ABR Loans as provided in paragraph (a) of this
Section.
(e) Accrued interest on each Loan shall be payable in arrears
on each Interest Payment Date for such Loan and, in the case of Revolving Loans,
upon termination of the Commitments; provided that (i) interest accrued pursuant
to paragraph (d) of this Section shall be payable on demand, (ii) in the event
of any repayment or prepayment of any Loan (other than a
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prepayment of an ABR Revolving Loan prior to the end of the Availability
Period), accrued interest on the principal amount repaid or prepaid shall be
payable on the date of such repayment or prepayment and (iii) in the event of
any conversion of any Eurodollar Revolving Loan prior to the end of the current
Interest Period therefor, accrued interest on such Loan shall be payable on the
effective date of such conversion.
(f) All interest hereunder shall be computed on the basis of a
year of 360 days, except that interest computed by reference to the Alternate
Base Rate at times when the Alternate Base Rate is based on the Prime Rate shall
be computed on the basis of a year of 365 days (or 366 days in a leap year), and
in each case shall be payable for the actual number of days elapsed (including
the first day but excluding the last day). The applicable Alternate Base Rate,
Adjusted LIBO Rate or LIBO Rate shall be determined by the Administrative Agent,
and such determination shall be conclusive absent manifest error.
SECTION 2.12. Alternate Rate of Interest. If prior to the
commencement of any Interest Period for a Eurodollar Borrowing:
(a) the Administrative Agent determines (which determination
shall be conclusive absent manifest error) that adequate and reasonable means do
not exist for ascertaining the Adjusted LIBO Rate or the LIBO Rate, as
applicable, for such Interest Period; or
(b) the Administrative Agent is advised by the Required
Lenders (or, in the case of a Eurodollar Competitive Loan, the Lender that is
required to make such Loan) that the Adjusted LIBO Rate or the LIBO Rate, as
applicable, for such Interest Period will not adequately and fairly reflect the
cost to such Lenders (or Lender) of making or maintaining their Loans (or its
Loan) included in such Borrowing for such Interest Period;
then the Administrative Agent shall give notice thereof to the Borrowers and the
Lenders by telephone or telecopy as promptly as practicable thereafter and,
until the Administrative Agent notifies the relevant Borrower and the Lenders
that the circumstances giving rise to such notice no longer exist, (i) any
Interest Election Request that requests the conversion of any Revolving
Borrowing to, or continuation of any Revolving Borrowing as, a Eurodollar
Borrowing shall be ineffective, (ii) if any Borrowing Request requests a
Eurodollar Revolving Borrowing, such Borrowing shall be made as an ABR Borrowing
and (iii) any request by the relevant Borrower for a Eurodollar Competitive
Borrowing shall be ineffective; provided that (A) if the circumstances giving
rise to such notice do not affect all the Lenders, then requests by such
Borrower for Eurodollar Competitive Borrowings may be made to Lenders that are
not affected thereby and (B) if the circumstances giving rise to such notice
affect only one Type of Borrowings, then the other Type of Borrowings shall be
permitted.
SECTION 2.13. Increased Costs.
(a) If any Change in Law shall:
(i) impose, modify or deem applicable any reserve, special
deposit or similar requirement against assets of, deposits with or for
the account of, or credit extended by,
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any Lender (except any such reserve requirement reflected in the
Adjusted LIBO Rate); or
(ii) impose on any Lender or the London interbank market any
other condition affecting this Agreement or Eurodollar Loans or Fixed
Rate Loans made by such Lender;
and the result of any of the foregoing shall be to increase the cost to such
Lender of making or maintaining any Eurodollar Loan or Fixed Rate Loan (or of
maintaining its obligation to make any such Loan) or to reduce the amount of any
sum received or receivable by such Lender hereunder (whether of principal,
interest or otherwise), then the relevant Borrower will pay to such Lender such
additional amount or amounts as will compensate such Lender for such additional
costs incurred or reduction suffered.
(b) If any Lender determines that any Change in Law regarding
capital requirements has or would have the effect of reducing the rate of return
on such Lender's or the capital or on the capital of such Lender's holding
company, if any, as a consequence of this Agreement or the Loans made to a level
below that which such Lender or such Lender's holding company could have
achieved but for such Change in Law (taking into consideration such Lender's
policies and the policies of such Lender's holding company with respect to
capital adequacy), then from time to time each Borrower will pay to such Lender,
as the case may be, such additional amount or amounts as will compensate such
Lender or such Lender's holding company for any such reduction suffered.
(c) A certificate of a Lender setting forth the amount or
amounts necessary to compensate such Lender or its holding company, as the case
may be, as specified in paragraph (a) or (b) of this Section shall be delivered
to the relevant Borrower(s) and shall be conclusive absent manifest error. Such
Borrower(s) shall pay such Lender, as the case may be, the amount shown as due
on any such certificate within 10 days after receipt thereof.
(d) Failure or delay on the part of any Lender to demand
compensation pursuant to this Section shall not constitute a waiver of such
Lender's right to demand such compensation; provided that no Borrower shall be
required to compensate a Lender pursuant to this Section for any increased costs
or reductions incurred more than 90 days prior to the date that such Lender
notifies the relevant Borrower(s) of the Change in Law giving rise to such
increased costs or reductions and of such Lender's intention to claim
compensation therefor; provided further that, if the Change in Law giving rise
to such increased costs or reductions is retroactive, then the 270-day period
referred to above shall be extended to include the period of retroactive effect
thereof.
(e) Notwithstanding the foregoing provisions of this Section,
a Lender shall not be entitled to compensation pursuant to this Section in
respect of any Competitive Loan if the Change in Law that would otherwise
entitle it to such compensation shall have been publicly announced prior to
submission of the Competitive Bid pursuant to which such Loan was made.
SECTION 2.14. Break Funding Payments. In the event of (a) the
payment of any principal of any Eurodollar Loan or Fixed Rate Loan other than on
the last day of an Interest Period applicable thereto (including, without
limitation, as a result of a mandatory
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prepayment under Section 2.09(c) or an Event of Default), (b) the conversion of
any Eurodollar Loan other than on the last day of the Interest Period applicable
thereto, (c) the failure to borrow, convert, continue or prepay any Revolving
Loan on the date specified in any notice delivered pursuant hereto (regardless
of whether such notice may be revoked under Section 2.09(b) and is revoked in
accordance therewith), (d) the failure to borrow any Competitive Loan after
accepting the Competitive Bid to make such Loan, or (e) the assignment of any
Eurodollar Loan or Fixed Rate Loan other than on the last day of the Interest
Period applicable thereto as a result of a request by either Borrower pursuant
to Section 2.17, then, in any such event, the relevant Borrower shall compensate
each Lender for the loss, cost and expense attributable to such event. In the
case of a Eurodollar Loan, such loss, cost or expense to any Lender shall be
deemed to include an amount determined by such Lender to be the excess, if any,
of (i) the amount of interest which would have accrued on the principal amount
of such Loan had such event not occurred, at the Adjusted LIBO Rate that would
have been applicable to such Loan, for the period from the date of such event to
the last day of the then current Interest Period therefor (or, in the case of a
failure to borrow, convert or continue, for the period that would have been the
Interest Period for such Loan), over (ii) the amount of interest which would
accrue on such principal amount for such period at the interest rate which such
Lender would bid were it to bid, at the commencement of such period, for dollar
deposits of a comparable amount and period from other banks in the eurodollar
market. A certificate of any Lender setting forth any amount or amounts that
such Lender is entitled to receive pursuant to this Section shall be delivered
to the relevant Borrower and shall be conclusive absent manifest error. Such
Borrower shall pay such Lender the amount shown as due on any such certificate
within 10 days after receipt thereof.
SECTION 2.15. Taxes.
(a) Any and all payments by or on account of any obligation of
each Borrower hereunder shall be made free and clear of and without deduction
for any Indemnified Taxes or Other Taxes; provided that if either Borrower shall
be required to deduct any Indemnified Taxes or Other Taxes from such payments,
then (i) the sum payable shall be increased as necessary so that after making
all required deductions (including deductions applicable to additional sums
payable under this Section) the Administrative Agent or Lender (as the case may
be) receives an amount equal to the sum it would have received had no such
deductions been made, (ii) such Borrower shall make such deductions and (iii)
such Borrower shall pay the full amount deducted to the relevant Governmental
Authority in accordance with applicable law.
(b) In addition, each Borrower shall pay any Other Taxes to
the relevant Governmental Authority in accordance with applicable law.
(c) Each Borrower shall indemnify the Administrative Agent and
each Lender within 10 days after written demand therefor, for the full amount of
any Indemnified Taxes or Other Taxes paid by the Administrative Agent or such
Lender, as the case may be, on or with respect to any payment by or on account
of any obligation of such Borrower hereunder (including Indemnified Taxes or
Other Taxes imposed or asserted on or attributable to amounts payable under this
Section) and any penalties, interest and reasonable expenses arising therefrom
or with respect thereto, whether or not such Indemnified Taxes or Other Taxes
were correctly or legally imposed or asserted by the relevant Governmental
Authority. A certificate as to the
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amount of such payment or liability delivered to the relevant Borrower by a
Lender, or by the Administrative Agent on its own behalf or on behalf of a
Lender, shall be conclusive absent manifest error.
(d) As soon as practicable after any payment of Indemnified
Taxes or Other Taxes by the relevant Borrower to a Governmental Authority, such
Borrower shall deliver to the Administrative Agent the original or a certified
copy of a receipt issued by such Governmental Authority evidencing such payment,
a copy of the return reporting such payment or other evidence of such payment
reasonably satisfactory to the Administrative Agent.
(e) Any Foreign Lender that is entitled to an exemption from
or reduction of withholding tax under the law of the jurisdiction in which the
relevant Borrower is located, or any treaty to which such jurisdiction is a
party, with respect to payments under this Agreement shall deliver to such
Borrower (with a copy to the Administrative Agent), at the time or times
prescribed by applicable law, such properly completed and executed documentation
prescribed by applicable law or reasonably requested by such Borrower as will
permit such payments to be made without withholding or at a reduced rate.
SECTION 2.16. Payments Generally; Pro Rata Treatment; Sharing
of Set-offs.
(a) Each Borrower shall make each payment required to be made
by it hereunder (whether of principal, interest or fees, or of amounts payable
under Section 2.13, 2.14 or 2.15, or otherwise) prior to noon, New York City
time, on the date when due, in immediately available funds, without set-off or
counterclaim. Any amounts received after such time on any date may, in the
discretion of the Administrative Agent, be deemed to have been received on the
next succeeding Business Day for purposes of calculating interest thereon. All
such payments shall be made to the Administrative Agent at its offices at 270
Park Avenue, New York, New York, except that payments pursuant to Sections 2.13,
2.14, 2.15 and 9.03 shall be made directly to the Persons entitled thereto. The
Administrative Agent shall distribute any such payments received by it for the
account of any other Person to the appropriate recipient promptly following
receipt thereof. If any payment hereunder shall be due on a day that is not a
Business Day, the date for payment shall be extended to the next succeeding
Business Day, and, in the case of any payment accruing interest, interest
thereon shall be payable for the period of such extension. All payments
hereunder shall be made in dollars.
(b) If at any time insufficient funds are received by and
available to the Administrative Agent to pay fully all amounts of principal,
interest and fees then due hereunder, such funds shall be applied (i) first,
towards payment of interest and fees then due hereunder, ratably among the
parties entitled thereto in accordance with the amounts of interest and fees
then due to such parties, and (ii) second, towards payment of principal then due
hereunder, ratably among the parties entitled thereto in accordance with the
amounts of principal then due to such parties.
(c) If any Lender shall, by exercising any right of set-off or
counterclaim or otherwise, obtain payment in respect of any principal of or
interest on any of its Revolving Loans resulting in such Lender receiving
payment of a greater proportion of the aggregate amount of its
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Revolving Loans and accrued interest thereon than the proportion received by any
other Lender, then the Lender receiving such greater proportion shall purchase
(for cash at face value) participations in the Revolving Loans of other Lenders
to the extent necessary so that the benefit of all such payments shall be shared
by the Lenders ratably in accordance with the aggregate amount of principal of
and accrued interest on their respective Revolving Loans; provided that (i) if
any such participations are purchased and all or any portion of the payment
giving rise thereto is recovered, such participations shall be rescinded and the
purchase price restored to the extent of such recovery, without interest, and
(ii) the provisions of this paragraph shall not be construed to apply to any
payment made by either Borrower pursuant to and in accordance with the express
terms of this Agreement or any payment obtained by a Lender as consideration for
the assignment of or sale of a participation in any of its Loans to any assignee
or participant, other than to the Company or any Subsidiary or Affiliate thereof
(as to which the provisions of this paragraph shall apply). Each Borrower
consents to the foregoing and agrees, to the extent it may effectively do so
under applicable law, that any Lender acquiring a participation pursuant to the
foregoing arrangements may exercise against such Borrower rights of set-off and
counterclaim with respect to such participation as fully as if such Lender were
a direct creditor of such Borrower in the amount of such participation.
(d) Unless the Administrative Agent shall have received notice
from the relevant Borrower prior to the date on which any payment is due to the
Administrative Agent for the account of the Lenders hereunder that such Borrower
will not make such payment, the Administrative Agent may assume that such
Borrower has made such payment on such date in accordance herewith and may, in
reliance upon such assumption, distribute to the Lenders, the amount due. In
such event, if such Borrower has not in fact made such payment, then each of the
Lenders, severally agrees to repay to the Administrative Agent forthwith on
demand the amount so distributed to such Lender with interest thereon, for each
day from and including the date such amount is distributed to it to but
excluding the date of payment to the Administrative Agent, at the greater of the
Federal Funds Effective Rate and a rate determined by the Administrative Agent
in accordance with banking industry rules on interbank compensation.
(e) If any Lender shall fail to make any payment required to
be made by it pursuant to Section 2.05(b) or 2.16(d), then the Administrative
Agent may, in its discretion (notwithstanding any contrary provision hereof),
apply any amounts thereafter received by the Administrative Agent for the
account of such Lender to satisfy such Lender's obligations under such Sections
until all such unsatisfied obligations are fully paid.
SECTION 2.17. Mitigation Obligations; Replacement of Lenders.
(a) If any Lender requests compensation under Section 2.13, or
if either Borrower is required to pay any additional amount to any Lender or any
Governmental Authority for the account of any Lender pursuant to Section 2.15,
then such Lender shall, upon the request of such Borrower, use reasonable
efforts to designate a different lending office for funding or booking its Loans
hereunder or to assign its rights and obligations hereunder to another of its
offices, branches or affiliates, if, in the judgment of such Lender, such
designation or assignment (i) would eliminate or reduce amounts payable pursuant
to Section 2.13 or 2.15, as the case may be, in the future and (ii) would not
subject such Lender to any unreimbursed cost or expense and would not otherwise
be disadvantageous to such Lender. Each Borrower hereby agrees to pay all
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reasonable costs and expenses incurred by any Lender in connection with any such
designation or assignment.
(b) If any Lender (or any Participant in Loans made by such
Lender) requests compensation under Section 2.13, or if either Borrower is
required to pay any additional amount to any Lender (or any Participant in Loans
made by such Lender) or any Governmental Authority for account of any Lender (or
any Participant in Loans made by such Lender) pursuant to Section 2.15, or if
any Lender defaults in its obligation to fund Loans hereunder, then the Company
may, at its sole expense and effort, upon notice to such Lender and the
Administrative Agent, require such Lender to assign and delegate, without
recourse (in accordance with and subject to the restrictions contained in
Section 9.04), all its interests, rights and obligations under this Agreement
(other than any outstanding Competitive Loans held by it) to an assignee that
shall assume such obligations (which assignee may be another Lender, if a Lender
accepts such assignment); provided that (i) the Company shall have received the
prior written consent of the Administrative Agent, which consent shall not
unreasonably be withheld, (ii) such Lender shall have received payment of an
amount equal to the outstanding principal of its Loans (other than Competitive
Loans), accrued interest thereon, accrued fees and all other amounts payable to
it hereunder, from the assignee (to the extent of such outstanding principal and
accrued interest and fees) or the relevant Borrower (in the case of all other
amounts) and (iii) in the case of any such assignment resulting from a claim for
compensation under Section 2.13 or payments required to be made pursuant to
Section 2.15, such assignment will result in a reduction in such compensation or
payments. A Lender shall not be required to make any such assignment and
delegation if, prior thereto, as a result of a waiver by such Lender or
otherwise, the circumstances entitling the Company to require such assignment
and delegation cease to apply.
SECTION 2.18. Extension of Maturity Date.
(a) The Company may, by notice to the Administrative Agent
(which shall promptly notify the Lenders) not less than 45 days and not more
than 60 days prior to the Maturity Date then in effect hereunder (the "Existing
Maturity Date"), request that the Lenders extend the Maturity Date for an
additional 364 days from the Consent Date (as defined below). Each Lender,
acting in its sole discretion, shall, by notice to the Company and the
Administrative Agent given on or before the date (herein, the "Consent Date")
that is 30 days prior to the Existing Maturity Date (except that, if such date
is not a Business Day, such notice shall be given on the next succeeding
Business Day), advise the Company and the Administrative Agent whether or not
such Lender agrees to such extension; provided that, if such Lender gives notice
of its consent to such extension prior to the Consent Date, such Lender may
revoke such consent at any time prior to the Consent Date by giving notice of
such revocation to the Company and the Administrative Agent; and provided
further that each Lender that determines not to extend the Maturity Date (a
"Non-extending Lender") shall notify the Administrative Agent (which shall
notify the Lenders) of such fact promptly after such determination (but in any
event no later than the Consent Date) and any Lender that does not advise the
Company on or before the Consent Date shall be deemed to be a Non-extending
Lender. The election of any Lender that does not advise the Company on or before
the Consent Date shall be deemed to be a Non-extending Lender. The election of
any Lender to agree to such extension shall not obligate any other Lender to so
agree.
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(b) Subject to paragraph (c) of this Section, the Company
shall have the right on or before the Existing Maturity Date to replace each
Non-extending Lender with, and otherwise add to this Agreement, one or more
other lenders (which may include any Lender, each prior to the Existing Maturity
Date an "Additional Commitment Lender") with the approval of the Administrative
Agent (which approval shall not be unreasonably withheld), each of which
Additional Commitment Lenders shall have entered into an agreement in form and
substance satisfactory to the Company and the Administrative Agent pursuant to
which such Additional Commitment Lender shall, effective as of the Existing
Maturity Date, undertake a Commitment (and, if any such Additional Commitment
Lender is already a Lender, its Commitment shall be in addition to such Lender's
Commitment hereunder on such date).
(c) If (and only if) the total amount of the Commitments of
the Lenders and (without duplication) the Additional Commitment Lenders that
have agreed so to extend the Maturity Date shall be more than 50% of the
aggregate amount of the Commitments in effect immediately prior to the Consent
Date, then, effective as of the Existing Maturity Date, the Existing Maturity
Date shall be extended to the date falling 364 days after the Consent Date
(except that, if such date is not a Business Day, such Maturity Date as so
extended shall be the next preceding Business Day) and each Additional
Commitment Lender shall thereupon become a "Lender" for all purposes of this
Agreement.
Notwithstanding the foregoing, the extension of the Existing
Maturity Date shall not be effective with respect to any Lender unless:
(i) no Default shall have occurred and be continuing on each
of the date of the notice requesting such extension, on the Consent
Date and on the Existing Maturity Date;
(ii) each of the representations and warranties made by each
of the Borrowers in Article III hereof shall be true and complete on
and as of each of the date of the notice requesting such extension, the
Consent Date and the Existing Maturity Date with the same force and
effect as if made on and as of such date (or, if any such
representation or warranty is expressly stated to have been made as of
a specific date, as of such specific date); and
(iii) each Non-extending Lender shall have been paid in full
by the Borrowers all amounts owing to such Lender hereunder on or
before the Existing Maturity Date.
Even if the Existing Maturity Date is extended as aforesaid, the Commitment of
each Non-extending Lender shall terminate on the Existing Maturity Date.
SECTION 2.19. Increase in Commitments. The Company shall have
the right, so long as no Default shall have occurred and be continuing, without
the consent of any Lender (except as described in clause (i) below) but with the
consent of the Administrative Agent (which consent shall not be unreasonably
withheld), at any time prior to the Maturity Date, to increase the total
aggregate amount of the Commitments hereunder by (a) adding a lender or lenders
hereto with a Commitment or Commitments of up to the amount (or aggregate
amount) of such increase (which lender or lenders shall thereupon become
"Lenders" hereunder)
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and/or (b) enabling any Lender or Lenders to increase its (or their) Commitment
(or Commitments) up to the amount of any such increase; provided that: (i) in no
event shall any Lender's Commitment be increased without the consent of such
Lender, (ii) if any Revolving Loans are outstanding hereunder on the date that
any such increase is to be effective, the principal amount of any such Revolving
Loans shall on or prior to the effectiveness of such increase, at the option of
the Borrowers, either (A) be repaid, together with accrued interest thereon and
any costs incurred by any Lender in accordance with Section 2.14 (but all such
Loans may, on the terms and conditions hereof, be reborrowed on the date that
any such increase becomes effective pro rata among all of the Lenders) or (B) be
converted into Competitive Loans with the same terms (including, without
limitation, interest rate) and maturity of such Revolving Loans, provided that
the Competitive Loans into which such Revolving Loans are converted shall
constitute a utilization of the Commitments, (iii) any such increase shall be in
an integral multiple of $50,000,000, (iv) in no event shall any increase result
in the total aggregate amount of the Commitments exceeding $1,250,000,000, (v)
no increase in Commitments contemplated by this Section 2.19 shall result in any
one Lender having a Commitment in an amount which equals more than 20% of the
aggregate amount of the Commitments hereunder, and (vi) no increase in
Commitments shall occur within 12 months of a reduction in the Commitments
pursuant to Section 2.07.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
The Company represents and warrants to the Lenders that:
SECTION 3.01. Organization; Powers. The Company and each of
its Material Subsidiaries is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization, has all
requisite power and authority to carry on its business as now conducted and,
except where the failure to do so, individually or in the aggregate, could not
reasonably be expected to result in a Material Adverse Change, is qualified to
do business in, and is in good standing in, every jurisdiction where such
qualification is required.
SECTION 3.02. Authorization; Enforceability. The Transactions
are within each Borrower's corporate powers and have been duly authorized by all
necessary corporate action. This Agreement and the Support Agreement have been
duly executed and delivered by each Borrower and each constitutes a legal, valid
and binding obligation of each Borrower, enforceable in accordance with its
terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium
or other laws affecting creditors' rights generally and subject to general
principles of equity, regardless of whether considered in a proceeding in equity
or at law.
SECTION 3.03. Governmental Approvals; No Conflicts. The
Transactions (a) do not require any consent or approval of, registration or
filing with, or any other action by, any Governmental Authority, except such as
have been obtained or made and are in full force and effect, (b) will not
violate any applicable law or regulation or the charter, by-laws or other
organizational documents of either Borrower or any order of any Governmental
Authority, and (c) will not violate or result in a default under any indenture,
agreement or other instrument
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binding upon either Borrower or its assets, or give rise to a right thereunder
to require any payment to be made by either Borrower.
SECTION 3.04. Financial Condition; No Material Adverse Change.
(a) The Company has heretofore furnished to the Lenders its
audited consolidated balance sheet and statements of earnings, equity and cash
flows (i) as of and for the fiscal year ended December 31, 1997, reported on by
Deloitte & Touche, LLP, independent public accountants. Such financial
statements present fairly, in all material respects, the financial position and
results of operations and cash flows of the Company and its consolidated
Subsidiaries, as of the date thereof and for such fiscal year, in accordance
with GAAP.
(b) The Company has heretofore furnished to each of the
Lenders the annual Statutory Statement of the Company as at and for the year
ended December 31, 1997, as filed with the Applicable Insurance Regulatory
Authority. Such Statutory Statement presents fairly, in all material respects,
the financial position and results of operations of the Company , as of the date
thereof and for such year, in accordance with SAP.
(c) Since December 31, 1997, there has been no material
adverse change in the business, assets, property, condition (financial or
otherwise) or prospects of the Company and its Subsidiaries taken as a whole
from that set forth in the respective financial statements referred to in
Section 3.04(a).
SECTION 3.05. Properties.
(a) The Company and each of its Material Subsidiaries has good
title to, or valid leasehold interests in, all its real and personal property
material to its business, except for minor defects in title that, individually
or in the aggregate, could not reasonably be expected to result in a Material
Adverse Change.
(b) The Company and each of its Material Subsidiaries owns, or
is licensed to use, all trademarks, tradenames, copyrights, patents and other
intellectual property material to its business, and the use thereof by the
Company and its Material Subsidiaries does not infringe upon the rights of any
other Person, except for any such infringements that, individually or in the
aggregate, could not reasonably be expected to result in a Material Adverse
Change.
SECTION 3.06. Litigation and Environmental Matters.
(a) There are no actions, suits or proceedings by or before
any arbitrator or Governmental Authority pending against or, to the knowledge of
the Company or Funding, threatened against or affecting the Company or any of
its Material Subsidiaries (i) as to which there is a reasonable possibility of
an adverse determination and that, if adversely determined, is reasonably
likely, individually or in the aggregate, to result in a Material Adverse Change
(other than the Disclosed Matters) or (ii) that involve this Agreement or the
Transactions.
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(b) Except for the Disclosed Matters and except with respect
to any other matters that, individually or in the aggregate, could not
reasonably be expected to result in a Material Adverse Change, neither the
Company nor any of its Material Subsidiaries (i) has failed to comply with any
Environmental Law or to obtain, maintain or comply with any permit, license or
other approval required under any Environmental Law, (ii) has become subject to
any Environmental Liability, (iii) has received notice of any claim with respect
to any Environmental Liability or (iv) knows of any basis for any Environmental
Liability.
SECTION 3.07. Compliance with Laws and Agreements. The Company
and each of its Material Subsidiaries is in compliance with all laws,
regulations and orders of any Governmental Authority applicable to it or its
property and all indentures, agreements and other instruments binding upon it or
its property, except where the failure to do so, individually or in the
aggregate, could not reasonably be expected to result in a Material Adverse
Change. No Default has occurred and is continuing.
SECTION 3.08. Investment and Holding Company Status. Neither
the Company nor any of its Material Subsidiaries (other than Funding) is an
"investment company" as defined in, or subject to regulation under, the
Investment Company Act of 1940, and Funding is an "investment company" as
defined in such Act that is exempt from the requirements of such Act. Neither
the Company nor any of its Material Subsidiaries is a "holding company" as
defined in, or subject to regulation under, the Public Utility Holding Company
Act of 1935.
SECTION 3.09. Taxes. The Company and each of its Subsidiaries
has timely filed or caused to be filed all tax returns and reports required to
have been filed and has paid or caused to be paid all Taxes required to have
been paid by it, except (a) Taxes that are being contested in good faith by
appropriate proceedings and for which the Company or such Subsidiary, as
applicable, has set aside on its books adequate reserves or (b) to the extent
that the failure to do so could not reasonably be expected to result in a
Material Adverse Change.
SECTION 3.10. ERISA. Each Plan and, to the knowledge of the
Company, each Multiemployer Plan, is in compliance in all material respects
with, and has been administered in all material respects with, the applicable
provisions of ERISA, the Code and any other Federal or State law, and no ERISA
Event has occurred or is reasonably expected to occur that, when taken together
with all other such ERISA Events for which liability is reasonably expected to
occur, could reasonably be expected to result in a Material Adverse Change.
SECTION 3.11. Disclosure. None of the reports, financial
statements, certificates or other information furnished by or on behalf of the
Company to the Administrative Agent or any Lender in connection with the
negotiation of this Agreement or delivered hereunder (as modified or
supplemented by other information so furnished) contains any material
misstatement of fact or omits to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; provided that (a) with respect to projected financial
information, the Company represents only that such information was prepared in
good faith based upon assumptions believed to be reasonable at the time, and (b)
the Company is considering selling its existing U.S. commercial finance
operations.
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SECTION 3.12. Margin Stock. No part of the proceeds of any
Loan hereunder will be used, whether directly or indirectly, for any purpose
that entails a violation of any of the Regulations of the Board, including
Regulations U and X. Not more than 25% of the value (as determined by any
reasonable method) of the assets of either the Company or Funding is represented
by Margin Stock.
SECTION 3.13. Year 2000. Substantially all programming
required to handle all material dates and date processing, in and following the
year 2000, of (i) the Company's and each of its Material Subsidiaries' computer
systems and (ii) equipment containing embedded microchips (including systems and
equipment supplied by others or with which the Company's or such Material
Subsidiaries' systems interface) and the testing of all such systems and
equipment, as so reprogrammed, will be substantially completed by July 1, 1999.
The expected cost to the Company and its Material Subsidiaries of such
reprogramming and testing and of the reasonably foreseeable consequences of year
2000 to the Company and its Material Subsidiaries (including, without
limitation, reprogramming errors and the failure of others' systems or
equipment) is not anticipated to result in a Default or a Material Adverse
Change.
ARTICLE IV
CONDITIONS
SECTION 4.01. Effective Date. The obligations of the Lenders
to make Loans hereunder shall not become effective until the date on which each
of the following conditions is satisfied (or waived in accordance with Section
9.02):
(a) The Administrative Agent (or its counsel) shall have
received from each party hereto either (i) a counterpart of this Agreement
signed on behalf of such party or (ii) written evidence satisfactory to the
Administrative Agent (which may include telecopy transmission of a signed
signature page of this Agreement) that such party has signed a counterpart of
this Agreement.
(b) The Administrative Agent shall have received an opinion,
addressed to it and the Lenders and dated the Effective Date, of Ruth R. Gluck,
Esq., Associate General Counsel to the Company and Assistant General Counsel to
Funding, substantially in the form of Exhibit B, and covering such other matters
relating to the Borrowers, this Agreement or the Transactions as the Required
Lenders shall reasonably request. The Borrowers hereby request such counsel to
deliver such opinion.
(c) The Administrative Agent shall have received an opinion,
addressed to it and the Lenders and dated the Effective Date, or Milbank, Tweed,
Hadley and McCloy, special New York counsel to Chase, substantially in the form
of Exhibit C. Chase hereby instructs such counsel to deliver such opinion to the
Lenders and the Administrative Agent.
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(d) The Administrative Agent shall have received such
documents and certificates as the Administrative Agent, its counsel or any
Lender may reasonably request relating to the organization, existence and good
standing of each of the Borrowers, the authorization of the Transactions and any
other legal matters relating to the Borrowers, this Agreement or the
Transactions, all in form and substance satisfactory to the Administrative Agent
and its counsel.
(e) The Administrative Agent shall have received all fees and
other amounts due and payable on or prior to the Effective Date, including, to
the extent invoiced, reimbursement or payment of all out-of-pocket expenses
required to be reimbursed or paid by the Borrowers hereunder.
The Administrative Agent shall notify the Borrowers and the Lenders of the
Effective Date, and such notice shall be conclusive and binding. Notwithstanding
the foregoing, the obligations of the Lenders to make Loans hereunder shall not
become effective unless each of the foregoing conditions is satisfied (or waived
pursuant to Section 9.02) at or prior to 3:00 p.m., New York City time, on April
28, 1998 (and, in the event such conditions are not so satisfied or waived, the
Commitments shall terminate at such time).
SECTION 4.02. Each Credit Event. The obligation of each Lender
to make a Loan on the occasion of any Borrowing, is subject to the satisfaction
of the following conditions:
(a) The representations and warranties of each of the
Borrowers set forth in this Agreement (other than, after the Effective
Date, in Section 3.04(c) and in Section 3.06) shall be true and correct
on and as of the date of such Borrowing.
(b) At the time of and immediately after giving effect to such
Borrowing, no Default shall have occurred and be continuing.
Each Borrowing shall be deemed to constitute a representation and warranty by
each Borrower on the date thereof as to the matters specified in paragraphs (a)
and (b) of this Section.
ARTICLE V
AFFIRMATIVE COVENANTS
Until the Commitments have expired or been terminated and the
principal of and interest on each Loan and all fees payable hereunder shall have
been paid in full, each Borrower covenants and agrees with the Lenders that:
SECTION 5.01. Financial Statements and Other Information. The
Company will furnish to the Administrative Agent and each Lender:
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(a) as soon as they are available but in any event within 120
days after the end of each fiscal year of the Company, its audited
consolidated balance sheet and related statements of earnings, equity
and cash flows as of the end of and for such year, setting forth in
each case in comparative form the figures for the previous fiscal year,
all reported on by Deloitte & Touche, LLP or other independent public
accountants of recognized national standing (without a "going concern"
or like qualification or exception and without any qualification or
exception as to the scope of such audit) to the effect that such
consolidated financial statements present fairly in all material
respects the financial condition and results of operations of the
Company and its consolidated Subsidiaries on a consolidated basis in
accordance with GAAP consistently applied;
(b) concurrently with any delivery of financial statements
under clause (a) above or (except as to clause (ii) of this paragraph
(b)) clause (c) or (d) below, a certificate of a Financial Officer of
the Company (i) certifying as to whether a Default has occurred and, if
a Default has occurred, specifying the details thereof and any action
taken or proposed to be taken with respect thereto, (ii) setting forth
reasonably detailed calculations demonstrating compliance with Section
6.04 and (iii) stating whether any change in GAAP or SAP, as the case
may be, or in the application thereof has occurred since the date of
the financial statements referred to in Section 3.04 and, if any such
change has occurred, specifying the effect of such change on the
financial statements accompanying such certificate;
(c) within 5 days after filing with the Applicable Insurance
Regulatory Authority and in any event within 60 days after the end of
each year, the annual Statutory Statement of the Company for such year,
certified by one of its Financial Officers as presenting fairly in all
material respects the financial position of the Company for such year
in accordance with SAP;
(d) within 5 days after filing with the Applicable Insurance
Regulatory Authority and in any event within 60 days after the end of
each of the first three quarterly periods of each year, the quarterly
Statutory Statement of the Company for such period, certified by one of
its Financial Officers as presenting fairly in all material respects
the financial position of the Company for such period in accordance
with SAP; and
(e) promptly following any request therefor, such other
information regarding the operations, business affairs and financial
condition of the Company or any of its Subsidiaries, or compliance with
the terms of this Agreement, as the Administrative Agent or any Lender
may reasonably request.
SECTION 5.02. Notices of Defaults. The Borrowers will furnish
to the Administrative Agent and each Lender prompt written notice of the
occurrence of any Default. Each such notice shall be accompanied by a statement
of a Financial Officer or other executive officer of the Company setting forth
the details of the event or development requiring such notice and any action
taken or proposed to be taken with respect thereto.
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SECTION 5.03. Existence; Conduct of Business. The Company
will, and will cause each of its Material Subsidiaries to, do or cause to be
done all things necessary to preserve, renew and keep in full force and effect
its legal existence and the rights, licenses, permits, privileges and franchises
material to the conduct of its business; provided that the foregoing shall not
prohibit any merger, consolidation, liquidation, dissolution or other
transaction permitted under Section 6.02.
SECTION 5.04. Payment of Obligations. The Company will, and
will cause each of its Material Subsidiaries to, pay its obligations, including
Tax liabilities, that, if not paid, could result in a Material Adverse Change
before the same shall become delinquent or in default, except where (a) the
validity or amount thereof is being contested in good faith by appropriate
proceedings, (b) the Company or such Material Subsidiary has set aside on its
books adequate reserves with respect thereto in accordance with GAAP and (c) the
failure to make payment pending such contest could not reasonably be expected to
result in a Material Adverse Change.
SECTION 5.05. Maintenance of Properties; Insurance. The
Company will, and will cause each of its Material Subsidiaries to, (a) keep and
maintain all property material to the conduct of its business in good working
order and condition, ordinary wear and tear excepted, and (b) maintain, with
financially sound and reputable insurance companies, insurance in such amounts
and against such risks as are customarily maintained by companies engaged in the
same or similar businesses operating in the same or similar locations.
SECTION 5.06. Books and Records; Inspection Rights. The
Company will, and will cause each of its Material Subsidiaries to, keep proper
books of record and account in which full, true and correct entries are made of
all dealings and transactions in relation to its business and activities. The
Company will, and will cause each of its Material Subsidiaries to, permit any
representative designated by the Administrative Agent (and, if a Default shall
have occurred and be continuing, any representatives designated by any Lender),
upon reasonable prior notice, to visit and inspect its properties, to examine
and make extracts from its books and records, and to discuss its affairs,
finances and condition with its officers and independent accountants, all at
such reasonable times and as often as reasonably requested.
SECTION 5.07. Compliance with Laws. The Company will, and will
cause each of its Material Subsidiaries to, comply with all laws, rules,
regulations and orders of any Governmental Authority applicable to it or its
property, except where the failure to do so, individually or in the aggregate,
could not reasonably be expected to result in a Material Adverse Change.
SECTION 5.08. Use of Proceeds. The proceeds of the Loans will
be used only for general corporate purposes (including the back-up of commercial
paper) of the Company and its Subsidiaries in the ordinary course of business;
provided that no part of the proceeds of any Loan will be used, whether directly
or indirectly, for any purpose that entails a violation of any of the
Regulations of the Board, including Regulations U and X; provided further that
no part of the proceeds of any Loan will be used, whether directly or
indirectly, to acquire the capital stock or business of any other Person without
the consent of such Person; and
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provided further that neither the Administrative Agent nor any Lender shall have
any responsibility as to the use of any such proceeds.
SECTION 5.09. Support Agreement. The Borrowers will maintain
the Support Agreement in full force and effect, and comply with the provisions
thereof, and will not modify, supplement or waive any of its provisions without
the prior consent of the Administrative Agent (with the approval of the Required
Lenders); provided that any modification, supplement or waiver that reduces or
impairs the support provided to Funding shall require the approval of all
Lenders.
ARTICLE VI
NEGATIVE COVENANTS
Until the Commitments have expired or terminated and the
principal of and interest on each Loan and all fees payable hereunder have been
paid in full, each Borrower covenants and agrees with the Lenders that:
SECTION 6.01. Liens. Neither Borrower will create, incur,
assume or permit to exist any Lien on any property or asset now owned or
hereafter acquired by it, or assign or sell any income or revenues (including
accounts receivable) or rights in respect of any thereof, except:
(a) Permitted Encumbrances;
(b) any Lien existing on any property or asset prior to the
acquisition thereof by such Borrower; provided that (i) such Lien is
not created in contemplation of or in connection with such acquisition,
(ii) such Lien shall not apply to any other property or assets of such
Borrower, and (iii) such Lien shall secure only those obligations which
it secures on the date of such acquisition;
(c) Liens on assets acquired, constructed or improved by such
Borrower; provided that (i) such security interests and the
Indebtedness secured thereby are incurred prior to or within 360 days
after such acquisition or the completion of such construction or
improvement, (ii) the Indebtedness secured thereby does not exceed the
cost of acquiring, constructing or improving such assets, and (iii)
such security interests shall not apply to any other property or assets
of such Borrower;
(d) Liens on any property or assets of any Person existing at
the time such Person is merged or consolidated with or into such
Borrower and not created in contemplation of such event;
(e) Liens on any real property securing Indebtedness in
respect of which (i) the recourse of the holder of such Indebtedness
(whether direct or indirect and whether contingent or otherwise) under
the instrument creating the Lien or providing for the
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Indebtedness secured by the Lien is limited to such real property
directly securing such Indebtedness and (ii) such holder may not under
the instrument creating the Lien or providing for the Indebtedness
secured by the Lien collect by levy of execution or otherwise against
assets or property of such Borrower (other than such real property
directly securing such Indebtedness) if such Borrower fails to pay such
Indebtedness when due and such holder obtains a judgement with respect
thereto;
(f) Liens arising out of Securities Transactions entered into
in the ordinary course of business and on ordinary business terms;
(g) Liens arising out of Asset Securitizations;
(h) Liens on Separate Accounts Assets;
(i) Liens arising out of the ordinary course of the Company's
business that do not secure any Indebtedness; provided that the
obligations of the Company secured such Liens shall not exceed
$2,000,000,000 at any one time outstanding;
(j) Liens not otherwise permitted by the foregoing clauses of
this Section 6.01; provided that the aggregate principal amount of the
Indebtedness secured such Liens shall not exceed $3,000,000,000 at any
one time outstanding; and
(k) any extension, renewal or replacement of the foregoing;
provided that the Liens permitted hereunder shall not be spread to
cover any additional Indebtedness or assets (other than a substitution
of like assets) unless such additional Indebtedness or assets would
have been permitted in connection with the original creation,
incurrence or assumption of such Lien.
SECTION 6.02. Fundamental Changes
(a) Neither Borrower will merge into or consolidate with any
other Person, or permit any other Person to merge into or consolidate with it,
or sell, transfer, lease or otherwise dispose of (in one transaction or in a
series of transactions) all or any substantial part of its assets (excluding
assets sold or disposed of in the ordinary course of business), or (in the case
of the Company) all or any substantial part of the stock of Funding (in each
case, whether now owned or hereafter acquired), or liquidate or dissolve;
provided that, if at the time thereof and immediately after giving effect
thereto no Default shall have occurred and be continuing (i) any Subsidiary of
the Company may merge into the Company in a transaction in which the Company is
the surviving corporation, (ii) Funding may sell, transfer, lease or otherwise
dispose of its assets to the Company, (iii) the Company may sell, transfer,
lease or otherwise dispose of (a "Disposition") any of its assets (other than
any substantial part of the stock of Funding) so long as (x) the Net Available
Proceeds of such Disposition, together with the Net Available Proceeds of all
prior Dispositions since the date hereof, shall not exceed an aggregate amount
equal to 50% of Net Worth as set out in the most recent consolidated financial
statements of the Company delivered pursuant to Section 3.04(a) or Section
5.01(a), as the case may be, prior to such Disposition, or (y) such Disposition
occurs in connection with the reorganization of the
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Company and its Subsidiaries in connection with the establishment of a mutual
holding company, (iv) the Company may merge or consolidate with any other Person
if the Company is the surviving corporation, (v) the Company may demutualize,
and (vi) in addition to any Dispositions permitted under clause (iii), the
Company may sell its existing U.S. commercial finance operations and its
existing Canadian operations.
(b) The Company will not, and will not permit any of its
Material Subsidiaries to, engage to any material extent in any business other
than (i) businesses of the type conducted by the Company and its Material
Subsidiaries on the date of execution of this Agreement and businesses
reasonably related thereto or (ii) the business of providing financial services.
SECTION 6.03. Transactions with Affiliates. The Company will
not, and will not permit any of its Material Subsidiaries to, sell, lease or
otherwise transfer any property or assets to, or purchase, lease or otherwise
acquire any property or assets from, or otherwise engage in any other
transactions with, any of its Affiliates, except (a) in the ordinary course of
business at prices and on terms and conditions not less favorable to the Company
or such Material Subsidiary than could be obtained on an arm's-length basis from
unrelated third parties, and (b) transactions between or among the Company and
its wholly-owned Subsidiaries not involving any other Affiliate.
SECTION 6.04. Net Worth. The Company will not, at any time,
permit Net Worth to be less than $8,500,000,000.
ARTICLE VII
EVENTS OF DEFAULT
If any of the following events ("Events of Default") shall
occur:
(a) either Borrower shall fail to pay any principal of any
Loan when and as the same shall become due and payable, whether at the
due date thereof or at a date fixed for prepayment thereof or
otherwise;
(b) either Borrower shall fail to pay any interest on any Loan
or any fee or any other amount (other than an amount referred to in
clause (a) of this Article) payable under this Agreement, when and as
the same shall become due and payable, and such failure shall continue
unremedied for a period of five or more Business Days;
(c) any representation or warranty made or deemed made by or
on behalf of the Company or any of its Material Subsidiaries in or in
connection with this Agreement or any amendment or modification hereof
or waiver hereunder, or in any report, certificate, financial statement
or other document furnished pursuant to or in connection with this
Agreement or any amendment or modification hereof or waiver hereunder,
shall prove to have been incorrect in any material respect when made or
deemed made;
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(d) either Borrower shall fail to observe or perform any
covenant, condition or agreement contained in Section 5.02, 5.03 (with
respect to such Borrower's existence), 5.08 or 5.09 or in Article VI;
(e) either Borrower shall fail to observe or perform any
covenant, condition or agreement contained in this Agreement (other
than those specified in clause (a), (b) or (d) of this Article), and
such failure shall continue unremedied for a period of 30 days after
notice thereof from the Administrative Agent to the relevant Borrower
(which notice will be given at the request of any Lender);
(f) the Company or any of its Material Subsidiaries shall fail
to make any payment (whether of principal or interest and regardless of
amount) in respect of any Material Indebtedness, when and as the same
shall become due and payable;
(g) any event or condition occurs that results in any Material
Indebtedness becoming due prior to its scheduled maturity or that
enables or permits (with or without the giving of notice, the lapse of
time or both) the holder or holders of any Material Indebtedness or any
trustee or agent on its or their behalf to cause any Material
Indebtedness to become due, or to require the prepayment, repurchase,
redemption or defeasance thereof, prior to its scheduled maturity;
provided that this clause (g) shall not apply to secured Indebtedness
that becomes due as a result of the voluntary sale or transfer of the
property or assets securing such Indebtedness;
(h) an involuntary proceeding shall be commenced or an
involuntary petition shall be filed seeking (i) liquidation,
reorganization or other relief in respect of the Company or any of its
Material Subsidiaries or its debts, or of a substantial part of its
assets, under any Federal, state or foreign bankruptcy, insolvency,
receivership or similar law now or hereafter in effect or (ii) the
appointment of a receiver, trustee, custodian, sequestrator,
conservator or similar official for the Company or any or its Material
Subsidiaries or for a substantial part of its assets, and, in any such
case, such proceeding or petition shall continue undismissed for 60
days or an order or decree approving or ordering any of the foregoing
shall be entered;
(i) the Company or any of its Material Subsidiaries shall (i)
voluntarily commence any proceeding or file any petition seeking
liquidation, reorganization or other relief under any Federal, state or
foreign bankruptcy, insolvency, receivership or similar law now or
hereafter in effect, (ii) consent to the institution of, or fail to
contest in a timely and appropriate manner, any proceeding or petition
described in clause (h) of this Article, (iii) apply for or consent to
the appointment of a receiver, trustee, custodian, sequestrator,
conservator or similar official for the Company or any or its Material
Subsidiaries or for a substantial part of its assets, (iv) file an
answer admitting the material allegations of a petition filed against
it in any such proceeding, (v) make a general assignment for the
benefit of creditors or (vi) take any action for the purpose of
effecting any of the foregoing;
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(j) the Company or any of its Material Subsidiaries shall
become unable, admit in writing or fail generally to pay its debts as
they become due;
(k) one or more judgments for the payment of money in an
aggregate amount in excess of $200,000,000 (or its equivalent in any
other currency) shall be rendered against the Company, any Material
Subsidiary of the Company or any combination thereof and the same shall
remain undischarged for a period of 30 consecutive days during which
execution shall not be effectively stayed; or
(l) an ERISA Event shall have occurred that, in the opinion of
the Required Lenders, when taken together with all other ERISA Events
that have occurred, could reasonably be expected to result in liability
of the Company and its Material Subsidiaries in an aggregate amount
exceeding $100,000,000 in any year;
then, and in every such event (other than an event with respect to either
Borrower described in clause (h) or (i) of this Article), and at any time
thereafter during the continuance of such event, (A) the Administrative Agent
may, and at the request of the Required Lenders shall, by notice to the
Borrowers, terminate the Commitments, and thereupon the Commitments shall
terminate immediately, and (B) the Administrative Agent may, and at the request
of the Lenders holding more than 50% of the aggregate outstanding principal
amount of the Loans shall, by notice to the Borrowers, declare the Loans then
outstanding to be due and payable in whole (or in part, in which case any
principal not so declared to be due and payable may thereafter be declared to be
due and payable), and thereupon the principal of the Loans so declared to be due
and payable, together with accrued interest thereon and all fees and other
obligations of the Borrowers accrued hereunder, shall become due and payable
immediately, without presentment, demand, protest or other notice of any kind,
all of which are hereby waived by the Borrowers; and in case of any event with
respect to either Borrower described in clause (h) or (i) of this Article, the
Commitments shall automatically terminate and the principal of the Loans then
outstanding, together with accrued interest thereon and all fees and other
obligations of the Borrowers accrued hereunder, shall automatically become due
and payable, without presentment, demand, protest or other notice of any kind,
all of which are hereby waived by the Borrowers.
ARTICLE VIII
AGENTS
SECTION 8.01. Administrative Agent.
(a) Each of the Lenders hereby irrevocably appoints the
Administrative Agent as its agent and authorizes the Administrative Agent to
take such actions on its behalf and to exercise such powers as are delegated to
the Administrative Agent by the terms hereof, together with such actions and
powers as are reasonably incidental thereto.
(b) The Person serving as the Administrative Agent hereunder
shall have the same rights and powers in its capacity as a Lender as any other
Lender and may exercise the
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same as though it were not the Administrative Agent, and such Person and its
Affiliates may accept deposits from, lend money to and generally engage in any
kind of business with the Company or any Subsidiary or other Affiliate thereof
as if it were not the Administrative Agent hereunder.
(c) The Administrative Agent shall not have any duties or
obligations except those expressly set forth herein. Without limiting the
generality of the foregoing (a) the Administrative Agent shall not be subject to
any fiduciary or other implied duties, regardless of whether a Default has
occurred and is continuing, (b) the Administrative Agent shall not have any duty
to take any discretionary action or exercise any discretionary powers, except
discretionary rights and powers expressly contemplated hereby that the
Administrative Agent is required to exercise in writing by the Required Lenders
(or such other number or percentage of the Lenders as shall be necessary under
the circumstances as provided in Section 9.02), and (c) except as expressly set
forth herein, the Administrative Agent shall not have any duty to disclose, and
shall not be liable for the failure to disclose, any information relating to the
Company or any of its Subsidiaries that is communicated to or obtained by the
Person serving as Administrative Agent or any of its Affiliates in any capacity.
The Administrative Agent shall not be liable for any action taken or not taken
by it with the consent or at the request of the Required Lenders (or such other
number or percentage of the Lenders as shall be necessary under the
circumstances as provided in Section 9.02) or in the absence of its own gross
negligence or wilful misconduct. The Administrative Agent shall be deemed not to
have knowledge of any Default unless and until written notice thereof is given
to the Administrative Agent by the Borrowers or a Lender, and the Administrative
Agent shall not be responsible for or have any duty to ascertain or inquire into
(i) any statement, warranty or representation made by any other Person in or in
connection with this Agreement, (ii) the contents of any certificate, report or
other document delivered hereunder or in connection herewith, (iii) the
performance or observance of any of the covenants, agreements or other terms or
conditions set forth herein, (iv) the validity, enforceability, effectiveness or
genuineness of this Agreement or any other agreement, instrument or document, or
(v) the satisfaction of any condition set forth in Article IV or elsewhere
herein, other than to confirm receipt of items expressly required to be
delivered to the Administrative Agent.
(d) The Administrative Agent shall be entitled to rely upon,
and shall not incur any liability for relying upon, any notice, request,
certificate, consent, statement, instrument, document or other writing
reasonably believed by it to be genuine and to have been signed or sent by the
proper Person. The Administrative Agent also may rely upon any statement made to
it orally or by telephone and believed by it to be made by the proper Person,
and shall not incur any liability for relying thereon. The Administrative Agent
may consult with legal counsel (who may be counsel for the Borrowers),
independent accountants and other experts selected by it, and shall not be
liable for any action taken or not taken by it in accordance with the advice of
any such counsel, accountants or experts.
(e) The Administrative Agent may perform any and all its
duties and exercise its rights and powers by or through any one or more
sub-agents appointed by the Administrative Agent. The Administrative Agent and
any such sub-agent may perform any and all its duties and exercise its rights
and powers through their respective Related Parties. The exculpatory
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provisions of the preceding paragraphs shall apply to any such sub-agent and to
the Related Parties of the Administrative Agent and any such sub-agent, and
shall apply to their respective activities in connection with the syndication of
the credit facilities provided for herein as well as activities as
Administrative Agent.
(f) Subject to the appointment and acceptance of a successor
Administrative Agent as provided in this paragraph, the Administrative Agent may
resign at any time by notifying the Lenders and the Borrowers. Upon any such
resignation, the Required Lenders shall have the right, in consultation with the
Borrowers, to appoint a successor. If no successor shall have been so appointed
by the Required Lenders and shall have accepted such appointment within 30 days
after the retiring Administrative Agent gives notice of its resignation, then
the retiring Administrative Agent may, on behalf of the Lenders, appoint a
successor Administrative Agent which shall be a bank with an office in New York,
New York, or an Affiliate of any such bank. Upon the acceptance of its
appointment as Administrative Agent hereunder by a successor, such successor
shall succeed to and become vested with all the rights, powers, privileges and
duties of the retiring Administrative Agent and the retiring Administrative
Agent shall be discharged from its duties and obligations hereunder. The fees
payable by the Borrowers to a successor Administrative Agent shall be the same
as those payable to its predecessor unless otherwise agreed between the
Borrowers and such successor. After the Administrative Agent's resignation
hereunder, the provisions of this Section 8.01 and Section 9.03 shall continue
in effect for the benefit of such retiring Administrative Agent, its sub-agents
and their respective Related Parties in respect of any actions taken or omitted
to be taken by any of them while it was acting as Administrative Agent.
(g) Each Lender acknowledges that it has, independently and
without reliance upon the Administrative Agent or any other Lender and based on
such documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement. Each Lender also
acknowledges that it will, independently and without reliance upon the
Administrative Agent or any other Lender and based on such documents and
information as it shall from time to time deem appropriate, continue to make its
own decisions in taking or not taking action under or based upon this Agreement,
any related agreement or any document furnished hereunder or thereunder.
SECTION 8.02. Syndication Agent and Co-Arranger. The
Syndication Agent and Co-Arranger named on the cover page of this Agreement, in
its capacity as such, shall have no obligation, responsibility or required
performance hereunder and shall not become liable in any manner to any party
hereto. No party hereto shall have any obligation or liability, or owe any
performance, hereunder, to the Syndication Agent and Co-Arranger in its capacity
as such.
SECTION 8.03. Documentation Agents. The Documentation Agents
named on the cover page of this Agreement, in their capacities as such, shall
have no obligation, responsibility or required performance hereunder and shall
not become liable in any manner to any party hereto. No party hereto shall have
any obligation or liability, or owe any performance, hereunder, to the
Documentation Agents, in their capacities as such.
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ARTICLE IX
MISCELLANEOUS
SECTION 9.01. Notices. Except in the case of notices and other
communications expressly permitted to be given by telephone, all notices and
other communications provided for herein shall be in writing and shall be
delivered by hand or overnight courier service, mailed by certified or
registered mail or sent by telecopy, as follows:
(a) if to the Company or Funding, to it at 1 Madison Avenue,
New York, NY 10010, Attention of William J. Wheeler, Senior Vice
President and Treasurer (Telecopy No. (212) 578-0266), with a copy to
the Company, 1 Madison Avenue, New York, NY 10010, Attention of William
H. Nugent, Assistant Vice President (Telecopy No. (212) 578-8321);
(b) if to the Administrative Agent, to The Chase Manhattan
Bank, The Loan & Agency Services Group, One Chase Manhattan Plaza, 8th
Floor, New York, New York, 10081, Attention of Laura Rebecca (Telecopy
No. (212) 552-7490), with a copy to The Chase Manhattan Bank, 270 Park
Avenue, 20th Floor, New York, New York 10017, Attention of Heather A.
Lindstrom (Telecopy No. (212) 270-0670); and
(c) if to any Lender, to it at its address (or telecopy
number) set forth in its Administrative Questionnaire.
Any party hereto may change its address or telecopy number for notices and other
communications hereunder by notice to the other parties hereto. All notices and
other communications given to any party hereto in accordance with the provisions
of this Agreement shall be deemed to have been given on the date of receipt.
SECTION 9.02. Waivers; Amendments.
(a) No failure or delay by the Administrative Agent or any
Lender in exercising any right or power hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right or power, or
any abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or the exercise of any other
right or power. The rights and remedies of the Administrative Agent and the
Lenders hereunder are cumulative and are not exclusive of any rights or remedies
that they would otherwise have. No waiver of any provision of this Agreement or
consent to any departure by the Borrowers therefrom shall in any event be
effective unless the same shall be permitted by paragraph (b) of this Section,
and then such waiver or consent shall be effective only in the specific instance
and for the purpose for which given. Without limiting the generality of the
foregoing, the making of a Loan shall not be construed as a waiver of any
Default, regardless of whether the Administrative Agent or any Lender may have
had notice or knowledge of such Default at the time.
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(b) Neither this Agreement nor any provision hereof may be
waived, amended or modified except pursuant to an agreement or agreements in
writing entered into by the Borrowers and the Required Lenders or by the
Borrowers and the Administrative Agent with the consent of the Required Lenders;
provided that no such agreement shall (i) increase the Commitment of any Lender
without the written consent of such Lender, (ii) reduce the principal amount of
any Loan or reduce the rate of interest thereon, or reduce any fees payable
hereunder, without the written consent of each Lender affected thereby, (iii)
postpone the scheduled date of payment of the principal amount of any Loan, or
any interest thereon, or any fees payable hereunder, or reduce the amount of,
waive or excuse any such payment, or postpone the scheduled date of expiration
of any Commitment, without the written consent of each Lender affected thereby,
(iv) change Section 2.16(b) or (c) in a manner that would alter the pro rata
sharing of payments required thereby, without the written consent of each
Lender, or (v) change any of the provisions of this Section or the definition of
"Required Lenders" or any other provision hereof specifying the number or
percentage of Lenders required to waive, amend or modify any rights hereunder or
make any determination or grant any consent hereunder, without the written
consent of each Lender; provided further that no such agreement shall amend,
modify or otherwise affect the rights or duties of the Administrative Agent
hereunder without the prior written consent of the Administrative Agent.
SECTION 9.03. Expenses; Indemnity: Damage; Waiver.
(a) The Company shall pay (i) all reasonable out-of-pocket
expenses incurred by the Administrative Agent and its Affiliates, including the
reasonable fees, charges and disbursements of counsel for the Administrative
Agent, in connection with the syndication of the credit facilities provided for
herein, the preparation and administration of this Agreement or any amendments,
modifications or waivers of the provisions hereof (whether or not the
transactions contemplated hereby or thereby shall be consummated), and (ii) all
out-of-pocket expenses incurred by the Administrative Agent or any Lender,
including the fees, charges and disbursements of any counsel for the
Administrative Agent or any Lender, in connection with the enforcement or
protection of its rights in connection with this Agreement, including its rights
under this Section, or in connection with the Loans made hereunder, including
all such out-of-pocket expenses incurred during any workout, restructuring or
negotiations in respect of such Loans.
(b) The Company shall indemnify the Administrative Agent and
each Lender, and each Related Party of any of the foregoing Persons (each such
Person being called an "Indemnitee") against, and hold each Indemnitee harmless
from, any and all losses, claims, damages, liabilities and related expenses,
including the fees, charges and disbursements of any counsel for any Indemnitee,
incurred by or asserted against any Indemnitee arising out of, in connection
with, or as a result of (i) the use or proposed use of the proceeds of any Loan,
or (ii) any actual or prospective claim, litigation, investigation or proceeding
relating thereto, whether based on contract, tort or any other theory and
regardless of whether any Indemnitee is a party thereto; provided that such
indemnity shall not, as to any Indemnitee, be available to the extent that such
losses, claims, damages, liabilities or related expenses resulted from the gross
negligence or wilful misconduct of such Indemnitee.
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(c) To the extent that the Company fails to pay any amount
required to be paid by it to the Administrative Agent under paragraph (a) or (b)
of this Section, each Lender severally agrees to pay to the Administrative Agent
such Lender's Applicable Percentage (determined as of the time that the
applicable unreimbursed expense or indemnity payment is sought) of such unpaid
amount; provided that the unreimbursed expense or indemnified loss, claim,
damage, liability or related expense, as the case may be, was incurred by or
asserted against the Administrative Agent, in its capacity as such.
(d) To the extent permitted by applicable law, the Borrowers
shall not assert, and each Borrower hereby waives, any claim against any
Indemnitee, on any theory of liability, for special, indirect, consequential or
punitive damages (as opposed to direct or actual damages) arising out of, in
connection with, or as a result of, this Agreement or any agreement or
instrument contemplated hereby, the Transactions, any Loan or the use of the
proceeds thereof.
(e) All amounts due under this Section shall be payable not
later than 10 days after written demand therefor.
SECTION 9.04. Successors and Assigns.
(a) The provisions of this Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns permitted hereby, except that the Borrowers may not assign or otherwise
transfer any of their respective rights or obligations hereunder without the
prior written consent of each Lender (and any attempted assignment or transfer
by either Borrower without such consent shall be null and void). Nothing in this
Agreement, expressed or implied, shall be construed to confer upon any Person
(other than the parties hereto, their respective successors and assigns
permitted hereby and, to the extent expressly contemplated hereby, the Related
Parties of each of the Administrative Agent, and the Lenders) any legal or
equitable right, remedy or claim under or by reason of this Agreement.
(b) Any Lender may assign to one or more assignees all or a
portion of its rights and obligations under this Agreement (including all or a
portion of its Commitment and the Loans at the time owing to it); provided that
(i) except in the case of an assignment to a Lender or an Affiliate of a Lender,
each of the Company and the Administrative Agent must give their prior written
consent to such assignment (which consent shall not be unreasonably withheld),
(ii) except in the case of an assignment to a Lender or an Affiliate of a Lender
or an assignment of the entire remaining amount of the assigning Lender's
Commitment, the amount of the Commitment of the assigning Lender subject to each
such assignment (determined as of the date the Assignment and Acceptance with
respect to such assignment is delivered to the Administrative Agent) shall not
be less than $5,000,000 unless each of the Company and the Administrative Agent
otherwise consent, (iii) each partial assignment shall be made as an assignment
of a proportionate part of all the assigning Lender's rights and obligations
under this Agreement, except that this clause (iii) shall not apply to rights in
respect of outstanding Competitive Loans, (iv) the parties to each assignment
shall execute and deliver to the Administrative Agent an Assignment and
Acceptance, together with a processing and recordation fee of $3,500, and (v)
the assignee, if it shall not be a Lender, shall deliver to the Administrative
Agent an Administrative Questionnaire; provided further that any consent of the
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Company otherwise required under this paragraph shall not be required if an
Event of Default under clause (h) or (i) of Article VII has occurred and is
continuing. Subject to acceptance and recording thereof pursuant to paragraph
(d) of this Section, from and after the effective date specified in each
Assignment and Acceptance the assignee thereunder shall be a party hereto and,
to the extent of the interest assigned by such Assignment and Acceptance, have
the rights and obligations of a Lender under this Agreement, and the assigning
Lender thereunder shall, to the extent of the interest assigned by such
Assignment and Acceptance, be released from its obligations under this Agreement
(and, in the case of an Assignment and Acceptance covering all of the assigning
Lender's rights and obligations under this Agreement, such Lender shall cease to
be a party hereto but shall continue to be entitled to the benefits of Sections
2.13, 2.14, 2.15 and 9.03). Any assignment or transfer by a Lender of rights or
obligations under this Agreement that does not comply with this paragraph shall
be treated for purposes of this Agreement as a sale by such Lender of a
participation in such rights and obligations in accordance with paragraph (e) of
this Section.
(c) The Administrative Agent, acting for this purpose as an
agent of the Borrowers, shall maintain at one of its offices in the City of New
York a copy of each Assignment and Acceptance delivered to it and a register for
the recordation of the names and addresses of the Lenders, and the Commitment
of, and principal amount of the Loans owing to, each Lender pursuant to the
terms hereof from time to time (the "Register"). The entries in the Register
shall be conclusive, and the Borrowers, the Administrative Agent and the Lenders
may treat each Person whose name is recorded in the Register pursuant to the
terms hereof as a Lender hereunder for all purposes of this Agreement,
notwithstanding notice to the contrary. The Register shall be available for
inspection by the Borrowers and any Lender, at any reasonable time and from time
to time upon reasonable prior notice.
(d) Upon its receipt of a duly completed Assignment and
Acceptance executed by an assigning Lender and an assignee, the assignee's
completed Administrative Questionnaire (unless the assignee shall already be a
Lender hereunder), the processing and recordation fee referred to in paragraph
(b) of this Section and any written consent to such assignment required by
paragraph (b) of this Section, the Administrative Agent shall accept such
Assignment and Acceptance and record the information contained therein in the
Register. No assignment shall be effective for purposes of this Agreement unless
it has been recorded in the Register as provided in this paragraph.
(e) Any Lender may, without the consent of the Borrowers or
the Administrative Agent, sell participations to one or more banks or other
entities (a "Participant") in all or a portion of such Lender's rights and
obligations under this Agreement (including all or a portion of its Commitment
and the Loans owing to it); provided that (i) such Lender's obligations under
this Agreement shall remain unchanged, (ii) such Lender shall remain solely
responsible to the other parties hereto for the performance of such obligations
and (iii) the Borrowers, the Administrative Agent and the other Lenders shall
continue to deal solely and directly with such Lender in connection with such
Lender's rights and obligations under this Agreement. Any agreement or
instrument pursuant to which a Lender sells such a participation shall provide
that such Lender shall retain the sole right to enforce this Agreement and to
approve any amendment, modification or waiver of any provision of this
Agreement; provided that such agreement or
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instrument may provide that such Lender will not, without the consent of the
Participant, agree to any amendment, modification or waiver described in the
first proviso to Section 9.02(b) that affects such Participant. Subject to
paragraph (f) of this Section, each Borrower agrees that each Participant shall
be entitled to the benefits of Sections 2.13, 2.14 and 2.15 to the same extent
as if it were a Lender and had acquired its interest by assignment pursuant to
paragraph (b) of this Section. To the extent permitted by law, each Participant
also shall be entitled to the benefits of Section 9.08 as though it were a
Lender, provided such Participant agrees to be subject to Section 2.16(c) as
though it were a Lender.
(f) A Participant shall not be entitled to receive any greater
payment under Section 2.13 or 2.15 than the applicable Lender would have been
entitled to receive with respect to the participation sold to such Participant,
unless the sale of the participation to such Participant is made with the
Company's prior written consent. A Participant that would be a Foreign Lender if
it were a Lender shall not be entitled to the benefits of Section 2.15 unless
the Company is notified of the participation sold to such Participant and such
Participant agrees, for the benefit of the Borrowers, to comply with Section
2.15(e) as though it were a Lender.
(g) Any Lender may at any time pledge or assign a security
interest in all or any portion of its rights under this Agreement to secure
obligations of such Lender, including any pledge or assignment to secure
obligations to a Federal Reserve Bank, and this Section shall not apply to any
such pledge or assignment of a security interest; provided that no such pledge
or assignment of a security interest shall release a Lender from any of its
obligations hereunder or substitute any such pledgee or assignee for such Lender
as a party hereto.
(h) Anything in this Section to the contrary notwithstanding,
no Lender may assign or participate any interest in any Loan held by it
hereunder to the Company or any Affiliate or Subsidiary thereof without the
prior written consent of each Lender.
SECTION 9.05. Survival. All covenants, agreements,
representations and warranties made by the Borrowers herein and in the
certificates or other instruments delivered in connection with or pursuant to
this Agreement shall be considered to have been relied upon by the other parties
hereto and shall survive the execution and delivery of this Agreement and the
making of any Loans, regardless of any investigation made by any such other
party or on its behalf and notwithstanding that the Administrative Agent or any
Lender may have had notice or knowledge of any Default or incorrect
representation or warranty at the time any credit is extended hereunder, and
shall continue in full force and effect as long as the principal of or any
accrued interest on any Loan or any fee or any other amount payable under this
Agreement is outstanding and unpaid and so long as the Commitments have not
expired or terminated. The provisions of Sections 2.13, 2.14, 2.15 and 9.03 and
Article VIII shall survive and remain in full force and effect regardless of the
consummation of the transactions contemplated hereby, the repayment of the
Loans, the expiration or termination of the Commitments or the termination of
this Agreement or any provision hereof.
SECTION 9.06. Counterparts; Integration; Effectiveness. This
Agreement may be executed in counterparts (and by different parties hereto on
different counterparts), each of which shall constitute an original, but all of
which when taken together shall constitute a
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single contract. This Agreement and any separate letter agreements with respect
to fees payable to the Administrative Agent constitute the entire contract among
the parties relating to the subject matter hereof and supersede any and all
previous agreements and understandings, oral or written, relating to the subject
matter hereof. Except as provided in Section 4.01, this Agreement shall become
effective when it shall have been executed by the Administrative Agent and when
the Administrative Agent shall have received counterparts hereof which, when
taken together, bear the signatures of each of the other parties hereto, and
thereafter shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns. Delivery of an executed counterpart
of a signature page of this Agreement by telecopy shall be effective as delivery
of a manually executed counterpart of this Agreement.
SECTION 9.07. Severability. Any provision of this Agreement
held to be invalid, illegal or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such invalidity, illegality
or unenforceability without affecting the validity, legality and enforceability
of the remaining provisions hereof; and the invalidity of a particular provision
in a particular jurisdiction shall not invalidate such provision in any other
jurisdiction.
SECTION 9.08. Right of Setoff. If an Event of Default shall
have occurred and be continuing, each Lender and each of its Affiliates is
hereby authorized at any time and from time to time, to the fullest extent
permitted by law, to set off and apply any and all deposits (general or special,
time or demand, provisional or final) at any time held and other obligations at
any time owing by such Lender or Affiliate to or for the credit or the account
of the relevant Borrower against any of and all the obligations of such Borrower
now or hereafter existing under this Agreement held by such Lender, irrespective
of whether or not such Lender shall have made any demand under this Agreement
and although such obligations may be unmatured. The rights of each Lender under
this Section are in addition to other rights and remedies (including other
rights of setoff) which such Lender may have.
SECTION 9.09. Governing Law; Jurisdiction; Consent to Service
of Process.
(a) This Agreement shall be construed in accordance with and
governed by the law of the State of New York.
(b) Each Borrower hereby irrevocably and unconditionally
submits, for itself and its property, to the nonexclusive jurisdiction of the
Supreme Court of the State of New York sitting in New York County and of the
United States District Court of the Southern District of New York, and any
appellate court from any thereof, in any action or proceeding arising out of or
relating to this Agreement, or for recognition or enforcement of any judgment,
and each of the parties hereto hereby irrevocably and unconditionally agrees
that all claims in respect of any such action or proceeding may be heard and
determined in such New York State or, to the extent permitted by law, in such
Federal court. Each of the parties hereto agrees that a final judgment in any
such action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
Nothing in this Agreement shall affect any right that the Administrative Agent
or any Lender may otherwise have to bring any action or proceeding relating to
this Agreement against the Borrowers or their respective properties in the
courts of any jurisdiction.
364-Day Credit Agreement
<PAGE> 57
-52-
(c) Each Borrower hereby irrevocably and unconditionally
waives, to the fullest extent it may legally and effectively do so, any
objection which it may now or hereafter have to the laying of venue of any suit,
action or proceeding arising out of or relating to this Agreement in any court
referred to in paragraph (b) of this Section. Each of the parties hereto hereby
irrevocably waives, to the fullest extent permitted by law, the defense of an
inconvenient forum to the maintenance of such action or proceeding in any such
court.
(d) Each party to this Agreement irrevocably consents to
service of process in the manner provided for notices in Section 9.01. Nothing
in this Agreement will affect the right of any party to this Agreement to serve
process in any other manner permitted by law.
SECTION 9.10. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE
TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF
OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER
BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES
THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF
LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT
AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY,
AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
SECTION 9.11. Headings. Article and Section headings and the
Table of Contents used herein are for convenience of reference only, are not
part of this Agreement and shall not affect the construction of, or be taken
into consideration in interpreting, this Agreement.
SECTION 9.12. Confidentiality. Each of the Administrative
Agent and the Lenders agrees to maintain the confidentiality of the Information
(as defined below), except that Information may be disclosed (a) to its and its
Affiliates' directors, officers, employees and agents, including accountants,
legal counsel and other advisors (it being understood that the Persons to whom
such disclosure is made will be informed of the confidential nature of such
Information and instructed to keep such Information confidential), (b) to the
extent requested by any regulatory authority, (c) to the extent required by
applicable laws or regulations or by any subpoena or similar legal process, (d)
to any other party to this Agreement, (e) in connection with the exercise of any
remedies hereunder or any suit, action or proceeding relating to this Agreement
or the enforcement of rights hereunder, (f) subject to an agreement containing
provisions substantially the same as those of this Section, to any assignee of
or Participant in, or any prospective assignee of or Participant in, any of its
rights or obligations under this Agreement, (g) with the consent of the Company
or (h) to the extent such Information (i) becomes publicly available other than
as a result of a breach of this Section or (ii) becomes available to the
Administrative Agent or any Lender on a nonconfidential basis from a source
other than the Company. For the purposes of this Section, "Information" means
all information received from the Company relating to the Company or its
business, other than any such
364-Day Credit Agreement
<PAGE> 58
-53-
information that is available to the Administrative Agent or any Lender on a
nonconfidential basis prior to disclosure by the Company; provided that, in the
case of information received from the Company after the date hereof, such
information is clearly identified at the time of delivery as confidential. Any
Person required to maintain the confidentiality of Information as provided in
this Section shall be considered to have complied with its obligation to do so
if such Person has exercised the same degree of care to maintain the
confidentiality of such Information as such Person would accord to its own
confidential information.
SECTION 9.13. Bilateral Lines. On the date of the execution
and delivery of this Agreement by the parties hereto, any existing bilateral
line of credit provided by any Lender to either or both of the Borrowers shall
automatically terminate and all fees payable to such Lender in connection
therewith accrued to such date shall immediately be due and payable.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their respective authorized officers as of the
day and year first above written.
METROPOLITAN LIFE INSURANCE COMPANY
By /s/ William J. Wheeler
----------------------------------------------
Title: Senior Vice President and Treasurer
METLIFE FUNDING, INC.
By /s/ William H. Nugent
----------------------------------------------
Title: Vice President and Treasurer
THE CHASE MANHATTAN BANK,
individually and as
Administrative Agent,
By /s/ Heather A. Lindstrom
----------------------------------------------
Title: Vice President
364-Day Credit Agreement
<PAGE> 59
-54-
CREDIT SUISSE FIRST BOSTON
By /s/ Jay Chall
----------------------------------------------
Title: Director
By /s/ Robert N. Finney
----------------------------------------------
Title: Managing Director
THE BANK OF NEW YORK
By /s/ Joseph M. Morgan
----------------------------------------------
Title: Vice President
CITIBANK, N.A.
By /s/ Laughton Sherman
----------------------------------------------
Title: Attorney-in-Fact
BANK OF TOKYO-MITSUBISHI TRUST COMPANY
By /s/ John Beckwith
----------------------------------------------
Title: Vice President
THE FIRST NATIONAL BANK OF CHICAGO
By /s/ Samuel W. Bridges
----------------------------------------------
Title: First Vice President
364-Day Credit Agreement
<PAGE> 60
-55-
FIRST UNION NATIONAL BANK
By /s/ Gail M. Golightly
----------------------------------------------
Title: Senior Vice President
FLEET NATIONAL BANK
By /s/ Vijay J. Nazareth
----------------------------------------------
Title: Vice President
MELLON BANK, N.A.
By /s/ Susan M. Whitewood
----------------------------------------------
Title: Vice President
BANCO SANTANDER
By /s/ Valerie Merrin
----------------------------------------------
Title: Vice President
By /s/ D. Rodriguez
----------------------------------------------
Title: Vice President
BANK OF AMERICA NATIONAL
TRUST AND SAVINGS ASSOCIATION
By /s/ Elizabeth W. F. Bishop
----------------------------------------------
Title: Vice President
364-Day Credit Agreement
<PAGE> 61
-56-
BANKBOSTON, N.A.
By /s/ Lawrence C. Bigelow
----------------------------------------------
Title: Managing Director
DEUTSCHE BANK
By /s/ Eckard Osenberg
----------------------------------------------
Title: Vice President
By /s/ John S. McGill
----------------------------------------------
Title: Vice President
NATIONSBANK OF TEXAS, N.A.
By /s/ Jim V. Miller
----------------------------------------------
Title: Senior Vice President
STATE STREET BANK AND TRUST COMPANY
By /s/ Edward M. Anderson
----------------------------------------------
Title: Vice President
SUNTRUST BANK, ATLANTA
By /s/ David Wisdom
----------------------------------------------
Title: Group Vice President
By /s/ Laura G. Harrison
----------------------------------------------
Title: Assistant Vice President
364-Day Credit Agreement
<PAGE> 62
-57-
WACHOVIA BANK
By /s/ Terence A. Snellings
----------------------------------------------
Title: Senior Vice Presidents
BARCLAYS BANK
By /s/ Karen M. Wagner
----------------------------------------------
Title: Associate Director
KEY BANK NATIONAL ASSOCIATION
By /s/ Sharon F. Weinstein
----------------------------------------------
Title: Vice President
NORTHERN TRUST COMPANY
By /s/ Marcia P. Saper
----------------------------------------------
Title: Vice President
ISTITUTO BANCARIO SAN PAOLO DI
TORINO S.P.A.
By /s/ Wendell Jones
----------------------------------------------
Title: Vice President
By /s/ Ettore Viazzo
----------------------------------------------
Title: Vice President
364-Day Credit Agreement
<PAGE> 63
-58-
U.S. BANK NATIONAL ASSOCIATION
By /s/ Allen G. Highum
----------------------------------------------
Title: Vice President
BANK OF MONTREAL
By /s/ Charles W. Reed
----------------------------------------------
Title: Director
BANK ONE TEXAS, N.A.
By /s/ Barry J. Fields
----------------------------------------------
Title: Vice President
BANKERS TRUST COMPANY
By /s/ Vincent J. Abruzzini
----------------------------------------------
Title: Managing Director
BANQUE NATIONALE DE PARIS
By /s/ Frances A. Melville
----------------------------------------------
Title: Assistant Treasurer
By /s/ Riva L. Howard
----------------------------------------------
Title: Vice President
364-Day Credit Agreement
<PAGE> 64
-59-
DEN DANSKE BANK AKTIESELSKAB
CAYMAN ISLANDS BRANCH
By /s/ John A. O'Neill
----------------------------------------------
Title: Vice President
By /s/ Sonia Kataria
----------------------------------------------
Title: Vice President
PNC BANK NATIONAL ASSOCIATION
By /s/ Eileen McDonald
----------------------------------------------
Title: Vice President
364-Day Credit Agreement
<PAGE> 65
SCHEDULE 3.06
DISCLOSED MATTERS
[See Section 3.06]
The Company is currently a defendant in numerous state and
federal lawsuits (including individual suits and putative class actions) raising
allegations of improper marketing of individual life insurance. Litigation
seeking compensatory and/or punitive damages relating to the marketing by the
Company of individual life insurance (including putative class and individual
actions) continues to be brought by or on behalf of policyholders and others.
These cases, most of which are in the early stages of litigation, seek
substantial damages, including in some cases claims for punitive and treble
damages and attorneys' fees, and raise, among other claims, allegations that
individual life insurance policies were improperly sold in replacement
transactions or with inadequate or inaccurate disclosure as to the period for
which premiums would be payable, or were misleadingly sold as savings or
retirement plans. Putative classes have been certified, conditionally or subject
to appeal, in state court actions covering certain policyholders in California
and West Virginia; class certification has been denied in a state court action
in Ohio thus far. A number of the federal cases alleging improper marketing of
individual life insurance have been consolidated in the united States District
Court for the Western District of Pennsylvania and the United States District
Court in Massachusetts for pretrial proceedings. Additional litigation relating
to the Company's marketing of individual life insurance may be commenced in the
future. The Company is vigorously defending itself in these actions.
Regulatory authorities in a small number of states, including
both insurance departments and attorneys general, have ongoing investigations of
the Company's sales of individual life insurance, including investigations of
alleged improper replacement transactions and alleged improper sales of
insurance with inaccurate or inadequate disclosure as to the period for which
premiums would be payable. In addition, an investigation by the Office of the
United States Attorney for the Middle District of Florida, which commenced in
1994, into certain of the retirement and savings plan selling allegations that
had been a subject of regulatory inquiries, has not been closed.
In addition to the foregoing matters, the Company is a
defendant in a large number of asbestos lawsuits relating to allegations
regarding certain research, advice and publication activity that occurred
decades ago. While the Company believes that it has significant defenses to
these claims and has effected settlements in many of these cases and has
prevailed in certain cases, it is not possible to predict the number of such
cases that may be brought or the aggregate amount of any liability that may
ultimately be incurred by the Company.
Various litigation, claims and assessments against the
Company, in addition to the aforementioned and those otherwise provided for in
the Company's financial statements, have arisen in the course of the Company's
business, including in connection with its activities as an
Schedule 3.06 - Disclosed Matters
<PAGE> 66
-2-
insurer, employer, investor and taxpayer. Further, state insurance regulatory
authorities and other state authorities regularly make inquiries and conduct
investigations concerning the Company's compliance with applicable insurance and
other laws and regulations.
In certain of the matters referred to above, very large and/or
indeterminate amounts, including punitive and treble damages, are sought. While
it is not feasible to predict or determine the ultimate outcome of all pending
investigations and legal proceedings or to make a meaningful estimate of the
amount or range of loss that could result from an unfavorable outcome in all
such matters, it is the opinion of the Company's management that their outcome,
after consideration of the provisions made in the Company's financial
statements, is not likely to have a material adverse effect on the Company's
financial position.
Schedule 3.06 - Disclosed Matters
<PAGE> 67
EXHIBIT A
[FORM OF]
ASSIGNMENT AND ACCEPTANCE
Reference is made to the Credit Agreement dated as of April
27, 1998 (as amended and in effect on the date hereof, the "Credit Agreement"),
among Metropolitan Life Insurance Company, MetLife Funding, Inc.; the Lenders
named therein and The Chase Manhattan Bank, as Administrative Agent for the
Lenders. Terms defined in the Credit Agreement are used herein with the same
meanings.
The Assignor named on the reverse hereof hereby sells and
assigns, without recourse, to the Assignee named on the reverse hereof, and the
Assignee hereby purchases and assumes, without recourse, from the Assignor,
effective as of the Assignment Date set forth on the reverse hereof, the
interests set forth on the reverse hereof (the "Assigned Interest") in the
Assignor's rights and obligations under the Credit Agreement, including, without
limitation, the interests set forth on the reverse hereof in the Commitment of
the Assignor on the Assignment Date and Competitive Loans and Revolving Loans
owing to the Assignor which are outstanding on the Assignment Date, excluding
accrued interest and fees to and excluding the Assignment Date. The Assignee
hereby acknowledges receipt of a copy of the Credit Agreement. From and after
the Assignment Date (i) the Assignee shall be a party to and be bound by the
provisions of the Credit Agreement and, to the extent of the Assigned Interest,
have the rights and obligations of a Lender thereunder and (ii) the Assignor
shall, to the extent of the Assigned Interest, relinquish its rights and be
released from its obligations under the Credit Agreement.
This Assignment and Acceptance is being delivered to the
Administrative Agent together with (i) if the Assignee is a Foreign Lender, any
documentation required to be delivered by the Assignee pursuant to Section
2.15(e) of the Credit Agreement, duly completed and executed by the Assignee,
and (ii) if the Assignee is not already a Lender under the Credit Agreement, an
Administrative Questionnaire in the form supplied by the Administrative Agent,
duly completed by the Assignee. The [Assignee/Assignor] shall pay the fee
payable to the Administrative Agent pursuant to Section 9.04(b) of the Credit
Agreement.
This Assignment and Acceptance shall be governed by and
construed in accordance with the laws of the State of New York.
Assignment and Acceptance
<PAGE> 68
-2-
Date of Assignment:
Legal Name of Assignor:
Legal Name of Assignee:
Assignee's Address for Notices:
Effective Date of Assignment
("Assignment Date")(1):
<TABLE>
<CAPTION>
Percentage Assigned of
Facility/Commitment
(set forth, to at
Principal Amount least 8 decimals, as a
Assigned (and percentage of the
identifying Facility and the
information as to aggregate Commitments
individual of all Lenders
Facility Competitive Loans) thereunder)
- -------- ------------------- ------------------------
<S> <C> <C>
Commitment Assigned: $ %
Revolving Loans:
Competitive Loans:
</TABLE>
The terms set forth above and on the reverse side hereof are hereby agreed to:
[Name of Assignor], as Assignor
By:
-----------------------------------------
Name:
Title:
(1) Must be at least five Business Days after execution hereof by all
required parties.
Assignment and Acceptance
<PAGE> 69
-3-
[Name of Assignee], as Assignee
By:
-----------------------------------------
Name:
Title:
The undersigned hereby consent to the within assignment: (2)
[Name of Borrower], The Chase Manhattan Bank,
as Administrative Agent,
By: By:
--------------------------------- ---------------------------------
Name: Name:
Title: Title:
(2) Consents to be included to the extent required by Section 9.04(b) of the
Credit Agreement.
Assignment and Acceptance
<PAGE> 70
EXHIBIT B
[Form of Opinion of Counsel for the Borrowers]
April 27, 1998
To the Lenders Referred to Below and
The Chase Manhattan Bank, as
Administrative Agent
270 Park Avenue
New York, New York 10017
Dear Sirs:
I am the Associate General Counsel of Metropolitan Life
Insurance Company (the "Company"), a New York corporation, and the Assistant
General Counsel of and MetLife Funding, Inc., a Delaware corporation ("Funding,
and together with the Company, the "Borrowers"), and in such capacities have
represented the Borrowers in connection with the 364-Day Credit Agreement dated
as of April 27, 1998 (the "Credit Agreement"), among the Borrowers, the lenders
named therein, and The Chase Manhattan Bank, as Administrative Agent, providing
for loans to be made by said lenders to the Borrowers in an aggregate principal
amount not to exceed $1,000,000,000 (as the same may be increased pursuant to
Section 2.19 thereof). Terms defined in the Credit Agreement are used herein
with the same meanings. This opinion is being delivered pursuant to Section
4.01(b) of the Credit Agreement.
In rendering the opinions expressed below, I have examined
originals or copies, certified or otherwise identified to my satisfaction, of
such documents, corporate records, certificates of public officials and other
instruments and have conducted such other investigations of fact and law as I
have deemed necessary or advisable for purposes of this opinion.
Upon the basis of the foregoing, I am of the opinion that:
1. The Company (a) is a corporation duly organized, validly
existing and in good standing under the laws of New York, (b) Funding
is a corporation duly organized, validly existing and in good standing
under the laws of Delaware, (c) each of the Company and Funding has all
requisite power and authority to carry on its business as now conducted
and (c) except where the failure to do so, individually or in the
aggregate, could not reasonably be expected to result in a Material
Adverse Change, the Company
Opinion of Counsel for the Borrowers
<PAGE> 71
and each of its Material Subsidiaries is qualified to do business in,
and is in good standing in, every jurisdiction where such qualification
is required.
2. The Transactions are within each Borrower's corporate
powers and have been duly authorized by all necessary corporate action.
The Credit Agreement has been duly executed and delivered by each
Borrower and constitutes a legal, valid and binding obligation of such
Borrower, enforceable in accordance with its terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium or other
laws affecting creditors' rights generally and subject to general
principles of equity, regardless of whether considered in a proceeding
in equity or at law.
3. The Transactions (a) do not require any consent or approval
of, registration or filing with, or any other action by, any
Governmental Authority, except such as have been obtained or made and
are in full force and effect, (b) will not violate any applicable law
or regulation or the charter, by-laws or other organizational documents
of the Company or any of its Subsidiaries or any order of any
Governmental Authority, and (c) will not violate or result in a default
under any indenture, agreement or other instrument binding upon the
Company or any of its Material Subsidiaries or its assets, or give rise
to a right thereunder to require any payment to be made by the Company
or any of its Subsidiaries.
4. There are no actions, suits or proceedings by or before any
arbitrator or Governmental Authority pending against or, to my
knowledge, threatened against or affecting the Company or any of its
Material Subsidiaries (a) as to which there is a reasonable possibility
of an adverse determination and that, if adversely determined, is
reasonably likely, individually or in the aggregate, to have a Material
Adverse Change (other than the Disclosed Matters) or (b) that involve
the Credit Agreement or the Transactions.
5. Neither the Company nor any of its Material Subsidiaries
(other than Funding) is an "investment company" as defined in, or
subject to regulation under, the Investment Company Act of 1940, and
Funding is an "investment company" as defined in such Act that is
exempt from the requirements of such Act. Neither the Company nor any
of its Material Subsidiaries is a "holding company" as defined in, or
subject to regulation under, the Public Utility Holding Company Act of
1935.
The foregoing opinions are subject to the following comments
and qualifications:
(A) The enforceability of Section 9.03 of the Credit Agreement
may be limited by laws limiting the enforceability of provisions
exculpating or exempting a party, or requiring indemnification of a
party for, liability for its own action or inaction, to the extent the
action or inaction involves gross negligence, recklessness, willful
misconduct or unlawful conduct.
Opinion of Counsel for the Borrowers
<PAGE> 72
(B) The enforceability of provisions of the Credit Agreement
to the effect that terms may not be waived or modified except in
writing may be limited under certain circumstances.
(C) I express no opinion as to (i) the effect of the laws of
any jurisdiction in which any Bank is located (other than the State of
New York) that limit the interest, fees or other charges such Banks may
impose, (ii) the last sentence of Section 2.16(c) of the Credit
Agreement, and (iii) the first sentence of Section 9.09(b) of the
Credit Agreement, insofar as such sentence relates to the subject
matter jurisdiction of the United States District Court for the
Southern District of New York to adjudicate any controversy related to
the Credit Agreement.
The foregoing opinions are limited to matters involving the
Federal laws of the United States of America and the law of the State of New
York, and I do not express any opinion as to the laws of any other jurisdiction.
This opinion is rendered solely to you in connection with the
above matter. This opinion may not be relied upon by you for any other purpose
or relied upon by any other Person (other than your successors and assigns as
Lenders and Persons that acquire participations in your Loans) without our prior
written consent.
Very truly yours,
<PAGE> 73
EXHIBIT C
[Form of Opinion of Special New York Counsel to Chase]
April 27, 1998
To the Lenders Referred to Below
and The Chase Manhattan Bank,
as Administrative Agent
270 Park Avenue
New York, New York 10017
Ladies and Gentlemen:
We have acted as special New York counsel to The Chase
Manhattan Bank ("Chase") in connection with the 364-Day Credit Agreement dated
as of April 27, 1998 (the "Credit Agreement") between Metropolitan Life
Insurance Company (the "Company"), MetLife Funding, Inc. ("Funding", and
together with the Company, the "Borrowers"), the lenders named therein, and
Chase, as Administrative Agent, providing for loans to be made by said lenders
to the Company in an aggregate principal amount not to exceed $1,000,000,000 (as
the same may be increased pursuant to Section 2.19 thereof) at any one time
outstanding. Terms defined in the Credit Agreement are used herein as defined
therein. This opinion is being delivered pursuant to Section 4.01(c) of the
Credit Agreement.
In rendering the opinions expressed below, we have examined an
executed copy of the Credit Agreement and assumed its authenticity. When
relevant facts were not independently established, we have relied upon
representations made in or pursuant to the Credit Agreement.
In rendering the opinions expressed below, we have assumed
that:
(i) the Credit Agreement has been duly authorized by,
has been duly executed and delivered by, and (except
to the extent expressly set forth in the opinions
below as to the Borrowers) constitutes the legal,
valid, binding and enforceable obligations of, all
of the parties thereto;
(ii) all signatories to the Credit Agreement have been
duly authorized; and
(iii) all of the parties to the Credit Agreement are duly
organized and validly existing and have the power
and authority (corporate or other) to execute,
deliver and perform the Credit Agreement.
Opinion of Special Counsel to Chase
<PAGE> 74
-2-
Based upon and subject to the foregoing and subject also to
the comments and qualifications set forth below, and having considered such
questions of law as we have deemed necessary as a basis for the opinions
expressed below, we are of the opinion that the Credit Agreement constitutes the
legal, valid and binding obligation of each Borrower, enforceable against such
Borrower in accordance with its terms, except as may be limited by bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance or transfer or
other similar laws and except as the enforceability of the Credit Agreement is
subject to the application of general principles of equity (regardless of
whether considered in a proceeding in equity or at law), including, without
limitation, (a) the possible unavailability of specific performance, injunctive
relief or any other equitable remedy and (b) concepts of materiality,
reasonableness, good faith and fair dealing.
The foregoing opinions are subject to the following comments
and qualifications:
(A) The enforceability of Section 9.03 of the Credit Agreement
may be limited by laws limiting the enforceability of provisions
exculpating or exempting a party, or requiring indemnification of a
party for, liability for its own action or inaction, to the extent the
action or inaction involves gross negligence, recklessness, willful
misconduct or unlawful conduct.
(B) The enforceability of provisions in the Credit Agreement
to the effect that terms may not be waived or modified except in
writing may be limited under certain circumstances.
(C) We express no opinion as to (i) the effect of the laws of
any jurisdiction in which any Bank is located (other than the State of
New York) that limit the interest, fees or other charges such Bank may
impose, (ii) the last sentence of Section 2.16(c) of the Credit
Agreement, (iii) the first sentence of Section 9.09(b) of the Credit
Agreement, insofar as such sentence relates to the subject matter
jurisdiction of the United States District Court for the Southern
District of New York to adjudicate any controversy related to the
Credit Agreement, and (iv) the waiver of inconvenient forum set forth
in Section 9.09(c) of the Credit Agreement with respect to proceedings
in the United States District Court for the Southern District of New
York.
The foregoing opinions are limited to matters involving the
Federal laws of the United States of America and the law of the State of New
York, and we do not express any opinion as to the laws of any other
jurisdiction.
This opinion letter is, pursuant to Section 4.01(c) of the
Credit Agreement, provided to you by us in our capacity as special New York
counsel to Chase and may not be relied upon by any Person for any purpose other
than in connection with the transactions contemplated by the Credit Agreement
without, in each instance, our prior written consent.
Very truly yours,
CDP/RJW
Opinion of Special Counsel to Chase
<PAGE> 75
AMENDED AND RESTATED 364-DAY CREDIT AGREEMENT
AMENDED AND RESTATED 364-DAY CREDIT AGREEMENT dated as April
26, 1999 (the "Restatement Date") among:
METROPOLITAN LIFE INSURANCE COMPANY (the "Company");
METLIFE FUNDING INC. ("Funding") and together with the
Company, the "Borrowers");
each of the banks and other financial institutions that is a
signatory hereto (individually, a "Lender" and, collectively, the
"Lenders"); and
THE CHASE MANHATTAN BANK, as administrative agent for the
Lenders (in such capacity, together with its successors in such
capacity, the "Administrative Agent").
W I T N E S S E T H:
WHEREAS, the Borrowers, certain of the Lenders and the
Administrative Agent are party to a 364-Day Credit Agreement dated as of April
27, 1998, the "Existing Credit Agreement") providing for the making of loans by
the Lenders party thereto to the Borrowers in an aggregate principal amount up
to $1,000,000,000 (as the same may be increased pursuant to Section 2.19
thereof);
WHEREAS, Key Bank National Association, Istituto Bancario San
Paolo di Torino-Istituto Mobiliare Italiano S.p.A., Bank of Tokyo-Mitsubishi
Trust Company and Bank One Texas, N.A. will not continue as Lenders under the
Amended and Restated Credit Agreement;
WHEREAS, Royal Bank of Canada will be added as a Lender under
the Amended and Restated Credit Agreement;
WHEREAS, the Commitments of the Lenders will be revised as
herein provided to reflect the deletion and addition of Lenders as described
above; and
WHEREAS, the parties hereto desire to amend in certain
respects and restate in its entirety the Existing Credit Agreement;
NOW, THEREFORE, the parties hereto agree to amend the Existing
Credit Agreement as set forth in Section 2 hereof and to restate the Existing
Credit Agreement to read in its entirety as set forth in the Existing Credit
Agreement (which Existing Credit Agreement is
Amended and Restated 364-Day Credit Agreement
<PAGE> 76
-2-
incorporated herein by this reference), as amended by the amendments set forth
in Section 2 hereof:
Section 1. Definitions. Capitalized terms used but not
otherwise defined herein have the meanings given them in the Existing Credit
Agreement.
Section 2. Amendments. Subject to the satisfaction of the
conditions specified in Section 4 hereof, but with effect on and after the date
hereof, the Existing Credit Agreement shall be amended as follows:
2.01 General. Each reference to the "Credit Agreement" and
words of similar import in the Existing Credit Agreement, as amended and
restated hereby shall be a reference to the Existing Credit Agreement as amended
and restated hereby and as the same may be further amended, supplemented and
otherwise modified and in effect from time to time.
2.02 Definitions.
(a) Section 1.01 of the Existing Credit Agreement shall be
amended by amending and restating the following definitions, as follows:
"Applicable Rate" means, for any day, with respect to any
Eurodollar Revolving Loan, or with respect to the facility fees payable
hereunder, as the case may be, the applicable rate per annum set forth
below under the caption "Eurodollar Spread" or "Facility Fee Rate", as
the case may be, based upon the ratings by S&P applicable on such date
to the Index Debt:
<TABLE>
<CAPTION>
Index Debt Rating: Eurodollar Facility Fee
Spread Rate
------------------ ---------- ------------
<S> <C> <C> <C>
Category 1 0.120% 0.030%
Category 2 0.150% 0.050%
Category 3 0.180% 0.070%
Category 4 0.210% 0.090%
</TABLE>
For purposes of determining the applicable Index Debt Rating: (a)
Category 1 shall be deemed to be applicable if (i) no Event of Default
shall have occurred and be continuing and (ii) the Index Debt is rated
AA + (or its equivalent) or higher by S&P; (b) Category 2 shall be
deemed to be applicable if (i) no Event of Default shall have occurred
and be continuing, (ii) Category 1 is not applicable and (iii) the
Index Debt is rated AA- (or its equivalent) or higher by S&P; (c)
Category 3 shall be deemed to be applicable if (i) no Event of Default
shall have occurred and be continuing, (ii) neither Category 1 nor
Category 2 is applicable and (iii) the Index Debt is rated A (or its
equivalent) or higher by S&P; and (d) Category 4 shall be deemed to be
applicable if no other Category is
Amended and Restated 364-Day Credit Agreement
<PAGE> 77
-3-
applicable. If S&P shall not have in effect a rating for the Index Debt (other
than by reason of the circumstances referred to in the last sentence of this
definition), then S&P shall be deemed to have established a rating in Category
4. If the rating established or deemed to have been established by S&P for the
Index Debt shall be changed (other than as a result of a change in the rating
system of S&P), such change shall be effective as of the date on which it is
first announced by S&P. Each change in the Applicable Rate shall apply during
the period commencing on the effective date of such change and ending on the
date immediately preceding the effective date of the next such change. If the
rating system of S&P shall change, or if S&P shall cease to be in the business
of rating corporate debt obligations, the Borrowers and the Lenders shall
negotiate in good faith to amend this definition to reflect such changed rating
system or the unavailability of ratings from such rating agency and, pending the
effectiveness of any such amendment, the Applicable Rate shall be determined by
reference to the rating most recently in effect prior to such change or
cessation.
"Change in Control" means (a) the acquisition of ownership, directly or
indirectly, beneficially or of record, by any Person or group (within the
meaning of the Securities Exchange Act of 1934 and the rules of the Securities
and Exchange Commission thereunder as in effect on the date hereof), of shares
representing more than 25% of the aggregate ordinary voting power represented by
the issued and outstanding capital stock of the Company or (b) occupation of a
majority of the seats (other than vacant seats) on the board of directors of the
Company by Persons who were neither (i) nominated by the board of directors of
the Company nor (ii) appointed by directors so nominated. Notwithstanding the
foregoing, it shall not constitute a "Change in Control" hereunder if in
connection with a demutualization of the Company, the Company shall become a
wholly owned Subsidiary of another Person (the "Holding Entity") which,
immediately prior to the effectiveness of such demutualization, is wholly owned
by the Company and in which the eligible policyholders of the Company or other
Persons shall acquire equity or other interests upon such demutualization,
provided that in such event, (A) each reference in clause (a) of the first
sentence of this definition to the Company shall be deemed to be a reference to
the Holding Entity, (B) each reference in clause (b) of the first sentence of
this definition to the Company shall be deemed to be a reference to the Company
and the Holding Entity, and (C) it shall be a Change in Control after such
demutualization if the Company shall cease to be a wholly owned Subsidiary of
the Holding Entity.
"demutualization" means the conversion of the Company into a stock life
insurance company pursuant to Section 7312 of the New York Insurance Law, as
amended from time to time. The term "demutualize" shall have a correlative
meaning.
"Maturity Date" means April 25, 2000, as such date may be extended
pursuant to Section 2.18 hereof.
Amended and Restated 364-Day Credit Agreement
<PAGE> 78
-4-
(b) Section 2.01 of the Existing Credit Agreement shall be
amended by adding the following definition:
"Restatement Effective Date" means the date upon which the
conditions specified in Section 4 of this Amended and Restated Credit
Agreement shall have been satisfied."
2.03 Amendment of Section 6.04. Section 6.04 of the Existing
Credit Agreement shall be amended to read in its entirety as follows:
"Section 6.04 Net Worth. The Company will not, at any time,
permit Net Worth to be less than $9,300,000,000."
2.04. Schedules and Exhibits. Schedule 2.01 to the Existing
Credit Agreement shall be amended to read in its entirety as set forth in
Schedule 2.01 attached hereto. Schedule 3.06 to the Existing Credit Agreement
shall be amended to read in its entirety as set forth in Schedule 3.06 attached
hereto.
Section 3. Representations and Warranties. The Company
represents and warrants to the Lenders that:
(a) the execution, delivery and performance of this Amended
and Restated Credit Agreement, the borrowing of Loans and the use of
the proceeds thereof are within each Borrower's corporate powers and
have been duly authorized by all necessary corporate action. This
Amended and Restated Credit Agreement has been duly and validly
executed and delivered by each Borrower and constitutes a legal, valid
and binding obligation of each Borrower, enforceable in accordance with
its terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium or other laws affecting creditors' rights
generally and subject to general principles of equity, regardless of
whether considered in a proceeding in equity or at law.
(b) (i) the representations and warranties made in Section 3
of the Existing Credit Agreement shall be true and correct on and as of
the Restatement Effective Date, (ii) at the time of and immediately
after the Restatement Effective Date, no Default shall have occurred
and be continuing, and (iii) since December 31, 1998, there has been no
material adverse change in the business, property, condition (financial
or otherwise) or prospects of the Company and its Subsidiaries taken as
a whole from that set forth in the respective financial statements
referred to in Section 3.04 (a) of the Existing Credit Agreement.
Section 4. Conditions. The amendment and restatement of the
Existing Credit Agreement contemplated hereby shall become effective, as of the
Restatement Date, upon the satisfaction of each of the following conditions to
effectiveness (including, without limitation,
Amended and Restated 364-Day Credit Agreement
<PAGE> 79
-5-
that each document to be received by the Administrative Agent shall be in
form and substance satisfactory to the Administrative Agent):
4.01 Execution. The Administrative Agent (or its counsel)
shall have received from each party hereto either (i) a counterpart of
this Amended and Restated Credit Agreement signed on behalf of such
party or (ii) written evidence satisfactory to the Administrative Agent
(which may include telecopy transmission of a signed signature page of
this Amended and Restated Credit Agreement) that such party has signed
a counterpart of this Amended and Restated Credit Agreement.
4.02 Fees and Expenses. The Administrative Agent and Chase
Securities Inc., in its capacity as lead arranger, shall have received
all fees and other amounts due and payable on or prior to the
Restatement Effective Date, including, to the extent invoiced,
reimbursement or payment of all out-of-pocket expenses required to be
reimbursed or paid by the Borrowers hereunder.
4.03 Restatement Effective Date. The Restatement Effective
Date shall have occurred on or prior to April 26, 1999.
The Administrative Agent shall notify the Borrower and the Lenders of the
occurrence of the Restatement Effective Date, and such notice shall be
conclusive and binding.
Section 5. Counterparts. This Amended and Restated Credit
Agreement may be executed in any number of counterparts, each of which shall be
identical and all of which, when taken together, shall constitute one and the
same instrument, and any of the parties hereto may execute this Amended and
Restated Credit Agreement by signing any such counterpart.
Section 6. Miscellaneous. Except as herein provided, the
Existing Credit Agreement shall remain unchanged and in full force and effect.
This Amended and Restated Credit Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and assigns.
This Amended and Restated Credit Agreement shall be governed by, and construed
in accordance with, the law of the State of New York.
Amended and Restated 364-Day Credit Agreement
<PAGE> 80
-6-
IN WITNESS WHEREOF, the parties hereto have caused this
Amended and Restated Credit Agreement to be duly executed as of the day and year
first above written.
METROPOLITAN LIFE INSURANCE COMPANY
By
-----------------------------------------
Title:
METLIFE FUNDING, INC.
By
-----------------------------------------
Title:
THE CHASE MANHATTAN BANK,
individually and as Administrative Agent,
By
-----------------------------------------
Title:
CREDIT SUISSE FIRST BOSTON
By
-----------------------------------------
Title:
By
-----------------------------------------
Title:
THE BANK OF NEW YORK
By
-----------------------------------------
Title:
Amended and Restated 364-Day Credit Agreement
<PAGE> 81
-7-
CITIBANK, N.A.
By
-----------------------------------------
Title:
THE FIRST NATIONAL BANK OF CHICAGO
By
-----------------------------------------
Title:
FIRST UNION NATIONAL BANK
By
-----------------------------------------
Title:
FLEET NATIONAL BANK
By
-----------------------------------------
Title:
MELLON BANK, N.A.
By
-----------------------------------------
Title:
BANCO SANTANDER
By
-----------------------------------------
Title:
By
-----------------------------------------
Title:
Amended and Restated 364-Day Credit Agreement
<PAGE> 82
-8-
BANK OF AMERICA NATIONAL
TRUST AND SAVINGS ASSOCIATION
By
-----------------------------------------
Title:
BANKBOSTON, N.A.
By
-----------------------------------------
Title:
DEUTSCHE BANK
By
-----------------------------------------
Title:
By
-----------------------------------------
Title:
NATIONSBANK OF TEXAS, N.A.
By
-----------------------------------------
Title:
STATE STREET BANK AND TRUST
COMPANY
By
-----------------------------------------
Title:
Amended and Restated 364-Day Credit Agreement
<PAGE> 83
-9-
SUNTRUST BANK, ATLANTA
By
-----------------------------------------
Title:
By
-----------------------------------------
Title:
WACHOVIA BANK
By
-----------------------------------------
Title:
BARCLAYS BANK
By
-----------------------------------------
Title:
NORTHERN TRUST COMPANY
By
-----------------------------------------
Title:
U.S. BANK NATIONAL ASSOCIATION
By
-----------------------------------------
Title:
Amended and Restated 364-Day Credit Agreement
<PAGE> 84
-10-
BANK OF MONTREAL
By
-----------------------------------------
Title:
BANKERS TRUST COMPANY
By
-----------------------------------------
Title:
BANQUE NATIONALE DE PARIS
By
-----------------------------------------
Title:
By
-----------------------------------------
Title:
DEN DANSKE BANK AKTIESELSKAB
CAYMAN ISLANDS BRANCH
By
-----------------------------------------
Title:
By
-----------------------------------------
Title:
PNC BANK NATIONAL ASSOCIATION
By
-----------------------------------------
Title:
Amended and Restated 364-Day Credit Agreement
<PAGE> 85
-11-
ROYAL BANK OF CANADA
By
-----------------------------------------
Title:
By
-----------------------------------------
Title:
Amended and Restated 364-Day Credit Agreement
<PAGE> 86
SCHEDULE 2.01
METROPOLITAN LIFE INSURANCE COMPANY/METLIFE FUNDING, INC.
<TABLE>
<CAPTION>
LENDER COMMITMENT
------ ----------
<S> <C> <C>
The Chase Manhattan Bank $70,000,000
Credit Suisse First Boston 65,000,000
The Bank of New York 65,000,000
Citibank, N.A. 65,000,000
The First National Bank of Chicago 50,000,000
First Union National Bank 50,000,000
Fleet National Bank 50,000,000
Mellon Bank, N.A. 50,000,000
Banco Santander 40,000,000
Bank of America National Trust and Savings Association 50,000,000
BankBoston, N.A. 35,000,000
Deutsche Bank 40,000,000
State Street Bank and Trust Company 40,000,000
SunTrust Bank, Atlanta 40,000,000
Wachovia Bank 40,000,000
Barclays Bank 25,000,000
Northern Trust Company 40,000,000
U.S. Bank National Association 25,000,000
Bank of Montreal 25,000,000
Bankers Trust Company 25,000,000
Banque Nationale de Paris 25,000,000
Den Danske Bank 20,000,000
PNC Bank National Association 25,000,000
Royal Bank of Canada 40,000,000
TOTAL COMMITMENTS: $1,000,000,000
</TABLE>
Schedule 2.01 to
Amended and Restated 364-Day Credit Agreement
<PAGE> 87
SCHEDULE 3.06
DISCLOSED MATTERS
[See Section 3.06]
Schedule 2.01 to
Amended and Restated 364-Day Credit Agreement
<PAGE> 1
Exhibit 10.20
[Execution Copy]
364-DAY CREDIT AGREEMENT
dated as of
September 29, 1999
among
METROPOLITAN LIFE INSURANCE COMPANY
METLIFE FUNDING, INC.,
as Borrowers
The LENDERS Party Hereto
THE CHASE MANHATTAN BANK,
as Administrative Agent
CREDIT SUISSE FIRST BOSTON,
as Syndication Agent, Joint Lead Arranger and Joint Book Manager
CITIBANK, N.A.
THE BANK OF NEW YORK,
as Documentation Agents
-------------------------
$5,000,000,000
-------------------------
CHASE SECURITIES INC.,
as Joint Lead Arranger and Joint Book Manager
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
ARTICLE I
DEFINITIONS
<S> <C>
SECTION 1.01. Defined Terms...................................... 1
SECTION 1.02. Classification of Loans and Borrowings............. 16
SECTION 1.03. Terms Generally.................................... 16
SECTION 1.04. Accounting Terms; GAAP............................. 16
ARTICLE II
THE CREDITS
SECTION 2.01. Commitments........................................ 17
SECTION 2.02. Loans and Borrowings............................... 17
SECTION 2.03. Requests for Syndicated Borrowings................. 18
SECTION 2.04. Competitive Bid Procedure.......................... 18
SECTION 2.05. Funding of Borrowings.............................. 21
SECTION 2.06. Interest Elections for Syndicated Borrowings....... 21
SECTION 2.07. Termination and Reduction of Commitments........... 23
SECTION 2.08. Repayment of Loans; Conversion of Revolving
Loans to Term Loans; Evidence of Debt.............. 23
SECTION 2.09. Prepayment of Loans................................ 24
SECTION 2.10. Fees............................................... 25
SECTION 2.11. Interest........................................... 26
SECTION 2.12. Alternate Rate of Interest......................... 27
SECTION 2.13. Increased Costs.................................... 28
SECTION 2.14. Break Funding Payments............................. 29
SECTION 2.15. Taxes.............................................. 29
SECTION 2.16. Payments Generally; Pro Rata Treatment; Sharing
of Set-offs. 30
SECTION 2.17. Mitigation Obligations; Replacement of Lenders..... 32
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.01. Organization; Powers............................... 32
SECTION 3.02. Authorization; Enforceability...................... 33
SECTION 3.03. Governmental Approvals; No Conflicts............... 33
SECTION 3.04. Financial Condition; No Material Adverse Change.... 33
SECTION 3.05. Properties......................................... 34
</TABLE>
(i)
<PAGE> 3
<TABLE>
<CAPTION>
Page
<S> <C>
SECTION 3.06. Litigation and Environmental Matters............... 34
SECTION 3.07. Compliance with Laws and Agreements................ 34
SECTION 3.08. Investment and Holding Company Status.............. 35
SECTION 3.09. Taxes.............................................. 35
SECTION 3.10. ERISA.............................................. 35
SECTION 3.11. Disclosure......................................... 35
SECTION 3.12. Margin Stock....................................... 35
SECTION 3.13. Year 2000.......................................... 35
SECTION 3.14. Support Agreement.................................. 36
SECTION 3.15. Acquisition Agreement.............................. 36
ARTICLE IV
CONDITIONS
SECTION 4.01. Effective Date..................................... 36
SECTION 4.02. Each Credit Event.................................. 38
ARTICLE V
AFFIRMATIVE COVENANTS
SECTION 5.01. Financial Statements and Other Information......... 38
SECTION 5.02. Notices of Defaults................................ 39
SECTION 5.03. Existence; Conduct of Business..................... 39
SECTION 5.04. Payment of Obligations............................. 39
SECTION 5.05. Maintenance of Properties; Insurance............... 39
SECTION 5.06. Books and Records; Inspection Rights............... 40
SECTION 5.07. Compliance with Laws............................... 40
SECTION 5.08. Use of Proceeds.................................... 40
SECTION 5.09. Support Agreement.................................. 40
ARTICLE VI
NEGATIVE COVENANTS
SECTION 6.01. Liens.............................................. 40
SECTION 6.02. Fundamental Changes................................ 42
SECTION 6.03. Transactions with Affiliates....................... 42
SECTION 6.04. Net Worth.......................................... 43
</TABLE>
(ii)
<PAGE> 4
<TABLE>
<CAPTION>
Page
ARTICLE VII
<S> <C>
EVENTS OF DEFAULT................................................. 43
ARTICLE VIII
THE AGENTS
SECTION 8.01. Administrative Agent............................... 45
SECTION 8.02. Syndication Agent and Joint-Arrangers.............. 47
SECTION 8.03. Documentation Agents............................... 47
ARTICLE IX
MISCELLANEOUS
SECTION 9.01. Notices............................................ 47
SECTION 9.02. Waivers; Amendments................................ 48
SECTION 9.03. Expenses; Indemnity; Damage Waiver................. 49
SECTION 9.04. Successors and Assigns............................. 50
SECTION 9.05. Survival........................................... 52
SECTION 9.06. Counterparts; Integration; Effectiveness........... 52
SECTION 9.07. Severability....................................... 52
SECTION 9.08. Right of Setoff.................................... 53
SECTION 9.09. Governing Law; Jurisdiction; Consent to
Service of Process................................. 53
SECTION 9.10. WAIVER OF JURY TRIAL............................... 53
SECTION 9.11. Headings........................................... 54
SECTION 9.12. Confidentiality.................................... 54
</TABLE>
SCHEDULES:
Schedule 2.01 -- Commitments
Schedule 3.06 -- Disclosed Matters
EXHIBITS:
Exhibit A -- Form of Assignment and Acceptance
Exhibit B -- Form of Opinion of Counsel to the Borrowers
Exhibit C -- Form of Opinion of Special New York Counsel to Chase
(iii)
<PAGE> 5
364-DAY CREDIT AGREEMENT dated as of September 29, 1999, among:
METROPOLITAN LIFE INSURANCE COMPANY (the "Company") and METLIFE FUNDING INC.
("Funding" and together with the Company, the "Borrowers"); the LENDERS party
hereto; and THE CHASE MANHATTAN BANK, as Administrative Agent.
The parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Defined Terms. As used in this Agreement, the
following terms have the meanings specified below:
"ABR", when used in reference to any Loan or Borrowing, refers to
whether such Loan, or the Loans comprising such Borrowing, are bearing interest
at a rate determined by reference to the Alternate Base Rate.
"Acquisition Transactions" means, collectively, the Stock Purchase
Acquisition and the Exchange Program.
"Acquisition Agreement" means the Stock Purchase Agreement dated as
of August 26, 1999 by and between the Company and General American Mutual
Holding Company, pursuant to which the Company has agreed, upon the terms and
conditions set forth therein, to, inter alia, (a) make the Stock Purchase
Acquisition and (b) establish the Exchange Program.
"Adjusted Eurodollar Rate" means, with respect to any Eurodollar
Syndicated Borrowing for any Interest Period, an interest rate per annum
(rounded upwards, if necessary, to the next 1/16 of 1%) equal to (a) the LIBO
Rate for such Interest Period (if such Interest Period is of one, two, three or
six months' duration) or the NIBO Rate for such Interest Period (if such
Interest Period is of one or two weeks' duration) multiplied by (b) the
Statutory Reserve Rate.
"Administrative Agent" means The Chase Manhattan Bank, in its
capacity as administrative agent for the Lenders hereunder.
"Administrative Questionnaire" means an Administrative Questionnaire
in a form supplied by the Administrative Agent.
"Affiliate" means, with respect to a specified Person, another
Person that directly, or indirectly through one or more intermediaries, Controls
or is Controlled by or is under common Control with the Person specified;
provided that, for the purposes of Section 9.04(b),
364-Day Credit Agreement
<PAGE> 6
-2-
any special purpose funding vehicle that funds itself principally in the
commercial paper market shall not constitute an Affiliate of any Lender.
"Alternate Base Rate" means, for any day, a rate per annum equal to
the greatest of (a) the Prime Rate in effect on such day, (b) the Base CD Rate
in effect on such day plus 1% and (c) the Federal Funds Rate in effect on such
day plus 1/2 of 1%, provided that during the period from and including November
1, 1999 to and including January 15, 2000, the Alternate Base Rate shall be a
rate per annum equal to the higher of the Prime Rate and the Federal Funds Rate
plus 1.825%. Any change in the Alternate Base Rate due to a change in the Prime
Rate, the Base CD Rate or the Federal Funds Rate shall be effective from and
including the effective date of such change in the Prime Rate, the Base CD Rate
or the Federal Funds Rate, respectively.
"Applicable Insurance Regulatory Authority" means the insurance
department or similar insurance regulatory or administrative authority or agency
of the jurisdiction in which the Company is domiciled.
"Applicable Percentage" means, with respect to any Lender, the
percentage of the total Commitments represented by such Lender's Commitment. If
the Commitments have terminated or expired, the Applicable Percentages shall be
determined based upon the aggregate principal amount of the Syndicated Loans
held by the Lenders or, if no Syndicated Loans are outstanding, the Commitments
most recently in effect, giving effect to any assignments.
"Applicable Rate" means, for any day, (a) with respect to any
Eurodollar Revolving Loan, 0.325% per annum; (b) with respect to any Eurodollar
Term Loan, 0.625% per annum; (c) with respect to the facility fees payable
hereunder, 0.05% per annum; and (d) with respect to any utilization fee payable
hereunder 0.125% per annum
"Assessment Rate" means, for any day, the annual assessment rate in
effect on such day that is payable by a member of the Bank Insurance Fund
classified as "well-capitalized" and within supervisory subgroup "B" (or a
comparable successor risk classification) within the meaning of 12 C.F.R. Part
327 (or any successor provision) to the Federal Deposit Insurance Corporation
for insurance by such Corporation of time deposits made in dollars at the
offices of such member in the United States; provided that if, as a result of
any change in any law, rule or regulation, it is no longer possible to determine
the Assessment Rate as aforesaid, then the Assessment Rate shall be such annual
rate as shall be determined by the Administrative Agent to be representative of
the cost of such insurance to the Lenders.
"Asset Securitization" means a public or private transfer of
installment receivables, credit card receivables, lease receivables or any other
type of secured or unsecured financial assets, which transfer is recorded as a
sale according to GAAP as of the date of such transfer.
"Assignment and Acceptance" means an assignment and acceptance
entered into by a Lender and an assignee (with the consent of any party whose
consent is required by Section 9.04), and accepted by the Administrative Agent,
in the form of Exhibit A or any other form approved by the Administrative Agent.
364-Day Credit Agreement
<PAGE> 7
-3-
"Availability Period" means the period from and including the
Effective Date to and including the earlier of the Revolving Credit Maturity
Date and the date of termination of the Commitments.
"Base CD Rate" means the sum of (a) the Three-Month Secondary CD
Rate multiplied by the Statutory Reserve Rate plus (b) the Assessment Rate.
"Board" means the Board of Governors of the Federal Reserve System
of the United States of America.
"Borrowing" means (a) Syndicated Loans of the same Type, made,
converted or continued on the same date and, in the case of Eurodollar Loans, as
to which a single Interest Period is in effect, or (b) a Competitive Loan or
group of Competitive Loans of the same Type made on the same date and as to
which a single Interest Period is in effect.
"Borrowing Request" means a request by the Borrower for a Syndicated
Borrowing in accordance with Section 2.03.
"Business Day" means any day that is not a Saturday, Sunday or other
day on which commercial banks in New York City are authorized or required by law
to remain closed; provided that, when used in connection with a Eurodollar Loan
(other than a Eurodollar Loan bearing interest at a rate determined or to be
determined by reference to the NIBO Rate), the term "Business Day" shall also
exclude any day on which banks are not open for dealings in dollar deposits in
the London interbank market.
"Capital Lease Obligations" of any Person means the obligations of
such Person to pay rent or other amounts under any lease of (or other
arrangement conveying the right to use) real or personal property, or a
combination thereof, which obligations are required to be classified and
accounted for as capital leases on a balance sheet of such Person under GAAP,
and the amount of such obligations shall be the capitalized amount thereof
determined in accordance with GAAP.
"Change in Control" means (a) the acquisition of ownership, directly
or indirectly, beneficially or of record, by any Person or group (within the
meaning of the Securities Exchange Act of 1934 and the rules of the Securities
and Exchange Commission thereunder as in effect on the date hereof), of shares
representing more than 25% of the aggregate ordinary voting power represented by
the issued and outstanding capital stock of the Company or (b) occupation of a
majority of the seats (other than vacant seats) on the board of directors of the
Company by Persons who were neither (i) nominated by the board of directors of
the Company nor (ii) appointed by directors so nominated. Notwithstanding the
foregoing, it shall not constitute a "Change in Control" hereunder if in
connection with a demutualization of the Company, the Company shall become a
wholly owned Subsidiary of another Person (the "Holding Entity") which,
immediately prior to the effectiveness of such demutualization, is wholly owned
by the Company and in which the eligible policyholders of the Company or other
Persons shall acquire equity or other interests upon such demutualization,
provided that in such
364-Day Credit Agreement
<PAGE> 8
-4-
event, (A) each reference in clause (a) of the first sentence of this definition
to the Company shall be deemed to be a reference to the Holding Entity, (B) each
reference in clause (b) of the first sentence of this definition to the Company
shall be deemed to be a reference to the Company and the Holding Entity, and (C)
it shall be a Change in Control after such demutualization if the Company shall
cease to be a wholly owned Subsidiary of the Holding Entity.
"Change in Law" means (a) the adoption of any law, rule or
regulation after the date of this Agreement, (b) any change in any law, rule or
regulation or in the interpretation or application thereof by any Governmental
Authority after the date of this Agreement or (c) compliance by any Lender (or,
for purposes of Section 2.13(b), by any lending office of such Lender or by such
Lender's holding company, if any) with any request, guideline or directive
(whether or not having the force of law) of any Governmental Authority made or
issued after the date of this Agreement.
"Chase" means The Chase Manhattan Bank.
"Class", when used in reference to any Loan or Borrowing, refers to
whether such Loan, or the Loans comprising such Borrowing, are Syndicated Loans
or Competitive Loans.
"Code" means the Internal Revenue Code of 1986, as amended from time
to time.
"Commitment" means, with respect to each Lender, the commitment of
such Lender to make Revolving Loans hereunder, as such commitment may be (a)
reduced from time to time pursuant to Section 2.07 and (b) reduced or increased
from time to time pursuant to assignments by or to such Lender pursuant to
Section 9.04. The initial amount of each Lender's Commitment is set forth on
Schedule 2.01, or in the Assignment and Acceptance pursuant to which such Lender
shall have assumed its Commitment, as applicable. The initial aggregate amount
of the Lenders' Commitments is $5,000,000,000.
"Competitive Bid" means an offer by a Lender to make a Competitive
Loan in accordance with Section 2.04.
"Competitive Bid Rate" means, with respect to any Competitive Bid,
the Margin or the Fixed Rate, as applicable, offered by the Lender making such
Competitive Bid.
"Competitive Bid Request" means a request by the Borrower for
Competitive Bids in accordance with Section 2.04.
"Competitive Loan" means a Loan made pursuant to Section 2.04.
"Control" means the possession, directly or indirectly, of the power
to direct or cause the direction of the management or policies of a Person,
whether through the ability to exercise voting power, by contract or otherwise.
"Controlling" and "Controlled" have meanings correlative thereto.
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"Credit Exposure" means, with respect to any Lender at any time, the
sum of the outstanding principal amount of such Lender's Syndicated Loans.
"Default" means any event or condition which constitutes an Event of
Default or which upon notice, lapse of time or both would, unless cured or
waived, become an Event of Default.
"demutualization" means the conversion of the Company into a stock
life insurance company pursuant to Section 7312 of the New York Insurance Law,
as amended from time to time. The term "demutualize" shall have a correlative
meaning.
"Disclosed Matters" means the actions, suits and proceedings and the
environmental matters disclosed in Schedule 3.06.
"Disposition" has the meaning assigned to such term in Section 6.02.
"dollars" or "$" refers to lawful money of the United States of
America.
"Effective Date" means the date on which the conditions specified in
Section 4.01 are satisfied (or waived in accordance with Section 9.02).
"Environmental Laws" means all laws, rules, regulations, codes,
ordinances, orders, decrees, judgments, injunctions, notices or binding
agreements issued, promulgated or entered into by any Governmental Authority,
relating in any way to the environment, preservation or reclamation of natural
resources, the management, release or threatened release of any Hazardous
Material or to health and safety matters.
"Environmental Liability" means any liability, contingent or
otherwise (including any liability for damages, costs of environmental
remediation, fines, penalties or indemnities), of the Company or any of its
Subsidiaries directly or indirectly resulting from or based upon (a) violation
of any Environmental Law, (b) the generation, use, handling, transportation,
storage, treatment or disposal of any Hazardous Materials, (c) exposure to any
Hazardous Materials, (d) the release or threatened release of any Hazardous
Materials into the environment or (e) any contract, agreement or other
consensual arrangement pursuant to which liability is assumed or imposed with
respect to any of the foregoing.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended from time to time.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) that, together with the Company, is treated as a single employer
under Section 414(b) or (c) of the Code or, solely for purposes of Section 302
of ERISA and Section 412 of the Code, is treated as a single employer under
Section 414 of the Code.
"ERISA Event" means (a) any "reportable event", as defined in
Section 4043 of ERISA or the regulations issued thereunder with respect to a
Plan (other than an event for which
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the 30-day notice period is waived); (b) the existence with respect to any Plan
of an "accumulated funding deficiency" (as defined in Section 412 of the Code or
Section 302 of ERISA), whether or not waived; (c) the filing pursuant to Section
412(d) of the Code or Section 303(d) of ERISA of an application for a waiver of
the minimum funding standard with respect to any Plan; (d) the incurrence by the
Company or any of its ERISA Affiliates of any liability under Title IV of ERISA
with respect to the termination of any Plan; (e) the receipt by the Company or
any ERISA Affiliate from the PBGC or a plan administrator of any notice relating
to an intention to terminate any Plan or Plans or to appoint a trustee to
administer any Plan; (f) the incurrence by the Company or any of its ERISA
Affiliates of any liability with respect to the withdrawal or partial withdrawal
from any Plan or Multiemployer Plan; or (g) the receipt by the Company or any
ERISA Affiliate of any notice, or the receipt by any Multiemployer Plan from the
Company or any ERISA Affiliate of any notice, concerning the imposition of
Withdrawal Liability or a determination that a Multiemployer Plan is, or is
expected to be, insolvent or in reorganization, within the meaning of Title IV
of ERISA.
"Eurodollar", when used in reference to any Loan or Borrowing,
refers to whether such Loan, or the Loans comprising such Borrowing, are bearing
interest at a rate determined by reference to the Adjusted Eurodollar Rate (or,
in the case of a Competitive Loan, the LIBO Rate).
"Event of Default" has the meaning assigned to such term in Article
VII.
"Exchange Program" means a program, as provided for in the
Acquisition Agreement, pursuant to which the Company, in consideration of the
transfer by GALIC of certain investment assets to the Company, will offer to
holders of GALIC funding agreements either cash or replacement contracts issued
by the Company.
"Excluded Taxes" means, with respect to the Administrative Agent,
any Lender or any other recipient of any payment to be made by or on account of
any obligation of either Borrower hereunder, (a) income or franchise taxes
imposed on (or measured by) its net income by the United States of America, or
by the jurisdiction under the laws of which such recipient is organized or in
which its principal office is located or, in the case of any Lender, in which
its applicable lending office is located, (b) any branch profits taxes imposed
by the United States of America or any similar tax imposed by any other
jurisdiction in which either Borrower is located and (c) in the case of a
Foreign Lender (other than an assignee pursuant to a request by the Company
under Section 2.17(b)), any withholding tax that is imposed on amounts payable
to such Foreign Lender at the time such Foreign Lender becomes a party to this
Agreement (or designates a new lending office) or is attributable to such
Foreign Lender's failure to comply with Section 2.15(e), except to the extent
that such Foreign Lender (or its assignor, if any) was entitled, at the time of
designation of a new lending office (or assignment), to receive additional
amounts from such Borrower with respect to such withholding tax pursuant to
Section 2.15(a).
"Federal Funds Rate" means (i) for the first day of an ABR
Borrowing, the rate per annum which is the average of the rates on the offered
side of the Federal funds market quoted by three interbank Federal funds
brokers, selected by the Administrative Agent, at approximately the time the
relevant Borrower requests such Borrowing, for dollar deposits in
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immediately available funds, for a period and in an amount, comparable to the
principal amount of such ABR Borrowing and (ii) for each day of such ABR
Borrowing thereafter, or for any other amount hereunder which bears interest at
the Alternate Base Rate, the rate per annum which is the average of the rates on
the offered side of the Federal funds market quoted by three interbank Federal
funds brokers, selected by the Administrative Agent, at approximately 2:00 p.m.
New York City time on such day for dollar deposits in immediately available
funds, for a period and in an amount, comparable to the principal amount of such
ABR Borrowing or other amount, as the case may be; in the case of both clauses
(i) and (ii), as determined by the Administrative Agent and rounded upwards, if
necessary, to the nearest 1/100 of 1%.
"Financial Officer" means the chief financial officer, principal
accounting officer, treasurer or controller of the Company.
"Fixed Rate" means, with respect to any Competitive Loan (other than
a Eurodollar Competitive Loan), the fixed rate of interest per annum specified
by the Lender making such Competitive Loan in its related Competitive Bid.
"Fixed Rate Loan" means a Competitive Loan bearing interest at a
Fixed Rate.
"Foreign Lender" means any Lender that is organized under the laws
of a jurisdiction other than that in which either Borrower is located. For
purposes of this definition, the United States of America, each State thereof
and the District of Columbia shall be deemed to constitute a single
jurisdiction.
"Funding" means MetLife Funding, Inc., a Delaware corporation.
"GAAP" means generally accepted accounting principles in the United
States of America.
"GAC" mean GenAmerica Corporation, a Missouri corporation.
"GALIC" means General American Life Insurance Company, a Missouri
insurance company.
"Governmental Authority" means the government of the United States
of America, any other nation or any political subdivision thereof, whether state
or local, and any agency, authority, instrumentality, regulatory body, court,
central bank or other entity exercising executive, legislative, judicial,
taxing, regulatory or administrative powers or functions of or pertaining to
government.
"Guarantee" of or by any Person (the "guarantor") means any
obligation, contingent or otherwise, of the guarantor guaranteeing or having the
economic effect of guaranteeing any Indebtedness or other obligation of any
other Person (the "primary obligor") in any manner, whether directly or
indirectly, and including any obligation of the guarantor, direct or indirect,
(a) to purchase or pay (or advance or supply funds for the purchase or payment
of) such Indebtedness or other obligation or to purchase (or to advance or
supply funds for the
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purchase of) any security for the payment thereof, (b) to purchase or lease
property, securities or services for the purpose of assuring the owner of such
Indebtedness or other obligation of the payment thereof, (c) to maintain working
capital, equity capital or any other financial statement condition or liquidity
of the primary obligor so as to enable the primary obligor to pay such
Indebtedness or other obligation or (d) as an account party in respect of any
letter of credit or letter of guaranty issued to support such Indebtedness or
obligation; provided, that the term Guarantee shall not include endorsements for
collection or deposit in the ordinary course of business.
"Hazardous Materials" means all explosive or radioactive substances
or wastes and all hazardous or toxic substances, wastes or other pollutants,
including petroleum or petroleum distillates, asbestos or asbestos containing
materials, polychlorinated biphenyls, radon gas, infectious or medical wastes
and all other substances or wastes of any nature regulated pursuant to any
Environmental Law.
"Hedging Agreement" means any interest rate protection agreement,
foreign currency exchange agreement, commodity price protection agreement or
other interest or currency exchange rate or commodity price hedging arrangement.
"Indebtedness" of any Person means, without duplication, (a) all
obligations of such Person for borrowed money or with respect to deposits or
advances of any kind, (b) all obligations of such Person evidenced by bonds,
debentures, notes or similar instruments, (c) all obligations of such Person
upon which interest charges are customarily paid, (d) all obligations of such
Person under conditional sale or other title retention agreements relating to
property acquired by such Person, (e) all obligations of such Person in respect
of the deferred purchase price of property or services (excluding current
accounts payable incurred in the ordinary course of business), (f) all
Indebtedness of others secured by (or for which the holder of such Indebtedness
has an existing right, contingent or otherwise, to be secured by) any Lien on
property owned or acquired by such Person, whether or not the Indebtedness
secured thereby has been assumed, (g) all Guarantees by such Person of
Indebtedness of others, (h) all Capital Lease Obligations of such Person, (i)
all obligations, contingent or otherwise, of such Person as an account party in
respect of letters of credit and letters of guaranty, (j) all obligations,
contingent or otherwise, of such Person in respect of bankers' acceptances, and
(k) all Surplus Relief Reinsurance ceded by such Person. The Indebtedness of any
Person shall include the Indebtedness of any other entity (including any
partnership in which such Person is a general partner) to the extent such Person
is liable therefor as a result of such Person's ownership interest in or other
relationship with such entity, except to the extent the terms of such
Indebtedness provide that such Person is not liable therefor.
"Indemnified Taxes" means Taxes other than Excluded Taxes.
"Index Debt" means senior, unsecured, long-term indebtedness for
borrowed money of the Company that is not guaranteed by any other Person or
subject to any other credit enhancement.
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"Interest Election Request" means a request by the Borrower to
convert or continue a Syndicated Borrowing in accordance with Section 2.06.
"Interest Payment Date" means (a) with respect to any ABR Loan, the
last day of each March, June, September and December, (b) with respect to any
Eurodollar Loan, the last day of the Interest Period applicable to the Borrowing
of which such Loan is a part and, in the case of a Eurodollar Borrowing with an
Interest Period of more than three months' duration, each day prior to the last
day of such Interest Period that occurs at intervals of three months' duration
after the first day of such Interest Period, and (c) with respect to any Fixed
Rate Loan, the last day of the Interest Period applicable to the Borrowing of
which such Loan is a part and, in the case of a Fixed Rate Borrowing with an
Interest Period of more than 90 days' duration (unless otherwise specified in
the applicable Competitive Bid Request), each day prior to the last day of such
Interest Period that occurs at intervals of 90 days' duration after the first
day of such Interest Period, and any other dates that are specified in the
applicable Competitive Bid Request as Interest Payment Dates with respect to
such Borrowing.
"Interest Period" means (a) with respect to any Eurodollar
Syndicated Borrowing, the period commencing on the date of such Borrowing and
ending on the numerically corresponding day in the calendar month that is (i)
one or two weeks thereafter or (ii) one, two, three or six months thereafter, as
the relevant Borrower may elect, (b) with respect to any Eurodollar Competitive
Borrowing, the period commencing on the date of such Borrowing and ending on the
numerically corresponding day in the calendar month that is one, two, three or
six months thereafter, as specified in the applicable Competitive Loan Request
and (c) with respect to any Fixed Rate Borrowing, the period (which shall not be
less than 7 days or more than 360 days) commencing on the date of such Borrowing
and ending on the date specified in the applicable Competitive Bid Request;
provided, that
(i) if any Interest Period would end on a day other than a Business
Day, such Interest Period shall be extended to the next succeeding
Business Day unless, in the case of a Eurodollar Borrowing only, such next
succeeding Business Day would fall in the next calendar month, in which
case such Interest Period shall end on the next preceding Business Day,
(ii) any Interest Period pertaining to a Eurodollar Borrowing (other
than one that has a one or two week duration) that commences on the last
Business Day of a calendar month (or on a day for which there is no
numerically corresponding day in the last calendar month of such Interest
Period) shall end on the last Business Day of the last calendar month of
such Interest Period,
(iii) any Interest Period that would otherwise commence before the
Revolving Credit Maturity Date and end thereafter shall not be available
hereunder,
(iv) any Interest Period that would otherwise end after the Term
Loan Maturity Date shall not be available hereunder and
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(v) the Loans comprising any Eurodollar Syndicated Borrowing with an
Interest Period that commences prior to November 1, 1999 and terminates on
or after November 1, 1999 shall be converted to ABR Loans on November 1,
1999.
For purposes hereof, the date of a Borrowing initially shall be the date on
which such Borrowing is made and, in the case of a Syndicated Borrowing,
thereafter shall be the effective date of the most recent conversion or
continuation of such Borrowing.
"Lenders" means the Persons listed on Schedule 2.01 and any other
Person that shall have become a party hereto pursuant to an Assignment and
Acceptance, other than any such Person that ceases to be a party hereto pursuant
to an Assignment and Acceptance.
"LIBO Rate" means, with respect to any Eurodollar Borrowing for any
Interest Period of one, two, three or six months' duration, the rate per annum
appearing on the Screen at approximately 11:00 a.m., London time (or as soon
thereafter as practicable), two Business Days prior to the commencement of such
Interest Period, as LIBOR with a maturity comparable to such Interest Period. In
the event that the Screen shall cease to report such LIBOR or, in the reasonable
judgement of the Required Lenders, shall cease to accurately reflect such LIBOR
(as reported by any publicly available source of similar market data selected by
such Required Lenders), then the "LIBO Rate" with respect to such Eurodollar
Borrowing for such Interest Period shall be the rate per annum at which dollar
deposits of $5,000,000 and for a maturity comparable to such Interest Period are
offered by the principal London office of Chase in immediately available funds
in the London interbank market at approximately 11:00 a.m., London time, two
Business Days prior to the commencement of such Interest Period.
"LIBOR" means the rate at which deposits in dollars are offered to
leading banks in the London interbank market.
"Lien" means, with respect to any asset, (a) any mortgage, deed of
trust, lien, pledge, hypothecation, encumbrance, charge or security interest in,
on or of such asset, (b) the interest of a vendor or a lessor under any
conditional sale agreement, capital lease or title retention agreement (or any
financing lease having substantially the same economic effect as any of the
foregoing) relating to such asset and (c) in the case of securities, any
purchase option, call or similar right of a third party with respect to such
securities.
"Loans" means the loans made by the Lenders to the Borrowers
pursuant to this Agreement.
"Margin" means, with respect to any Competitive Loan bearing
interest at a rate based on the LIBO Rate, the marginal rate of interest, if
any, to be added to or subtracted from the LIBO Rate to determine the rate of
interest applicable to such Loan, as specified by the Lender making such Loan in
its related Competitive Bid.
"Margin Stock" means "margin stock" within the meaning of
Regulations U and X.
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"Material Adverse Change" means any event, development or
circumstance that has had or could reasonably be expected to have a material
adverse effect on (a) the business, assets, property, condition (financial or
otherwise) or prospects of the Company and its Subsidiaries taken as a whole, or
(b) the validity or enforceability of this Agreement or the rights and remedies
of the Administrative Agent and the Lenders hereunder.
"Material Indebtedness" means Indebtedness (other than the Loans),
or obligations in respect of one or more Hedging Agreements, of the Company or
any of its Material Subsidiaries in an aggregate principal amount exceeding
$200,000,000 (or its equivalent in any other currency). For purposes of
determining Material Indebtedness, the "principal amount" of the obligations of
the Company or any of its Material Subsidiaries in respect of any Hedging
Agreement at any time shall be the maximum aggregate amount (giving effect to
any netting agreements) that the Company or such Material Subsidiary would be
required to pay if such Hedging Agreement were terminated at such time.
"Material Subsidiary" means, at any time, (i) Funding and (ii) each
Subsidiary of the Company that as of such time meets the definition of
"significant subsidiary" contained as of the date hereof in Regulation S-X of
the SEC.
"Multiemployer Plan" means a multiemployer plan as defined in
Section 4001(a)(3) of ERISA.
"NAIC" means the National Association of Insurance Commissioners and
any successor thereto.
"Net Available Proceeds" means, with respect to any Disposition, the
aggregate amount of all cash proceeds, and the fair market value of all non-cash
consideration, received by the Company directly or indirectly in connection with
such Disposition, net of (a) the amount of any legal, title and recording tax
expenses, commissions and other fees and expenses paid by the Company as a
result of such Disposition, (b) any Federal, state or local or other taxes
payable by the Company as a result of such Disposition, (c) any repayments by
the Company of Indebtedness to the extent that (i) such Indebtedness is secured
by a Lien on the assets that are the subject of such Disposition and (ii) the
transferee (or holder of a Lien on) such assets require that such Indebtedness
be repaid as a condition to the purchase of assets and (d) any liabilities
associated with the assets that are the subject of such Disposition to the
extent such liabilities are retained by the Company.
"Net Worth" means, as at any date, the total amount of equity of the
Company and its Subsidiaries determined on a consolidated basis without
duplication in accordance with GAAP (calculated without giving effect to any
changes from and after the date hereof required by Statement of Financial
Accounting Standards No. 115, Accounting for Certain Investments in Debt and
Equity Securities ).
"NIBO Rate" means, with respect to any Eurodollar Borrowing for any
Interest Period of one or two weeks' duration, the rate per annum (rounded
upwards, if necessary, to the next higher 1/16th of 1%) equal to the interest
rate at which dollar deposits of $5,000,000 and for
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a maturity comparable to such Interest Period are offered in immediately
available funds to Chase at the Eurodollar lending offices where its foreign
currency and exchange operations and Eurodollar funding operations are
customarily conducted in the international interbank market at approximately
10:00 a.m. New York City time, two Business Days prior to the commencement of
such Interest Period.
"Other Taxes" means any and all present or future stamp or
documentary taxes or any other excise or property taxes, charges or similar
levies arising from any payment made hereunder or from the execution, delivery
or enforcement of, or otherwise with respect to, this Agreement.
"Participant" has the meaning set forth in Section 9.04(e).
"PBGC" means the Pension Benefit Guaranty Corporation referred to
and defined in ERISA and any successor entity performing similar functions.
"Permitted Encumbrances" means:
(a) Liens imposed by law for taxes that are not yet due or are being
contested in compliance with Section 5.04;
(b) carriers', warehousemen's, mechanics', materialmen's,
repairmen's and other like Liens imposed by law, arising in the ordinary
course of business and securing obligations that are not overdue by more
than 30 days or are being contested in compliance with Section 5.04;
(c) pledges and deposits made in the ordinary course of business in
compliance with workers' compensation, unemployment insurance and other
social security laws or regulations;
(d) deposits to secure the performance of bids, trade contracts,
leases, statutory obligations, surety and appeal bonds, performance bonds
and other obligations of a like nature, in each case in the ordinary
course of business; and
(e) easements, zoning restrictions, rights-of-way and similar
encumbrances on real property imposed by law or arising in the ordinary
course of business that do not secure any monetary obligations and do not
materially detract from the value of the affected property or interfere
with the ordinary conduct of business of any Borrower;
provided that the term "Permitted Encumbrances" shall not include any Lien
securing Indebtedness.
"Person" means any natural person, corporation, limited liability
company, trust, joint venture, association, company, partnership, Governmental
Authority or other entity.
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"Plan" means any employee pension benefit plan (other than a
Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section
412 of the Code or Section 302 of ERISA, and in respect of which the Company or
any ERISA Affiliate is (or, if such plan were terminated, would under Section
4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of
ERISA.
"Prime Rate" means the rate of interest per annum publicly announced
from time to time by Chase as its prime rate in effect at its principal office
in New York City; each change in the Prime Rate shall be effective from and
including the date such change is publicly announced as being effective.
"Register" has the meaning set forth in Section 9.04(c).
"Regulations D, U and X" means, respectively, Regulations D, U and X
of the Board (or any successor), as the same may be modified and supplemented
and in effect from time to time.
"Related Parties" means, with respect to any specified Person, such
Person's Affiliates and the respective directors, officers, employees, agents
and advisors of such Person and such Person's Affiliates.
"Required Lenders" means, at any time, Lenders having Credit
Exposures and unused Commitments representing more than 50% of the sum of the
total Credit Exposures and unused Commitments at such time; provided that, for
all purposes after the Commitments expire or terminate, the outstanding
Competitive Loans of the Lenders shall be included in their respective Credit
Exposures in determining the Required Lenders.
"Revolving Credit Maturity Date" means September 27, 2000.
"Revolving Loan" means a Loan made pursuant to Section 2.01.
"SAP" means the accounting procedures and practices prescribed or
permitted by the Applicable Insurance Regulatory Authority or the NAIC.
"S&P" means Standard & Poor's Ratings Group, a division of The
McGraw-Hill Companies, Inc., and any successor thereto.
"Screen" means the display page 3750 for LIBOR on the Telerate
Service (or on any successor or substitute page of such Service, as determined
by the Administrative Agent); provided that if the Administrative Agent
determines that there is no such relevant display page for LIBOR, "Screen" shall
mean the relevant display page for LIBOR (as determined by the Administrative
Agent) on the Reuter Monitor Money Rates Service.
"SEC" means the Securities and Exchange Commission or any
governmental authority succeeding to its principal functions.
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"Securities Transactions" means (a) securities lending arrangements,
and (b) repurchase and reverse repurchase arrangements with respect to
securities and financial instruments.
"Separate Accounts Assets" means, as at any date, the "Separate
Accounts assets" of the Company, determined in accordance with SAP, reported as
such in the Statutory Statements of the Company.
"Statutory Reserve Rate" means a fraction (expressed as a decimal),
the numerator of which is the number one and the denominator of which is the
number one minus the aggregate of the maximum reserve percentages (including any
marginal, special, emergency or supplemental reserves) expressed as a decimal
established by the Board to which the Administrative Agent is subject (a) with
respect to the Base CD Rate, for new negotiable nonpersonal time deposits in
dollars of over $100,000 with maturities approximately equal to three months and
(b) with respect to the Adjusted Eurodollar Rate, for eurocurrency funding
(currently referred to as "Eurocurrency Liabilities" in Regulation D). Such
reserve percentages shall include those imposed pursuant to Regulation D.
Eurodollar Loans shall be deemed to constitute eurocurrency funding and to be
subject to such reserve requirements without benefit of or credit for proration,
exemptions or offsets that may be available from time to time to any Lender
under Regulation D or any comparable regulation. The Statutory Reserve Rate
shall be adjusted automatically on and as of the effective date of any change in
any reserve percentage.
"Statutory Statement" means a statement of the condition and affairs
of the Company, prepared in accordance with SAP, and filed with the Applicable
Insurance Regulatory Authority.
"Stock Purchase Acquisition" means the acquisition by the Company of
all of the outstanding common stock of GAC upon the terms and conditions set
forth in the Acquisition Agreement.
"Structured Transaction Liens" means Liens granted by the Company to
(A) a 99%-owned Subsidiary (the "Relevant Subsidiary") in connection with a
structured private investment transaction entered into in September 1999 (the
"Structured Transaction") where (i) in connection with such transaction, such
Liens are assigned to a special purpose Subsidiary of the Company (the "SPV") in
which the Company is the holder of all outstanding obligations (other than
ordinary course administrative expenses and common equity interests) and (ii)
the assets covered by such Liens consist solely of the rights of the Company
against the SPV; and (B) the SPV in connection with the Structured Transaction
which are subordinated to, and exercisable only after, the Liens described in
the preceding clause (A) and which cover only the assets covered by the Liens
described in said clause (A).
"Subsidiary" means, with respect to any Person (the "parent") at any
date, any corporation, limited liability company, partnership, association or
other entity the accounts of which would be consolidated with those of the
parent in the parent's consolidated financial statements if such financial
statements were prepared in accordance with GAAP as of such date, as well as any
other corporation, limited liability company, partnership, association or other
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entity (a) of which securities or other ownership interests representing more
than 50% of the equity or more than 50% of the ordinary voting power or, in the
case of a partnership, more than 50% of the general partnership interests are,
as of such date, owned, controlled or held, or (b) that is, as of such date,
otherwise Controlled, by the parent or one or more subsidiaries of the parent or
by the parent and one or more subsidiaries of the parent.
"Support Agreement" means the Support Agreement dated as of November
30, 1984 between the Company and Funding, as amended and restated effective as
of that date on July 2, 1985.
"Surplus Relief Reinsurance" means any transaction in which the
Company or any Subsidiary of the Company cedes business under a reinsurance
agreement that would be considered a "financing-type" reinsurance agreement as
determined by the independent certified public accountants of the Company in
accordance with principles published by the Financial Accounting Standards Board
or the Second Edition of the AICPA Audit Guide for Stock Life Insurance
Companies (pp. 91-92), as the same may be revised from time to time.
"Syndicated", when used in reference to any Loan or Borrowing,
refers to whether such Loan, or the Loans constituting such Borrowing, are
Revolving or Term Loans or Borrowings (i.e. such Loan or Borrowing is not a
Competitive Loan or Borrowing).
"Taxes" means any and all present or future taxes, levies, imposts,
duties, deductions, charges or withholdings imposed by any Governmental
Authority.
"Term Loan" has the meaning set forth in Section 2.08(b).
"Term Loan Maturity Date" has the meaning set forth in Section
2.08(b).
"Three-Month Secondary CD Rate" means, for any day, the secondary
market rate for three-month certificates of deposit reported as being in effect
on such day (or, if such day is not a Business Day, the next preceding Business
Day) by the Board through the public information telephone line of the Federal
Reserve Bank of New York (which rate will, under the current practices of the
Board, be published in Federal Reserve Statistical Release H.15(519) during the
week following such day) or, if such rate is not so reported on such day or such
next preceding Business Day, the average of the secondary market quotations for
three-month certificates of deposit of major money center banks in New York City
received at approximately 10:00 a.m., New York City time, on such day (or, if
such day is not a Business Day, on the next preceding Business Day) by the
Administrative Agent from three negotiable certificate of deposit dealers of
recognized standing selected by it.
"Transactions" means the execution, delivery and performance by the
Borrowers of this Agreement, the borrowing of Loans and the use of the proceeds
thereof.
"Type", when used in reference to any Loan or Borrowing, refers to
whether the rate of interest on such Loan, or on the Loans comprising such
Borrowing, is determined by
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reference to the Adjusted Eurodollar Rate, the Alternate Base Rate or, in the
case of a Competitive Loan or Borrowing, the LIBO Rate or a Fixed Rate.
"Withdrawal Liability" means liability to a Multiemployer Plan as a
result of a complete or partial withdrawal from such Multiemployer Plan, as such
terms are defined in Part I of Subtitle E of Title IV of ERISA.
SECTION 1.02. Classification of Loans and Borrowings. For purposes
of this Agreement, Loans may be classified and referred to by Class (e.g., a
"Syndicated Loan") or by Type (e.g., a "Eurodollar Loan") or by Class and Type
(e.g., a "Eurodollar Syndicated Loan"). Borrowings also may be classified and
referred to by Class (e.g., a "Syndicated Borrowing") or by Type (e.g., a
"Eurodollar Borrowing") or by Class and Type (e.g., a "Eurodollar Syndicated
Borrowing").
SECTION 1.03. Terms Generally. The definitions of terms herein shall
apply equally to the singular and plural forms of the terms defined. Whenever
the context may require, any pronoun shall include the corresponding masculine,
feminine and neuter forms. The words "include", "includes" and "including" shall
be deemed to be followed by the phrase "without limitation". The word "will"
shall be construed to have the same meaning and effect as the word "shall".
Unless the context requires otherwise (a) any definition of or reference to any
agreement, instrument or other document herein shall be construed as referring
to such agreement, instrument or other document as from time to time amended,
supplemented or otherwise modified (subject to any restrictions on such
amendments, supplements or modifications set forth herein), (b) any reference
herein to any Person shall be construed to include such Person's successors and
assigns, (c) the words "herein", "hereof" and "hereunder", and words of similar
import, shall be construed to refer to this Agreement in its entirety and not to
any particular provision hereof, (d) all references herein to Articles,
Sections, Exhibits and Schedules shall be construed to refer to Articles and
Sections of, and Exhibits and Schedules to, this Agreement and (e) the words
"asset" and "property" shall be construed to have the same meaning and effect
and to refer to any and all tangible and intangible assets and properties,
including cash, securities, accounts and contract rights.
SECTION 1.04. Accounting Terms; GAAP. Except as otherwise expressly
provided herein, all terms of an accounting or financial nature shall be
construed in accordance with GAAP or SAP, as the case may be, as in effect from
time to time; provided that, if the Company notifies the Administrative Agent
that the Company requests an amendment to any provision hereof to eliminate the
effect of any change occurring after the date hereof in GAAP or SAP, as the case
may be, or in the application thereof on the operation of such provision (or if
the Administrative Agent notifies the Company that the Required Lenders request
an amendment to any provision hereof for such purpose), regardless of whether
any such notice is given before or after such change in GAAP or SAP, as the case
may be, or in the application thereof, then such provision shall be interpreted
on the basis of GAAP or SAP, as the case may be, as in effect and applied
immediately before such change shall have become effective until such notice
shall have been withdrawn or such provision amended in accordance herewith.
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ARTICLE II
THE CREDITS
SECTION 2.01. Commitments. Subject to the terms and conditions set
forth herein, each Lender agrees to make Revolving Loans to the Borrowers from
time to time during the Availability Period in an aggregate principal amount
that will not result in (a) such Lender's Credit Exposure exceeding such
Lender's Commitment or (b) the sum of the total Credit Exposures plus the
aggregate principal amount of outstanding Competitive Loans exceeding the total
Commitments. Within the foregoing limits and subject to the terms and conditions
set forth herein, either Borrower or both Borrowers may borrow, prepay and
reborrow Revolving Loans.
SECTION 2.02. Loans and Borrowings.
(a) Each Syndicated Loan shall be made as part of a Borrowing
consisting of Syndicated Loans made by the Lenders ratably in accordance with
their respective Commitments. Each Competitive Loan shall be made in accordance
with the procedures set forth in Section 2.04. The failure of any Lender to make
any Loan required to be made by it shall not relieve any other Lender of its
obligations hereunder; provided that the Commitments and Competitive Bids of the
Lenders are several and not joint, and no Lender shall be responsible for any
other Lender's failure to make Loans as required.
(b) Subject to Section 2.12, (i) each Syndicated Borrowing shall be
comprised entirely of ABR Loans or Eurodollar Loans as the relevant Borrower may
request in accordance herewith, and (ii) each Competitive Borrowing shall be
comprised entirely of Eurodollar Loans or Fixed Rate Loans as the relevant
Borrower may request in accordance herewith. Each Lender at its option may make
any Eurodollar Loan by causing any domestic or foreign branch or Affiliate of
such Lender to make such Loan; provided that any exercise of such option shall
not affect the obligation of the relevant Borrower to repay such Loan in
accordance with the terms of this Agreement.
(c) At the commencement of each Interest Period for any Eurodollar
Syndicated Borrowing, such Borrowing shall be in an aggregate amount that is an
integral multiple of $1,000,000 and not less than $10,000,000. At the time that
each ABR Borrowing is made, such Borrowing shall be in an aggregate amount that
is an integral multiple of $1,000,000 and not less than $5,000,000; provided
that an ABR Borrowing may be in an aggregate amount that is equal to the entire
unused balance of the total Commitments. Each Competitive Borrowing shall be in
an aggregate amount that is an integral multiple of $1,000,000 and not less than
$10,000,000. Borrowings of more than one Type and Class may be outstanding at
the same time; provided that there shall not at any time be more than a total of
10 Eurodollar Syndicated Borrowings outstanding.
(d) Notwithstanding any other provision of this Agreement, the
Borrowers shall not be entitled to request, or to elect to convert or continue,
any Borrowing prior to the Revolving Credit Maturity Date if the Interest Period
requested with respect thereto would end after the Revolving Credit Maturity
Date, or any Borrowing if the Interest Period requested with
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respect thereto would end after the Term Loan Maturity Date, except that a
Borrower shall be entitled to request, or to elect to convert to or continue as
a Eurodollar Borrowing, any Revolving Borrowing after it has provided notice to
convert the Revolving Loans constituting (or to constitute) such Borrowing to
Term Loans in accordance with Section 2.08(b), so long as such requested
Interest Period would not end after the Term Loan Maturity Date.
SECTION 2.03. Requests for Syndicated Borrowings. To request a
Syndicated Borrowing, the relevant Borrower shall notify the Administrative
Agent of such request by telephone (a) in the case of a Eurodollar Borrowing,
not later than 11:00 a.m., New York City time, three Business Days before the
date of the proposed Borrowing or (b) in the case of an ABR Borrowing, not later
than 11:00 a.m., New York City time, one Business Day before the date of the
proposed Borrowing. Each such telephonic Borrowing Request shall be irrevocable
and shall be confirmed promptly by hand delivery or telecopy to the
Administrative Agent of a written Borrowing Request in a form approved by the
Administrative Agent and signed by the relevant Borrower. Each such telephonic
and written Borrowing Request shall specify the following information in
compliance with Section 2.02:
(i) the name of the Borrower and aggregate amount of the requested
Borrowing;
(ii) the date of such Borrowing, which shall be a Business Day;
(iii) whether such Borrowing is to be an ABR Borrowing or a
Eurodollar Borrowing;
(iv) in the case of a Eurodollar Borrowing, the initial Interest
Period to be applicable thereto, which shall be a period contemplated by
the definition of the term "Interest Period"; and
(v) the location and number of the relevant Borrower's account to
which funds are to be disbursed, which shall comply with the requirements
of Section 2.05.
If no election as to the Type of Syndicated Borrowing is specified, then the
requested Syndicated Borrowing shall be an ABR Borrowing. If no Interest Period
is specified with respect to any requested Eurodollar Syndicated Borrowing, then
the relevant Borrower shall be deemed to have selected an Interest Period of one
week's duration. Promptly following receipt of a Borrowing Request in accordance
with this Section, the Administrative Agent shall advise each Lender of the
details thereof and of the amount of such Lender's Loan to be made as part of
the requested Borrowing.
SECTION 2.04. Competitive Bid Procedure.
(a) Subject to the terms and conditions set forth herein, from time
to time during the period from the Effective Date to but excluding the Revolving
Credit Maturity Date, either Borrower or both Borrowers may request Competitive
Bids and may (but shall not have any obligation to) accept Competitive Bids and
borrow Competitive Loans; provided that the sum of the total Credit Exposures
plus the aggregate principal amount of outstanding Competitive Loans at any time
shall not exceed the total Commitments. To request Competitive Bids, the
relevant
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Borrower shall notify the Administrative Agent of such request by telephone, in
the case of a Eurodollar Borrowing, not later than 11:00 a.m., New York City
time, four Business Days before the date of the proposed Borrowing and, in the
case of a Fixed Rate Borrowing, not later than 10:00 a.m., New York City time,
one Business Day before the date of the proposed Borrowing; provided that the
Borrowers may submit up to (but not more than) three Competitive Bid Requests on
the same day, but a Competitive Bid Request shall not be made within five
Business Days after the date of any previous Competitive Bid Request, unless any
and all such previous Competitive Bid Requests shall have been withdrawn or all
Competitive Bids received in response thereto rejected. Each such telephonic
Competitive Bid Request shall be confirmed promptly by hand delivery or telecopy
to the Administrative Agent of a written Competitive Bid Request in a form
approved by the Administrative Agent and signed by the relevant Borrower. Each
such telephonic and written Competitive Bid Request shall specify the following
information in compliance with Section 2.02:
(i) the name of the Borrower and aggregate amount of the requested
Borrowing;
(ii) the date of such Borrowing, which shall be a Business Day;
(iii) whether such Borrowing is to be a Eurodollar Borrowing or a
Fixed Rate Borrowing;
(iv) the Interest Period to be applicable to such Borrowing, which
shall be a period contemplated by the definition of the term "Interest
Period"; and
(v) the location and number of the relevant Borrower's account to
which funds are to be disbursed, which shall comply with the requirements
of Section 2.05.
Promptly following receipt of a Competitive Bid Request in
accordance with this Section, the Administrative Agent shall notify the Lenders
of the details thereof by telecopy, inviting the Lenders to submit Competitive
Bids.
(b) Each Lender may (but shall not have any obligation to) make one
or more Competitive Bids to the relevant Borrower in response to a Competitive
Bid Request. Each Competitive Bid by a Lender must be in a form approved by the
Administrative Agent and must be received by the Administrative Agent by
telecopy, in the case of a Eurodollar Competitive Borrowing, not later than 9:30
a.m., New York City time, three Business Days before the proposed date of such
Competitive Borrowing, and in the case of a Fixed Rate Borrowing, not later than
9:30 a.m., New York City time, on the proposed date of such Competitive
Borrowing. Competitive Bids that do not conform substantially to the form
approved by the Administrative Agent may be rejected by the Administrative
Agent, and the Administrative Agent shall notify the applicable Lender as
promptly as practicable. Each Competitive Bid shall specify (i) the principal
amount (which shall be a minimum of $10,000,000 and an integral multiple of
$1,000,000 and which may equal the entire principal amount of the Competitive
Borrowing requested by the relevant Borrower) of the Competitive Loan or Loans
that the Lender is willing to make, (ii) the Competitive Bid Rate or Rates at
which the Lender is prepared to make such Loan or Loans (expressed as a
percentage rate per annum in the form of a decimal to no more than
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four decimal places), and (iii) the Interest Period applicable to each such Loan
and the last day thereof.
(c) The Administrative Agent shall promptly notify the relevant
Borrower by telecopy of the Competitive Bid Rate and the principal amount
specified in each Competitive Bid and the identity of the Lender that shall have
made such Competitive Bid.
(d) Subject only to the provisions of this paragraph, the relevant
Borrower may accept or reject any Competitive Bid. Such Borrower shall notify
the Administrative Agent by telephone, confirmed by telecopy in a form approved
by the Administrative Agent, whether and to what extent it has decided to accept
or reject each Competitive Bid, in the case of a Eurodollar Competitive
Borrowing, not later than 10:30 a.m., New York City time, three Business Days
before the date of the proposed Competitive Borrowing, and in the case of a
Fixed Rate Borrowing, not later than 10:30 a.m., New York City time, on the
proposed date of the Competitive Borrowing; provided that (i) the failure of
such Borrower to give such notice shall be deemed to be a rejection of each
Competitive Bid, (ii) such Borrower shall not accept a Competitive Bid made at a
particular Competitive Bid Rate if such Borrower rejects a Competitive Bid made
at a lower Competitive Bid Rate, (iii) the aggregate amount of the Competitive
Bids accepted by such Borrower shall not exceed the aggregate amount of the
requested Competitive Borrowing specified in the related Competitive Bid
Request, (iv) to the extent necessary to comply with clause (iii) above, such
Borrower may accept Competitive Bids at the same Competitive Bid Rate in part,
which acceptance, in the case of multiple Competitive Bids at such Competitive
Bid Rate, shall be made by such Borrower in consultation with the Administrative
Agent pro rata in accordance with the amount of each such Competitive Bid, and
(v) except pursuant to clause (iv) above, no Competitive Bid shall be accepted
for a Competitive Loan unless such Competitive Loan is in a minimum principal
amount of $5,000,000 and an integral multiple of $1,000,000; and provided
further that if a Competitive Loan must be in an amount less than $5,000,000
because of the provisions of clause (iv) above, such Competitive Loan may be for
a minimum of $1,000,000 or any integral multiple thereof, and in calculating the
pro rata allocation of acceptances of portions of multiple Competitive Bids at a
particular Competitive Bid Rate pursuant to clause (iv) the amounts shall be
rounded to integral multiples of $1,000,000 in a manner determined by the
relevant Borrower in consultation with the Administrative Agent. A notice given
by the relevant Borrower pursuant to this paragraph shall be irrevocable.
(e) The Administrative Agent shall promptly notify each bidding
Lender by telecopy whether or not its Competitive Bid has been accepted (and, if
so, the amount and Competitive Bid Rate so accepted), and each successful bidder
will thereupon become bound, subject to the terms and conditions hereof, to make
the Competitive Loan in respect of which its Competitive Bid has been accepted.
(f) If the Administrative Agent shall elect to submit a Competitive
Bid in its capacity as a Lender, it shall submit such Competitive Bid directly
to the relevant Borrower at least one quarter of an hour earlier than the time
by which the other Lenders are required to submit their Competitive Bids to the
Administrative Agent pursuant to paragraph (b) of this Section.
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SECTION 2.05. Funding of Borrowings.
(a) Each Lender shall make each Loan to be made by it hereunder on
the proposed date thereof by wire transfer of immediately available funds by
noon, New York City time, to the account of the Administrative Agent most
recently designated by it for such purpose by notice to the Lenders. The
Administrative Agent will make such Loans available to the relevant Borrower by
promptly crediting the amounts so received, in immediately available funds, to
an account of such Borrower maintained with the Administrative Agent in New York
City and designated by such Borrower in the applicable Borrowing Request or
Competitive Bid Request.
(b) Unless the Administrative Agent shall have received notice from
a Lender prior to the proposed date of any Borrowing that such Lender will not
make available to the Administrative Agent such Lender's share of such
Borrowing, the Administrative Agent may assume that such Lender has made such
share available on such date in accordance with paragraph (a) of this Section
and may, in reliance upon such assumption, make available to the relevant
Borrower a corresponding amount. In such event, if a Lender has not in fact made
its share of the applicable Borrowing available to the Administrative Agent,
then the applicable Lender and the relevant Borrower severally agree to pay to
the Administrative Agent forthwith on demand such corresponding amount with
interest thereon, for each day from and including the date such amount is made
available to such Borrower to but excluding the date of payment to the
Administrative Agent, at (i) in the case of such Lender, the greater of the
Federal Funds Rate and a rate determined by the Administrative Agent in
accordance with banking industry rules on interbank compensation or (ii) in the
case of such Borrower, the interest rate applicable to ABR Loans. If such Lender
pays such amount to the Administrative Agent, then such amount shall constitute
such Lender's Loan included in such Borrowing.
SECTION 2.06. Interest Elections for Syndicated Borrowings.
(a) Each Syndicated Borrowing initially shall be of the Type
specified in the applicable Borrowing Request and, in the case of a Eurodollar
Syndicated Borrowing, shall have an initial Interest Period as specified in such
Borrowing Request. Thereafter, the relevant Borrower may elect to convert such
Borrowing to a different Type or to continue such Borrowing and, in the case of
a Eurodollar Syndicated Borrowing, may elect Interest Periods therefor, all as
provided in this Section. The relevant Borrower may elect different options with
respect to different portions of the affected Borrowing, in which case each such
portion shall be allocated ratably among the Lenders holding the Loans
comprising such Borrowing, and the Loans comprising each such portion shall be
considered a separate Borrowing. As provided in the definition of "Interest
Period" in Section 1.01, the Loans comprising any Eurodollar Syndicated
Borrowing with an Interest Period that commences prior to November 1, 1999 and
terminates on or after November 1, 1999 shall automatically be converted to ABR
Loans on November 1, 1999. This Section shall not apply to Competitive
Borrowings, which may not be converted or continued.
(b) To make an election pursuant to this Section, the relevant
Borrower shall notify the Administrative Agent of such election by telephone by
the time that a Borrowing Request would be required under Section 2.03 if such
Borrower were requesting a Syndicated
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Borrowing of the Type resulting from such election to be made on the effective
date of such election. Each such telephonic Interest Election Request shall be
irrevocable and shall be confirmed promptly by hand delivery or telecopy to the
Administrative Agent of a written Interest Election Request in a form approved
by the Administrative Agent and signed by the relevant Borrower.
(c) Each telephonic and written Interest Election Request shall
specify the following information in compliance with Section 2.02:
(i) the name of the Borrower and Borrowing to which such Interest
Election Request applies and, if different options are being elected with
respect to different portions thereof, the portions thereof to be
allocated to each resulting Borrowing (in which case the information to be
specified pursuant to clauses (iii) and (iv) below shall be specified for
each resulting Borrowing);
(ii) the effective date of the election made pursuant to such
Interest Election Request, which shall be a Business Day;
(iii) whether the resulting Borrowing is to be an ABR Borrowing or a
Eurodollar Borrowing; and
(iv) if the resulting Borrowing is a Eurodollar Borrowing, the
Interest Period to be applicable thereto after giving effect to such
election, which shall be a period contemplated by the definition of the
term "Interest Period".
If any such Interest Election Request requests a Eurodollar Borrowing but does
not specify an Interest Period, then the relevant Borrower shall be deemed to
have selected an Interest Period of one week's duration.
(d) Promptly following receipt of an Interest Election Request, the
Administrative Agent shall advise each Lender of the details thereof and of such
Lender's portion of each resulting Borrowing.
(e) If the relevant Borrower fails to deliver a timely Interest
Election Request with respect to a Eurodollar Syndicated Borrowing prior to the
end of the Interest Period applicable thereto, then, unless such Borrowing is
repaid as provided herein, at the end of such Interest Period such Borrowing
shall be converted to an ABR Borrowing. Notwithstanding any contrary provision
hereof, if an Event of Default has occurred and is continuing and the
Administrative Agent, at the request of the Required Lenders, so notifies the
relevant Borrower, then, so long as an Event of Default is continuing (i) no
outstanding Syndicated Borrowing may be converted to or continued as a
Eurodollar Borrowing and (ii) unless repaid, each Eurodollar Syndicated
Borrowing shall be converted to an ABR Borrowing at the end of the Interest
Period applicable thereto.
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SECTION 2.07. Termination and Reduction of Commitments.
(a) Unless previously terminated, the Commitments shall terminate at
the close of business on the Revolving Credit Maturity Date.
(b) Upon the occurrence of either (i) a Change in Control or (ii) a
Disposition of all or any substantial part of the assets of the Company in
connection with a reorganization of the Company and its Subsidiaries in
connection with the establishment of a mutual holding company, the
Administrative Agent shall, at the request of the Required Lenders, by notice to
the Borrowers, terminate the Commitments, and thereupon the Commitments shall
terminate immediately.
(c) The Borrowers may at any time terminate, or from time to time
reduce, the Commitments; provided that (i) each reduction of the Commitments
shall be in an amount that is an integral multiple of $10,000,000 and (ii) the
Borrowers shall not terminate or reduce the Commitments if, after giving effect
to any concurrent prepayment of the Loans in accordance with Section 2.09, the
sum of the Credit Exposures plus the aggregate principal amount of outstanding
Competitive Loans would exceed the total Commitments.
(d) The Borrowers shall notify the Administrative Agent of any
election to terminate or reduce the Commitments under paragraph (c) of this
Section at least three Business Days prior to the effective date of such
termination or reduction, specifying such election and the effective date
thereof. Promptly following receipt of any notice, the Administrative Agent
shall advise the Lenders of the contents thereof. Each notice delivered by the
Borrowers pursuant to this Section shall be irrevocable; provided that a notice
of termination of the Commitments delivered by the Borrowers may state that such
notice is conditioned upon the effectiveness of other credit facilities, in
which case such notice may be revoked by the Borrowers (by notice to the
Administrative Agent on or prior to the specified effective date) if such
condition is not satisfied. Any termination or reduction of the Commitments
shall be permanent. Each reduction of the Commitments shall be made ratably
among the Lenders in accordance with their respective Commitments.
SECTION 2.08. Repayment of Loans; Conversion of Revolving Loans to
Term Loans; Evidence of Debt.
(a) Each Borrower hereby unconditionally promises to pay (i) to the
Administrative Agent for account of each Lender the then unpaid principal amount
of each Revolving Loan made to such Borrower hereunder on the Revolving Credit
Maturity Date, and (ii) to the Administrative Agent for account of each Lender
the then unpaid principal amount of each Competitive Loan made to such Borrower
on the last day of the Interest Period applicable to such Loan, provided that,
to the extent a Borrower shall have elected to convert any portion of the
outstanding Revolving Loans into Term Loans pursuant to Section 2.08(b), such
Term Loans shall mature (and such Borrower hereby unconditionally promises to
pay to the Administrative Agent for the account of each Lender the then unpaid
principal amount of each Term Loan) on the Term Loan Maturity Date.
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(b) Each Borrower may, by notice to the Administrative Agent not
later than 11:00 a.m., New York time, one Business Day prior to the Revolving
Credit Maturity Date convert all Revolving Loans made to such Borrower that are
outstanding on the Revolving Credit Maturity Date into term loans (each, a "Term
Loan" and collectively, the "Term Loans"), provided that the aggregate amount of
Revolving Loans converted to Term Loans by the Borrowers pursuant to this
Section 2.03(b) shall not exceed $2,500,000,000. Each Term Loan shall bear
interest, until the payment in full thereof, at the rates provided for in
Section 2.11 and shall otherwise constitute a Syndicated Loan for all purposes
of this Agreement. The relevant Borrower hereby unconditionally promises to pay
to the Administrative Agent for account of the Lenders the unpaid principal
amount of the Term Loans made to such Borrower that are outstanding on the date
(the "Term Loan Maturity Date") that is one year after the Revolving Credit
Maturity Date (or, if such date is not a Business Day, the next preceding
Business Day).
(c) Each Lender shall maintain in accordance with its usual practice
an account or accounts evidencing the indebtedness of each Borrower to such
Lender resulting from each Loan made by such Lender, including the amounts of
principal and interest payable and paid to such Lender from time to time
hereunder.
(d) The Administrative Agent shall maintain accounts in which it
shall record (i) the name of the Borrower and amount of each Loan made
hereunder, the Class and Type thereof and the Interest Period applicable
thereto, (ii) the amount of any principal or interest due and payable or to
become due and payable from each Borrower to each Lender hereunder and (iii) the
amount of any sum received by the Administrative Agent from either Borrower
hereunder for the account of the Lenders and each Lender's share thereof.
(e) The entries made in the accounts maintained pursuant to
paragraph (b) or (c) of this Section shall be prima facie evidence of the
existence and amounts of the obligations recorded therein; provided that the
failure of any Lender or the Administrative Agent to maintain such accounts or
any error therein shall not in any manner affect the obligation of either
Borrower to repay its Loans in accordance with the terms of this Agreement.
(f) Any Lender may request that Loans made by it be evidenced by a
promissory note. In such event, the relevant Borrower shall prepare, execute and
deliver to such Lender a promissory note payable to the order of such Lender
(or, if requested by such Lender, to such Lender and its registered assigns) and
in a form approved by the Administrative Agent. Thereafter, the Loans evidenced
by such promissory note and interest thereon shall at all times (including after
assignment pursuant to Section 9.04) be represented by one or more promissory
notes in such form payable to the order of the payee named therein (or, if such
promissory note is a registered note, to such payee and its registered assigns).
SECTION 2.09. Prepayment of Loans.
(a) Each Borrower shall have the right at any time and from time to
time to prepay any Borrowing of such Borrower in whole or in part, subject to
prior notice in accordance with paragraph (b) of this Section; provided that no
Borrower shall have the right to prepay any Competitive Loan without the prior
consent of the Lender thereof.
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(b) The Borrowers shall notify the Administrative Agent by telephone
(confirmed by telecopy) of any prepayment hereunder (i) in the case of
prepayment of a Eurodollar Syndicated Borrowing, not later than 11:00 a.m., New
York City time, three Business Days before the date of prepayment, or (ii) in
the case of prepayment of an ABR Borrowing, not later than 11:00 a.m., New York
City time, one Business Day before the date of prepayment. Each such notice
shall be irrevocable and shall specify the name of the Borrower, the prepayment
date and the principal amount of each Borrowing or portion thereof to be
prepaid; provided that, if a notice of prepayment is given in connection with a
conditional notice of termination of the Commitments as contemplated by Section
2.07, then such notice of prepayment may be revoked if such notice of
termination is revoked in accordance with Section 2.07. Promptly following
receipt of any such notice relating to a Syndicated Borrowing, the
Administrative Agent shall advise the Lenders of the contents thereof. Each
partial prepayment of any Syndicated Borrowing shall be in an amount that would
be permitted in the case of an advance of a Syndicated Borrowing of the same
Type as provided in Section 2.02. Each prepayment of a Syndicated Borrowing
shall be applied ratably to the Loans included in the prepaid Borrowing.
Prepayments shall be accompanied by accrued interest to the extent required by
Section 2.11.
(c) Upon the occurrence of either (i) a Change in Control, or (ii) a
Disposition of all or any substantial part of the assets of the Company in
connection with a reorganization of the Company and its Subsidiaries in
connection with the establishment of a mutual holding company, each Borrower
agrees that if requested by the Administrative Agent (acting at the request of
Lenders holding more than 50% of the aggregate principal amount of Loans
outstanding hereunder), such Borrower will promptly prepay each Loan, together
with accrued interest; provided that no prepayment of any Competitive Loan shall
be made without the prior consent of the Lender thereof.
SECTION 2.10. Fees.
(a) The Company agrees to pay to the Administrative Agent for
account of each Lender a facility fee, which shall accrue at the Applicable Rate
on the daily amount of the Commitment of such Lender (whether used or unused)
during the period from and including the date hereof to but excluding the date
on which such Commitment terminates; provided that, if such Lender continues to
have any Credit Exposure after its Commitment terminates, then such facility fee
shall continue to accrue on the daily amount of such Lender's Credit Exposure
from and including the date on which its Commitment terminates to but excluding
the date on which such Lender ceases to have any Credit Exposure. Accrued
facility fees shall be payable in arrears on the last day of March, June,
September and December of each year and on the date on which the Loans are paid
in full, commencing on the first such date to occur after the date hereof. All
facility fees shall be computed on the basis of a year of 360 days and shall be
payable for the actual number of days elapsed (including the first day but
excluding the last day).
(b) The Company agrees to pay to the Administrative Agent for
account of each Lender a utilization fee, which shall accrue at the Applicable
Rate on the daily aggregate outstanding principal amount of Loans (including
Competitive Loans) of such Lender for each day on which the aggregate
outstanding principal amount of the Loans (including Competitive Loans) equals
or exceeds an amount equal to 33-1/3% of the Commitments. Accrued utilization
fees shall be payable in arrears on the last day of March, June, September and
December of each
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year and on the date on which the Commitments terminate, commencing on the first
such date to occur after the date hereof. All utilization fees shall be computed
on the basis of a year of 360 days and shall be payable for the actual number of
days elapsed (including the first day but excluding the last day).
(c) Each Borrower agrees to pay to the Administrative Agent for its
own account a fee for each Competitive Bid Request submitted by such Borrower
under Section 2.04 in an amount equal to $2,500.
(d) The Borrowers agree to pay to the Administrative Agent, for its
own account, fees payable in the amounts and at the times separately agreed upon
between the Borrowers and the Administrative Agent.
(e) All fees payable hereunder shall be paid on the dates due, in
immediately available funds, to the Administrative Agent for distribution, in
the case of utilization and facility fees, to the Lenders. Fees paid shall not
be refundable under any circumstances.
SECTION 2.11. Interest.
(a) The Loans comprising each ABR Borrowing shall bear interest at
the Alternate Base Rate.
(b) The Loans comprising each Eurodollar Borrowing shall bear
interest (i) in the case of a Eurodollar Syndicated Loan, at the Adjusted
Eurodollar Rate for the Interest Period in effect for such Borrowing plus the
Applicable Rate, or (ii) in the case of a Eurodollar Competitive Loan, at the
LIBO Rate for the Interest Period in effect for such Borrowing plus (or minus,
as applicable) the Margin applicable to such Loan.
(c) Each Fixed Rate Loan shall bear interest at the Fixed Rate
applicable to such Loan.
(d) During the period from and including November 1, 1999 to and
including January 15, 2000, all Loans (other than Competitive Loans) shall be
ABR Loans (and all then-outstanding Eurodollar Syndicated Loans shall be
converted to ABR Loans on November 1, 1999).
(e) Notwithstanding the foregoing, if any principal of or interest
on any Loan or any fee or other amount payable by either Borrower hereunder is
not paid when due, whether at stated maturity, upon acceleration or otherwise,
such overdue amount shall bear interest, after as well as before judgment, at a
rate per annum equal to (i) in the case of overdue principal of any Loan, 2%
plus the rate otherwise applicable to such Loan as provided in the preceding
paragraphs of this Section or (ii) in the case of any other amount, 2% plus the
rate applicable to ABR Loans as provided in paragraph (a) of this Section.
(f) Accrued interest on each Loan shall be payable in arrears on
each Interest Payment Date for such Loan and, in the case of Revolving Loans,
upon termination of the Commitments; provided that (i) interest accrued pursuant
to paragraph (e) of this Section shall be
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payable on demand, (ii) in the event of any repayment or prepayment of any Loan
(other than a prepayment of an ABR Loan prior to the end of the Availability
Period), accrued interest on the principal amount repaid or prepaid shall be
payable on the date of such repayment or prepayment and (iii) in the event of
any conversion of any Eurodollar Syndicated Loan prior to the end of the current
Interest Period therefor, accrued interest on such Loan shall be payable on the
effective date of such conversion.
(g) All interest hereunder shall be computed on the basis of a year
of 360 days, except that interest computed by reference to the Alternate Base
Rate at times when the Alternate Base Rate is based on the Prime Rate shall be
computed on the basis of a year of 365 days (or 366 days in a leap year), and in
each case shall be payable for the actual number of days elapsed (including the
first day but excluding the last day). The applicable Alternate Base Rate,
Adjusted Eurodollar Rate, LIBO Rate or NIBO Rate shall be determined by the
Administrative Agent, and such determination shall be conclusive absent manifest
error.
SECTION 2.12. Alternate Rate of Interest. If prior to the
commencement of any Interest Period for a Eurodollar Borrowing:
(a) the Administrative Agent determines (which determination shall
be conclusive absent manifest error) that adequate and reasonable means do
not exist for ascertaining the Adjusted Eurodollar Rate, the LIBO Rate or
the NIBO Rate, as applicable, for such Interest Period; or
(b) the Administrative Agent is advised by the Required Lenders (or,
in the case of a Eurodollar Competitive Loan, the Lender that is required
to make such Loan) that the Adjusted Eurodollar Rate, the LIBO Rate or the
NIBO Rate, as applicable, for such Interest Period will not adequately and
fairly reflect the cost to such Lenders (or Lender) of making or
maintaining their Loans (or its Loan) included in such Borrowing for such
Interest Period;
then the Administrative Agent shall give notice thereof to the Borrowers and the
Lenders by telephone or telecopy as promptly as practicable thereafter and,
until the Administrative Agent notifies the relevant Borrower and the Lenders
that the circumstances giving rise to such notice no longer exist, (i) any
Interest Election Request that requests the conversion of any Syndicated
Borrowing to, or continuation of any Syndicated Borrowing as, a Eurodollar
Borrowing shall be ineffective, (ii) if any Borrowing Request requests a
Eurodollar Syndicated Borrowing, such Borrowing shall be made as an ABR
Borrowing and (iii) any request by the relevant Borrower for a Eurodollar
Competitive Borrowing shall be ineffective; provided that (A) if the
circumstances giving rise to such notice do not affect all the Lenders, then
requests by such Borrower for Eurodollar Competitive Borrowings may be made to
Lenders that are not affected thereby and (B) if the circumstances giving rise
to such notice affect only one Type of Borrowings, then the other Type of
Borrowings shall be permitted.
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SECTION 2.13. Increased Costs.
(a) If any Change in Law shall:
(i) impose, modify or deem applicable any reserve, special deposit
or similar requirement against assets of, deposits with or for the account
of, or credit extended by, any Lender (except any such reserve requirement
reflected in the Adjusted Eurodollar Rate); or
(ii) impose on any Lender or the London interbank market any other
condition affecting this Agreement or Eurodollar Loans or Fixed Rate Loans
made by such Lender;
and the result of any of the foregoing shall be to increase the cost to such
Lender of making or maintaining any Eurodollar Loan or Fixed Rate Loan (or of
maintaining its obligation to make any such Loan) or to reduce the amount of any
sum received or receivable by such Lender hereunder (whether of principal,
interest or otherwise), then the relevant Borrower will pay to such Lender such
additional amount or amounts as will compensate such Lender for such additional
costs incurred or reduction suffered.
(b) If any Lender determines that any Change in Law regarding
capital requirements has or would have the effect of reducing the rate of return
on such Lender's or the capital or on the capital of such Lender's holding
company, if any, as a consequence of this Agreement or the Loans made to a level
below that which such Lender or such Lender's holding company could have
achieved but for such Change in Law (taking into consideration such Lender's
policies and the policies of such Lender's holding company with respect to
capital adequacy), then from time to time each Borrower will pay to such Lender,
as the case may be, such additional amount or amounts as will compensate such
Lender or such Lender's holding company for any such reduction suffered.
(c) A certificate of a Lender setting forth the amount or amounts
necessary to compensate such Lender or its holding company, as the case may be,
as specified in paragraph (a) or (b) of this Section shall be delivered to the
relevant Borrower(s) and shall be conclusive absent manifest error. Such
Borrower(s) shall pay such Lender, as the case may be, the amount shown as due
on any such certificate within 10 days after receipt thereof.
(d) Failure or delay on the part of any Lender to demand
compensation pursuant to this Section shall not constitute a waiver of such
Lender's right to demand such compensation; provided that no Borrower shall be
required to compensate a Lender pursuant to this Section for any increased costs
or reductions incurred more than 90 days prior to the date that such Lender
notifies the relevant Borrower(s) of the Change in Law giving rise to such
increased costs or reductions and of such Lender's intention to claim
compensation therefor; provided further that, if the Change in Law giving rise
to such increased costs or reductions is retroactive, then the 270-day period
referred to above shall be extended to include the period of retroactive effect
thereof.
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(e) Notwithstanding the foregoing provisions of this Section, a
Lender shall not be entitled to compensation pursuant to this Section in respect
of any Competitive Loan if the Change in Law that would otherwise entitle it to
such compensation shall have been publicly announced prior to submission of the
Competitive Bid pursuant to which such Loan was made.
SECTION 2.14. Break Funding Payments. In the event of (a) the
payment of any principal of any Eurodollar Loan or Fixed Rate Loan other than on
the last day of an Interest Period applicable thereto (including, without
limitation, as a result of a mandatory prepayment under Section 2.09(c) or an
Event of Default), (b) the conversion of any Eurodollar Syndicated Loan other
than on the last day of the Interest Period applicable thereto (including any
conversion thereof on November 1, 1999, pursuant to clause (v) of the definition
of "Interest Period" in Section 1.01), (c) the failure to borrow, convert,
continue or prepay any Syndicated Loan on the date specified in any notice
delivered pursuant hereto (regardless of whether such notice may be revoked
under Section 2.09(b) and is revoked in accordance therewith), (d) the failure
to borrow any Competitive Loan after accepting the Competitive Bid to make such
Loan, or (e) the assignment of any Eurodollar Loan or Fixed Rate Loan other than
on the last day of the Interest Period applicable thereto as a result of a
request by either Borrower pursuant to Section 2.17, then, in any such event,
the relevant Borrower shall compensate each Lender for the loss, cost and
expense attributable to such event. In the case of a Eurodollar Loan, such loss,
cost or expense to any Lender shall be deemed to include an amount determined by
such Lender to be the excess, if any, of (i) the amount of interest which would
have accrued on the principal amount of such Loan had such event not occurred,
at the Adjusted Eurodollar Rate (or LIBO Rate, in the case of a Competitive
Loan) that would have been applicable to such Loan, for the period from the date
of such event to the last day of the then current Interest Period therefor (or,
in the case of a failure to borrow, convert or continue, for the period that
would have been the Interest Period for such Loan), over (ii) the amount of
interest which would accrue on such principal amount for such period at the
interest rate which such Lender would bid were it to bid, at the commencement of
such period, for dollar deposits of a comparable amount and period from other
banks in the eurodollar market. A certificate of any Lender setting forth any
amount or amounts that such Lender is entitled to receive pursuant to this
Section shall be delivered to the relevant Borrower and shall be conclusive
absent manifest error. Such Borrower shall pay such Lender the amount shown as
due on any such certificate within 10 days after receipt thereof.
SECTION 2.15. Taxes.
(a) Any and all payments by or on account of any obligation of each
Borrower hereunder shall be made free and clear of and without deduction for any
Indemnified Taxes or Other Taxes; provided that if either Borrower shall be
required to deduct any Indemnified Taxes or Other Taxes from such payments, then
(i) the sum payable shall be increased as necessary so that after making all
required deductions (including deductions applicable to additional sums payable
under this Section) the Administrative Agent or Lender (as the case may be)
receives an amount equal to the sum it would have received had no such
deductions been made, (ii) such Borrower shall make such deductions and (iii)
such Borrower shall pay the full amount deducted to the relevant Governmental
Authority in accordance with applicable law.
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(b) In addition, each Borrower shall pay any Other Taxes to the
relevant Governmental Authority in accordance with applicable law.
(c) Each Borrower shall indemnify the Administrative Agent and each
Lender within 10 days after written demand therefor, for the full amount of any
Indemnified Taxes or Other Taxes paid by the Administrative Agent or such
Lender, as the case may be, on or with respect to any payment by or on account
of any obligation of such Borrower hereunder (including Indemnified Taxes or
Other Taxes imposed or asserted on or attributable to amounts payable under this
Section) and any penalties, interest and reasonable expenses arising therefrom
or with respect thereto, whether or not such Indemnified Taxes or Other Taxes
were correctly or legally imposed or asserted by the relevant Governmental
Authority. A certificate as to the amount of such payment or liability delivered
to the relevant Borrower by a Lender, or by the Administrative Agent on its own
behalf or on behalf of a Lender, shall be conclusive absent manifest error.
(d) As soon as practicable after any payment of Indemnified Taxes or
Other Taxes by the relevant Borrower to a Governmental Authority, such Borrower
shall deliver to the Administrative Agent the original or a certified copy of a
receipt issued by such Governmental Authority evidencing such payment, a copy of
the return reporting such payment or other evidence of such payment reasonably
satisfactory to the Administrative Agent.
(e) Any Foreign Lender that is entitled to an exemption from or
reduction of withholding tax under the law of the jurisdiction in which the
relevant Borrower is located, or any treaty to which such jurisdiction is a
party, with respect to payments under this Agreement shall deliver to such
Borrower (with a copy to the Administrative Agent), at the time or times
prescribed by applicable law, such properly completed and executed documentation
prescribed by applicable law or reasonably requested by such Borrower as will
permit such payments to be made without withholding or at a reduced rate.
SECTION 2.16. Payments Generally; Pro Rata Treatment; Sharing of
Set-offs.
(a) Each Borrower shall make each payment required to be made by it
hereunder (whether of principal, interest or fees, or of amounts payable under
Section 2.13, 2.14 or 2.15, or otherwise) prior to noon, New York City time, on
the date when due, in immediately available funds, without set-off or
counterclaim. Any amounts received after such time on any date may, in the
discretion of the Administrative Agent, be deemed to have been received on the
next succeeding Business Day for purposes of calculating interest thereon. All
such payments shall be made to the Administrative Agent at its offices at 270
Park Avenue, New York, New York, except that payments pursuant to Sections 2.13,
2.14, 2.15 and 9.03 shall be made directly to the Persons entitled thereto. The
Administrative Agent shall distribute any such payments received by it for the
account of any other Person to the appropriate recipient promptly following
receipt thereof. If any payment hereunder shall be due on a day that is not a
Business Day, the date for payment shall be extended to the next succeeding
Business Day, and, in the case of any payment accruing interest, interest
thereon shall be payable for the period of such extension. All payments
hereunder shall be made in dollars.
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(b) If at any time insufficient funds are received by and available
to the Administrative Agent to pay fully all amounts of principal, interest and
fees then due hereunder, such funds shall be applied (i) first, towards payment
of interest and fees then due hereunder, ratably among the parties entitled
thereto in accordance with the amounts of interest and fees then due to such
parties, and (ii) second, towards payment of principal then due hereunder,
ratably among the parties entitled thereto in accordance with the amounts of
principal then due to such parties.
(c) If any Lender shall, by exercising any right of set-off or
counterclaim or otherwise, obtain payment in respect of any principal of or
interest on any of its Syndicated Loans resulting in such Lender receiving
payment of a greater proportion of the aggregate amount of its Syndicated Loans
and accrued interest thereon than the proportion received by any other Lender,
then the Lender receiving such greater proportion shall purchase (for cash at
face value) participations in the Syndicated Loans of other Lenders to the
extent necessary so that the benefit of all such payments shall be shared by the
Lenders ratably in accordance with the aggregate amount of principal of and
accrued interest on their respective Syndicated Loans; provided that (i) if any
such participations are purchased and all or any portion of the payment giving
rise thereto is recovered, such participations shall be rescinded and the
purchase price restored to the extent of such recovery, without interest, and
(ii) the provisions of this paragraph shall not be construed to apply to any
payment made by either Borrower pursuant to and in accordance with the express
terms of this Agreement or any payment obtained by a Lender as consideration for
the assignment of or sale of a participation in any of its Loans to any assignee
or participant, other than to the Company or any Subsidiary or Affiliate thereof
(as to which the provisions of this paragraph shall apply). Each Borrower
consents to the foregoing and agrees, to the extent it may effectively do so
under applicable law, that any Lender acquiring a participation pursuant to the
foregoing arrangements may exercise against such Borrower rights of set-off and
counterclaim with respect to such participation as fully as if such Lender were
a direct creditor of such Borrower in the amount of such participation.
(d) Unless the Administrative Agent shall have received notice from
the relevant Borrower prior to the date on which any payment is due to the
Administrative Agent for the account of the Lenders hereunder that such Borrower
will not make such payment, the Administrative Agent may assume that such
Borrower has made such payment on such date in accordance herewith and may, in
reliance upon such assumption, distribute to the Lenders, the amount due. In
such event, if such Borrower has not in fact made such payment, then each of the
Lenders, severally agrees to repay to the Administrative Agent forthwith on
demand the amount so distributed to such Lender with interest thereon, for each
day from and including the date such amount is distributed to it to but
excluding the date of payment to the Administrative Agent, at the greater of the
Federal Funds Rate and a rate determined by the Administrative Agent in
accordance with banking industry rules on interbank compensation.
(e) If any Lender shall fail to make any payment required to be made
by it pursuant to Section 2.05(b) or 2.16(d), then the Administrative Agent may,
in its discretion (notwithstanding any contrary provision hereof), apply any
amounts thereafter received by the Administrative Agent for the account of such
Lender to satisfy such Lender's obligations under such Sections until all such
unsatisfied obligations are fully paid.
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SECTION 2.17. Mitigation Obligations; Replacement of Lenders.
(a) If any Lender requests compensation under Section 2.13, or if
either Borrower is required to pay any additional amount to any Lender or any
Governmental Authority for the account of any Lender pursuant to Section 2.15,
then such Lender shall, upon the request of such Borrower, use reasonable
efforts to designate a different lending office for funding or booking its Loans
hereunder or to assign its rights and obligations hereunder to another of its
offices, branches or affiliates, if, in the judgment of such Lender, such
designation or assignment (i) would eliminate or reduce amounts payable pursuant
to Section 2.13 or 2.15, as the case may be, in the future and (ii) would not
subject such Lender to any unreimbursed cost or expense and would not otherwise
be disadvantageous to such Lender. Each Borrower hereby agrees to pay all
reasonable costs and expenses incurred by any Lender in connection with any such
designation or assignment.
(b) If any Lender (or any Participant in Loans made by such Lender)
requests compensation under Section 2.13, or if either Borrower is required to
pay any additional amount to any Lender (or any Participant in Loans made by
such Lender) or any Governmental Authority for account of any Lender (or any
Participant in Loans made by such Lender) pursuant to Section 2.15, or if any
Lender defaults in its obligation to fund Loans hereunder, then the Company may,
at its sole expense and effort, upon notice to such Lender and the
Administrative Agent, require such Lender to assign and delegate, without
recourse (in accordance with and subject to the restrictions contained in
Section 9.04), all its interests, rights and obligations under this Agreement
(other than any outstanding Competitive Loans held by it) to an assignee that
shall assume such obligations (which assignee may be another Lender, if a Lender
accepts such assignment); provided that (i) the Company shall have received the
prior written consent of the Administrative Agent, which consent shall not
unreasonably be withheld, (ii) such Lender shall have received payment of an
amount equal to the outstanding principal of its Loans (other than Competitive
Loans), accrued interest thereon, accrued fees and all other amounts payable to
it hereunder, from the assignee (to the extent of such outstanding principal and
accrued interest and fees) or the relevant Borrower (in the case of all other
amounts) and (iii) in the case of any such assignment resulting from a claim for
compensation under Section 2.13 or payments required to be made pursuant to
Section 2.15, such assignment will result in a reduction in such compensation or
payments. A Lender shall not be required to make any such assignment and
delegation if, prior thereto, as a result of a waiver by such Lender or
otherwise, the circumstances entitling the Company to require such assignment
and delegation cease to apply.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
The Company represents and warrants to the Lenders that:
SECTION 3.01. Organization; Powers. The Company and each of its
Material Subsidiaries is duly organized, validly existing and in good standing
under the laws of the jurisdiction of its organization, has all requisite power
and authority to carry on its business as now conducted and, except where the
failure to do so, individually or in the aggregate, could
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not reasonably be expected to result in a Material Adverse Change, is qualified
to do business in, and is in good standing in, every jurisdiction where such
qualification is required.
SECTION 3.02. Authorization; Enforceability. The Transactions are
within each Borrower's corporate powers and have been duly authorized by all
necessary corporate action. This Agreement and the Support Agreement have been
duly executed and delivered by each Borrower and each constitutes a legal, valid
and binding obligation of each Borrower, enforceable in accordance with its
terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium
or other laws affecting creditors' rights generally and subject to general
principles of equity, regardless of whether considered in a proceeding in equity
or at law.
SECTION 3.03. Governmental Approvals; No Conflicts. The Transactions
(other than the Acquisition Transactions) (a) do not require any consent or
approval of, registration or filing with, or any other action by, any
Governmental Authority, except such as have been obtained or made and are in
full force and effect, (b) will not violate any applicable law or regulation or
the charter, by-laws or other organizational documents of either Borrower or any
order of any Governmental Authority, and (c) will not violate or result in a
default under any indenture, agreement or other instrument binding upon either
Borrower or its assets, or give rise to a right thereunder to require any
payment to be made by either Borrower.
SECTION 3.04. Financial Condition; No Material Adverse Change.
(a) The Company has heretofore furnished to the Lenders (i) its
audited consolidated balance sheet and statements of earnings, equity and cash
flows as of and for the fiscal year ended December 31, 1998, reported on by
Deloitte & Touche, LLP, independent public accountants, (ii) its unaudited
summary consolidated balance sheet and summary statements of earnings, equity
and cash flows as of and for the six-month period ended June 30, 1999 and (iii)
an unaudited consolidated balance sheet and income statement for GAC for the
six-month period ended June 30, 1999. The financial statements referred to in
the preceding clauses (i) and (ii) present fairly, in all material respects, the
financial position and results of operations and cash flows of the Company and
its consolidated Subsidiaries, as of the respective dates thereof and for such
respective fiscal periods, in accordance with GAAP. The Company has received the
financial statements referred to in the preceding clause (iii) and nothing
disclosed in said financial statements would cause the Company not to proceed
with the Acquisition Transactions.
(b) The Company has heretofore furnished to each of the Lenders the
annual Statutory Statement of the Company as at and for the year ended December
31, 1998, as filed with the Applicable Insurance Regulatory Authority. Such
Statutory Statement presents fairly, in all material respects, the financial
position and results of operations of the Company , as of the date thereof and
for such year, in accordance with SAP.
(c) Since June 30, 1999 there has been no material adverse change in
the business, assets, property, condition (financial or otherwise) or prospects
of the Company and its Subsidiaries taken as a whole from that set forth in the
respective financial statements referred to in Section 3.04(a).
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SECTION 3.05. Properties.
(a) The Company and each of its Material Subsidiaries has good title
to, or valid leasehold interests in, all its real and personal property material
to its business, except for minor defects in title that, individually or in the
aggregate, could not reasonably be expected to result in a Material Adverse
Change.
(b) The Company and each of its Material Subsidiaries owns, or is
licensed to use, all trademarks, tradenames, copyrights, patents and other
intellectual property material to its business, and the use thereof by the
Company and its Material Subsidiaries does not infringe upon the rights of any
other Person, except for any such infringements that, individually or in the
aggregate, could not reasonably be expected to result in a Material Adverse
Change.
SECTION 3.06. Litigation and Environmental Matters.
(a) There are no actions, suits or proceedings by or before any
arbitrator or Governmental Authority pending against or, to the knowledge of the
Company or Funding, threatened against or affecting the Company or any of its
Material Subsidiaries, (i) as to which there is a reasonable possibility of an
adverse determination and that, if adversely determined, is reasonably likely,
individually or in the aggregate, to result in a Material Adverse Change (other
than the Disclosed Matters) or (ii) that involve this Agreement or the
Transactions (other than the Acquisition Transactions). Other than a proceeding
to obtain required court approval of the Acquisition Transactions in the State
of Missouri, no action, suit or proceeding by or before any Governmental
Authority is pending or, to the knowledge of the Company, threatened, which
would have the effect of preventing the consummation of the Acquisition
Transactions, or of imposing conditions that are reasonably likely, individually
or in the aggregate, to result in a Material Adverse Change. There are no
actions, suits or proceedings by or before any arbitrator or Governmental
Authority pending against or, to the knowledge of the Company, threatened
against or affecting GAC or any of its Subsidiaries, in connection with the
Acquisition Transactions and as to which there is a reasonable possibility of an
adverse determination and that, if adversely determined, is reasonably likely,
individually or in the aggregate, to result in a Material Adverse Change.
(b) Except for the Disclosed Matters and except with respect to any
other matters that, individually or in the aggregate, could not reasonably be
expected to result in a Material Adverse Change, neither the Company nor any of
its Material Subsidiaries (i) has failed to comply with any Environmental Law or
to obtain, maintain or comply with any permit, license or other approval
required under any Environmental Law, (ii) has become subject to any
Environmental Liability, (iii) has received notice of any claim with respect to
any Environmental Liability or (iv) knows of any basis for any Environmental
Liability.
SECTION 3.07. Compliance with Laws and Agreements. The Company and
each of its Material Subsidiaries is in compliance with all laws, regulations
and orders of any Governmental Authority applicable to it or its property and
all indentures, agreements and other instruments binding upon it or its
property, except where the failure to do so, individually or in the aggregate,
could not reasonably be expected to result in a Material Adverse Change. No
Default has occurred and is continuing.
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SECTION 3.08. Investment and Holding Company Status. Neither the
Company nor any of its Material Subsidiaries (other than Funding) is an
"investment company" as defined in, or subject to regulation under, the
Investment Company Act of 1940, and Funding is an "investment company" as
defined in such Act that is exempt from the requirements of such Act. Neither
the Company nor any of its Material Subsidiaries is a "holding company" as
defined in, or subject to regulation under, the Public Utility Holding Company
Act of 1935.
SECTION 3.09. Taxes. The Company and each of its Subsidiaries has
timely filed or caused to be filed all tax returns and reports required to have
been filed and has paid or caused to be paid all Taxes required to have been
paid by it, except (a) Taxes that are being contested in good faith by
appropriate proceedings and for which the Company or such Subsidiary, as
applicable, has set aside on its books adequate reserves or (b) to the extent
that the failure to do so could not reasonably be expected to result in a
Material Adverse Change.
SECTION 3.10. ERISA. Each Plan and, to the knowledge of the Company,
each Multiemployer Plan, is in compliance in all material respects with, and has
been administered in all material respects with, the applicable provisions of
ERISA, the Code and any other Federal or State law, and no ERISA Event has
occurred or is reasonably expected to occur that, when taken together with all
other such ERISA Events for which liability is reasonably expected to occur,
could reasonably be expected to result in a Material Adverse Change.
SECTION 3.11. Disclosure. None of the reports, financial statements,
certificates or other information furnished by or on behalf of the Company to
the Administrative Agent or any Lender in connection with the negotiation of
this Agreement or delivered hereunder (as modified or supplemented by other
information so furnished) contains any material misstatement of fact or omits to
state any material fact necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading; provided that
(a) with respect to projected financial information, the Company represents only
that such information was prepared in good faith based upon assumptions believed
to be reasonable at the time, and (b) the Company is considering selling its
existing U.S. commercial finance operations.
SECTION 3.12. Margin Stock. No part of the proceeds of any Loan
hereunder will be used, whether directly or indirectly, for any purpose that
entails a violation of any of the Regulations of the Board, including
Regulations U and X. Not more than 25% of the value (as determined by any
reasonable method) of the assets of either the Company or Funding is represented
by Margin Stock.
SECTION 3.13. Year 2000. Substantially all programming required to
handle all material dates and date processing, in and following the year 2000,
of (i) the Company's and each of its Material Subsidiaries' computer systems and
(ii) equipment containing embedded microchips (including systems and equipment
supplied by others or with which the Company's or such Material Subsidiaries'
systems interface) and the testing of all such systems and equipment, as so
reprogrammed, has been substantially completed. The above sentence regarding
year 2000 includes only Company-owned software and does not extend to any
third-party devices, operating systems, computers, other software or networks.
The expected cost to the Company and its Material Subsidiaries of such
reprogramming and testing and of the reasonably foreseeable consequences of year
2000 to the Company and its Material Subsidiaries
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(including, without limitation, reprogramming errors and the failure of others'
systems or equipment) is not anticipated to result in a Default or a Material
Adverse Change.
SECTION 3.14. Support Agreement. The Company has heretofore
delivered to the Administrative Agent a complete and correct copy of the Support
Agreement, as in effect on the date hereof, including all schedules, exhibits
and annexes thereto. The Support Agreement is in full force and effect and
neither party is in default of any of its obligations thereunder.
SECTION 3.15. Acquisition Agreement. The Company has heretofore
delivered to the Administrative Agent a complete and correct copy of the
Acquisition Agreement, as in effect on the date hereof, including all schedules,
exhibits and annexes thereto. The Acquisition Agreement is in full force and
effect and, to the knowledge of the Company, no party is in default of any of
its obligations thereunder. In addition, the Company has heretofore delivered to
the Administrative Agent a complete and correct copy of the offer to the holders
to funding agreements issued by GALIC pursuant to which the Exchange Program is
to be effected.
ARTICLE IV
CONDITIONS
SECTION 4.01. Effective Date. The obligations of the Lenders to make
Loans hereunder shall not become effective until the date on which each of the
following conditions is satisfied (or waived in accordance with Section 9.02):
(a) The Administrative Agent (or its counsel) shall have received
from each party hereto either (i) a counterpart of this Agreement signed
on behalf of such party or (ii) written evidence satisfactory to the
Administrative Agent (which may include telecopy transmission of a signed
signature page of this Agreement) that such party has signed a counterpart
of this Agreement.
(b) The Administrative Agent shall have received an opinion,
addressed to it and the Lenders and dated the Effective Date, of Jane
Weinberg, Vice President and Investment Counsel to the Company,
substantially in the form of Exhibit B, and covering such other matters
relating to the Borrowers, this Agreement or the Transactions as the
Required Lenders shall reasonably request. The Borrowers hereby request
such counsel to deliver such opinion.
(c) The Administrative Agent shall have received an opinion,
addressed to it and the Lenders and dated the Effective Date, of Milbank,
Tweed, Hadley and McCloy LLP, special New York counsel to Chase,
substantially in the form of Exhibit C. Chase hereby instructs such
counsel to deliver such opinion to the Lenders and the Administrative
Agent.
(d) The Administrative Agent shall have received such documents and
certificates as the Administrative Agent, its counsel or any Lender may
reasonably
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request relating to the organization, existence and good standing of each
of the Borrowers, the authorization of the Transactions and any other
legal matters relating to the Borrowers, this Agreement or the
Transactions, all in form and substance satisfactory to the Administrative
Agent and its counsel.
(e) The Administrative Agent shall have received all fees and other
amounts due and payable on or prior to the Effective Date, including, to
the extent invoiced, reimbursement or payment of all out-of-pocket
expenses required to be reimbursed or paid by the Borrowers hereunder.
(f) The Administrative Agent shall have received evidence that the
financial strength ratings of the Company, as rated by S&P and Moody's
Investors Service, Inc. are at least AA- (as rated by S&P) or Aa3 (as
rated by Moody's Investors Service, Inc.).
(g) The Exchange Program shall be in the process of occurring or
shall have occurred in all material respects in accordance with the
applicable acquisition agreements (including having obtained all
governmental and third party approvals necessary in connection with the
Exchange Program and the continuing operations of the Company and its
subsidiaries after giving effect to the Exchange Program, with all
applicable waiting periods having expired without any action being taken
or threatened by any competent authority which would restrain, prevent or
otherwise impose materially adverse conditions on the Exchange Program or
the financing thereof), and the Administrative Agent shall have received a
certificate, dated the Effective Date, to such effect from a Financial
Officer of the Company.
(h) Any governmental and third party approvals necessary in
connection with this Agreement shall have been obtained and any applicable
waiting periods shall have expired without any action being taken or
threatened by any competent authority which would restrain, prevent or
otherwise impose adverse conditions on the financing provided for herein
and there shall not have occurred any adverse action by any regulatory
authority that would prevent the consummation of the Acquisition, and the
Administrative Agent shall have received a certificate, dated the
Effective Date, to such effect from a Financial Officer of the Company.
The Administrative Agent shall notify the Borrowers and the Lenders of the
Effective Date, and such notice shall be conclusive and binding. Notwithstanding
the foregoing, the obligations of the Lenders to make Loans hereunder shall not
become effective unless each of the foregoing conditions is satisfied (or waived
pursuant to Section 9.02) at or prior to 3:00 p.m., New York City time, on
September 29, 1999 (and, in the event such conditions are not so satisfied or
waived, the Commitments shall terminate at such time).
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SECTION 4.02. Each Credit Event. The obligation of each Lender
to make a Loan on the occasion of any Borrowing, is subject to the satisfaction
of the following conditions:
(a) The representations and warranties of each of the
Borrowers set forth in this Agreement (other than, after the Effective
Date, in Section 3.04(c) and in Section 3.06) shall be true and correct
on and as of the date of such Borrowing.
(b) At the time of and immediately after giving effect to such
Borrowing, no Default shall have occurred and be continuing.
Each Borrowing shall be deemed to constitute a representation and warranty by
each Borrower on the date thereof as to the matters specified in paragraphs (a)
and (b) of this Section.
ARTICLE V
AFFIRMATIVE COVENANTS
Until the Commitments have expired or been terminated and the
principal of and interest on each Loan and all fees payable hereunder shall have
been paid in full, each Borrower covenants and agrees with the Lenders that:
SECTION 5.01. Financial Statements and Other Information. The
Company will furnish to the Administrative Agent and each Lender:
(a) as soon as they are available but in any event within 120
days after the end of each fiscal year of the Company, its audited
consolidated balance sheet and related statements of earnings, equity
and cash flows as of the end of and for such year, setting forth in
each case in comparative form the figures for the previous fiscal year,
all reported on by Deloitte & Touche, LLP or other independent public
accountants of recognized national standing (without a "going concern"
or like qualification or exception and without any qualification or
exception as to the scope of such audit) to the effect that such
consolidated financial statements present fairly in all material
respects the financial condition and results of operations of the
Company and its consolidated Subsidiaries on a consolidated basis in
accordance with GAAP consistently applied;
(b) concurrently with any delivery of financial statements
under clause (a) above or (except as to clause (ii) of this paragraph
(b)) clause (c) or (d) below, a certificate of a Financial Officer of
the Company (i) certifying as to whether a Default has occurred and, if
a Default has occurred, specifying the details thereof and any action
taken or proposed to be taken with respect thereto, (ii) setting forth
reasonably detailed calculations demonstrating compliance with Section
6.04 and (iii) stating whether any change in GAAP or SAP, as the case
may be, or in the application thereof has occurred since the date of
the financial statements referred to in Section 3.04 and, if any such
change has occurred, specifying the effect of such change on the
financial statements accompanying such certificate;
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(c) within 5 days after filing with the Applicable Insurance
Regulatory Authority and in any event within 60 days after the end of
each year, the annual Statutory Statement of the Company for such year,
certified by one of its Financial Officers as presenting fairly in all
material respects the financial position of the Company for such year
in accordance with SAP;
(d) within 5 days after filing with the Applicable Insurance
Regulatory Authority and in any event within 60 days after the end of
each of the first three quarterly periods of each year, the quarterly
Statutory Statement of the Company for such period, certified by one of
its Financial Officers as presenting fairly in all material respects
the financial position of the Company for such period in accordance
with SAP; and
(e) promptly following any request therefor, such other
information regarding the operations, business affairs and financial
condition of the Company or any of its Subsidiaries, or compliance with
the terms of this Agreement, as the Administrative Agent or any Lender
may reasonably request.
SECTION 5.02. Notices of Defaults. The Borrowers will furnish
to the Administrative Agent and each Lender prompt written notice of the
occurrence of any Default. Each such notice shall be accompanied by a statement
of a Financial Officer or other executive officer of the Company setting forth
the details of the event or development requiring such notice and any action
taken or proposed to be taken with respect thereto.
SECTION 5.03. Existence; Conduct of Business. The Company
will, and will cause each of its Material Subsidiaries to, do or cause to be
done all things necessary to preserve, renew and keep in full force and effect
its legal existence and the rights, licenses, permits, privileges and franchises
material to the conduct of its business; provided that the foregoing shall not
prohibit any merger, consolidation, liquidation, dissolution or other
transaction permitted under Section 6.02.
SECTION 5.04. Payment of Obligations. The Company will, and
will cause each of its Material Subsidiaries to, pay its obligations, including
Tax liabilities, that, if not paid, could result in a Material Adverse Change
before the same shall become delinquent or in default, except where (a) the
validity or amount thereof is being contested in good faith by appropriate
proceedings, (b) the Company or such Material Subsidiary has set aside on its
books adequate reserves with respect thereto in accordance with GAAP and (c) the
failure to make payment pending such contest could not reasonably be expected to
result in a Material Adverse Change.
SECTION 5.05. Maintenance of Properties; Insurance. The
Company will, and will cause each of its Material Subsidiaries to, (a) keep and
maintain all property material to the conduct of its business in good working
order and condition, ordinary wear and tear excepted, and (b) maintain, with
financially sound and reputable insurance companies, insurance in such amounts
and against such risks as are customarily maintained by companies engaged in the
same or similar businesses operating in the same or similar locations.
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SECTION 5.06. Books and Records; Inspection Rights. The
Company will, and will cause each of its Material Subsidiaries to, keep proper
books of record and account in which full, true and correct entries are made of
all dealings and transactions in relation to its business and activities. The
Company will, and will cause each of its Material Subsidiaries to, permit any
representative designated by the Administrative Agent (and, if a Default shall
have occurred and be continuing, any representatives designated by any Lender),
upon reasonable prior notice, to visit and inspect its properties, to examine
and make extracts from its books and records, and to discuss its affairs,
finances and condition with its officers and independent accountants, all at
such reasonable times and as often as reasonably requested.
SECTION 5.07. Compliance with Laws. The Company will, and will
cause each of its Material Subsidiaries to, comply with all laws, rules,
regulations and orders of any Governmental Authority applicable to it or its
property, except where the failure to do so, individually or in the aggregate,
could not reasonably be expected to result in a Material Adverse Change.
SECTION 5.08. Use of Proceeds. The proceeds of the Loans will
be used only for general corporate purposes (including the back-up of commercial
paper issued in connection with the Acquisition Transactions) of the Company and
its Subsidiaries in the ordinary course of business; provided that no part of
the proceeds of any Loan will be used, whether directly or indirectly, for any
purpose that entails a violation of any of the Regulations of the Board,
including Regulations U and X; provided further that no part of the proceeds of
any Loan will be used, whether directly or indirectly, to acquire the capital
stock or business of any other Person without the consent of such Person; and
provided further that neither the Administrative Agent nor any Lender shall have
any responsibility as to the use of any such proceeds.
SECTION 5.09. Support Agreement. The Borrowers will maintain
the Support Agreement in full force and effect, and comply with the provisions
thereof, and will not modify, supplement or waive any of its provisions without
the prior consent of the Administrative Agent (with the approval of the Required
Lenders); provided that any modification, supplement or waiver that reduces or
impairs the support provided to Funding shall require the approval of all
Lenders.
ARTICLE VI
NEGATIVE COVENANTS
Until the Commitments have expired or terminated and the
principal of and interest on each Loan and all fees payable hereunder have been
paid in full, each Borrower covenants and agrees with the Lenders that:
SECTION 6.01. Liens. Neither Borrower will create, incur,
assume or permit to exist any Lien on any property or asset now owned or
hereafter acquired by it, or assign or sell any income or revenues (including
accounts receivable) or rights in respect of any thereof, except:
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(a) Permitted Encumbrances;
(b) any Lien existing on any property or asset prior to the
acquisition thereof by such Borrower; provided that (i) such Lien is
not created in contemplation of or in connection with such acquisition,
(ii) such Lien shall not apply to any other property or assets of such
Borrower, and (iii) such Lien shall secure only those obligations which
it secures on the date of such acquisition;
(c) Liens on assets acquired, constructed or improved by such
Borrower; provided that (i) such security interests and the
Indebtedness secured thereby are incurred prior to or within 360 days
after such acquisition or the completion of such construction or
improvement, (ii) the Indebtedness secured thereby does not exceed the
cost of acquiring, constructing or improving such assets, and (iii)
such security interests shall not apply to any other property or assets
of such Borrower;
(d) Liens on any property or assets of any Person existing at
the time such Person is merged or consolidated with or into such
Borrower and not created in contemplation of such event;
(e) Liens on any real property securing Indebtedness in
respect of which (i) the recourse of the holder of such Indebtedness
(whether direct or indirect and whether contingent or otherwise) under
the instrument creating the Lien or providing for the Indebtedness
secured by the Lien is limited to such real property directly securing
such Indebtedness and (ii) such holder may not under the instrument
creating the Lien or providing for the Indebtedness secured by the Lien
collect by levy of execution or otherwise against assets or property of
such Borrower (other than such real property directly securing such
Indebtedness) if such Borrower fails to pay such Indebtedness when due
and such holder obtains a judgement with respect thereto;
(f) Liens arising out of Securities Transactions entered into
in the ordinary course of business and on ordinary business terms;
(g) Structured Transaction Liens;
(h) Liens arising out of Asset Securitizations;
(i) Liens on Separate Accounts Assets;
(j) Liens arising out of the ordinary course of the Company's
business that do not secure any Indebtedness; provided that the
obligations of the Company secured by such Liens shall not exceed
$2,000,000,000 at any one time outstanding;
(k) Liens not otherwise permitted by the foregoing clauses of
this Section 6.01; provided that the aggregate principal amount of the
Indebtedness secured by such Liens shall not exceed $3,000,000,000 at
any one time outstanding; and
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(l) any extension, renewal or replacement of the foregoing;
provided that the Liens permitted hereunder shall not be spread to
cover any additional Indebtedness or assets (other than a substitution
of like assets) unless such additional Indebtedness or assets would
have been permitted in connection with the original creation,
incurrence or assumption of such Lien.
SECTION 6.02. Fundamental Changes.
(a) Neither Borrower will merge into or consolidate with any
other Person, or permit any other Person to merge into or consolidate with it,
or sell, transfer, lease or otherwise dispose of (in one transaction or in a
series of transactions) all or any substantial part of its assets (excluding
assets sold or disposed of in the ordinary course of business), or (in the case
of the Company) all or any substantial part of the stock of Funding (in each
case, whether now owned or hereafter acquired), or liquidate or dissolve;
provided that, if at the time thereof and immediately after giving effect
thereto no Default shall have occurred and be continuing (i) any Subsidiary of
the Company may merge into the Company in a transaction in which the Company is
the surviving corporation, (ii) Funding may sell, transfer, lease or otherwise
dispose of its assets to the Company, (iii) the Company may sell, transfer,
lease or otherwise dispose of (a "Disposition") any of its assets (other than
any substantial part of the stock of Funding) so long as (x) the Net Available
Proceeds of such Disposition, together with the Net Available Proceeds of all
prior Dispositions since the date hereof, shall not exceed an aggregate amount
equal to 50% of Net Worth as set out in the most recent consolidated financial
statements of the Company delivered pursuant to Section 3.04(a) or Section
5.01(a), as the case may be, prior to such Disposition, or (y) such Disposition
occurs in connection with the reorganization of the Company and its Subsidiaries
in connection with the establishment of a mutual holding company, (iv) the
Company may merge or consolidate with any other Person if the Company is the
surviving corporation, and (v) the Company may demutualize.
(b) The Company will not, and will not permit any of its
Material Subsidiaries to, engage to any material extent in any business other
than (i) businesses of the type conducted by the Company and its Material
Subsidiaries on the date of execution of this Agreement and businesses
reasonably related thereto or (ii) the business of providing financial services.
The Company will at all times remain as the principal operating company for the
Company and its Subsidiaries.
(c) The Company will not acquire all or any substantial part
of the outstanding common stock of GAC or any of its Subsidiaries (or any of
their assets) except in all material respects in accordance with the provisions
of the Acquisition Agreement as in effect on the date hereof.
SECTION 6.03. Transactions with Affiliates. The Company will
not, and will not permit any of its Material Subsidiaries to, sell, lease or
otherwise transfer any property or assets to, or purchase, lease or otherwise
acquire any property or assets from, or otherwise engage in any other
transactions with, any of its Affiliates, except (a) in the ordinary course of
business at prices and on terms and conditions not less favorable to the Company
or such Material Subsidiary than could be obtained on an arm's-length basis from
unrelated third parties,
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and (b) transactions between or among the Company and its wholly-owned
Subsidiaries not involving any other Affiliate.
SECTION 6.04. Net Worth. The Company will not, at any time,
permit Net Worth to be less than $9,300,000,000.
ARTICLE VII
EVENTS OF DEFAULT
If any of the following events ("Events of Default") shall
occur:
(a) either Borrower shall fail to pay any principal of any
Loan when and as the same shall become due and payable, whether at the
due date thereof or at a date fixed for prepayment thereof or
otherwise;
(b) either Borrower shall fail to pay any interest on any Loan
or any fee or any other amount (other than an amount referred to in
clause (a) of this Article) payable under this Agreement, when and as
the same shall become due and payable, and such failure shall continue
unremedied for a period of five or more Business Days;
(c) any representation or warranty made or deemed made by or
on behalf of the Company or any of its Material Subsidiaries in or in
connection with this Agreement or any amendment or modification hereof
or waiver hereunder, or in any report, certificate, financial statement
or other document furnished pursuant to or in connection with this
Agreement or any amendment or modification hereof or waiver hereunder,
shall prove to have been incorrect in any material respect when made or
deemed made;
(d) either Borrower shall fail to observe or perform any
covenant, condition or agreement contained in Section 5.02, 5.03 (with
respect to such Borrower's existence), 5.08 or 5.09 or in Article VI;
(e) either Borrower shall fail to observe or perform any
covenant, condition or agreement contained in this Agreement (other
than those specified in clause (a), (b) or (d) of this Article), and
such failure shall continue unremedied for a period of 30 days after
notice thereof from the Administrative Agent to the relevant Borrower
(which notice will be given at the request of any Lender);
(f) the Company or any of its Material Subsidiaries shall fail
to make any payment (whether of principal or interest and regardless of
amount) in respect of any Material Indebtedness, when and as the same
shall become due and payable;
(g) any event or condition occurs that results in any Material
Indebtedness becoming due prior to its scheduled maturity or that
enables or permits (with or without the giving of notice, the lapse of
time or both) the holder or holders of any Material Indebtedness or any
trustee or agent on its or their behalf to cause any Material
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Indebtedness to become due, or to require the prepayment, repurchase,
redemption or defeasance thereof, prior to its scheduled maturity;
provided that this clause (g) shall not apply to secured Indebtedness
that becomes due as a result of the voluntary sale or transfer of the
property or assets securing such Indebtedness;
(h) an involuntary proceeding shall be commenced or an
involuntary petition shall be filed seeking (i) liquidation,
reorganization or other relief in respect of the Company or any of its
Material Subsidiaries or its debts, or of a substantial part of its
assets, under any Federal, state or foreign bankruptcy, insolvency,
receivership or similar law now or hereafter in effect or (ii) the
appointment of a receiver, trustee, custodian, sequestrator,
conservator or similar official for the Company or any or its Material
Subsidiaries or for a substantial part of its assets, and, in any such
case, such proceeding or petition shall continue undismissed for 60
days or an order or decree approving or ordering any of the foregoing
shall be entered;
(i) the Company or any of its Material Subsidiaries shall (i)
voluntarily commence any proceeding or file any petition seeking
liquidation, reorganization or other relief under any Federal, state or
foreign bankruptcy, insolvency, receivership or similar law now or
hereafter in effect, (ii) consent to the institution of, or fail to
contest in a timely and appropriate manner, any proceeding or petition
described in clause (h) of this Article, (iii) apply for or consent to
the appointment of a receiver, trustee, custodian, sequestrator,
conservator or similar official for the Company or any or its Material
Subsidiaries or for a substantial part of its assets, (iv) file an
answer admitting the material allegations of a petition filed against
it in any such proceeding, (v) make a general assignment for the
benefit of creditors or (vi) take any action for the purpose of
effecting any of the foregoing;
(j) the Company or any of its Material Subsidiaries shall
become unable, admit in writing or fail generally to pay its debts as
they become due;
(k) one or more judgments for the payment of money in an
aggregate amount in excess of $200,000,000 (or its equivalent in any
other currency) shall be rendered against the Company, any Material
Subsidiary of the Company or any combination thereof and the same shall
remain undischarged for a period of 30 consecutive days during which
execution shall not be effectively stayed; or
(l) an ERISA Event shall have occurred that, in the opinion of
the Required Lenders, when taken together with all other ERISA Events
that have occurred, could reasonably be expected to result in liability
of the Company and its Material Subsidiaries in an aggregate amount
exceeding $100,000,000 in any year;
then, and in every such event (other than an event with respect to either
Borrower described in clause (h) or (i) of this Article), and at any time
thereafter during the continuance of such event, (A) the Administrative Agent
may, and at the request of the Required Lenders shall, by notice to the
Borrowers, terminate the Commitments, and thereupon the Commitments shall
terminate immediately, and (B) the Administrative Agent may, and at the request
of the Lenders holding
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more than 50% of the aggregate outstanding principal amount of the Loans shall,
by notice to the Borrowers, declare the Loans then outstanding to be due and
payable in whole (or in part, in which case any principal not so declared to be
due and payable may thereafter be declared to be due and payable), and thereupon
the principal of the Loans so declared to be due and payable, together with
accrued interest thereon and all fees and other obligations of the Borrowers
accrued hereunder, shall become due and payable immediately, without
presentment, demand, protest or other notice of any kind, all of which are
hereby waived by the Borrowers; and in case of any event with respect to either
Borrower described in clause (h) or (i) of this Article, the Commitments shall
automatically terminate and the principal of the Loans then outstanding,
together with accrued interest thereon and all fees and other obligations of the
Borrowers accrued hereunder, shall automatically become due and payable, without
presentment, demand, protest or other notice of any kind, all of which are
hereby waived by the Borrowers.
ARTICLE VIII
THE AGENTS
SECTION 8.01. Administrative Agent.
(a) Each of the Lenders hereby irrevocably appoints the
Administrative Agent as its agent and authorizes the Administrative Agent to
take such actions on its behalf and to exercise such powers as are delegated to
the Administrative Agent by the terms hereof, together with such actions and
powers as are reasonably incidental thereto.
(b) The Person serving as the Administrative Agent hereunder
shall have the same rights and powers in its capacity as a Lender as any other
Lender and may exercise the same as though it were not the Administrative Agent,
and such Person and its Affiliates may accept deposits from, lend money to and
generally engage in any kind of business with the Company or any Subsidiary or
other Affiliate thereof as if it were not the Administrative Agent hereunder.
(c) The Administrative Agent shall not have any duties or
obligations except those expressly set forth herein. Without limiting the
generality of the foregoing (a) the Administrative Agent shall not be subject to
any fiduciary or other implied duties, regardless of whether a Default has
occurred and is continuing, (b) the Administrative Agent shall not have any duty
to take any discretionary action or exercise any discretionary powers, except
discretionary rights and powers expressly contemplated hereby that the
Administrative Agent is required to exercise in writing by the Required Lenders
(or such other number or percentage of the Lenders as shall be necessary under
the circumstances as provided in Section 9.02), and (c) except as expressly set
forth herein, the Administrative Agent shall not have any duty to disclose, and
shall not be liable for the failure to disclose, any information relating to the
Company or any of its Subsidiaries that is communicated to or obtained by the
Person serving as Administrative Agent or any of its Affiliates in any capacity.
The Administrative Agent shall not be liable for any action taken or not taken
by it with the consent or at the request of the Required
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Lenders (or such other number or percentage of the Lenders as shall be necessary
under the circumstances as provided in Section 9.02) or in the absence of its
own gross negligence or wilful misconduct. The Administrative Agent shall be
deemed not to have knowledge of any Default unless and until written notice
thereof is given to the Administrative Agent by the Borrowers or a Lender, and
the Administrative Agent shall not be responsible for or have any duty to
ascertain or inquire into (i) any statement, warranty or representation made by
any other Person in or in connection with this Agreement, (ii) the contents of
any certificate, report or other document delivered hereunder or in connection
herewith, (iii) the performance or observance of any of the covenants,
agreements or other terms or conditions set forth herein, (iv) the validity,
enforceability, effectiveness or genuineness of this Agreement or any other
agreement, instrument or document, or (v) the satisfaction of any condition set
forth in Article IV or elsewhere herein, other than to confirm receipt of items
expressly required to be delivered to the Administrative Agent.
(d) The Administrative Agent shall be entitled to rely upon,
and shall not incur any liability for relying upon, any notice, request,
certificate, consent, statement, instrument, document or other writing
reasonably believed by it to be genuine and to have been signed or sent by the
proper Person. The Administrative Agent also may rely upon any statement made to
it orally or by telephone and believed by it to be made by the proper Person,
and shall not incur any liability for relying thereon. The Administrative Agent
may consult with legal counsel (who may be counsel for the Borrowers),
independent accountants and other experts selected by it, and shall not be
liable for any action taken or not taken by it in accordance with the advice of
any such counsel, accountants or experts.
(e) The Administrative Agent may perform any and all its
duties and exercise its rights and powers by or through any one or more
sub-agents appointed by the Administrative Agent. The Administrative Agent and
any such sub-agent may perform any and all its duties and exercise its rights
and powers through their respective Related Parties. The exculpatory provisions
of the preceding paragraphs shall apply to any such sub-agent and to the Related
Parties of the Administrative Agent and any such sub-agent, and shall apply to
their respective activities in connection with the syndication of the credit
facilities provided for herein as well as activities as Administrative Agent.
(f) Subject to the appointment and acceptance of a successor
Administrative Agent as provided in this paragraph, the Administrative Agent may
resign at any time by notifying the Lenders and the Borrowers. Upon any such
resignation, the Required Lenders shall have the right, in consultation with the
Borrowers, to appoint a successor. If no successor shall have been so appointed
by the Required Lenders and shall have accepted such appointment within 30 days
after the retiring Administrative Agent gives notice of its resignation, then
the retiring Administrative Agent may, on behalf of the Lenders, appoint a
successor Administrative Agent which shall be a bank with an office in New York,
New York, or an Affiliate of any such bank. Upon the acceptance of its
appointment as Administrative Agent hereunder by a successor, such successor
shall succeed to and become vested with all the rights, powers, privileges and
duties of the retiring Administrative Agent and the retiring Administrative
Agent shall be discharged from its duties and obligations hereunder. The fees
payable by the Borrowers to a successor Administrative Agent shall be the same
as those payable to its
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predecessor unless otherwise agreed between the Borrowers and such successor.
After the Administrative Agent's resignation hereunder, the provisions of this
Section 8.01 and Section 9.03 shall continue in effect for the benefit of such
retiring Administrative Agent, its sub-agents and their respective Related
Parties in respect of any actions taken or omitted to be taken by any of them
while it was acting as Administrative Agent.
(g) Each Lender acknowledges that it has, independently and
without reliance upon the Administrative Agent or any other Lender and based on
such documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement. Each Lender also
acknowledges that it will, independently and without reliance upon the
Administrative Agent or any other Lender and based on such documents and
information as it shall from time to time deem appropriate, continue to make its
own decisions in taking or not taking action under or based upon this Agreement,
any related agreement or any document furnished hereunder or thereunder.
SECTION 8.02. Syndication Agent and Joint-Arrangers. The
Syndication Agent and Joint-Arrangers named on the cover page of this Agreement,
in their capacity as such, shall have no obligation, responsibility or required
performance hereunder and shall not become liable in any manner to any party
hereto. No party hereto shall have any obligation or liability, or owe any
performance, hereunder, to the Syndication Agent and Joint-Arrangers in their
capacity as such.
SECTION 8.03. Documentation Agents. The Documentation Agents
named on the cover page of this Agreement, in their capacities as such, shall
have no obligation, responsibility or required performance hereunder and shall
not become liable in any manner to any party hereto. No party hereto shall have
any obligation or liability, or owe any performance, hereunder, to the
Documentation Agents, in their capacities as such.
ARTICLE IX
MISCELLANEOUS
SECTION 9.01. Notices. Except in the case of notices and other
communications expressly permitted to be given by telephone, all notices and
other communications provided for herein shall be in writing and shall be
delivered by hand or overnight courier service, mailed by certified or
registered mail or sent by telecopy, as follows:
(a) if to the Company or Funding, to it at 1 Madison Avenue,
New York, NY 10010, Attention of William J. Wheeler, Senior Vice
President and Treasurer (Telecopy No. (212) 578-0266), with a copy to
the Company, 1 Madison Avenue, New York, NY 10010, Attention of William
H. Nugent, Assistant Vice President (Telecopy No. (212) 578-8321);
(b) if to the Administrative Agent, to The Chase Manhattan
Bank, The Loan & Agency Services Group, One Chase Manhattan Plaza, 8th
Floor, New York, New York, 10081, Attention of Laura Rebecca (Telecopy
No. (212) 552-7490), with a copy to The
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Chase Manhattan Bank, 270 Park Avenue, 15th Floor, New York, New York
10017, Attention of Heather A. Lindstrom (Telecopy No. (212) 270-0412);
and
(c) if to any Lender, to it at its address (or telecopy
number) set forth in its Administrative Questionnaire.
Any party hereto may change its address or telecopy number for notices and other
communications hereunder by notice to the other parties hereto. All notices and
other communications given to any party hereto in accordance with the provisions
of this Agreement shall be deemed to have been given on the date of receipt.
SECTION 9.02. Waivers; Amendments.
(a) No failure or delay by the Administrative Agent or any
Lender in exercising any right or power hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right or power, or
any abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or the exercise of any other
right or power. The rights and remedies of the Administrative Agent and the
Lenders hereunder are cumulative and are not exclusive of any rights or remedies
that they would otherwise have. No waiver of any provision of this Agreement or
consent to any departure by the Borrowers therefrom shall in any event be
effective unless the same shall be permitted by paragraph (b) of this Section,
and then such waiver or consent shall be effective only in the specific instance
and for the purpose for which given. Without limiting the generality of the
foregoing, the making of a Loan shall not be construed as a waiver of any
Default, regardless of whether the Administrative Agent or any Lender may have
had notice or knowledge of such Default at the time.
(b) Neither this Agreement nor any provision hereof may be
waived, amended or modified except pursuant to an agreement or agreements in
writing entered into by the Borrowers and the Required Lenders or by the
Borrowers and the Administrative Agent with the consent of the Required Lenders;
provided that no such agreement shall (i) increase the Commitment of any Lender
without the written consent of such Lender, (ii) reduce the principal amount of
any Loan or reduce the rate of interest thereon, or reduce any fees payable
hereunder, without the written consent of each Lender affected thereby, (iii)
postpone the scheduled date of payment of the principal amount of any Loan, or
any interest thereon, or any fees payable hereunder, or reduce the amount of,
waive or excuse any such payment, or postpone the scheduled date of expiration
of any Commitment, without the written consent of each Lender affected thereby,
(iv) change Section 2.16(b) or (c) in a manner that would alter the pro rata
sharing of payments required thereby, without the written consent of each
Lender, or (v) change any of the provisions of this Section or the definition of
"Required Lenders" or any other provision hereof specifying the number or
percentage of Lenders required to waive, amend or modify any rights hereunder or
make any determination or grant any consent hereunder, without the written
consent of each Lender; provided further that no such agreement shall amend,
modify or otherwise affect the rights or duties of the Administrative Agent
hereunder without the prior written consent of the Administrative Agent.
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SECTION 9.03. Expenses; Indemnity; Damage Waiver.
(a) The Company shall pay (i) all reasonable out-of-pocket
expenses incurred by the Administrative Agent and its Affiliates, including the
reasonable fees, charges and disbursements of counsel for the Administrative
Agent, in connection with the syndication of the credit facilities provided for
herein, the preparation and administration of this Agreement or any amendments,
modifications or waivers of the provisions hereof (whether or not the
transactions contemplated hereby or thereby shall be consummated), and (ii) all
out-of-pocket expenses incurred by the Administrative Agent or any Lender,
including the fees, charges and disbursements of any counsel for the
Administrative Agent or any Lender, in connection with the enforcement or
protection of its rights in connection with this Agreement, including its rights
under this Section, or in connection with the Loans made hereunder, including
all such out-of-pocket expenses incurred during any workout, restructuring or
negotiations in respect of such Loans.
(b) The Company shall indemnify the Administrative Agent and
each Lender, and each Related Party of any of the foregoing Persons (each such
Person being called an "Indemnitee") against, and hold each Indemnitee harmless
from, any and all losses, claims, damages, liabilities and related expenses,
including the fees, charges and disbursements of any counsel for any Indemnitee,
incurred by or asserted against any Indemnitee arising out of, in connection
with, or as a result of (i) the use or proposed use of the proceeds of any Loan,
or (ii) any actual or prospective claim, litigation, investigation or proceeding
relating thereto, whether based on contract, tort or any other theory and
regardless of whether any Indemnitee is a party thereto; provided that such
indemnity shall not, as to any Indemnitee, be available to the extent that such
losses, claims, damages, liabilities or related expenses resulted from the gross
negligence or wilful misconduct of such Indemnitee.
(c) To the extent that the Company fails to pay any amount
required to be paid by it to the Administrative Agent under paragraph (a) or (b)
of this Section, each Lender severally agrees to pay to the Administrative Agent
such Lender's Applicable Percentage (determined as of the time that the
applicable unreimbursed expense or indemnity payment is sought) of such unpaid
amount; provided that the unreimbursed expense or indemnified loss, claim,
damage, liability or related expense, as the case may be, was incurred by or
asserted against the Administrative Agent, in its capacity as such.
(d) To the extent permitted by applicable law, the Borrowers
shall not assert, and each Borrower hereby waives, any claim against any
Indemnitee, on any theory of liability, for special, indirect, consequential or
punitive damages (as opposed to direct or actual damages) arising out of, in
connection with, or as a result of, this Agreement or any agreement or
instrument contemplated hereby, the Transactions, any Loan or the use of the
proceeds thereof.
(e) All amounts due under this Section shall be payable not
later than 10 days after written demand therefor.
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SECTION 9.04. Successors and Assigns.
(a) The provisions of this Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns permitted hereby, except that the Borrowers may not assign or otherwise
transfer any of their respective rights or obligations hereunder without the
prior written consent of each Lender (and any attempted assignment or transfer
by either Borrower without such consent shall be null and void). Nothing in this
Agreement, expressed or implied, shall be construed to confer upon any Person
(other than the parties hereto, their respective successors and assigns
permitted hereby and, to the extent expressly contemplated hereby, the Related
Parties of each of the Administrative Agent, and the Lenders) any legal or
equitable right, remedy or claim under or by reason of this Agreement.
(b) Any Lender may assign to one or more assignees all or a
portion of its rights and obligations under this Agreement (including all or a
portion of its Commitment and the Loans at the time owing to it); provided that
(i) except in the case of an assignment to a Lender or an Affiliate of a Lender,
each of the Company and the Administrative Agent must give their prior written
consent to such assignment (which consent shall not be unreasonably withheld),
(ii) except in the case of an assignment to a Lender or an Affiliate of a Lender
or an assignment of the entire remaining amount of the assigning Lender's
Commitment, the amount of the Commitment of the assigning Lender subject to each
such assignment (determined as of the date the Assignment and Acceptance with
respect to such assignment is delivered to the Administrative Agent) shall not
be less than $5,000,000 unless each of the Company and the Administrative Agent
otherwise consent, (iii) each partial assignment shall be made as an assignment
of a proportionate part of all the assigning Lender's rights and obligations
under this Agreement, except that this clause (iii) shall not apply to rights in
respect of outstanding Competitive Loans, (iv) the parties to each assignment
shall execute and deliver to the Administrative Agent an Assignment and
Acceptance, together with a processing and recordation fee of $3,500, and (v)
the assignee, if it shall not be a Lender, shall deliver to the Administrative
Agent an Administrative Questionnaire; provided further that any consent of the
Company otherwise required under this paragraph shall not be required if an
Event of Default under clause (h) or (i) of Article VII has occurred and is
continuing. Subject to acceptance and recording thereof pursuant to paragraph
(d) of this Section, from and after the effective date specified in each
Assignment and Acceptance the assignee thereunder shall be a party hereto and,
to the extent of the interest assigned by such Assignment and Acceptance, have
the rights and obligations of a Lender under this Agreement, and the assigning
Lender thereunder shall, to the extent of the interest assigned by such
Assignment and Acceptance, be released from its obligations under this Agreement
(and, in the case of an Assignment and Acceptance covering all of the assigning
Lender's rights and obligations under this Agreement, such Lender shall cease to
be a party hereto but shall continue to be entitled to the benefits of Sections
2.13, 2.14, 2.15 and 9.03). Any assignment or transfer by a Lender of rights or
obligations under this Agreement that does not comply with this paragraph shall
be treated for purposes of this Agreement as a sale by such Lender of a
participation in such rights and obligations in accordance with paragraph (e) of
this Section.
(c) The Administrative Agent, acting for this purpose as an
agent of the Borrowers, shall maintain at one of its offices in the City of New
York a copy of each
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Assignment and Acceptance delivered to it and a register for the recordation of
the names and addresses of the Lenders, and the Commitment of, and principal
amount of the Loans owing to, each Lender pursuant to the terms hereof from time
to time (the "Register"). The entries in the Register shall be conclusive, and
the Borrowers, the Administrative Agent and the Lenders may treat each Person
whose name is recorded in the Register pursuant to the terms hereof as a Lender
hereunder for all purposes of this Agreement, notwithstanding notice to the
contrary. The Register shall be available for inspection by the Borrowers and
any Lender, at any reasonable time and from time to time upon reasonable prior
notice.
(d) Upon its receipt of a duly completed Assignment and
Acceptance executed by an assigning Lender and an assignee, the assignee's
completed Administrative Questionnaire (unless the assignee shall already be a
Lender hereunder), the processing and recordation fee referred to in paragraph
(b) of this Section and any written consent to such assignment required by
paragraph (b) of this Section, the Administrative Agent shall accept such
Assignment and Acceptance and record the information contained therein in the
Register. No assignment shall be effective for purposes of this Agreement unless
it has been recorded in the Register as provided in this paragraph.
(e) Any Lender may, without the consent of the Borrowers or
the Administrative Agent, sell participations to one or more banks or other
entities (a "Participant") in all or a portion of such Lender's rights and
obligations under this Agreement (including all or a portion of its Commitment
and the Loans owing to it); provided that (i) such Lender's obligations under
this Agreement shall remain unchanged, (ii) such Lender shall remain solely
responsible to the other parties hereto for the performance of such obligations
and (iii) the Borrowers, the Administrative Agent and the other Lenders shall
continue to deal solely and directly with such Lender in connection with such
Lender's rights and obligations under this Agreement. Any agreement or
instrument pursuant to which a Lender sells such a participation shall provide
that such Lender shall retain the sole right to enforce this Agreement and to
approve any amendment, modification or waiver of any provision of this
Agreement; provided that such agreement or instrument may provide that such
Lender will not, without the consent of the Participant, agree to any amendment,
modification or waiver described in the first proviso to Section 9.02(b) that
affects such Participant. Subject to paragraph (f) of this Section, each
Borrower agrees that each Participant shall be entitled to the benefits of
Sections 2.13, 2.14 and 2.15 to the same extent as if it were a Lender and had
acquired its interest by assignment pursuant to paragraph (b) of this Section.
To the extent permitted by law, each Participant also shall be entitled to the
benefits of Section 9.08 as though it were a Lender, provided such Participant
agrees to be subject to Section 2.16(c) as though it were a Lender.
(f) A Participant shall not be entitled to receive any greater
payment under Section 2.13 or 2.15 than the applicable Lender would have been
entitled to receive with respect to the participation sold to such Participant,
unless the sale of the participation to such Participant is made with the
Company's prior written consent. A Participant that would be a Foreign Lender if
it were a Lender shall not be entitled to the benefits of Section 2.15 unless
the Company is notified of the participation sold to such Participant and such
Participant agrees, for the benefit of the Borrowers, to comply with Section
2.15(e) as though it were a Lender.
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(g) Any Lender may at any time pledge or assign a security
interest in all or any portion of its rights under this Agreement to secure
obligations of such Lender, including any pledge or assignment to secure
obligations to a Federal Reserve Bank, and this Section shall not apply to any
such pledge or assignment of a security interest; provided that no such pledge
or assignment of a security interest shall release a Lender from any of its
obligations hereunder or substitute any such pledgee or assignee for such Lender
as a party hereto.
(h) Anything in this Section to the contrary notwithstanding,
no Lender may assign or participate any interest in any Loan held by it
hereunder to the Company or any Affiliate or Subsidiary thereof without the
prior written consent of each Lender.
SECTION 9.05. Survival. All covenants, agreements,
representations and warranties made by the Borrowers herein and in the
certificates or other instruments delivered in connection with or pursuant to
this Agreement shall be considered to have been relied upon by the other parties
hereto and shall survive the execution and delivery of this Agreement and the
making of any Loans, regardless of any investigation made by any such other
party or on its behalf and notwithstanding that the Administrative Agent or any
Lender may have had notice or knowledge of any Default or incorrect
representation or warranty at the time any credit is extended hereunder, and
shall continue in full force and effect as long as the principal of or any
accrued interest on any Loan or any fee or any other amount payable under this
Agreement is outstanding and unpaid and so long as the Commitments have not
expired or terminated. The provisions of Sections 2.13, 2.14, 2.15 and 9.03 and
Article VIII shall survive and remain in full force and effect regardless of the
consummation of the transactions contemplated hereby, the repayment of the
Loans, the expiration or termination of the Commitments or the termination of
this Agreement or any provision hereof.
SECTION 9.06. Counterparts; Integration; Effectiveness. This
Agreement may be executed in counterparts (and by different parties hereto on
different counterparts), each of which shall constitute an original, but all of
which when taken together shall constitute a single contract. This Agreement and
any separate letter agreements with respect to fees payable to the
Administrative Agent constitute the entire contract among the parties relating
to the subject matter hereof and supersede any and all previous agreements and
understandings, oral or written, relating to the subject matter hereof. Except
as provided in Section 4.01, this Agreement shall become effective when it shall
have been executed by the Administrative Agent and when the Administrative Agent
shall have received counterparts hereof which, when taken together, bear the
signatures of each of the other parties hereto, and thereafter shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and assigns. Delivery of an executed counterpart of a signature page
of this Agreement by telecopy shall be effective as delivery of a manually
executed counterpart of this Agreement.
SECTION 9.07. Severability. Any provision of this Agreement
held to be invalid, illegal or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such invalidity, illegality
or unenforceability without affecting the validity, legality and enforceability
of the remaining provisions hereof; and the invalidity of a particular provision
in a particular jurisdiction shall not invalidate such provision in any other
jurisdiction.
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SECTION 9.08. Right of Setoff. If an Event of Default shall
have occurred and be continuing, each Lender and each of its Affiliates is
hereby authorized at any time and from time to time, to the fullest extent
permitted by law, to set off and apply any and all deposits (general or special,
time or demand, provisional or final) at any time held and other obligations at
any time owing by such Lender or Affiliate to or for the credit or the account
of the relevant Borrower against any of and all the obligations of such Borrower
now or hereafter existing under this Agreement held by such Lender, irrespective
of whether or not such Lender shall have made any demand under this Agreement
and although such obligations may be unmatured. The rights of each Lender under
this Section are in addition to other rights and remedies (including other
rights of setoff) which such Lender may have.
SECTION 9.09. Governing Law; Jurisdiction; Consent to Service
of Process.
(a) This Agreement shall be construed in accordance with and
governed by the law of the State of New York.
(b) Each Borrower hereby irrevocably and unconditionally
submits, for itself and its property, to the nonexclusive jurisdiction of the
Supreme Court of the State of New York sitting in New York County and of the
United States District Court of the Southern District of New York, and any
appellate court from any thereof, in any action or proceeding arising out of or
relating to this Agreement, or for recognition or enforcement of any judgment,
and each of the parties hereto hereby irrevocably and unconditionally agrees
that all claims in respect of any such action or proceeding may be heard and
determined in such New York State or, to the extent permitted by law, in such
Federal court. Each of the parties hereto agrees that a final judgment in any
such action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
Nothing in this Agreement shall affect any right that the Administrative Agent
or any Lender may otherwise have to bring any action or proceeding relating to
this Agreement against the Borrowers or their respective properties in the
courts of any jurisdiction.
(c) Each Borrower hereby irrevocably and unconditionally
waives, to the fullest extent it may legally and effectively do so, any
objection which it may now or hereafter have to the laying of venue of any suit,
action or proceeding arising out of or relating to this Agreement in any court
referred to in paragraph (b) of this Section. Each of the parties hereto hereby
irrevocably waives, to the fullest extent permitted by law, the defense of an
inconvenient forum to the maintenance of such action or proceeding in any such
court.
(d) Each party to this Agreement irrevocably consents to
service of process in the manner provided for notices in Section 9.01. Nothing
in this Agreement will affect the right of any party to this Agreement to serve
process in any other manner permitted by law.
SECTION 9.10. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE
TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF
OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER
BASED ON
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CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO
REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY
OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK
TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER
PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER
THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
SECTION 9.11. Headings. Article and Section headings and the
Table of Contents used herein are for convenience of reference only, are not
part of this Agreement and shall not affect the construction of, or be taken
into consideration in interpreting, this Agreement.
SECTION 9.12. Confidentiality. Each of the Administrative
Agent and the Lenders agrees to maintain the confidentiality of the Information
(as defined below), except that Information may be disclosed (a) to its and its
Affiliates' directors, officers, employees and agents, including accountants,
legal counsel and other advisors (it being understood that the Persons to whom
such disclosure is made will be informed of the confidential nature of such
Information and instructed to keep such Information confidential), (b) to the
extent requested by any regulatory authority, (c) to the extent required by
applicable laws or regulations or by any subpoena or similar legal process, (d)
to any other party to this Agreement, (e) in connection with the exercise of any
remedies hereunder or any suit, action or proceeding relating to this Agreement
or the enforcement of rights hereunder, (f) subject to an agreement containing
provisions substantially the same as those of this Section, to any assignee of
or Participant in, or any prospective assignee of or Participant in, any of its
rights or obligations under this Agreement, (g) with the consent of the Company
or (h) to the extent such Information (i) becomes publicly available other than
as a result of a breach of this Section or (ii) becomes available to the
Administrative Agent or any Lender on a nonconfidential basis from a source
other than the Company. For the purposes of this Section, "Information" means
all information received from the Company relating to the Company or its
business, other than any such information that is available to the
Administrative Agent or any Lender on a nonconfidential basis prior to
disclosure by the Company; provided that, in the case of information received
from the Company after the date hereof, such information is clearly identified
at the time of delivery as confidential. Any Person required to maintain the
confidentiality of Information as provided in this Section shall be considered
to have complied with its obligation to do so if such Person has exercised the
same degree of care to maintain the confidentiality of such Information as such
Person would accord to its own confidential information.
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their respective authorized officers as of the
day and year first above written.
METROPOLITAN LIFE INSURANCE COMPANY
By: ________________________________
Name:
Title:
METLIFE FUNDING, INC.
By: ________________________________
Name:
Title:
THE CHASE MANHATTAN BANK,
individually and as
Administrative Agent,
By _________________________________
Name:
Title:
CREDIT SUISSE FIRST BOSTON
By _________________________________
Name:
Title:
By _________________________________
Name:
Title:
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CITIBANK, N.A.
By _________________________________
Title:
BANK ONE, NA (MAIN OFFICE CHICAGO)
By _________________________________
Title:
FIRST UNION NATIONAL BANK
By _________________________________
Title:
FLEET NATIONAL BANK
By _________________________________
Title:
MELLON BANK, N.A.
By _________________________________
Title:
CAJA DE AHORROS Y MONTE DE
PIEDAD DE MADRID
By _________________________________
Title:
364-Day Credit Agreement
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COMMERZBANK AG, NEW YORK BRANCH
By _________________________________
Title:
FIRST HAWAIIAN BANK
By _________________________________
Title:
DEUTSCHE BANK AG
By _________________________________
Title:
By _________________________________
Title:
MORGAN GUARANTY TRUST
COMPANY OF NEW YORK
By _________________________________
Title:
STATE STREET BANK AND TRUST
COMPANY
By _________________________________
Title:
364-Day Credit Agreement
<PAGE> 62
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SUNTRUST BANK, ATLANTA
By _________________________________
Title:
By _________________________________
Title:
WACHOVIA BANK, N.A.
By _________________________________
Title:
BARCLAYS BANK PLC
By _________________________________
Title:
THE NORTHERN TRUST COMPANY
By _________________________________
Title:
MERCANTILE BANK OF ST. LOUIS
By _________________________________
Title:
364-Day Credit Agreement
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BANQUE NATIONALE DE PARIS
By _________________________________
Title:
By _________________________________
Title:
ROYAL BANK OF CANADA
By _________________________________
Title:
By _________________________________
Title:
CREDIT LYONNAIS NEW YORK BRANCH
By _________________________________
Title:
BANK OF AMERICA, N.A.
By _________________________________
Title:
SOCIETE GENERALE
By _________________________________
Title:
SANWA BANK LTD.
By _________________________________
Title:
364-Day Credit Agreement
<PAGE> 64
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ABN AMRO BANK, N.V.
By _________________________________
Title:
THE BANK OF NOVA SCOTIA
By _________________________________
Title:
US BANK NATIONAL ASSOCIATION
By _________________________________
Title:
WELLS FARGO BANK
By _________________________________
Title:
WESTDEUTSCHE LANDESBANK
GIROZENTRALE
By _________________________________
Title:
NATIONAL AUSTRALIA BANK LTD.
By _________________________________
Title:
364-Day Credit Agreement
<PAGE> 65
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BANCA COMMERCIALE ITALIANA
By _________________________________
Title:
CARIPLO - CASSA DI RISPARMIO DELLE
PROVINCIE LOMBARDE S.P.A.
By _________________________________
Title:
SANPAOLO IMI BANK, NEW YORK BRANCH
By _________________________________
Title:
By _________________________________
Title:
THE BANK OF NEW YORK
By _________________________________
Title:
364-Day Credit Agreement
<PAGE> 66
SCHEDULE 2.01
<TABLE>
<CAPTION>
Lender Commitment
- ------ ----------
<S> <C>
Administrative Agent
- --------------------
The Chase Manhattan Bank $270,000,000
Syndication Agent
- -----------------
Credit Suisse First Boston 265,000,000
Documentation Agents
- --------------------
The Bank of New York 260,000,000
Citibank, N.A. 260,000,000
Arrangers
- ---------
Bank of America, N.A. 200,000,000
Banque Nationale de Paris 200,000,000
Bank One, NA (Main Office Chicago) 200,000,000
Commerzbank AG, New York Branch 200,000,000
Credit Lyonnais New York Branch 200,000,000
First Union National Bank 200,000,000
Fleet National Bank 200,000,000
Mellon Bank, N.A. 200,000,000
Royal Bank of Canada 200,000,000
SANPAOLO IMI Bank, New York Branch 200,000,000
Wachovia Bank, N.A. 200,000,000
Senior Managing Agents
- ----------------------
Barclays Bank Plc 145,000,000
Deutsche Bank AG, New York and/or 145,000,000
Cayman Islands Branches
- --------------------------
Managing Agents
- ---------------
Banca Commerciale Italiana 115,000,000
The Bank of Nova Scotia 115,000,000
Caja de Ahorros y Monte
de Pieda de Madrid 115,000,000
Morgan Guaranty Trust Company
of New York 115,000,000
National Australia Bank Ltd. 115,000,000
Societe Generale 115,000,000
SunTrust Bank, Atlanta 115,000,000
Co-Agents
- ---------
Cariplo-Cassa di Risparmio delle
Lombarde S.p.A. 100,000,000
Sanwa Bank Ltd. 100,000,000
Westdeutsche Landesbank Girozentrale 100,000,000
Participants
- ------------
ABN AMRO Bank, N.V. 50,000,000
First Hawaiian Bank 50,000,000
Mercantile Bank of St. Louis 50,000,000
The Northern Trust Company 50,000,000
State Street Bank and Trust Company 50,000,000
U.S. Bank National Association 50,000,000
Wells Fargo Bank 50,000,000
- ----------------------------------------------------------------------------
Total $5,000,000,000
</TABLE>
Schedule 2.01 -- Commitments
----------------------------
<PAGE> 67
SCHEDULE 3.06
DISCLOSED MATTERS
[See Section 3.06]
The Company and certain of its subsidiaries are currently
defendants in approximately 400 lawsuits, including over 40 putative
or certified class action lawsuits, raising allegations of improper
marketing, sales, servicing and administration of individual life
insurance or annuities, which are referred to as "sales practices
claims". Two of these putative class actions are filed in Canada, and
the remainder are filed in the U.S. These cases are brought by or on
behalf of policyholders and others and allege, among other claims,
that individual life insurance policies were improperly sold in
replacement transactions or with inadequate or inaccurate disclosure
concerning the period for which premiums would be payable, or were
misleadingly sold as savings or retirement plans. The classes proposed
in the pending class actions are defined broadly enough, in the
aggregate, to include a substantial number of active and lapsed
policyholders that purchased individual life insurance policies and
annuity contracts and certificates from the Company during the 1980s
and 1990s. In California, Ohio and West Virginia, courts have
certified or deemed certifiable classes on behalf of policyholders in
those states who allegedly did not receive proper notice of
replacement. A California trial court has also certified a class of
California universal life policyholders who were charged amounts
related to the deferred acquisition tax in their costs of insurance.
As discussed below, the settlement announced on August 18, 1999 will
apply to this action. A Federal Court in Massachusetts has certified a
mandatory class involving certain former policyholders of New England
Mutual Life Insurance Company, with which the Company merged in 1996.
The United States Court of Appeals remanded the case to the trial
court for further consideration. A number of the sales practices
claims pending in federal courts have been consolidated as a
multidistrict proceeding for pre-trial purposes in the United States
District Court for the Western District of Pennsylvania and, as to
former New England Mutual Life Insurance Company policyholders, in the
United States District Court in Massachusetts. In another case, a New
York Federal court has certified or conditionally certified some
subclasses of purchasers of the Company's policies and annuity
contracts outside the U.S. and Canada. In the past, the Company has
resolved some of the individual lawsuits through settlement,
dispositive motion or, in a few instances, trial. Most of the current
cases seek substantial damages, including in some cases punitive and
treble damages and attorneys' fees. Additional litigation relating to
the Company's marketing and sale of individual life insurance may be
commenced in the future.
The following table sets forth the number of sales practices
claims pending against Metropolitan Life Insurance Company as of the
dates indicated, the number of claims received by Metropolitan Life
Insurance Company during the periods ending on those
Schedule 3.06 Disclosed Matters
-------------------------------
<PAGE> 68
-2-
dates and the total settlement payments made to resolve sales
practices claims during those periods:
<TABLE>
<CAPTION>
At or for the six At or for the years
months ended June 30, ended December 31,
1999 1997 1998
---- ---- ----
<S> <C> <C> <C>
Sales practices claims at period
end (approximate) ...................... 511 432 302
Number of claims received during
period (approximate) ................... 79 131 57
Settlement payments during period
(Dollars in millions) (1) ................ $12.0 $10.0 $17.0
</TABLE>
- -------------------
(1) Settlement payments represent payments made during the period in connection
with settlements made in that period and in prior periods. Amounts do not
include our attorneys' fees and expenses and do not reflect amounts
received from insurance carriers.
On August 18, 1999, the Company announced a settlement resolving
the consolidated class action lawsuit currently pending in the United
States District Court for the Western District of Pennsylvania. The
settlement covers sales practices claims in connection with permanent
life insurance policies and annuity contracts or certificates issued
by the Company pursuant to sales made in the U.S. to individuals
between January 1, 1982 and December 31, 1997. The class covered by
the settlement includes owners of approximately six million in-force
and terminated insurance policies and approximately one million
in-force and terminated annuity contracts.
The settlement should resolve each of the class action lawsuits
relating to sales practices claims described above, other than the
class action lawsuits involving former policyholders of New England
Mutual Life Insurance Company and purchasers of the Company's policies
and annuity contracts outside the U.S. The settlement would also
resolve the individual lawsuits relating to sales between January 1,
1982 and December 31, 1997, although the plaintiffs in those lawsuits
may elect to be excluded from the settlement and pursue lawsuits on an
individual basis against the Company or its subsidiaries.
The court has preliminarily approved the settlement and has
scheduled a fairness hearing on the settlement for December 2, 1999.
The settlement is subject to the court's approval and the resolution
of any appeals that are taken. The settlement permits the parties to
argue to the court that the settlement is unfair if the number of
policyholders who elect, prior to the fairness hearing, to be excluded
from the settlement or to use the claims evaluation procedure
described below exceed specified thresholds.
The settlement provides for three forms of relief. General relief
would be provided, in the form of free death benefits, automatically
to class members who do not elect to exclude themselves from the
settlement or who do not elect the claim evaluation procedures set
forth in the settlement. The claim evaluation procedures permit a
class member to have a claim evaluated by a third party under
procedures set forth in the
Schedule 3.06 Disclosed Matters
-------------------------------
<PAGE> 69
-3-
settlement. Claim awards made under the claim evaluation procedures
will be in the form of policy adjustments, free death benefits or, in
some instances, cash payments. In addition, class members who have or
had an ownership interest in specified policies will also
automatically receive deferred acquisition cost tax relief in the form
of free death benefits. Class members covered by the settlement who
elect to exclude themselves from the settlement may pursue lawsuits on
an individual basis against the Company. The settlement fixes the
aggregate amounts that are available under each form of relief.
The Company expects that the total cost to it of the settlement
will be approximately $957 million. This amount is equal to the amount
of the increase in liabilities for the death benefits and policy
adjustments and the present value of expected cash payments to be
provided to included class members, as well as attorneys' fees and
expenses and estimated other administrative costs, but does not
include the cost of litigation with policyholders who are excluded
from the settlement. The Company believes that the cost to it of the
settlement will be substantially covered by available reinsurance and
the provisions made in the Company's consolidated financial
statements, and thus will not have a material adverse effect on our
consolidated financial position or results of operations. The Company
has not yet made a claim under those reinsurance policies and,
although there is a risk that the carriers will refuse coverage for
all of part of the claim, the Company believes this is very unlikely
to occur. The Company believes that it has made adequate provision in
its consolidated financial statements for litigation costs involving
policyholders who are excluded from the settlement.
Regulatory authorities in a small number of states, including
both insurance departments and attorneys general, have ongoing
investigations of the Company's sales of individual life insurance or
annuities, including investigations of alleged improper replacement
transactions and alleged improper sales of insurance with inaccurate
or inadequate disclosures as to the period for which premiums would be
payable. Over the past several years, the Company has resolved a
number of investigations by other regulatory authorities for monetary
payments and certain other relief.
The Company is also a defendant in numerous lawsuits seeking
compensatory and punitive damages for personal injuries allegedly
caused by exposure to asbestos or asbestos-containing products. The
Company has never engaged in the business of manufacturing, producing,
distributing or selling asbestos or asbestos-containing products.
Rather, these lawsuits, currently numbering in the thousands, have
principally been based upon allegations relating to certain research,
publication and other activities of one or more of the Company's
employees during the period from the 1920s through approximately the
1950s and alleging that the Company learned or should have learned of
certain health risks posed by asbestos and, among other things,
improperly publicized or failed to disclose those health risks. Legal
theories asserted against the Company have included negligence,
intentional tort claims and conspiracy claims concerning the health
risks associated with asbestos. While the Company believes it has
meritorious defenses to these claims, and has not suffered any adverse
judgments in respect of these claims, most of the cases have been
resolved by settlements. The Company intends to continue to exercise
its best judgment regarding settlement or defense of such cases. The
Schedule 3.06 Disclosed Matters
-------------------------------
<PAGE> 70
-4-
number of such cases that may be brought or the aggregate amount of
any liability that may ultimately be incurred by the Company is
uncertain. Significant portions of amounts paid in settlement of such
cases have been funded with proceeds from a previously resolved
dispute with its primary, umbrella and first level excess liability
insurance carriers. The Company is presently in litigation with
several of its excess liability insurers regarding amounts payable
under the Company's policies with respect to coverage for these
claims. The trial court has granted summary judgment to these
insurers. The Company has appealed. There can be no assurances
regarding the outcome of this litigation or the amount and timing of
recoveries, if any, from these excess liability insurers.
The following table sets forth the number of asbestos personal
injury claims pending against the Company as of the dates indicated,
the number of claims received by the Company during the periods ending
on those dates and the total settlement payments made to resolve
asbestos personal injury claims during those periods:
<TABLE>
<CAPTION>
At or for the six At or for the years ended
months ended June 30, December 31,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Asbestos personal injury claims
at period end (approximate) .............. 65,000 72,000 71,000
Number of claims received during
period (approximate) ..................... 14,000 28,000 25,000
Settlement payments during period
(approximate) (1) (Dollars in
millions) ................................ $ 53.5 $ 47.0 $ 27.4
</TABLE>
- ------------------
(1) Settlement payments represent payments made during the period in connection
with settlements made in that period and in prior periods. Amounts do not
include the Company's attorneys' fees and expenses and do not reflect
amounts received from insurance carriers.
The Company has recorded, in other expenses, charges of $499
million ($317 million after-tax), $1,895 million ($1,203 million
after-tax), $300 million ($190 million after-tax) and $162 million
($103 million after-tax) for the six months ended June 30, 1999 and
for the years ended December 31, 1998, 1997 and 1996, respectively,
for sales practices claims and claims for personal injuries caused by
exposure to asbestos or asbestos-containing products. During 1998, the
Company paid $1,407 million of premiums for certain excess of loss
reinsurance and excess insurance policies and agreements providing
coverage for risks associated with such claims. The excess insurance
policies for asbestos-related claims provide for recovery of losses of
up to $1,500 million, which is in excess of a $400 million
self-insured retention. The excess of loss reinsurance agreements
provide reinsurance with respect to sales practices claims made on or
prior to December 31, 1999 and for certain mortality losses. These
reinsurance agreements have a maximum aggregate limit of $650 million,
with a maximum sublimit for sales practices losses of $550 million.
This coverage is in excess of an aggregate self-insured retention of
$385 million with respect to sales practices and $506 million, plus
our statutory policy reserves released upon the death of insureds,
with respect to life mortality losses. The
Schedule 3.06 Disclosed Matters
-------------------------------
<PAGE> 71
-5-
asbestos-related policies are also subject to annual and per-claim
sublimits. The Company believes adequate provision has been made in
its consolidated financial statements for the self-insured retentions
under these policies and agreements. Amounts are recoverable under the
policies and agreements annually with respect to claims paid during
the prior calendar year. Although amounts paid in any given year that
are not recoverable under the policies and agreements will be
reflected as a reduction in the Company's operating cash flow for that
year, the Company's management believes that the payments will not
have a material adverse effect on its liquidity. The asbestos-related
policies contain experience funds and reference funds, which provide
for payments to the Company at commutation dates if experience under
the policies to such dates has been favorable, or pro rata reductions
from time to time in the loss reimbursement to the Company if the
cumulative return on the reference fund is less than the return
specified in the experience fund. The excess of loss reinsurance
agreements for sales practice claims and mortality losses contain an
experience fund, which provides for payments to the Company at
commutation dates if experience is favorable at such dates. The
Company believes that the excess of loss reinsurance agreements should
provide coverage for a portion of the multidistrict sales practices
settlement described above, although the Company has yet to file a
claim under those agreements. The increase in liabilities for death
benefits and policy adjustments and the cash payments to be made under
the settlement should be substantially offset by amounts recoverable
under those agreements, as well as amounts provided in the Company's
consolidated financial statements, and accordingly the Company does
not believe that they will have a material adverse effect on its
consolidated financial condition, results of operations or cash flows
in future periods.
A purported class action suit involving policyholders in 32
states has been filed in Rhode Island state court against our personal
lines casualty insurer, Metropolitan Property and Casualty Insurance
Company, with respect to claims by policyholders for the alleged
diminished value of automobiles after accidents. A second purported
class action has been filed in Florida state court against
Metropolitan Property and Casualty Insurance Company by a policyholder
alleging breach of contract and unfair trade practices with respect to
Metropolitan Property and Casualty allowing the use of after-market
parts to repair damaged automobiles. Both suits are in very early
stages of litigation and Metropolitan Property and Casualty intends to
vigorously defend itself against these suits.
Various litigation, claims and assessments against the Company,
in addition to the those discussed above and those otherwise provided
for in the Company's consolidated financial statements, have arisen in
the course of the Company's business, including in connection with its
activities as an insurer, employer, investor and taxpayer. Further,
state insurance regulatory authorities and other authorities regularly
make inquiries and conduct investigations concerning the Company's
compliance with applicable insurance and other laws and regulations.
Schedule 3.06 Disclosed Matters
-------------------------------
<PAGE> 72
-6-
In some of the matters referred to above, very large and/or
indeterminate amounts, including punitive and treble damages, are
sought. While it is not feasible to predict or determine the ultimate
outcome of all pending investigations and legal proceedings, it is the
opinion of the Company's management that their outcomes, after
consideration of available insurance and reinsurance and the
provisions made in the Company's consolidated financial statements,
are not likely to have a material adverse effect on the Company's
consolidated financial position. However, given the large and/or
indeterminate amounts sought in certain of these matters and the
inherent unpredictability of litigation, it is possible that an
adverse outcome in certain matters could, from time to time, have a
material adverse effect on the Company's operating results or cash
flows in particular quarterly or annual periods.
Schedule 3.06 - Disclosed Matters
<PAGE> 73
EXHIBIT A
[FORM OF]
ASSIGNMENT AND ACCEPTANCE
Reference is made to the Credit Agreement dated as of
September [___], 1999 (as amended and in effect on the date hereof, the "Credit
Agreement"), among Metropolitan Life Insurance Company, MetLife Funding, Inc.;
the Lenders named therein and The Chase Manhattan Bank, as Administrative Agent
for the Lenders. Terms defined in the Credit Agreement are used herein with the
same meanings.
The Assignor named below hereby sells and assigns, without
recourse, to the Assignee named below, and the Assignee hereby purchases and
assumes, without recourse, from the Assignor, effective as of the Assignment
Date set forth below, the interests set forth below (the "Assigned Interest") in
the Assignor's rights and obligations under the Credit Agreement, including,
without limitation, the interests set forth below in the Commitment of the
Assignor on the Assignment Date and Competitive Loans and Syndicated Loans owing
to the Assignor which are outstanding on the Assignment Date, excluding accrued
interest and fees to and excluding the Assignment Date. The Assignee hereby
acknowledges receipt of a copy of the Credit Agreement. From and after the
Assignment Date (i) the Assignee shall be a party to and be bound by the
provisions of the Credit Agreement and, to the extent of the Assigned Interest,
have the rights and obligations of a Lender thereunder and (ii) the Assignor
shall, to the extent of the Assigned Interest, relinquish its rights and be
released from its obligations under the Credit Agreement.
This Assignment and Acceptance is being delivered to the
Administrative Agent together with (i) if the Assignee is a Foreign Lender, any
documentation required to be delivered by the Assignee pursuant to Section
2.15(e) of the Credit Agreement, duly completed and executed by the Assignee,
and (ii) if the Assignee is not already a Lender under the Credit Agreement, an
Administrative Questionnaire in the form supplied by the Administrative Agent,
duly completed by the Assignee. The [ASSIGNEE/ASSIGNOR] shall pay the fee
payable to the Administrative Agent pursuant to Section 9.04(b) of the Credit
Agreement.
This Assignment and Acceptance shall be governed by and
construed in accordance with the laws of the State of New York.
Assignment and Acceptance
<PAGE> 74
Date of Assignment:
Legal Name of Assignor:
Legal Name of Assignee:
Assignee's Address for Notices:
Effective Date of Assignment
("Assignment Date")(1):
<TABLE>
<CAPTION>
Percentage Assigned of
Facility/Commitment
(set forth, to at
Principal Amount least 8 decimals, as a
Assigned (and percentage of the
identifying Facility and the
information as to aggregate Commitments
individual of all Lenders
Facility Competitive Loans) thereunder)
- -------- ------------------- ---------------------
<S> <C> <C>
Commitment Assigned: $ %
Syndicated Loans:
Competitive Loans:
</TABLE>
The terms set forth above and on the reverse side hereof are hereby agreed to:
[NAME OF ASSIGNOR], as Assignor
By:__________________________________
Name:
Title:
- --------------
(1) Must be at least five Business Days after execution hereof by all
required parties.
Assignment and Acceptance
-------------------------
<PAGE> 75
[NAME OF ASSIGNEE], as Assignee
By:__________________________________
Name:
Title:
The undersigned hereby consent to the within assignment:(2)
[NAME OF BORROWER], THE CHASE MANHATTAN BANK,
as Administrative Agent,
By:_________________________ By:_________________________
Name: Name:
Title: Title:
- -----------------
(2) Consents to be included to the extent required by Section 9.04(b) of
the Credit Agreement.
Assignment and Acceptance
-------------------------
<PAGE> 76
EXHIBIT B
[Form of Opinion of Counsel for the Borrowers]
September 29, 1999
To the Lenders party to the
Credit Agreement referred to
below and The Chase Manhattan Bank,
as Administrative Agent
Ladies and Gentlemen:
I am Vice President and Investment Counsel of Metropolitan Life
Insurance Company, a New York corporation ("MetLife", together with MetLife
Funding, Inc. ("Funding"), the "Borrowers"), and have acted as such in
connection with the Credit Agreement (364-Day) (the "Credit Agreement") dated as
of September 29, 1999, among the Borrowers, the lenders party thereto and The
Chase Manhattan Bank, as Administrative Agent, providing for loans to be made by
said lenders to the Borrowers in an aggregate principal amount not to exceed
$5,000,000,000 at any one time outstanding. Terms defined in the Credit
Agreement are used herein as defined therein. This opinion is being delivered
pursuant to Section 4.01(b) of the Credit Agreement.
In rendering the opinions expressed below, I have examined the
following:
(a) the Credit Agreement; and
(b) such records of the Company and such other documents as I have
deemed necessary as a basis for the opinions expressed below.
In my examination, I have assumed the authenticity of all documents
submitted to me as originals and the conformity with authentic original
documents of all documents submitted to me as copies. When relevant facts were
not independently established. I have relied upon statements of governmental
officials and upon representations made in or pursuant to the Credit Agreement.
In rendering the opinions expressed below, I have assumed, with respect
to the Credit Agreement, that (except, to the extent expressly set forth in the
opinions below, as to the Borrowers):
(i) it has been duly authorized by, has been duly executed and
delivered by, and constitutes the legal, valid, binding and
enforceable obligations of, all of the parties thereto;
Opinion of Counsel for the Borrowers
<PAGE> 77
(ii) all signatories thereto have been duly authorized; and
(iii) all of the parties thereto are duly organized and validly
existing and have the power and authority (corporate or other)
to execute, deliver and perform the Credit Agreement.
Based upon and subject to the foregoing and subject also to the
comments and qualifications set forth below, and having considered such
questions of law as I have deemed necessary as a basis for the opinions
expressed below, I am of the opinion that:
1. MetLife is a mutual life insurance company, duly organized and
licensed and validly existing under the laws of the State of New York.
2. Funding is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware.
3. Each Borrower has all requisite corporate power to execute and
deliver, and to perform its obligations to incur liabilities under, the Credit
Agreement. Each Borrower has all requisite corporate power to borrow under the
Credit Agreement.
4. The execution and delivery by each Borrower of, and the performance
and incurrence by each Borrower of its obligations under, the Credit Agreement
have been duly authorized by all necessary corporate action on the part of such
Borrower.
5. The Credit Agreement has been duly executed and delivered by each
Borrower.
6. The Credit Agreement constitutes the legal, valid and binding
obligation of each Borrower, enforceable against each Borrower in accordance
with its terms, except as may be limited by bankruptcy, insolvency,
reorganization, moratorium, rehabilitation, liquidation, fraudulent conveyance
or transfer or other similar laws relating to or affecting the rights of credits
generally and except as the enforceability of the Credit Agreement is subject to
the application of general principles of equity (regardless of whether
considered in a proceeding in equity or at law), including, without limitation,
(a) the possible unavailability of specific performance, injunctive relief or
any other equitable remedy and (b) concepts of materiality, reasonableness, good
faith and fair dealing.
7. No authorization, approval or consent of, and no filing or
registration with, any governmental or regulatory authority or agency of the
United States of America or the State of New York is required on the part of
each Borrower for the execution or delivery by each Borrower of, or for the
performance or incurrence by each Borrower of any obligations or liabilities
under, the Credit Agreement.
8. The execution and delivery by each Borrower of, the performance and
incurrence by each Borrower of its obligations and liabilities under, and the
consummation by each Borrower of the other transactions contemplated by the
Credit Agreement do not (a) violate any provision of the respective charter or
by-laws of each Borrower, (b) with respect to Funding,
Opinion of Counsel for the Borrowers
<PAGE> 78
violate any provision of the Delaware General Corporation Law, (c) violate any
applicable law, rule or regulation of the United States of America or the State
of New York, (d) violate any order, writ, injunction or decree of any
Governmental Authority of the United States of America or the State of New York
or any arbitral award applicable to either Borrower of which I have knowledge or
(e) violate or result in a default under, any indenture, agreement or other
instrument of which I have knowledge to which either Borrower is a party or by
which either of them are bound, or give rise to a right thereunder to require
any prepayment to be made by either Borrower.
9. Except for the Disclosed Matters, I have no knowledge of any
actions, suits or proceedings by or before any arbitrator or Governmental
Authority, pending or threatened against either Borrower (a) as to which there
is a reasonable possibility of adverse determination and that, if adversely
determined, is reasonably likely to result in a Material Adverse Change or (b)
that involve the Credit Agreement or the Transactions.
10. The Company is not an "investment company" as defined in, or
subject to regulation under, the Investment Company Act of 1940, and Funding is
an "investment company" as defined in such Act that is exempt from the
requirements of such Act.
The foregoing opinions are subject to the following comments and
qualifications:
(A) I express no opinion as to the enforceability of any of the
indemnification provisions of the Credit Agreement.
(B) I express no opinion as to any provision of the Credit Agreement
that constitutes an agreement solely between the Administrative Agent and the
Lenders or among the Lenders, including, without limitation, Article VIII,
Sections 2.16(c), Section 2.16(d) and 2.16(e).
(C) I express no opinion as to (i) the effect of any laws of any
jurisdiction primarily governing or regulating banks, (ii) the effect of the
laws of any jurisdiction that limit the interest, fees or other charges which
any Lender may impose (iii) Section 9.09 (other than 9.09(a)) of the Credit
Agreement and (iv) any authorization, consent, approval, registration, exemption
or license required under any applicable securities laws (or rules and
regulations thereunder) resulting from any proposed assignment or proposed sale
of participations by a Lender pursuant to Section 9.04 of the Credit Agreement.
(D) The enforceability of provisions in the Credit Agreement to the
effect that terms may not be waived or modified except in writing may be limited
under certain circumstances.
The foregoing opinion is limited to matters of United States federal
law, the Delaware Corporation Law (with respect to Funding) and the laws of the
State of New York.
This opinion is rendered to you pursuant to Section 4.01(b) of the
Credit Agreement and no persons other than you are entitled to rely on this
opinion.
Very truly yours,
Opinion of Counsel for the Borrowers
<PAGE> 79
EXHIBIT C
[Form of Opinion of Special New York Counsel to Chase]
September 29, 1999
To the Lenders Referred to Below
and The Chase Manhattan Bank,
as Administrative Agent
270 Park Avenue
New York, New York 10017
Ladies and Gentlemen:
We have acted as special New York counsel to The Chase
Manhattan Bank ("Chase") in connection with the 364-Day Credit Agreement dated
as of September 29, 1999 (the "Credit Agreement") between Metropolitan Life
Insurance Company (the "Company"), MetLife Funding, Inc. ("Funding", and
together with the Company, the "Borrowers"), the lenders party thereto, and
Chase, as Administrative Agent, providing for loans to be made by said lenders
to the Company in an aggregate principal amount not to exceed $5,000,000,000 at
any one time outstanding. Terms defined in the Credit Agreement are used herein
as defined therein. This opinion is being delivered pursuant to Section 4.01(c)
of the Credit Agreement.
In rendering the opinions expressed below, we have examined an
executed copy of the Credit Agreement and assumed its authenticity. When
relevant facts were not independently established, we have relied upon
representations made in or pursuant to the Credit Agreement.
In rendering the opinions expressed below, we have assumed
that:
(i) the Credit Agreement has been duly authorized by,
has been duly executed and delivered by, and
(except to the extent expressly set forth in the
opinions below as to the Borrowers) constitutes
the legal, valid, binding and enforceable
obligations of, all of the parties thereto;
(ii) all signatories to the Credit Agreement have been
duly authorized; and
(iii) all of the parties to the Credit Agreement are
duly organized and validly existing and have the
power and authority (corporate or other) to
execute, deliver and perform the Credit Agreement.
Opinion of Special Counsel to Chase
<PAGE> 80
-2-
Based upon and subject to the foregoing and subject also to
the comments and qualifications set forth below, and having considered such
questions of law as we have deemed necessary as a basis for the opinions
expressed below, we are of the opinion that the Credit Agreement constitutes the
legal, valid and binding obligation of each Borrower, enforceable against such
Borrower in accordance with its terms, except as may be limited by bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance or transfer or
other similar laws and except as the enforceability of the Credit Agreement is
subject to the application of general principles of equity (regardless of
whether considered in a proceeding in equity or at law), including, without
limitation, (a) the possible unavailability of specific performance, injunctive
relief or any other equitable remedy and (b) concepts of materiality,
reasonableness, good faith and fair dealing.
The foregoing opinions are subject to the following comments
and qualifications:
(A) The enforceability of Section 9.03 of the Credit Agreement
may be limited by laws limiting the enforceability of provisions
exculpating or exempting a party, or requiring indemnification of a
party for, liability for its own action or inaction, to the extent the
action or inaction involves gross negligence, recklessness, willful
misconduct or unlawful conduct.
(B) The enforceability of provisions in the Credit Agreement
to the effect that terms may not be waived or modified except in
writing may be limited under certain circumstances.
(C) We express no opinion as to (i) the effect of the laws of
any jurisdiction in which any Lender is located (other than the State
of New York) that limit the interest, fees or other charges such Lender
may impose, (ii) the last sentence of Section 2.16(c) of the Credit
Agreement, (iii) the first sentence of Section 9.09(b) of the Credit
Agreement, insofar as such sentence relates to the subject matter
jurisdiction of the United States District Court for the Southern
District of New York to adjudicate any controversy related to the
Credit Agreement, and (iv) the waiver of inconvenient forum set forth
in Section 9.09(c) of the Credit Agreement with respect to proceedings
in the United States District Court for the Southern District of New
York.
The foregoing opinions are limited to matters involving the
Federal laws of the United States of America and the law of the State of New
York, and we do not express any opinion as to the laws of any other
jurisdiction.
This opinion letter is, pursuant to Section 4.01(c) of the
Credit Agreement, provided to you by us in our capacity as special New York
counsel to Chase and may not be relied upon by any Person for any purpose other
than in connection with the transactions contemplated by the Credit Agreement
without, in each instance, our prior written consent.
Very truly yours,
RJW/WJM
Opinion of Special Counsel to Chase
<PAGE> 1
Exhibit 10.22
Mr. Harry P. Kamen
910 Park Avenue
New York, NY 10021
Dear Mr. Kamen
Metropolitan Life Insurance Company ("MetLife") wishes to retain you as a
consultant for a limited purpose for a period of one year, effective July 1,
1999. This letter sets forth the terms and conditions upon which we offer to
retain you and, if it is acceptable by you, shall constitute our agreement with
respect to such period.
During the period of the retainer, you will act as a consultant in connection
with assisting the Chief Executive Officer of MetLife ("CEO") with respect to
enhancing the value of MetLife's international insurance activities by pursuing
a license for MetLife in China. Any assignments will be agreed to by you and the
CEO prior to commencement of such assignment. You shall provide a work plan for
each assignment, including the number of days you expect to devote to each
assignment.
For service under this agreement, we will pay you for services actually rendered
on a specific assignment up to an aggregate amount of $50,000. The hourly and
daily rates shall be mutually agreed upon by you and the CEO prior to
commencement of any assignment, based upon the nature of such assignment.
Amounts payable hereunder shall not be reduced because of any fees you receive
as a director of MetLife or as a director of any publicly traded affiliate of
MetLife. It is understood that you will continue to serve as a director of Banco
Santander and of Nvest for as long as you, the CEO and such companies mutually
agree.
Your relationship with MetLife will be that of an independent contractor and not
that of an employee and you will be free to control your own time and method of
work. It is understood that you will not be entitled to nor be eligible for any
benefits or privileges given or extended by MetLife to its employees other than
those to which you are entitled by virtue of your prior employment with MetLife.
We will provide you, at no charge to you, with an office and secretarial support
at 200 Park Avenue, as well as a car for use in connection with your consulting
assignment. In addition, we will reimburse you for your reasonable and necessary
out-of-pocket expenses incurred on our behalf during the period. You will submit
appropriate documentation with respect to your assignments and expenses in
accordance with MetLife's customary procedures.
This agreement shall not prevent you from undertaking consultative or other work
for other clients provided that such matters will not interfere with the
performance of your services hereunder nor involve possible conflicts with the
interests of MetLife. You will consult with the CEO before undertaking any such
other work and will abide by our judgment as to whether it would violate the
spirit of this agreement. None of your present directorship or other positions
now constitute such a conflict.
<PAGE> 2
This agreement may be terminated by MetLife or by you at any time upon ten
days' notice to the other party and shall be automatically terminated in the
event of your death or a disability preventing you from carrying out your
assignments hereunder for a period of 30 days.
If the foregoing terms are agreeable to you, please sign the enclosed copy
hereof and return it to me.
Sincerely
/s/ Robert H. Benmosche
Robert H. Benmosche
Chairman of the Board
and Chief Executive Officer
September 28, 1999
I accept the foregoing offer:
/s/ Harry P. Kamen
- ----------------------------
Harry P. Kamen
<PAGE> 1
Exhibit 10.23
Mr. Harry P. Kamen
910 Park Avenue
New York, NY 10021
Dear Mr. Kamen
Metropolitan Life Insurance Company ("MetLife") wishes to retain you as a
consultant for a period of one year beginning July 1, 1998. This letter sets
forth the terms and conditions upon which we offer to retain you and, if it is
acceptable by you, shall constitute our agreement with respect to such period.
During the period of this retainer, you will act as a consultant and undertake
special assignments with respect to such matters as shall be designated by the
Chief Executive Officer of MetLife ("CEO"). It is expected that your
assignments will include assisting the CEO in connection with:
- - MetLife's efforts to access the public equity markets (including MetLife's
Mutual Holding Company initiative).
- - Promoting the interests of MetLife and the life insurance industry with
government and industry entities and officials, including interfacing
with officials, maintaining various civic and industry relationships
(including serving as Chairman of the "Mutual Tax Committee") and
facilitating the transition of those relationships to the CEO and his
designees.
- - Enhancing the value of MetLife's international insurance activities by,
among other things, fostering MetLife's relationships with its joint
venture partners and pursuing licenses for MetLife in selected countries.
- - Such other assignments as the CEO and you may mutually agree upon.
It is also understood that you will continue to serve as a director of Banco
Santander and of the New England Investment Companies (now named Nvest), for as
long as you, the CEO and such companies mutually agree.
<PAGE> 2
Your relationship with MetLife will be that of an independent contractor and not
that of an employee and you will be free to control your own time and method of
work within the framework of your obligation to MetLife to provide in a timely
manner the services requested of you by this letter.
It is understood that you will not be entitled to or be eligible for any
benefits or privileges given or extended by Metlife to its employees other than
those to which you are entitled by virtue of your prior employment with MetLife.
For service under this agreement, we will pay you monthly at the annual rate of
$500,000 for the first twelve months or such shorter period this agreement is
in effect. This amount shall not be reduced because of any fees you receive as
a director of MetLife or as a director of any publicly-traded affiliate of
MetLife. The amounts payable hereunder shall be earned in equal monthly
installments during the period of this agreement.
We will provide you, at no charge to you, with an office and secretarial
support at 200 Park Avenue, as well as a car for use in connection with your
consulting assignment, primarily for use within Manhattan and to area airports.
In addition, we will reimburse you for your reasonable and necessary
out-of-pocket expenses incurred on our behalf during the period. You will
submit appropriate documentation with respect to such expenses in accordance
with MetLife's customary procedures.
It is expected that this agreement will require a substantial amount of your
business time. Nonetheless, this agreement shall not prevent you from
undertaking consultative or other work for other clients provided that such
matters will not interfere with the performance of your services hereunder nor
involve possible conflicts with the interests of MetLife. You will consult with
the CEO before undertaking any such other work and will abide by our judgment
as to whether it would violate the spirit of this agreement. None of your
present directorships or other positions (see attached list) now constitute
such a conflict.
This agreement may be terminated by MetLife or by you at any time upon ten
days' notice to the other party and shall be automatically terminated in the
event of your death or a disability preventing you from carrying out your
assignments hereunder for a period of 30 days.
-2-
<PAGE> 3
If the foregoing terms are agreeable to you, please sign the enclosed copy
hereof and return it to me.
Sincerely
/s/ Robert H. Benmosche 6/30/98
Robert H. Benmosche
President and Chief Operating Officer
I accept the foregoing offer:
/s/ Harry P. Kamen 6/30/98
- ------------------------------------------
Harry P. Kamen
-3-
<PAGE> 1
EXHIBIT 10.24
METROPOLITAN LIFE INSURANCE COMPANY
LONG TERM PERFORMANCE COMPENSATION PLAN
(FOR PERFORMANCE PERIODS STARTING ON OR AFTER JANUARY 1, 2000)
I. PURPOSE OF THE PLAN
- Align management with policyholders' interests
- Provide competitive levels of total pay for senior executives for
competitive levels of performance
- Encourage a long term strategic perspective
- Encourage/reward performance that supports the Company's long term
performance results
- Attract and promote retention of key executives with long term
business perspective
II. PARTICIPATION
The Board of Directors will determine the levels of Officers and others
eligible to participate in the Plan for each performance period. An
individual who becomes a participant in the Plan will participate prorata
in any performance period then in progress from the effective date of
participation. Upon the recommendation of the Chief Executive Officer, the
Board of Directors may determine participation on a basis other than
proration. Participants' incentive opportunities under the Plan shall not
be vested or assignable in any respect.
III. PERFORMANCE PERIODS
The period over which long term performance shall be measured is three
years. Each performance period will begin on January 1.
IV. TARGET INCENTIVE OPPORTUNITIES
The Nominating and Compensation Committee (the "Committee") will establish
the incentive opportunity for each level of Plan participant for each
performance period.
<PAGE> 2
Long Term Performance Compensation Plan Page 2 of 4
The schedule of target percentage opportunities for the various levels of
participants is:
<TABLE>
<CAPTION>
GRADE LEVEL (CURRENT TITLE) TARGET PERCENTAGE OPPORTUNITY
- --------------------------- -----------------------------
<S> <C>
41 (Chief Executive Officer) 250%
40 (President) 200%
39 (Senior Executive Vice President) 185%
38 (Executive Vice President 150%
36/37 (Senior Vice President) 95%
33-35 (Vice President/Sr. Vice President) 30%/65%/85%
</TABLE>
At the beginning of each plan period, management recommends individual
incentive opportunities for each participant. These incentive
opportunities may be higher or lower than the above targets established
for the various levels based on the individual's relative contribution to
or impact on long term business results, the individual's potential and
the individual's level of personal performance.
The incentive opportunity ($) for each participant is determined by
multiplying the applicable percentage for the individual by the
individual's average base salary over the performance period. If the
participant was not an employee of the Company at the beginning of the
performance period, the Committee, at the Chief Executive Officer's
recommendation, will determine in its discretion, the appropriate
incentive opportunity.
The total incentive opportunity for any performance period is equal to the
total of the incentive opportunities of all individuals participating in
that performance period.
Where an individual changes participation levels or becomes a participant
in the Plan for the first time during a performance period, incentive
opportunities are prorated accordingly.
V. GUIDELINES FOR DETERMINING CORPORATE PERFORMANCE
At the beginning of each performance period, the Nominating and
Compensation Committee will determine the measures and specific goals for
that plan period. The measures for the Plan will include both financial
and strategic business goals against which corporate performance will be
measured.
Performance assessment at the end of each period will consider achievement
of established goals. In addition to performance as measured against these
goals, the
<PAGE> 3
Long Term Performance Compensation Plan Page 3 of 4
overall assessment will involve the broad discretion and judgment of the
Committee and may take into account changes in corporate strategy and in
the market, economic, tax and regulatory environment during the
performance period. The Committee will determine a corporate performance
percentage that may vary between 0% and 200%.
VI. AWARDS
Following the end of each performance period the Committee will determine
the amount which may be awarded to the participants with respect to such
period. Such amount will be the incentive opportunities multiplied by the
corporate performance percentage. The Committee will recommend individual
awards to the Board. These awards will generally be equal to the
participant's incentive opportunity multiplied by the corporate
performance percentage. However, line of business performance, changes in
an individual's responsibilities, or individual performance may be taken
into account when determining individual awards. The Committee has
discretion in determining the amount of any recommended award, may decline
to recommend an award, and may modify the time of payment of any award.
The payment of any awards as a result of performance under the Plan for
the 2000 - 2002 performance period will be paid out in 2003. It is
anticipated that a portion of any individual award paid out in 2003 will
be payable in MetLife, Inc. stock.
No amount shall become payable unless it is approved by the Board in its
discretion and no award may be made unless the participant was an employee
of the Company or a subsidiary at the end of the performance period or
died, retired or became totally disabled during such period while such an
employee.
A participant who retires, dies or becomes totally disabled while such an
employee during the course of a performance period may be granted for such
performance period, at the discretion of the Board, a pro rata portion of
the full award that would have been payable if such event had not
occurred, or at the recommendation of the Chief Executive Officer, an
award may be recommended on other than a pro rata basis.
Awards under the Plan will not be taken into account for purposes of
determining the level of Insurance and Retirement benefits and
contributions to the Savings and Investment Plan.
<PAGE> 4
Long Term Performance Compensation Plan Page 4 of 4
VII. ROLE OF THE COMMITTEE
The Committee exercises overall responsibility and has broad discretion
with respect to all aspects of the Plan and for performance assessment.
<PAGE> 1
EXHIBIT 10.25
METROPOLITAN LIFE INSURANCE COMPANY
LONG TERM PERFORMANCE COMPENSATION PLAN
(For performance periods starting on or after January 1, 1999)
I. PURPOSE OF THE PLAN
- Align management with policyholders' interests
- Provide competitive levels of total pay for senior executives for
competitive levels of performance
- Encourage a long term strategic perspective
- Encourage/reward performance that supports the Company's long
term performance results
- Attract and promote retention of key executives with long term
business perspective
II. PARTICIPATION
The Board of Directors will determine the categories of Officers and
others eligible to participate in the Plan for each performance period. An
individual who becomes a participant in the Plan will participate PRORATA
in any performance period then in progress from the effective date of
participation. Upon the recommendation of the Chief Executive Officer, the
Board of Directors may determine participation on a basis other than
proration. Participants' incentive opportunities under the Plan shall not
be vested or assignable in any respect.
III. PERFORMANCE PERIODS
The period over which long term performance shall be measured is three
years. Each performance period will begin on January 1.
IV. TARGET INCENTIVE OPPORTUNITIES
The Nominating and Compensation Committee (the "Committee") will establish
the incentive opportunity for each category of Plan participant for each
performance period.
<PAGE> 2
Long Term Performance Compensation Plan Page 2 of 4
The schedule of target incentive opportunities for the various categories of
participants is:
<TABLE>
<CAPTION>
Percent of Average Base Salary
------------------------------
Category
--------
Level of Organization
---------------------
<S> <C>
#1 (Chief Executive Officer) 250%
#2( President) 200%
#3 (Senior Executive Vice-President) 185%
#4 (Executive Vice-President) 150%
#5 (Senior Vice-President) 95%
#6 (Vice-President 30%/65%/85%
</TABLE>
(based on market practice and level of responsibility)
Chief Executive Officer of
Designated Subsidiary *
* The CEO of a participating subsidiary may be eligible at either
the Executive Vice-President or Senior Vice-President level,
depending on level of responsibility and market considerations.
At the beginning of each plan period, management recommends individual
incentive opportunities for each participant. These incentive
opportunities may be higher or lower than the above targets established
for the various categories based on the individual's relative contribution
to or impact on long term business results, the individual's potential and
the individual's level of personal performance.
The incentive opportunity ($) for each participant is determined by
multiplying the applicable percentage for the individual by the
individual's average base salary over the performance period. If the
participant was not an employee of the Company or a subsidiary at the
beginning of the performance period, the Committee, at the Chief Executive
Officer's recommendation, will determine in its discretion, the
appropriate incentive opportunity.
The total incentive opportunity for any performance period is equal to the
total of the incentive opportunities of all individuals participating in
that performance period.
Where an individual changes participation categories during a performance
period, incentive opportunities are prorated accordingly.
<PAGE> 3
Long Term Performance Compensation Plan Page 3 of 4
V. GUIDELINES FOR DETERMINING CORPORATE PERFORMANCE
At the beginning of each performance period, the Nominating and
Compensation Committee will determine the measures and specific goals for
that plan period. The measures for the Long Term Plan will include both
financial and strategic business goals against which corporate performance
will be measured.
Performance assessment at the end of each period will consider achievement
of established goals. In addition to performance as measured against these
goals, the overall assessment will involve the broad discretion and
judgment of the Committee and may take into account changes in corporate
strategy and in the market, economic, tax and regulatory environment
during the performance period. The Committee will determine a corporate
performance percentage which may vary between 0% and 200%.
VI. AWARDS
Following the end of each performance period the Committee will determine
the amount which may be awarded to the participants with respect to such
period. Such amount will be the incentive opportunity multiplied by the
corporate performance percentage. The Committee will recommend individual
awards to the Board. These awards will generally be equal to the
participant's incentive opportunity multiplied by the corporate
performance percentage. However, line of business performance, changes in
an individual's responsibilities, or individual performance may be taken
into account when determining individual awards. The Committee has
discretion in determining the amount of any recommended award, may decline
to recommend an award, and may modify the time of payment of any award.
No amount shall become payable unless it is approved by the Board in its
discretion and no award may be made unless the participant was an employee
of the Company or a subsidiary at the end of the performance period or
died, retired or became totally disabled during such period while such an
employee.
A participant who retires, dies or becomes totally disabled while such an
employee during the course of a performance period may be granted for such
performance period, at the discretion of the Board, a pro rata portion of
the full award that would have been payable if such event had not
occurred, or at the recommendation of the Chief Executive Officer, an
award may be recommended on other than a prorata basis.
<PAGE> 4
Long Term Performance Compensation Plan Page 4 of 4
Awards under the Plan will not be taken into account for purposes of
determining the level of Insurance and Retirement benefits and
contributions to the Savings and Investment Plan.
VII. ROLE OF THE COMMITTEE
The Committee exercises overall responsibility and has broad discretion
with respect to all aspects of the Plan and for performance assessment.
--o--
<PAGE> 1
EXHIBIT 10.26
METROPOLITAN LIFE INSURANCE COMPANY
LONG TERM PERFORMANCE COMPENSATION PLAN
(For performance periods starting on or after January 1, 1998)
I. PURPOSE OF THE PLAN
- Align management with policyholders' interests
- Provide competitive levels of total pay for senior executives for
competitive levels of performance
- Encourage a long term strategic perspective
- Encourage/reward performance that supports the Company's long
term performance results
- Attract and promote retention of key executives with long term
business perspective
II. PARTICIPATION
The Board of Directors will determine the categories of Officers and
others eligible to participate in the Plan for each performance period. An
individual who becomes a participant in the Plan will participate PRORATA
in any performance period then in progress from the effective date of
participation. Upon the recommendation of the Chief Executive Officer, the
Board of Directors may determine participation on a basis other than
proration. Participants' incentive opportunities under the Plan shall not
be vested or assignable in any respect.
III. PERFORMANCE PERIODS
The period over which long term performance shall be measured is three
years. Each performance period will begin on January 1.
IV. INCENTIVE OPPORTUNITIES AND TARGET DISTRIBUTABLE AMOUNT
The Nominating and Compensation Committee (the "Committee") will establish
the incentive opportunity for each category of Plan participant for each
performance period.
<PAGE> 2
Long Term Performance Compensation Plan Page 2 of 3
The schedule of incentive opportunities for the various categories of
participants is:
<TABLE>
<CAPTION>
Category
--------
Level of Organization Percent of Average Base Salary
--------------------- ------------------------------
<S> <C>
#1 (Chief Executive Officer) 250%
#2( President) 200%
#3 (Senior Executive Vice-President) 185%
#4 (Executive Vice-President) 150%
#5 (Senior Vice-President) 95%
#6 (Vice-President (Range 034) 65/85%
(based on market practice)
Chief Executive Officer of
Designated Subsidiary *
</TABLE>
* The CEO of a participating subsidiary may be eligible at either
the Executive Vice-President or Senior Vice-President level,
depending on level of responsibility and market considerations.
The incentive opportunity ($) for each participant is determined by
multiplying the applicable percentage for the individual by the
individual's average base salary over the performance period. If the
participant was not an employee of the Company or a subsidiary at the
beginning of the performance period, the Committee, at the Chief Executive
Officer's recommendation, will determine in its discretion, the
appropriate incentive opportunity.
For purposes of determining the amount of incentive for distribution, the
target distributable amount for any performance period is equal to the
total of the incentive opportunities of all individuals participating in
that performance period.
Where an individual changes participation categories during a performance
period, incentive opportunities are prorated accordingly.
V. GUIDELINES FOR DETERMINING CORPORATE PERFORMANCE
At the beginning of each performance period, the Nominating and
Compensation Committee will determine the measures and specific goals for
that plan period. The measures for the Long Term Plan will include both
financial and strategic business goals against which corporate performance
will be measured.
<PAGE> 3
Long Term Performance Compensation Plan Page 3 of 3
Performance assessment at the end of each period will consider achievement
of established goals. In addition to performance as measured against these
goals, the overall assessment will involve the broad discretion and
judgment of the Committee and may take into account changes in corporate
strategy and in the market, economic, tax and regulatory environment
during the performance period. The Committee will determine a corporate
performance percentage which may vary between 0% and 200%.
VI. AWARDS
Following the end of each performance period the Committee will determine
the amount which may be awarded to the participants with respect to such
period. Such amount will be the target distributable amount multiplied by
the corporate performance percentage. The Committee will recommend
individual awards to the Board. These awards will generally be equal to
the participant's incentive opportunity multiplied by the corporate
performance percentage. However, line of business performance, changes in
an individual's responsibilities, or individual performance may be taken
into account when determining individual awards. The Committee has
discretion in determining the amount of any recommended award, may decline
to recommend an award, and may modify the time of payment of any award.
No amount shall become payable unless it is approved by the Board in its
discretion and no award may be made unless the participant was an employee
of the Company or a subsidiary at the end of the performance period or
died, retired or became totally disabled during such period while such an
employee.
A participant who retires, dies or becomes totally disabled while such an
employee during the course of a performance period may be granted for such
performance period, at the discretion of the Board, a pro rata portion of
the full award that would have been payable if such event had not
occurred, or at the recommendation of the Chief Executive Officer, an
award may be recommended on other than a prorata basis.
Awards under the Plan will not be taken into account for purposes of
determining the level of Insurance and Retirement benefits and
contributions to the Savings and Investment Plan.
VII. ROLE OF THE COMMITTEE
The Committee exercises overall responsibility and has broad discretion
with respect to all aspects of the Plan and for performance assessment.
--o--
<PAGE> 1
EXHIBIT 10.27
METROPOLITAN LIFE INSURANCE COMPANY
LONG TERM PERFORMANCE COMPENSATION PLAN
(For performance periods starting on or after January 1, 1997)
(Revised as of July 1, 1997)
I. PURPOSE OF THE PLAN
- Align management with policyholders' interests
- Provide competitive levels of total pay for senior executives for
competitive levels of performance
- Encourage a long term strategic perspective
- Encourage/reward performance that supports the Company's long
term performance results
- Attract and promote retention of key executives with long term
business perspective
II. PARTICIPATION
The Board of Directors will determine the categories of Officers and
others eligible to participate in the Plan for each performance period. An
individual who becomes a participant in the Plan will participate PRORATA
in any performance period then in progress from the effective date of
participation. Upon the recommendation of the Chief Executive Officer, the
Board of Directors may determine participation on a basis other than
proration. Participants' incentive opportunities under the Plan shall not
be vested or assignable in any respect.
III. PERFORMANCE PERIODS
The period over which long term performance shall be measured is three
years. Each performance period will begin on January 1.
IV. INCENTIVE OPPORTUNITIES AND TARGET DISTRIBUTABLE AMOUNT
The Nominating and Compensation Committee (the "Committee") will establish
the incentive opportunity for each category of Plan participant for each
performance period.
<PAGE> 2
Long Term Performance Compensation Plan Page 2 of 3
The schedule of the incentive opportunity for the various categories of
participants for the performance period beginning January 1, 1997 is:
<TABLE>
<CAPTION>
Percent of Average Base Salary
------------------------------
Title
-----
<S> <C>
Chief Executive Officer 250%
Senior Executive Vice-President 185%
Executive Vice-President 150%
Senior Vice-President 95%
Vice-President (Range 034) 65-85%
(based on market practice)
Chief Executive Officer of
Designated Subsidiary *
</TABLE>
* The CEO of a participating subsidiary may be eligible at either
the Executive Vice-President or Senior Vice-President level,
depending on market considerations.
The incentive opportunity ($) for each participant is determined by
multiplying the applicable percentage for the individual by the
individual's average base salary over the performance period. If the
participant was not an employee of the Company or a subsidiary at the
beginning of the performance period, the Committee, at the Chief Executive
Officer's recommendation, will determine in its discretion, the
appropriate incentive opportunity.
For purposes of determining the amount of incentive for distribution, the
target distributable amount for any performance period is equal to the
total of the incentive opportunities of all individuals participating in
that performance period.
Where an individual changes participation categories during a performance
period, incentive opportunities are prorated accordingly.
V. GUIDELINES FOR DETERMINING CORPORATE PERFORMANCE
At the beginning of each performance period, the Nominating and
Compensation Committee will determine the measures and specific goals for
that plan period. The measures for the Long Term Plan will include both
financial and strategic business goals against which corporate performance
will be measured.
<PAGE> 3
Long Term Performance Compensation Plan Page 3 of 3
Performance assessment at the end of each period will consider achievement
of established goals. In addition to performance as measured against these
goals, the overall assessment will involve the broad discretion and
judgment of the Committee and may take into account changes in corporate
strategy and in the market, economic, tax and regulatory environment
during the performance period. The Committee will determine a corporate
performance percentage which may vary between 0% and 200%.
VI. AWARDS
Following the end of each performance period the Committee will determine
the amount which may be awarded to the participants with respect to such
period. Such amount will be the target distributable amount multiplied by
the corporate performance percentage. The Committee will recommend
individual awards to the Board. These awards will generally be equal to
the participant's incentive opportunity multiplied by the corporate
performance percentage. However, line of business performance, changes in
an individual's responsibilities, or individual performance may be taken
into account when determining individual awards. The Committee has
discretion in determining the amount of any recommended award, may decline
to recommend an award, and may modify the time of payment of any award.
No amount shall become payable unless it is approved by the Board in its
discretion and no award may be made unless the participant was an employee
of the Company or a subsidiary at the end of the performance period or
died, retired or became totally disabled during such period while such an
employee.
A participant who retires, dies or becomes totally disabled while such an
employee during the course of a performance period may be granted for such
performance period, at the discretion of the Board, a pro rata portion of
the full award that would have been payable if such event had not
occurred, or at the recommendation of the Chief Executive Officer, an
award may be recommended on other than a prorata basis.
Awards under the Plan will not be taken into account for purposes of
determining the level of Insurance and Retirement benefits and
contributions to the Savings and Investment Plan.
VII. ROLE OF THE COMMITTEE
The Committee exercises overall responsibility and has broad discretion
with respect to all aspects of the Plan and for performance assessment.
--o--
<PAGE> 1
EXHIBIT 10.28
METROPOLITAN LIFE INSURANCE COMPANY ANNUAL VARIABLE INCENTIVE PLAN
(FOR PERFORMANCE PERIODS STARTING ON OR AFTER JANUARY 1, 2000)
I. PURPOSE OF THE PLAN
- Align total annual pay with the Company's annual financial business
results.
- Provide competitive levels of pay for competitive levels of Company
performance.
- Make a competitive portion of total compensation variable based on
Company, business unit and individual performance.
II. PARTICIPATION
All associates in salary grade 29 and above and equivalent grades who have
signed the "Agreement to Protect Corporate Property", other than those
participating in incentive plans which are alternatives to, and not
supplementary to, the Annual Variable Incentive Plan.
In addition, the Officers may impose such other reasonable conditions for
participation in the Annual Variable Incentive Plan as they deem necessary
or appropriate.
III. DETERMINATION OF THE INCENTIVE POOL FOR DISTRIBUTION
The Board determines at the beginning of the performance year financial
objectives consistent with the Company's Annual Business Plan that will
provide the basis for determining the maximum aggregate incentive pool for
distribution. The pool will be determined using a formula approved by the
Board, which will be expressed in terms of percentages of operating
earnings and return on equity ("ROE"). The formula will be reviewed each
year by the Board to determine its appropriateness in connection with the
Company's Business Plan, and may be revised by the Board as a result of
such review. The maximum pool may also be increased by the Nominating and
Compensation Committee ("Committee") based on the recommendation of the
Chief Executive Officer ("CEO").
For purposes of this Plan: (a) "Operating earnings" means earnings net of
all taxes (other than the surplus tax), and excludes the impact of
demutualization costs; and (b) "Return on Equity" means operating earnings
divided by GAAP equity, where GAAP equity excludes unrealized investment
gains.
<PAGE> 2
A portion of the aggregate incentive pool will be allocated by the CEO
among the various business units based on their performance relative to
certain agreed upon objectives set at the beginning of the performance
year by the CEO. Following the performance year, business unit performance
will be evaluated by the CEO. All or a portion of the aggregate incentive
pool allocated to a particular business unit may be distributed to Plan
participants in that business unit, depending on the performance of that
business unit. A portion of the pool will be applied to the Company's
Performance Incentive Plan, as determined by the CEO.
IV. TARGET INCENTIVE OPPORTUNITIES
A. Incentive opportunity percentages for the various grades are
determined based on competitive total compensation market factors
and take into account incentive compensation opportunities for
comparable positions at our comparator companies, including major
insurance companies, banks and diversified financial services
companies.
B. The schedule of incentive opportunity percentages for the various
grades is as follows:
<TABLE>
<CAPTION>
TARGET INCENTIVE
GRADE (CURRENT TITLE) OPPORTUNITY PERCENTAGE
--------------------- ----------------------
<S> <C>
41 (Chief Executive Officer) 150%
40 (President) 90%
39 (Senior Executive Vice President) 80%
38 (Executive Vice President) 70%
37 (Senior Vice President) 50%
36 (Vice President/Senior Vice President) 50%
35 (Vice President) 45%
34 (Vice President) 40%
33 (Vice President) 40%
32 (Assistant Vice President) 25%
29-31 (Various Non- Officer Titles) 5%-15%
</TABLE>
V. CALCULATION OF INDIVIDUAL AWARDS
Annual incentive awards are discretionary and significant weight is given
to individual performance and relative contributions among Plan
participants. It is anticipated that there will be significant
differentiation of annual incentive awards based on individual
performance. Where performance indicates, individuals may receive no award
at all.
2
<PAGE> 3
The total of all individual awards under the Plan may not exceed the
maximum aggregate incentive pool.
VI. ADMINISTRATION OF AWARDS
A. Incentive awards for any performance year shall be made as soon as
possible during the following calendar year in the form of lump sum
payments.
B. Participants who voluntarily terminate their employment or whose
employment is discontinued for cause after the performance year, but
before the payout, or during the performance year are not eligible
to receive an award.
C. Participants terminating employment during or after the performance
year due to death, disability, or retirement may be eligible to
receive awards on a pro rata basis, at the Company's discretion.
Participants whose employment is terminated during the performance
year and who are eligible to receive a severance payment from the
Company may receive a pro rata award at the Company's discretion, in
exchange for their valid release.
D. Incentive awards paid prior to retirement or discontinuance of
employment will be taken into account for purposes of determining
the level of Insurance and Retirement benefits and contributions to
the Savings and Investment Plan, subject to any regulatory
limitations or approvals. Incentive awards paid subsequent to
retirement or discontinuance of employment will not be taken into
account for purposes of determining the level of Insurance and
Retirement benefits or contributions to the Savings and Investment
Plan, except as may be provided otherwise in any other Company plan
or program.
VII. ROLE OF THE NOMINATING AND COMPENSATION COMMITTEE
The Committee exercises overall responsibility and has broad discretion in
the administration of the Plan.
With respect to corporate performance, inasmuch as other unforeseen
matters have an impact on overall performance during the year, the
Committee, at its discretion, may adjust the maximum pool either
positively or negatively. The Committee may use its discretion to adjust
for unusual events that are beyond the control of management and obviously
influence performance results unduly, such as material
3
<PAGE> 4
changes in accounting policy, tax and other government regulations, and
the acquisition or sale of a business.
With respect to individual awards, the Committee will report its
recommendations for individual incentive awards for Officers of the rank
of Executive Vice President and above, or such other group of officers as
the Committee may from time to time select, to the Board following the
performance year. Following the determination of awards, the Committee
will receive a summary report of all incentive award payments.
4
<PAGE> 1
EXHIBIT 10.29
THE NEW METROPOLITAN LIFE AUXILIARY RETIREMENT BENEFITS PLAN
<PAGE> 2
THE NEW METROPOLITAN LIFE AUXILIARY RETIREMENT BENEFITS PLAN
Metropolitan Life Insurance Company (the Company) hereby continues in
force and effect, as amended and restated by this instrument, effective January
1, 1996, The New Metropolitan Life Auxiliary Retirement Benefits Plan (the
Plan), which was first established effective January 1, 1995.
Article 1.
Purpose of Plan
The purpose of the Plan is to provide to participants and their
beneficiaries under the Metropolitan Life Retirement Plan for United States
Employees ("the Retirement Plan") the excess amount that would have been payable
under the Retirement Plan in the absence of the limitations under (i) section
415 of the Internal Revenue Code of 1986 (as amended) ("the Internal Revenue
Code"), and (ii) section 401(a)(17) of the Internal Revenue Code.
Article 2.
Participation
(A) Except as provided in Paragraph (B) below, a Participant under the
Plan is any Company employee participating in the Retirement Plan (a) whose
benefits are reduced because of the application of (i) section 415 of the
Internal Revenue Code, or (ii) section 401(a)(17) of the Internal Revenue Code.
(B) (1) No individual shall be a Participant if on or after January 1,
1995 he or she is either (i) a member of the Executive Council participating in
the Company's Long Term Performance Compensation Plan or (ii) a member of the
President's Council for 3-consecutive years participating in the MetLife
Executive Life Insurance Program.
(2) If on or after January 1, 1995 a Participant under the Plan becomes
either (i) a member of the Executive Council participating in the Company's Long
Term Compensation Plan or (ii) a member of the President's Council for
3-consecutive years participating in the MetLife Executive Life Insurance
Program, his or her Participation in the Plan shall cease on that date and all
the benefits under the Plan that accrued through that date shall be forfeited
under this Plan; instead, such accruals shall be part of such individual's
benefits under the Metropolitan Life Supplemental Retirement Plan in which he or
she will be a participant.
<PAGE> 3
Article 3.
Payment of Benefits
(A) Benefits under this Plan shall be payable to a Participant in an
amount equal to the difference between
(i) the largest amount (without duplication of amount) that would have
been payable to the Participant under the Retirement Plan, under one or
more of the following:
(a) had the Retirement Plan not been subject to the
limitations of section 415 of the Internal Revenue Code; and
(b) had the Retirement Plan not been subject to the
limitations of section 401(a)(17) of the Internal Revenue Code; less
(ii) the amounts of benefits payable under the Retirement Plan and the
Metropolitan Life Auxiliary Retirement Benefits Plan (i.e., the predecessor
plan to this Plan).
(B) Benefits payable under this Plan shall be payable in the same form
and at the same times as the benefits under the Retirement Plan, and shall not
in combination with the benefits earned under the Retirement Plan, the
Metropolitan Life Auxiliary Retirement Benefits Plan and the New Metropolitan
Life Supplemental Auxiliary Retirement Benefits Plan exceed the limitations on
benefits established by regulations of the New York Insurance Department.
Article 4.
Unfunded Plan
The Plan is completely unfunded, and payment of benefits is supported
only by the general assets of the Company. This Plan is entirely separate from
the Retirement Plan, the Metropolitan Life Auxiliary Retirement Benefits Plan,
the New Metropolitan Life Supplemental Auxiliary Retirement Benefits Plan, and
the Metropolitan Supplemental Retirement Benefits Plan, and Participation in
this Plan gives a Participant no right to any funds or assets of the Retirement
Plan, the Metropolitan Life Auxiliary Retirement Benefits Plan, the New
Metropolitan Life Supplemental Auxiliary Retirement Benefits Plan, or the
Metropolitan Life Supplemental Retirement Benefits Plan. The fact that contracts
or certificates of the Company may be distributed to recipients of benefits
under the Retirement Plan in discharge of the Company's obligations thereunder
shall in no way
2
<PAGE> 4
entitle a Participant in this Plan to receive any such contract or certificate
in discharge of the Company's obligations hereunder.
Article 5.
Non-transferability of Participant's Interest.
No Participant shall have any power or right to transfer, assign,
mortgage, commute or otherwise encumber any of the benefits payable hereunder,
nor shall such benefits be subject to seizure for the payment of any debts or
judgments, or be transferable by operation of law in the event of bankruptcy,
insolvency or otherwise.
Article 6.
Effect of Taxes
In making payments under this Plan, the Company shall withhold any
Federal, state or local income or other taxes it determines that it is legally
obligated to withhold. In the event the payments received by the Participant
incur greater tax burdens (whether income, estate or other tax burdens) than
would such payments if they had been able to be received under the Retirement
Plan, the Company shall have no obligation to reimburse the Participant for such
greater tax burdens.
Article 7.
Company Interpretation Binding
In the event of a difference of opinion between a Participant and the
Company with respect to the meaning or application of the provisions of the
Plan, the Company's final interpretation shall be set forth in writing to the
Participant and shall be binding and conclusive.
Article 8.
Governing Law
To the extent not inconsistent with Federal law, the validity of the
Plan and its provisions shall be construed according to the laws of the State of
New York.
3
<PAGE> 5
Article 9.
Amendment and Termination of Plan
The Company through the Nominating and Compensation Committee of the
Board of Directors of the Company reserves the right to amend or terminate this
Plan hereunder at any time without the consent of any Participant or of any
other person. However, any such amendment or termination will not affect
adversely the entitlement to benefits hereunder of any Participant receiving
benefits under the Plan at or prior to the time of such amendment or termination
or of an employee who is a Participant in the Retirement Plan at or prior to the
time of such amendment or termination to the extent such benefits are
attributable to Company service prior to the date of such amendment or
termination.
_____________________________ METROPOLITAN LIFE INSURANCE COMPANY
Date
By _______________________________
_____________________________
Witness
4
<PAGE> 1
EXHIBIT 10.30
THE NEW METROPOLITAN LIFE
SUPPLEMENTAL AUXILIARY RETIREMENT BENEFITS PLAN
<PAGE> 2
THE NEW METROPOLITAN LIFE
SUPPLEMENTAL AUXILIARY RETIREMENT BENEFITS PLAN
Metropolitan Life Insurance Company (the Company) hereby establishes
The New Metropolitan Life Supplemental Auxiliary Retirement Benefits Plan (the
Plan), effective January 1, 1996.
Article 1
Purpose of Plan
The sole purpose of the Plan is to provide to participants and their
beneficiaries under the Metropolitan Life Retirement Plan for United States
Employees ("the Retirement Plan") the excess amount that would have been payable
under the Retirement Plan in the absence of the limitations under section
1.415-2(d)(2) of the Income Tax Regulations that excludes salary deferred under
the Company's deferred salary and sales commission arrangements.
Article 2
Participation
(A) Except as provided in Paragraph (B) below, a Participant under the
Plan is any Company employee participating in the Retirement Plan whose
compensation, as defined in the Retirement Plan, is in excess of the limitation
described in Section 401(a)(17) of the Internal Revenue Code and whose benefits
are reduced because of the application of section 1.415-2(d)(2) of the Internal
Revenue Regulations because of the exclusion of salary deferred under the
Company's deferred salary arrangements.
(B) (1) No individual shall be a Participant if on or after January 1,
1995 he or she is either (i) a member of the Executive Council participating in
the Company's Long Term Performance Compensation Plan or (ii) a member of the
President's Council for 3-consecutive years participating in the MetLife
Executive Life Insurance Program.
(2) If on or after January 1, 1995 a Participant under the Plan becomes
either (i) a member of the Executive Council participating in the Company's Long
Term Compensation Plan or (ii) a member of the President's Council for
3-consecutive years participating in the MetLife Executive Life Insurance
Program, his or her Participation in the Plan shall cease on that date and all
the benefits under the Plan that accrued through that date shall be forfeited
under this Plan; instead, such accruals shall be part of such
<PAGE> 3
individual's benefits under the Metropolitan Life Supplemental Retirement
Plan in which he or she will be a participant.
Article 3
Payment of Benefits
(A) Benefits under this Plan shall be payable to a Participant in an
amount equal to the difference between
(i) the largest amount (without duplication of amount) that
would have been payable to the Participant under the Retirement Plan, had the
Retirement Plan not been subject to the deferred compensation income exclusion
under section 1.415-2(d)(2) of the Internal Revenue Regulations with respect to
the Company's deferred salary and sales commission arrangements; less
(ii) the amounts of benefits payable under the Retirement Plan
and the Metropolitan Life Auxiliary Retirement Benefits Plan (i.e., the
predecessor plan to this Plan).
(B) Benefits payable under this Plan shall be payable in the same form
and at the same times as the benefits under the Retirement Plan, and shall not
in combination with the benefits earned under the Retirement Plan, the
Metropolitan Life Auxiliary Retirement Benefits Plan and the New Metropolitan
Life Auxiliary Retirement Benefits Plan exceed the limitations on benefits
established by regulations of the New York Insurance Department.
Article 4
Unfunded Plan
The Plan is completely unfunded, and payment of benefits is supported
only by the general assets of the Company. This Plan is entirely separate from
the Retirement Plan, the Metropolitan Life Auxiliary Retirement Benefits Plan,
the New Metropolitan Life Auxiliary Retirement Benefits Plan, and the
Metropolitan Supplemental Retirement Benefits Plan, and Participation in this
Plan gives a Participant no right to any funds or assets of the Retirement Plan,
the Metropolitan Life Auxiliary Retirement Benefits Plan, the New Metropolitan
Life Auxiliary Retirement Benefits Plan, or the Metropolitan Life Supplemental
Retirement Benefits Plan. The fact that contracts or certificates of the Company
may be distributed to recipients of benefits under the Retirement Plan in
discharge of the Company's obligations thereunder shall in no way entitle a
Participant in
3
<PAGE> 4
this Plan to receive any such contract or certificate in discharge of the
Company's obligations hereunder.
Article 5
Non-transferability of Participant's Interest
No Participant shall have any power or right to transfer, assign,
mortgage, commute or otherwise encumber any of the benefits payable hereunder,
nor shall such benefits be subject to seizure for the payment of any debts or
judgments, or be transferable by operation of law in the event of bankruptcy,
insolvency or otherwise.
Article 6
Effect of Taxes
In making payments under this Plan, the Company shall withhold any
Federal, state or local income or other taxes it determines that it is legally
obligated to withhold. In the event the payments received by the Participant
incur greater tax burdens (whether income, estate or other tax burdens) than
would such payments if they had been able to be received under the Retirement
Plan, the Company shall have no obligation to reimburse the Participant for such
greater tax burdens.
Article 7
Company Interpretation Binding
In the event of a difference of opinion between a Participant and the
Company with respect to the meaning or application of the provisions of the
Plan, the Company's final interpretation shall be set forth in writing to the
Participant and shall be binding and conclusive.
Article 8
Governing Law
To the extent not inconsistent with Federal law, the validity of the
Plan and its provisions shall be construed according to the laws of the State of
New York.
4
<PAGE> 5
Article 9
Amendment and Termination of Plan
The Company through the Nominating and Compensation Committee of the
Board of Directors of the Company reserves the right to amend or terminate this
Plan hereunder at any time without the consent of any Participant or of any
other person. However, any such amendment or termination will not affect
adversely the entitlement to benefits hereunder of any Participant receiving
benefits under the Plan at or prior to the time of such amendment or termination
or of an employee who is a Participant in the Retirement Plan at or prior to the
time of such amendment or termination to the extent such benefits are
attributable to Company service prior to the date of such amendment or
termination.
- -------------------------- METROPOLITAN LIFE INSURANCE COMPANY
Date
By
--------------------------------
- -------------------------
Witness
5
<PAGE> 6
AMENDMENT TO THE
NEW METROPOLITAN LIFE
SUPPLEMENTAL AUXILIARY RETIREMENT BENEFITS PLAN
The NEW METROPOLITAN LIFE SUPPLEMENTAL AUXILIARY
RETIREMENT BENEFITS PLAN ("Plan") is hereby amended as follows:
1. Article 1 of the Plan is hereby amended to provide as follows:
"Article 1 - Purpose of Plan
The purpose of the Plan is to provide to certain participants
employed by Metropolitan Life Insurance Company (the Company) and
Metropolitan Property and Casualty Insurance Company (the Subsidiary)
and their beneficiaries under the Metropolitan Life Retirement Plan for
United States Employees ("the Retirement Plan") the excess amount that
would have been payable under the Retirement Plan in the absence of the
limitations under section 1.415-2(d)(2) of the Income Tax Regulations
that excludes salary deferred under the Company's deferred salary and
sales commission arrangements."
2. Article 2 of the Plan is hereby amended as follows:
"Article 2 - Participation
(A) Except as provided in Paragraph (B) below, a Participant
under the Plan is any Company or Subsidiary employee participating in
the Retirement Plan whose compensation, as defined in the Retirement
Plan, is in excess of the
<PAGE> 7
limitation described in Section 401(a)(17) of the Internal Revenue Code
and whose benefits are reduced because of the application of section
1.415-2(d)(2) of the Internal Revenue Regulations because of the
exclusion of salary deferred under the Company's deferred salary
arrangements.
(B)(1) No individual shall be a Participant if on or after
January 1, 1995 he or she (i) was a member of the Executive Council at
the time the Executive Council was disbanded and who participated in
the Company's Long Term Performance Compensation Plan; (ii) holds the
title of Senior Vice President or higher; (iii) is a member of the
President's Council for 3-consecutive years participating in the
MetLife Executive Life Insurance Program; or (iv) he or she has been
inducted into the Sales Representative Hall of Fame and has attained
the age of 65.
(2) If on or after January 1, 1995 a Participant under the
Plan (i) was a member of the Executive Council at the time the
Executive Council was disbanded and who participated in the Company's
Long Term Performance Compensation Plan; (ii) holds the title of Senior
Vice President or higher; (iii) is a member of the President's Council
for 3-consecutive years participating in the MetLife Executive Life
Insurance Program; or (iv) he or she has been inducted into the Sales
Representative Hall of Fame and has attained the age of 65, his or her
Participation in the Plan shall cease on that date and all the benefits
under the Plan that accrued
2
<PAGE> 8
through that date shall be forfeited under this Plan; instead, such
accruals shall be part of such individual's benefits under the
Metropolitan Life Supplemental Retirement Plan in which he or she will
be a participant."
3. Article 4 of the Plan is hereby amended as follows:
"Article 4. Unfunded Plan.
The Plan is completely unfunded, and payment of benefits is
supported only by the general assets of the Company or the Subsidiary.
This Plan is entirely separate from the Retirement Plan, the
Metropolitan Life Auxiliary Retirement Benefits Plan, the New
Metropolitan Life Auxiliary Retirement Benefits Plan, and the
Metropolitan Supplemental Retirement Benefits Plan, and Participation
in this Plan gives a Participant no right to any funds or assets of the
Retirement Plan, the Metropolitan Life Auxiliary Retirement Benefits
Plan, the New Metropolitan Life Auxiliary Retirement Benefits Plan, or
the Metropolitan Life Supplemental Retirement Benefits Plan. The fact
that contracts or certificates of the Company may be distributed to
recipients of benefits under the Retirement Plan in discharge of the
Company's or the Subsidiary's obligations thereunder shall in no way
entitle a Participant in this Plan to receive any such contract or
certificate in discharge of the Company's or the Subsidiary's
obligations hereunder."
4. Article 6 of the Plan is hereby amended as follows:
"Article 6. Effect of Taxes
3
<PAGE> 9
In making payments under this Plan, the Company and the
Subsidiary shall withhold any Federal, state or local income or other
taxes it determines that it is legally obligated to withhold. In the
event the payments received by the Participant incur greater tax
burdens (whether income, estate or other tax burdens) than would such
payments if they had been able to be received under the Retirement
Plan, the Company and the Subsidiary shall have no obligation to
reimburse the Participant for such greater tax burdens."
5. This amendment shall be effective on January 1, 1999.
4
<PAGE> 10
IN WITNESS WHEREOF, the Company has caused this amendment to
be executed in its name and behalf this ____ day of _______________,
1999, by its officer thereunto duly authorized.
Metropolitan Life Insurance Company
By _______________________________
ATTEST:
_______________________________
Metropolitan Property and Casualty Insurance
Company
By _________________________________
ATTEST:
_______________________________
5
<PAGE> 1
EXHIBIT 10.31
METROPOLITAN LIFE AUXILIARY SAVINGS AND INVESTMENT PLAN
(Restated Effective Through August 15, 1998)
<PAGE> 2
METROPOLITAN LIFE AUXILIARY SAVINGS AND INVESTMENT PLAN
(Restated Effective Through August 15, 1998)
Metropolitan Life Insurance Company and Texas Life Insurance Company,
(the Company) hereby continues in force and effect, as restated and amended by
this instrument, the Metropolitan Life Auxiliary Savings and Investment Plan
(the Plan), which was first established effective January 1, 1983.
Article 1
Purpose of Plan
The Company for many years has maintained a Savings and Investment Plan
for its employees. Said plan is qualified under section 401 of the Internal
Revenue Code. The Company contributions provided under said Savings and
Investment Plan are and always have been reasonable in amount in relation to the
covered employees' compensation and services.
(a) Under section 415 of the Internal Revenue Code as enacted by the
Employee Retirement Income Security Act of 1974 (ERISA), and as amended by
the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA), for 1983 and
subsequent years the Company contributions for certain Company employees
under the Savings and Investment Plan may have to be reduced in order to
maintain the tax-qualified status of the Savings and Investment Plan.
Therefore, the Company is adopting this Plan to provide benefits to
employees and beneficiaries of employees whose Company contributions under
the Savings and Investment Plan are reduced because of the limitations in
section 415 of the Internal Revenue Code. Such benefits are subject to the
Plan's overall benefit limitations set forth under Article 3.
(b) Under section 401(a)(17) of the Internal Revenue Code, the benefits
payable to certain Company employees and their beneficiaries under the
Savings and Investment Plan may have to be reduced in order to maintain the
tax-qualified status of the Savings and Investment Plan. Under this
provision, the Savings and Investment Plan must disregard the annual
compensation of any employee to the extent that such compensation exceeds
the section 401(a)(17) limitation. Therefore, effective on or after January
1, 1989, this Plan shall provide benefits to employees and beneficiaries of
employees whose benefits under the Savings and Investment Plan are reduced
as a result of the section 401(a)(17) limitation. Such benefits are subject
to the Plan's overall benefit limitations as set forth under Article 3.
<PAGE> 3
Article 2
Participation
Each Participant under the Savings and Investment Plan whose Company
contributions are reduced because of the application of (i) section 415 of the
Internal Revenue Code and/or (ii) section 401(a)(17) of the Internal Revenue
Code shall be a Participant in this Plan.
Article 3
Vesting and Payment of Benefits
Benefits under this Plan shall vest in accordance with the vesting
schedule applicable to Company contributions under the Savings and Investment
Plan and shall be payable to a Participant or the beneficiary of a deceased
Participant in amounts equal to the difference between
(i) the largest amount (together with interest thereon), that would
have been contributed by the Company under the Savings and Investment Plan,
as amended, under one or more of the following (but without duplication of
amount):
(a) had the Savings and Investment Plan not been subject to
the limitations of section 415 of the Internal Revenue Code
(disregarding the limitations under (b) herein); and/or
(b) had the Savings and Investment Plan not been subject to
the limitations of section 401(a)(17) of the Internal Revenue Code
(disregarding the limitations under (a) herein and with respect only to
benefits accruable under the Savings and Investment Plan on or after
January 1, 1989), less
(ii) the amounts of benefits that are actually payable under the
Savings and Investment Plan.
Interest will be calculated on such amount at the same rates and over
the same period of time as if such amounts had been contributed to the Savings
and Investment Plan and invested in the Fixed Income Fund thereunder. Except as
otherwise provided in this Article, a Participant may elect, subject to the
consent of the Company, to receive benefits in the form of a single sum,
installments or an annuity subject to the same duration, terms and conditions
under which such methods of distribution are payable under the Savings and
Investment Plan. Such election shall be made on a form prescribed by the Company
and shall require the Participant to designate the mode of payment requested and
the date
2
<PAGE> 4
on which benefits will commence to be paid. Benefits shall become
payable on the date elected by the Participant in the election form which date
shall not be earlier than (i) twelve (12) months subsequent to the date on which
the Participant files the election form with the Company; and (ii) the
Participant's actual retirement date. If the Participant retired prior to
attaining age 70 1/2, and no benefit election form is received from a
Participant by April 1st of the calendar year following the calendar year in
which the Participant attained age 70 1/2, such Participant will be deemed to
have elected to receive his or her account balance in the form of a single sum
by April 1st of the calendar year following the calendar year in which he or she
attains age 71 1/2. However, if a Participant's vested account balance does not
exceed $5,000, determined as of the date of such Participant's retirement or
termination of employment, such Participant's vested account balance will be
distributed in a single sum as soon as practicable following his or her death,
disability, termination of employment or retirement. Notwithstanding the
foregoing provisions of this Article 3, no benefits under this Plan will be
eligible for any in-service withdrawal by a Participant.
If, at the time of the Participant's death, amounts remained
undistributed to such Participant (unless such Participant was receiving benefit
payments in the form of an annuity), then benefit payments shall continue to be
made to the Participant's beneficiary in accordance with the method by which
benefit payments were being made to the Participant. If, at the time of the
Participant's death, benefit payments had not commenced to be made to him or
her, then, except as otherwise provided in this Article, the Participant's
designated beneficiary may elect, subject to the consent of the Company, to
receive benefits in the form of a single sum, installments or an annuity subject
to the same duration, terms and conditions under which such methods of
distribution are payable to beneficiaries under the Savings and Investment Plan.
Such election shall be made on a form prescribed by the Company and shall
require the beneficiary to designate the mode of payment requested and the date
on which benefits will commence to be paid. If the election form is filed with
the Company by December 31 of the year in which the Participant died, benefits
payable in the form of an annuity, in installments payable over more than five
years certain or in installments payable over the life expectancy of the
beneficiary must commence no earlier than the first day of the month which is
twelve months after the date the beneficiary files the form with the Company,
but no later than December 31 of the year following the year of the
Participant's death. Benefits payable in any form other than those forms
described in the preceding sentence shall become payable on the date elected by
the beneficiary in the election form which date shall not be earlier than twelve
(12) months subsequent to the date on which the beneficiary files the election
form with the Company; however, the benefit selected must require the entire
account balance to be paid to the beneficiary no later than the December 31 of
the year which is the fifth anniversary of the Participant's death.
3
<PAGE> 5
The Participant's beneficiary shall be the beneficiary designated by
the Participant under the Savings and Investment Plan. However, if the
Participant filed a beneficiary designation under this Plan, upon the
Participant's death, benefits shall be payable to the primary beneficiary(ies)
designated under this Plan. If there is more than one beneficiary under the
Savings and Investment Plan or more than one primary beneficiary under this Plan
and the beneficiary designation does not specify the percentage of the
Participant's benefit to be paid to each such beneficiary, each beneficiary
shall share equally in the benefits under the Plan. If one or more beneficiaries
predecease the Participant, the surviving beneficiary(ies) shall share equally
in the deceased beneficiary's portion of the Plan benefits. If all primary
beneficiaries predecease the Participant, benefits shall be payable to the
contingent beneficiary(ies) upon the Participant's death. If there is more than
one contingent beneficiary(ies), and the contingent beneficiary designation does
not specify the percentage of the Participant's benefit to be paid to each such
beneficiary, each contingent beneficiary shall share equally in the benefits
under the Plan. If one or more contingent beneficiaries predecease the
Participant, the surviving contingent beneficiary(ies) shall share equally in
the deceased contingent beneficiary's portion of the Plan benefits. If all
contingent beneficiaries predecease the Participant, or if there is no
beneficiary designation in effect on the date of the Participant's death,
benefits will be payable to the Participant's surviving spouse or, in the
absence of such spouse, to the Participant's estate.
The largest amount under subsection (i) above shall, notwithstanding
the actual provisions of the Savings and Investment Plan, also include in the
case of a salaried employee who has not received an otherwise final distribution
under the Savings and Investment Plan, benefits with respect to any incentive
award paid under the Short-Term Performance Compensation Plan after the date the
individual retires for purposes of the Metropolitan Retirement Plan, whether
paid for the twelve-month period directly preceding the employee's year of
retirement and/or for the period running from January 1st of the year of
retirement through the date of retirement.
Notwithstanding any provision to the contrary, no similar benefit that
is paid under this Plan shall be paid under any other deferred compensation
plan(s) created by the Company or any of its affiliates.
Article 4
Unfunded Plan
The Plan is completely unfunded, and payment of benefits is supported
only by the general assets of each Company. This Plan is entirely separate from
the Savings and Investment Plan and participation in this Plan gives a
Participant no right to any funds or
4
<PAGE> 6
assets of the Savings and Investment Plan or of the Company. The fact that
contracts or certificates of the Company may be distributed to recipients of
benefits under the Savings and Investment Plan in discharge of the Company's
obligations thereunder shall in no way entitle a Participant in this Plan to
receive any such contract or certificate in discharge of the Company's
obligations hereunder.
Article 5
Nontransferability of Participant's Interest
No Participant shall have any power or right to transfer, assign,
mortgage, commute or otherwise encumber any of the benefits payable hereunder,
nor shall such benefits be subject to seizure for the payment of any debts or
judgments, or be transferable by operation of law in the event of bankruptcy,
insolvency or otherwise.
Article 6
Effect of Taxes
In making payments under this Plan, the Company shall withhold any
Federal, state or local income or other taxes it determines that it is legally
obligated to withhold. In the event the payments received by the Participant
result in greater tax burdens (whether income, estate or other tax burdens) than
they would if such payments had been able to be received under the Savings and
Investment Plan, the Company shall have no obligation to reimburse the
Participant for such greater tax burdens.
Article 7
Company Interpretation Binding
In the event of a difference of opinion between a Participant and the
Company with respect to the meaning or application of the provisions of the
Plan, the Company's final interpretation shall be set forth in writing to the
Participant and shall be binding and conclusive.
5
<PAGE> 7
Article 8
Governing Law
To the extent not inconsistent with Federal law, the validity of the
Plan and its provisions shall be construed according to the laws of the State of
New York.
Article 9
Amendment and Termination of Plan
The Company reserves the right to amend or terminate this Plan
hereunder at any time without the consent of any Participant or of any other
person. However, any such amendment or termination will not affect adversely the
entitlement to benefits hereunder of any Participant or beneficiary receiving
benefits under the Plan or any successor plan at or prior to the time of such
amendment or termination or of an employee who is a Participant in the Savings
and Investment Plan at or prior to the time of such amendment or termination to
the extent such benefits are attributable to Company service prior to the date
of such amendment or termination.
______________________________ METROPOLITAN LIFE INSURANCE COMPANY
Date
______________________________ _____________________________________
Witness
______________________________ TEXAS LIFE INSURANCE COMPANY
Date
______________________________ _____________________________________
Witness
6
<PAGE> 1
EXHIBIT 10.32
METROPOLITAN LIFE SUPPLEMENTAL
AUXILIARY SAVINGS AND INVESTMENT PLAN
(As Amended and Restated as of September 1, 1998)
<PAGE> 2
METROPOLITAN LIFE SUPPLEMENTAL
AUXILIARY SAVINGS AND INVESTMENT PLAN
Metropolitan Life Insurance Company and Texas Life Insurance Company,
(the Company) hereby establish the Metropolitan Life Supplemental Auxiliary
Savings and Investment Plan (the Plan), effective January 1, 1996, as amended
and restated as of September 1, 1998.
Article 1
Purpose of Plan
The Company for many years has maintained a Savings and Investment Plan
for its employees. Said plan is qualified under section 401 of the Internal
Revenue Code. The Company contributions provided under said Savings and
Investment Plan are and always have been reasonable in amount in relation to the
covered employees' compensation and services.
Under section 1.415-2(d)(2) of the Internal Revenue Regulations, the
limitation under section 415 of the Internal Revenue Code takes into account the
annual compensation of an employee other than contributions made by the Employer
to a deferred compensation plan to the extent that such contributions are not
includible in the employee's gross income for the taxable year in which
contributed. Pursuant to this regulation, the SIP must exclude deferred
compensation income in calculating the benefits payable to certain company
employees and their beneficiaries for all years, including those years prior to
the effective date of the Plan. Therefore, the Company is adopting this Plan to
provide benefits to its employees and beneficiaries of its employees whose
benefits under SIP are reduced because of the limitations in Section
1.415-2(d)(2) of the Internal Revenue Regulations. Such benefits are subject to
the Plan's overall benefit limitations as set forth under Article 3.
Article 2
Participation
Each Participant under SIP whose compensation, as defined in SIP,
exceeds the limitations of Section 401(a)(17) of the Internal Revenue Code and
whose Company contributions are reduced because of the application of section
1.415-2(d)(2) of the Internal Revenue Regulations shall be a Participant in this
Plan.
<PAGE> 3
Article 3
Vesting and Payment of Benefits
Benefits under this Plan shall vest in accordance with the vesting
schedule applicable to Company contributions under the Savings and Investment
Plan and shall be payable to a Participant or the beneficiary of a deceased
Participant in amounts equal to the difference between
(i) the largest amount (together with interest thereon), that would
have been contributed by the Company under SIP, as amended, had SIP not been
subject to the deferred compensation income exclusion as provided under
section 1.4152(d)(2) of the Internal Revenue Regulations, less
(ii) the amounts of benefits that are actually payable under SIP.
The benefits paid under this Plan shall take into account all periods
of employee service performed by a Participant for the Company (including any
period before the Plan's effective date) that count for the Participant's
benefit accrual under SIP.
Interest will be calculated on such amount at the same rates and over
the same period of time as if such amounts had been contributed to SIP and
invested in the Fixed Income Fund thereunder. Except as otherwise provided in
this Article, a Participant may elect, subject to the consent of the Company, to
receive benefits under this Plan in the form of a single sum, installments or an
annuity subject to the same duration, terms and conditions under which such
methods of distribution are payable under the Savings and Investment Plan. Such
election shall be made on a form prescribed by the Company and shall require the
Participant to designate the mode of payment requested and the date on which
benefits will commence to be paid. Benefits shall become payable on the date
elected by the Participant in the election form which date shall not be earlier
than (i) twelve (12) months subsequent to the date on which the Participant
files the election form with the Company; and (ii) the Participant's actual
retirement date. If the Participant retired prior to attaining age 70 1/2, and
no benefit election form is received from a Participant by April 1st of the
calendar year following the calendar year in which the Participant attained age
70 1/2, such Participant will be deemed to have elected to receive his or her
account balance in the form of a single sum by April 1st of the calendar year
following the calendar year in which he or she attains age 71 1/2. However, if a
Participant's vested account balance does not exceed $5,000, such Participant's
vested account balance will be distributed in a single sum as soon as
practicable following his or her death, disability, termination of employment or
retirement. Notwithstanding the foregoing provisions of this Article 3, no
benefits under this Plan will be eligible for any in-service withdrawal by a
Participant.
2
<PAGE> 4
If, at the time of the Participant's death, amounts remained
undistributed to such Participant (unless such Participant was receiving benefit
payments in the form of an annuity), then benefit payments shall continue to be
made to the Participant's beneficiary in accordance with the method by which
benefit payments were being made to the Participant. If, at the time of the
Participant's death, benefit payments had not commenced to be made to him or
her, then, except as otherwise provided in this Article, the Participant's
designated beneficiary may elect, subject to the consent of the Company, to
receive benefits in the form of a single sum, installments or an annuity subject
to the same duration, terms and conditions under which such methods of
distribution are payable to beneficiaries under the Savings and Investment Plan.
Such election shall be made on a form prescribed by the Company and shall
require the beneficiary to designate the mode of payment requested and the date
on which benefits will commence to be paid. If the election form is filed with
the Company by December 31 of the year in which the Participant died, benefits
payable in the form of an annuity, in installments payable over more than five
years certain or in installments payable over the life expectancy of the
beneficiary must commence no earlier than the first day of the month which is
twelve months after the date the beneficiary files the form with the Company,
but no later than December 31 of the year following the year of the
Participant's death. Benefits payable in any form other than those forms
described in the preceding sentence shall become payable on the date elected by
the beneficiary in the election form which date shall not be earlier than twelve
(12) months subsequent to the date on which the beneficiary files the election
form with the Company; however, the benefit selected must require the entire
account balance to be paid to the beneficiary no later than the December 31 of
the year which is the fifth anniversary of the Participant's death.
The Participant's beneficiary shall be the beneficiary designated by
the Participant under the Savings and Investment Plan. However, if the
Participant filed a beneficiary designation under this Plan, upon the
Participant's death, benefits shall be payable to the primary beneficiary(ies)
designated under this Plan. If there is more than one beneficiary under the
Savings and Investment Plan or more than one primary beneficiary under this Plan
and the beneficiary designation does not specify the percentage of the
Participant's benefit to be paid to each such beneficiary, each beneficiary
shall share equally in the benefits under the Plan. If one or more beneficiaries
predecease the Participant, the surviving beneficiary(ies) shall share equally
in the deceased beneficiary's portion of the Plan benefits. If all primary
beneficiaries predecease the Participant, benefits shall be payable to the
contingent beneficiary(ies) upon the Participant's death. If there is more than
one contingent beneficiary(ies), and the contingent beneficiary designation does
not specify the percentage of the Participant's benefit to be paid to each such
beneficiary, each contingent beneficiary shall share equally in the benefits
under the Plan. If one or more contingent beneficiaries predecease the
Participant, the surviving contingent beneficiary(ies) shall share equally in
the deceased contingent beneficiary's portion of the Plan benefits. If all
contingent beneficiaries predecease the Participant, or if there is no
3
<PAGE> 5
beneficiary designation in effect on the date of the Participant's death,
benefits will be payable to the Participant's surviving spouse or, in the
absence of such spouse, to the Participant's estate.
Article 4
Unfunded Plan
The Plan is completely unfunded, and payment of benefits is supported
only by the general assets of each Company. This Plan is entirely separate from
the Savings and Investment Plan and participation in this Plan gives a
Participant no right to any funds or assets of the Savings and Investment Plan
or of the Company. The fact that contracts or certificates of the Company may be
distributed to recipients of benefits under the Savings and Investment Plan in
discharge of the Company's obligations thereunder shall in no way entitle a
Participant in this Plan to receive any such contract or certificate in
discharge of the Company's obligations hereunder.
Article 5
Nontransferability of Participant's Interest
No Participant shall have any power or right to transfer, assign,
mortgage, commute or otherwise encumber any of the benefits payable hereunder,
nor shall such benefits be subject to seizure for the payment of any debts or
judgments, or be transferable by operation of law in the event of bankruptcy,
insolvency or otherwise.
Article 6
Effect of Taxes
In making payments under this Plan, the Company shall withhold any
Federal, state or local income or other taxes it determines that it is legally
obligated to withhold. In the event the payments received by the Participant
result in greater tax burdens (whether income, estate or other tax burdens) than
they would if such payments had been able to be received under the Savings and
Investment Plan, the Company shall have no obligation to reimburse the
Participant for such greater tax burdens.
4
<PAGE> 6
Article 7
Company Interpretation Binding
In the event of a difference of opinion between a Participant and the
Company with respect to the meaning or application of the provisions of the
Plan, the Company's final interpretation shall be set forth in writing to the
Participant and shall be binding and conclusive.
Article 8
Governing Law
To the extent not inconsistent with Federal law, the validity of the
Plan and its provisions shall be construed according to the laws of the State of
New York.
Article 9
Amendment and Termination of Plan
The Company reserves the right to amend or terminate this Plan
hereunder at any time without the consent of any Participant or of any other
person. However, any such amendment or termination will not affect adversely the
entitlement to benefits hereunder of any Participant or Participant receiving
benefits under the Plan or any successor plan at or prior to the time of such
amendment or termination or of an employee who is a Participant in the Savings
and Investment Plan at or prior to the time of such amendment or termination to
the extent such benefits are attributable to Company service prior to the date
of such amendment or termination.
____________________________________ METROPOLITAN LIFE INSURANCE COMPANY
Date
____________________________________ ____________________________________
Witness
____________________________________ TEXAS LIFE INSURANCE COMPANY
Date
____________________________________ ____________________________________
Witness
5
<PAGE> 7
AMENDMENT TO THE
METROPOLITAN LIFE SUPPLEMENTAL
AUXILIARY SAVINGS AND INVESTMENT PLAN
The METROPOLITAN LIFE SUPPLEMENTAL AUXILIARY SAVINGS AND INVESTMENT
PLAN (the "Plan") is hereby amended as follows:
1. Article 3 is hereby amended by adding at the end thereof, the
following:
"Notwithstanding any provision in this Plan to the contrary, no benefit
shall be payable under this Plan with respect to any year in which a
Participant defers compensation under the MetLife Deferred Compensation
Plan for Officers, or any other plan under which employer matching
contributions are made on account of deferred compensation. Except as
provided in the preceding sentence, no similar benefit that is paid
under this Plan shall be paid under any other deferred compensation
plan(s) created by the Company or any of its affiliates,
notwithstanding any provision in this Plan to the contrary."
2. This Amendment shall become effective on January 1, 1998.
_________________________________ METROPOLITAN LIFE INSURANCE COMPANY
Date
_________________________________ ____________________________________
Witness
<PAGE> 8
___________________________________ METLIFE CAPITAL CORPORATION
Date
___________________________________ ____________________________________
Witness
_________________________________ TEXAS LIFE INSURANCE COMPANY
Date
__________________________________ ____________________________________
Witness
2
<PAGE> 1
EXHIBIT 10.33
SUPPLEMENTAL AUXILIARY SAVINGS AND INVESTMENT PLAN
OF PARTICIPATING METROPOLITAN AFFILIATES
(Effective January 1, 1996)
<PAGE> 2
SUPPLEMENTAL AUXILIARY SAVINGS AND INVESTMENT PLAN
OF PARTICIPATING METROPOLITAN AFFILIATES
Metropolitan Property and Casualty Insurance Company, MetLife Credit
Corp., MetLife Funding, Inc., Cross & Brown Company, and Edison Supply and
Distribution, Inc. (hereinafter referred to separately as "the Company") hereby
establish the Supplemental Auxiliary Savings and Investment Plan of
Participating Metropolitan Affiliates (hereinafter referred to as "the Plan"),
effective January 1, 1996.
Article 1
Purpose of Plan
Each Company contributes to the Savings and Investment Plan For
Employees of Metropolitan Life and Participating Affiliates (hereinafter
referred to as "SIP") for its employees. Said plan is qualified under section
401 of the Internal Revenue Code. The Company contributions provided under SIP
are and always have been reasonable in amount in relation to the covered
employees' compensation and services.
(a) Under section 1.415-2(d)(2) of the Internal Revenue Regulations,
the limitation under section 415 of the Internal Revenue Code takes into account
the annual compensation of an employee other than contributions made by the
Employer to a deferred compensation plan to the extent that such contributions
are not includible in the employee's gross income for the taxable year in which
contributed. Pursuant to this regulation, the SIP must exclude deferred
compensation income in calculating the benefits payable to certain company
employees and their beneficiaries for all years, including those years prior to
the effective date of the Plan. Therefore, each Company is adopting this Plan to
provide benefits to its employees and beneficiaries of its employees whose
benefits under SIP are reduced because of the limitations in Section
1.415-2(d)(2) of the Internal Revenue Regulations. Such benefits are subject to
the Plan's overall benefit limitations as set forth under Article 3.
Article 2
Participation
Each Participant under SIP whose compensation, as defined in SIP,
exceeds the limitations of Section 401(a)(17) of the Internal Revenue Code and
whose Company
<PAGE> 3
contributions are reduced because of the application of section 1.415-2(d)(2) of
the Internal Revenue Regulations shall be a Participant in this Plan.
Article 3
Vesting and Payment of Benefits
Benefits under this Plan shall vest in accordance with the vesting
schedule applicable to Company contributions under the Savings and Investment
Plan and shall be payable to a Participant or the beneficiary of a deceased
Participant in amounts equal to the difference between
(i) the largest amount (together with interest thereon),
that would have been contributed by the Company under SIP, as amended,
had SIP not been subject to the deferred compensation income exclusion
as provided under section 1.415-2(d)(2) of the Internal Revenue
Regulations, less
(ii) the amounts of benefits that are actually payable under
SIP.
The benefits paid under this Plan shall take into account all periods
of employee service performed by a Participant for his or her Company (including
any period before the Plan's effective date) that count for the Participant's
benefit accrual under SIP.
Interest will be calculated on such amount at the same rates and over
the same period of time as if such amounts had been contributed to SIP and
invested in the Fixed Income Fund thereunder. Except as otherwise provided in
this Article, a Participant may elect, subject to the consent of the Company, to
receive benefits under this Plan in the form of a single sum, installments or an
annuity subject to the same duration, terms and conditions under which such
methods of distribution are payable under the Savings and Investment Plan. Such
election shall be made on a form prescribed by the Company and shall require the
Participant to designate the mode of payment requested and the date on which
benefits will commence to be paid. Benefits shall become payable on the date
elected by the Participant in the election form which date shall not be earlier
than (i) twelve (12) months subsequent to the date on which the Participant
files the election form with the Company; and (ii) the Participant's actual
retirement date. If the Participant retired prior to attaining age 70 1/2, and
no benefit election form is received from a Participant by April 1st of the
calendar year following the calendar year in which the Participant attained age
70 1/2, such Participant will be deemed to have elected to receive his or her
account balance in the form of a single sum by April 1st of the calendar year
following the calendar year in which he or she attains age 71 1/2. However, if a
Participant's vested account balance does not exceed $5,000, such Participant's
vested
2
<PAGE> 4
account balance will be distributed in a single sum as soon as practicable
following his or her death, disability, termination of employment or retirement.
Notwithstanding the foregoing provisions of this Article 3, no benefits under
this Plan will be eligible for any in-service withdrawal by a Participant.
If, at the time of the Participant's death, amounts remained
undistributed to such Participant (unless such Participant was receiving benefit
payments in the form of an annuity), then benefit payments shall continue to be
made to the Participant's beneficiary in accordance with the method by which
benefit payments were being made to the Participant. If, at the time of the
Participant's death, benefit payments had not commenced to be made to him or
her, then, except as otherwise provided in this Article, the Participant's
designated beneficiary may elect, subject to the consent of the Company, to
receive benefits in the form of a single sum, installments or an annuity subject
to the same duration, terms and conditions under which such methods of
distribution are payable to beneficiaries under the Savings and Investment Plan.
Such election shall be made on a form prescribed by the Company and shall
require the beneficiary to designate the mode of payment requested and the date
on which benefits will commence to be paid. If the election form is filed with
the Company by December 31 of the year in which the Participant died, benefits
payable in the form of an annuity, in installments payable over more than five
years certain or in installments payable over the life expectancy of the
beneficiary must commence no earlier than the first day of the month which is
twelve months after the date the beneficiary files the form with the Company,
but no later than December 31 of the year following the year of the
Participant's death. Benefits payable in any form other than those forms
described in the preceding sentence shall become payable on the date elected by
the beneficiary in the election form which date shall not be earlier than twelve
(12) months subsequent to the date on which the beneficiary files the election
form with the Company; however, the benefit selected must require the entire
account balance to be paid to the beneficiary no later than the December 31 of
the year which is the fifth anniversary of the Participant's death.
The Participant's beneficiary shall be the beneficiary designated by
the Participant under the Savings and Investment Plan. However, if the
Participant filed a beneficiary designation under this Plan, upon the
Participant's death, benefits shall be payable to the primary beneficiary(ies)
designated under this Plan. If there is more than one beneficiary under the
Savings and Investment Plan or more than one primary beneficiary under this Plan
and the beneficiary designation does not specify the percentage of the
Participant's benefit to be paid to each such beneficiary, each beneficiary
shall share equally in the benefits under the Plan. If one or more beneficiaries
predecease the Participant, the surviving beneficiary(ies) shall share equally
in the deceased beneficiary's portion of the Plan benefits. If all primary
beneficiaries predecease the Participant, benefits shall be
3
<PAGE> 5
payable to the contingent beneficiary(ies) upon the Participant's death. If
there is more than one contingent beneficiary(ies), and the contingent
beneficiary designation does not specify the percentage of the Participant's
benefit to be paid to each such beneficiary, each contingent beneficiary shall
share equally in the benefits under the Plan. If one or more contingent
beneficiaries predecease the Participant, the surviving contingent
beneficiary(ies) shall share equally in the deceased contingent beneficiary's
portion of the Plan benefits. If all contingent beneficiaries predecease the
Participant, or if there is no beneficiary designation in effect on the date of
the Participant's death, benefits will be payable to the Participant's surviving
spouse or, in the absence of such spouse, to the Participant's estate.
The obligation to pay benefits under the Plan shall be borne by each
Company solely with respect to its employees or the beneficiaries of its
employees.
Article 4
Unfunded Plan
The Plan is completely unfunded, and payment of benefits is supported
only by the general assets of each Company with respect only to its employees
and the beneficiaries of its employees. This Plan is entirely separate from SIP
and participation in this Plan gives a Participant no right to any funds or
assets of SIP or of the Company. The fact that contracts or certificates of the
Company may be distributed to recipients of benefits under SIP in discharge of
the Company's obligations thereunder shall in no way entitle a Participant in
this Plan to receive any such contract or certificate in discharge of the
Company's obligations hereunder.
Article 5
Nontransferability of Participant's Interest
No Participant shall have any power or right to transfer, assign,
mortgage, commute or otherwise encumber any of the benefits payable hereunder,
nor shall such benefits be subject to seizure for the payment of any debts or
judgments, or be transferable by operation of law in the event of bankruptcy,
insolvency or otherwise.
Article 6
Effect of Taxes
In making payments under this Plan, each Company shall withhold any
Federal, state or local income or other taxes it determines that it is legally
obligated to withhold. In
4
<PAGE> 6
the event the payments received by the Participant result in greater tax burdens
(whether income, estate or other tax burdens) than they would if such payments
had been able to be received under the Savings and Investment Plan, the Company
shall have no obligation to reimburse the Participant for such greater tax
burdens.
Article 7
Company Interpretation Binding
In the event of a difference of opinion between a Participant and the
Company with respect to the meaning or application of the provisions of the
Plan, the Company's final interpretation shall be set forth in writing to the
Participant and shall be binding and conclusive.
Article 8
Governing Law
To the extent not inconsistent with Federal law, the validity of the
Plan and its provisions shall be construed according to the laws of the State of
New York.
Article 9
Amendment and Termination of Plan
Each Company reserves the right to amend or terminate this Plan
hereunder at any time without the consent of any Participant or of any other
person. However, any such amendment or termination will not affect adversely the
entitlement to benefits hereunder of any Participant or Participant receiving
benefits under the Plan or any successor plan at or prior to the time of such
amendment or termination or of an employee who is a Participant in SIP at or
prior to the time of such amendment or termination to the extent such benefits
are attributable to Company service prior to the date of such amendment or
termination.
5
<PAGE> 7
METROPOLITAN PROPERTY AND CASUALTY INSURANCE
COMPANY (also authorized to transact business as
Metropolitan Property and Liability Insurance
_________________________ Company)
_________________________ __________________________________
DATE
METLIFE CREDIT CORP.
WITNESS
_________________________ __________________________________
DATE
_________________________ METLIFE FUNDING
WITNESS
_________________________ __________________________________
DATE
_________________________ CROSS & BROWN COMPANY
WITNESS
_________________________ __________________________________
DATE
6
<PAGE> 8
_________________________ EDISON SUPPLY AND DISTRIBUTION, INC.
WITNESS
_________________________ _____________________________________
DATE
7
<PAGE> 1
Exhibit 10.34
METROPOLITAN LIFE SUPPLEMENTAL RETIREMENT BENEFITS PLAN
Metropolitan Life Insurance Company (the Company) hereby establishes the
Metropolitan Life Supplemental Retirement Plan (the Plan), effective January 1,
1995.
Article 1. Purpose of Plan
The purpose of the Plan is to provide to participants and their
beneficiaries under the Metropolitan Life Retirement Plan for United States
Employees ("the Retirement Plan") the excess amount that would have been payable
under the Retirement Plan in the absence of the limitations under (i) section
415 of the Internal Revenue Code of 1986 (as amended) ("the Internal Revenue
Code"), (ii) section 1.415-2(d)(2) of the Income Tax Regulations that excludes
salary deferred under the Company's deferred salary and sales commission
arrangements, and (iii) section 401(a)(17) of the Internal Revenue Code.
Article 2. Participation
A Participant is any Company employee participating in the Retirement Plan
who is either (i) a member of the Executive Council participating in the
Company's Long Term Performance Compensation Plan or (ii) a member of the
President's Council for 3-consecutive years participating in the MetLife
Executive Life Insurance Program. Upon an individual becoming a Participant on
or after January 1, 1995, his or her benefits under Article 3A shall be payable
in lieu of any benefits that he or she forfeited under The New Metropolitan Life
Auxiliary Retirement Benefits Plan.
Article 3A. Payment of Benefits
Benefits under this Plan shall be payable to a Participant in an amount
equal to
(i) the largest amount (without duplication of amount) that would
have been payable to the Participant under the Retirement Plan, under one or
more of the following:
(a) had the Retirement Annuity Plan not been subject to the
limitations of section 415 of the Internal Revenue Code;
(b) had the Retirement Plan not been subject to the deferred
compensation income exclusion as provided under
<PAGE> 2
section 1.415-2(d)(2) of the Internal Revenue Regulations with respect to the
Company's deferred salary and sales commission arrangements that would be
benefitable under the Retirement Plan;
(c) had the Retirement Plan not been subject to the limitations of
section 401(a)(17) of the Internal Revenue Code; less
(ii) the amounts of benefits payable under the Retirement Plan and the
Metropolitan Life Auxiliary Retirement Benefits Plan.
The Participant's final average salary used to determine the largest amount
that would have been payable to him or her under subsection (i) above will be
based on the following rules, notwithstanding the actual provisions of the
Retirement Plan:
(a) The base salary component of the Participant's final average salary
will be determined using the average of the Participant's base salary for the
60 highest consecutive months during the 120 months preceding the Participant's
date of retirement.
(b) The component of the Participant's final average salary representing
the executive incentive bonus or the Short Term Performance Compensation Plan
award paid to an individual while classified either as an officer, regional
sales manager, or sales executive will be determined using the average of the
Participant's highest 5 bonus/award payments in or with respect to the 5
calendar years (not necessarily consecutive) preceding such Participant's date
of retirement, including any projected payment(s) to be made beyond the
Participant's date of retirement, appropriately prorated. The bonus/award
component attributable to the Participant's service for any period prior to
the 5 calendar years preceding the Participant's year of retirement will be
disregarded.
(c) The executive incentive bonus or Short Term performance Compensation
Plan award, as set forth in subsection (b) immediately above, projected to be
made beyond the Participant's date of retirement will be deemed equal to (A)
the highest of the last 3 bonuses/awards paid while the Participant was in
active Company service multiplied by (B) a fraction the numerator of which is
the number of months (or part thereof) that the Participant was actively
employed in the calendar year(s) for which the bonus/award would be payable and
the denominator of which is 12. Notwithstanding the immediately preceding
sentence, if a specific amount of bonus/award had already been approved by
-2-
<PAGE> 3
the Board of Directors prior to the Participant's date of retirement, such
amount shall be used instead of the deemed estimate, and such amount shall also
be taken into account in determining the highest of the Participant's last 3
bonuses/awards with regard to any bonus/award payable for the Participant's year
of retirement.
Any auxiliary retirement benefits payable under this Plan shall be
payable in the same form and at the same times as the benefits under the
Retirement Plan, or, as permitted under Article 3B below, in the form of an
Alternative Distribution. Benefits under this Plan and benefits under the
Retirement Plan and the Metropolitan Life Auxiliary Retirement Benefits Plan
shall not in combination exceed the limitations on benefits established by
regulations of the New York Insurance Department.
Notwithstanding any provision to the contrary, the payment of Benefits
under this Plan shall not be affected by or be subject to the qualified
preretirement survivor annuity and qualified joint and survivor annuity rules
under the Retirement Equity Act of 1984.
ARTICLE 3B. Alternative Distribution.
(1) Definitions
(a) Alternative Distribution. "Alternative Distribution" means one of
the following modes of payment:
(i) Single Sum: Payment in a single sum.
(ii) Life Annuity - Non-commutable Term Certain (20 years
maximum): Non-commutable monthly payments are made to the annuitant up to the
date of the last payment due before the annuitant's death, and if the annuitant
dies before the expiration of the term selected (not to exceed 20 years), the
remaining monthly payments are made to a designated contingent payee.
(iii) Installment Payments for a Specific period: Monthly or
annual payments are made to the payee for a specified number of years selected
not exceeding 20 years. If the payee dies before the expiration of the specified
period, a single payment is made equal to the commuted value of the payments for
the remainder of the specific period, unless within 60 days following the death
of the payee the beneficiary elects to have the installment continued. Payments
may not be commuted at any other time.
-3-
<PAGE> 4
(iv) Other Distribution: Any other form of payment that is
mutually agreed upon by the Participant and the Committee.
(b) Committee. "Committee" means the Nominating and Compensation
Committee of the Board of Directors of Metropolitan.
(c) Distribution Date. "Distribution Date" means (i) in the event
that the Alternative Distribution is payable in a form other than a Single Sum,
the Participant's anticipated retirement date (retirement not including any
termination by death) as designated by the Participant in the request form in
effect on the Election Date or (ii) in the event that the Alternative
Distribution is payable as a Single Sum, the date as designated by the
Participant in the request form in effect: on the Election Date which is no
earlier than twelve (12) months before the Participant's anticipated retirement
date and no later than the Participant's anticipated retirement date.
(d) Election Date. "Election Date" is (i) in the case of a Single
Sum, the date one year prior to the Distribution Date, or (ii) in the case of a
form of payment other than a Single Sum, the date one year prior to the
Participant's anticipated retirement date as designated by the Participant in
the request form in effect on the Election Date.
(e) Metropolitan. "Metropolitan" means Metropolitan Life Insurance
Company.
(f) Subsequent Single Sum. "Subsequent Single Sum" means, with
regard to a Participant who received a Single Sum payment before his or her
actual retirement date, the amount of benefits under this Plan payable on
actual retirement or on death pursuant to section 5(b) that would have been
paid to the Participant in a Single Sum (calculated by disregarding the Single
Sum payment that the Participant received before retirement or death) less the
amount of benefits under this Plan that were actually paid in a Single Sum to
such Participant prior to his or her retirement or death.
(2) Payment in the Form of an Alternative Distribution. Auxiliary
retirement benefits under this Plan shall be payable in whole or in part to a
Participant in the form of an Alternative Distribution provided (i) a request
form is duly filed by the Participant in compliance with both the provisions of
this Article 3A and the procedures as set forth from time to time by the
Committee and (ii) consent thereto is given by the Committee.
-4-
<PAGE> 5
(3) Election of Alternative Distribution.
A form requesting that auxiliary retirement benefits under this Plan be
paid in the form of an Alternative Distribution must be submitted by the
Participant to the Committee no later than by the Election Date. All request
forms must be in writing, signed by the Participant, and follow the format
prescribed by the Committee. Under the request form the Participant must also
designate (i) the mode of payment requested, (ii) the Participant's anticipated
retirement date, and (iii) in the event that the Single Sum is elected, the
Participant's requested Distribution Date. A request form shall be deemed
submitted by the Participant to the Committee on the day that such form is
received by the Committee or its designated agent. A request form that is
submitted by the Participant for approval by the Committee before the Election
Date shall be irrevocable and binding as to all elections and designations made
by the Participant as of the Election Date unless such request form is revoked
by the Participant prior to the Election Date. Any revocation must be in
writing and comply with the procedures of the Committee. There shall be no
subsequent revocations of the Election Date after the Election Date has
elapsed. No revocation of the Election Date shall be permitted if the Election
Date is irrevocably designated as provided in (b) below. The Participant's
selection of an anticipated retirement date and Distribution Date in the
request form in effect on the Election Date shall irrevocably fix such Election
Date, and such Election Date shall remain binding notwithstanding any later
postponement of the Participant's retirement date.
(4) Consent of the Committee.
Payment in the form of an Alternative Distribution shall require the
consent of the Committee. The Committee shall have full and complete discretion
to approve or reject any request for an Alternative Distribution. The decision
of the Committee on the Participant's request form shall be made known in
writing to the Participant within a reasonable time after the Election Date.
(5) Death of Participant Before Distribution Date.
(a) Except as provided in (b) below, no Alternative Distribution
shall be due or payable to the Participant's estate or designated beneficiary
in the event that the Participant dies before the Distribution Date.
(b) A Single Sum shall be paid within a reasonable time after death
to the Participant's estate or designated
-5-
<PAGE> 6
beneficiary if (i) the Participant notifies the Committee in a request form in
effect on the Election Date of his or her anticipated retirement date, (ii) the
Committee gives its consent to the payment of a Single Sum to be made on the
anticipated retirement date (or any earlier date), (iii) the Participant agrees
to defer actual retirement at Metropolitan's written request, (iv) the
Distribution Date for payment of a Single Sum or a Subsequent Single Sum paid in
the form of a Single Sum is deferred to actual retirement date (or in the case
of a Subsequent Single Sum paid in a form other than a Single Sum is deferred to
on or after actual retirement date), and (v) the Participant dies after such
anticipated retirement date but before actual retirement. Such Participant may
file with the Committee a form (which will become irrevocable only upon death)
designating or changing the beneficiaries of the Single Sum or Subsequent Single
Sum. In the absence of such designation, the payment shall be made to the
Participant's estate. Any payment hereunder shall be made to the Participant's
estate or designated beneficiary in the form of a Single Sum equal to the value
of the Participant's undistributed Plan benefits on the date of the
Participant's death but based, however, on the pension Benefit Guaranty
Corporation's immediate annuity purchase rates in effect on the Participant's
Election Date.
(6) Valuation of Alternative Benefit.
(a) The value of a Single Sum shall be calculated on the basis of the
Pension Benefit Guaranty Corporation's immediate annuity purchase rates in
effect on the Election Date.
(b) The value of the Life Annuity-Non-commutable Term Certain (20
years maximum) and Installment Payments for a Specific period starting from the
Participant's actual retirement date shall be calculated on the basis of
Metropolitan Pension Department's immediate annuity purchase rates offered
under the Metropolitan Savings and Investment Plan that are in effect on the
Election Date.
(7) Subsequent Single Sum payments.
If the Participant has a Single Sum paid on a Distribution Date prior to
his or her actual retirement date, any later payment made to the Participant
from this Plan (subject to the consent of the Committee and subject to the
provisions of section 5 herein) shall be made in the form of a Subsequent
Single Sum. Within 60 days after the Participant's actual retirement date the
Subsequent Single Sum shall be payable in the form of a Single Sum, but with the
values under section 6(a) herein being based on rates in effect as of the
Election Date of the Participant's
-6-
<PAGE> 7
first binding election of the Single Sum. At the written request of the
Participant filed with the Committee no later than by the December 31st of the
year preceding the year of such Participant's actual retirement date (subject to
the consent of the Committee), the Subsequent Single Sum may be payable as of
the Participant's actual retirement date in any form set forth in subsections
(ii) or (iii) of section 1(a) herein or at such later date in any form set forth
in subsection (iv) of section 1(a) herein. If the Subsequent Single Sum is
payable in a form set forth in either subsections (ii) or (iii) or section 1(a)
herein, the form of payment selected will be valued pursuant to section 6(b)
herein and will be based on the applicable rates in effect as of the Election
Date of the Participant's first binding election of the Single Sum. If the
Subsequent Single Sum is payable under subsection (iv) of section 1(a) herein in
the form of a deferred annuity, the amount of the Subsequent Single Sum shall be
increased to take into account for the period from the Participant's actual
retirement date to the date that such annuity is to commence the annual Fixed
Income Fund interest rate under the Metropolitan Savings and Investment Plan
that was in effect on the date of the Participant's election to receive the
Subsequent Single Sum in such form. The value of such deferred annuity shall be
based on the annual Fixed Income Fund interest rate under the Metropolitan
Savings and Investment Plan that was in effect on the date of the Participant's
election to receive the Subsequent Single Sum in such form. If the Subsequent
Single Sum is payable under subsection (iv) of section 1(a) herein in the form
of deferred installment payments, the amount of the Subsequent Single Sum shall
be increased to take into account for the period from the Participant's actual
retirement date to the date that such installments are to commence the Fixed
Income Fund interest rate that was in effect on the date of the Participant's
election to receive the Subsequent Single Sum in such form. The value of such
deferred installment payments shall be based on the annual Fixed Income Fund
interest rate under the Metropolitan Savings and Investment Plan that was in
effect on the date of the Participant's election to receive the Subsequent
Single Sum in such form. The Subsequent Single Sum in any form may not be
payable to the Participant's estate, heirs of beneficiaries if the Participant
fails to survive to his or her actual retirement date.
(8) Payment on Distribution Date.
Payment of a Single Sum Distribution shall be made on the Distribution
Date. Payment of a mode of payment other than a Single Sum shall commence on the
Distribution Date. If the Participant's mode of payment selected is other than a
Single Sum, the Participant shall notify the Committee in writing as to the term
of years and contingent beneficiary within a reasonable time before the
Distribution Date.
-7-
<PAGE> 8
(9) Powers of Committee.
The Committee shall have the discretionary power to make any and all
administrative decisions regarding the election and payment of an Alternative
Distribution, including but not limited to, (i) the design and format of request
forms, (ii) the approval or rejection of requests for an Alternative
Distribution, (iii) the design and format of revocation forms and (iv) the
sending of notices. In addition, the Committee is empowered to take all
appropriate steps in connection with any emergency situations regarding this
Plan and the payment of an Alternative Distribution.
Article 4. Unfunded Plan.
The Plan is completely unfunded, and payment of benefits is supported only
by the general assets of the Company. This Plan is entirely separate from the
Retirement Plan and Participation in this Plan gives a Participant no right to
any funds or assets of the Retirement Annuity plan. The fact that contracts or
certificates of the Company may be distributed to recipients of benefits under
the Retirement Plan in discharge of the Company's obligations thereunder
shall in no way entitle a Participant in this Plan to receive any such contract
or certificate in discharge of the Company's obligations hereunder.
Article 5. Non-transferability of Participant's Interest.
No Participant shall have any power or right to transfer, assign,
mortgage, commute or otherwise encumber any of the benefits payable hereunder,
nor shall such benefits be subject to seizure for the payment of any debts or
judgments, or be transferable by operation of law in the event of bankruptcy,
insolvency or otherwise.
Article 6. Effect of Taxes.
In making payments under this Plan, the Company shall withhold any
Federal, state or local income or other taxes it determines that it is legally
obligated to withhold. In the event the payments received by the Participant
incur greater tax burdens (whether income, estate or other tax burdens) than
would such payments if they had been able to be received under the
<PAGE> 9
Retirement Plan, the Company shall have no obligation to reimburse the
Participant for such greater tax burdens.
Article 7. Company Interpretation Binding
In the event of a difference of opinion between a Participant and the
Company with respect to the meaning or application of the provisions of the
Plan, the Company's final interpretation shall be set forth in writing to the
Participant and shall be binding and conclusive.
Article 8. Governing Law
To the extent not inconsistent with Federal law, the validity of the
Plan and its provisions shall be construed according to the laws of the State of
New York.
Article 9. Amendment and Termination of Plan
The Company through the Nominating and Compensation Committee of the
Board of Directors of the Company reserves the right to amend or terminate this
Plan hereunder at any time without the consent of any Participant or of any
other person. However, any such amendment or termination will not affect
adversely the entitlement to benefits hereunder of any Participant receiving
benefits under the Plan at or prior to the time of such amendment or termination
or of an employee who is a Participant in the Retirement Plan at or prior to the
time of such amendment or termination to the extent such benefits are
attributable to Company service prior to the date of such amendment or
termination.
December 8, 1994 METROPOLITAN LIFE INSURANCE COMPANY
- ----------------
Date
By /s/ Mark D. Lonergan
------------------------------------
/s/ [illegible]
- ------------------
Witness
-9-
<PAGE> 10
AMENDMENT TO THE
METROPOLITAN LIFE SUPPLEMENTAL RETIREMENT BENEFITS PLAN
The METROPOLITAN LIFE SUPPLEMENTAL RETIREMENT BENEFITS PLAN ("Plan") is
hereby amended as follows:
1. Article 1 of the Plan is hereby amended to provide as follows:
"Article 1 - Purpose of Plan
The purpose of the Plan is to provide to participants employed by
Metropolitan Life Insurance Company (the Company) and Metropolitan Property
and Casualty Insurance Company (the Subsidiary) and their beneficiaries
under the Metropolitan Life Retirement Plan for United States Employees
("the Retirement Plan") the excess amount that would have been payable
under the Retirement Plan in the absence of the limitations under (i)
section 415 of the Internal Revenue Code of 1986 (as amended) ("the
Internal Revenue Code"), (ii) section 1.415-2(d)(2) of the Income Tax
Regulations that excludes salary deferred under the Company's deferred
salary and sales commission arrangements, and (iii) section 401(a)(17) of
the Internal Revenue Code."
<PAGE> 11
2. Article 2 of the Plan is hereby amended as follows:
"Article 2 - Participation
A Participant is any Company or Subsidiary employee participating in
the Retirement Plan who (i) was a member of the Executive Council at the time
the Executive Council was disbanded and who participated in the Company's Long
Term Performance Compensation Plan, (ii) holds the title of Senior Vice
President or higher or (iii) is a member of the President's Council for
3-consecutive years participating in the MetLife Executive Life Insurance
Program. Upon an individual becoming a Participant on or after January 1, 1995,
his or her benefits under Article 3A shall be payable in lieu of any benefits
that he or she forfeited under the New Metropolitan Life Auxiliary Retirement
Benefits Plan or the New Metropolitan Life Supplemental Auxiliary Retirement
Benefits Plan."
3. 4. Article 4 of the Plan is hereby amended as follows:
"Article 4. Unfunded Plan.
The Plan is completely unfunded, and payment of benefits is supported
only by the general assets of the Company or the Subsidiary. This Plan is
entirely separate from the Retirement Plan, the Metropolitan Life Auxiliary
Retirement Benefits Plan,
2
<PAGE> 12
the New Metropolitan Life Auxiliary Retirement Benefits Plan, and the New
Metropolitan Supplemental Auxiliary Retirement Benefits Plan, and Participation
in this Plan gives a Participant no right to any funds or assets of the
Retirement Plan, the Metropolitan Life Auxiliary Retirement Benefits Plan, the
New Metropolitan Life Auxiliary Retirement Benefits Plan, or the New
Metropolitan Life Supplemental Auxiliary Retirement Benefits Plan. The fact that
contracts or certificates of the Company may be distributed to recipients of
benefits under the Retirement Plan in discharge of the Company's or the
Subsidiary's obligations thereunder shall in no way entitle a Participant in
this Plan to receive any such contract or certificate in discharge of the
Company's or the Subsidiary's obligations hereunder."
4. Article 6 of the Plan is hereby amended as follows:
"Article 6. Effect of Taxes
In making payments under this Plan, the Company and the Subsidiary
shall withhold any Federal, state or local income or other taxes it determines
that it is legally obligated to withhold. In the event the payments received by
the Participant incur greater tax burdens (whether income, estate or other tax
burdens) than would such payments if they had been able to be received under
the Retirement Plan, the Company and the Subsidiary shall have no obligation to
reimburse the Participant for such greater tax burdens."
<PAGE> 13
5. This amendment shall be effective on January 1, 1998.
IN WITNESS WHEREOF, the Company has caused this amendment to be executed
in its name and behalf this day of , 1999, by its officer
thereunto duly authorized.
Metropolitan Life Insurance Company
By
------------------------------------
ATTEST:
- -----------------------
Metropolitan Property and Casualty Insurance Company
By
---------------------------------------------
ATTEST:
- ----------------------
4
<PAGE> 1
EXHIBIT 10.35
NEW ENGLAND FINANCIAL
ANNUAL VARIABLE INCENTIVE PLAN
(FOR PERFORMANCE PERIODS STARTING ON OR AFTER JANUARY 1, 2000)
I. PURPOSE OF THE PLAN
- - Align total annual pay with the Company's annual financial business
results.
- - Provide competitive levels of pay for competitive levels of Company
performance.
- - Make a competitive portion of total compensation variable based on
Company, business unit and individual performance.
II. PARTICIPATION
All associates in salary grade 29 and above AND EQUIVALENT GRADES who
have signed the "Agreement to Protect Corporate Property", other than
those participating in incentive plans which are alternatives to, and
not supplementary to, the Annual Variable Incentive Plan.
In addition, the Officers may impose such other reasonable conditions
for participation in the Annual Variable Incentive Plan as they deem
necessary or appropriate.
III. DETERMINATION OF THE INCENTIVE POOL FOR DISTRIBUTION
The Board determines at the beginning of the performance year financial
objectives consistent with the Company's Annual Business Plan that will
provide the basis for determining the maximum aggregate incentive pool
for distribution. The pool will be determined using a formula approved
by the Board, which will be expressed in terms of percentages of
operating earnings and return on equity ("ROE"). The formula will be
reviewed each year by the Board to determine its appropriateness in
connection with the Company's Business Plan, and may be revised by the
Board as a result of such review. The maximum pool may also be
increased by the Nominating and Compensation Committee ("Committee")
based on the recommendation of the Chief Executive Officer ("CEO").
For purposes of this Plan: (a) "Operating earnings" means earnings net
of all taxes (other than the surplus tax), and excludes the impact of
demutualization costs; and (b) "Return on Equity" means operating
earnings divided by GAAP equity, where GAAP equity excludes unrealized
investment gains.
<PAGE> 2
A portion of the aggregate incentive pool will be allocated by the CEO
among the various business units based on their performance relative to
certain agreed upon objectives set at the beginning of the performance
year by the CEO. Following the performance year, business unit
performance will be evaluated by the CEO. All or a portion of the
aggregate incentive pool allocated to a particular business unit may be
distributed to Plan participants in that business unit, depending on
the performance of that business unit. A portion of the pool will be
applied to the Company's Performance Incentive Plan, as determined by
the CEO.
IV. TARGET INCENTIVE OPPORTUNITIES
A. Incentive opportunity percentages for the various grades are
determined based on competitive total compensation market
factors and take into account incentive compensation
opportunities for comparable positions at our comparator
companies, including major insurance companies, banks and
diversified financial services companies.
B. The schedule of incentive opportunity percentages for the
various grades is as follows:
<TABLE>
<CAPTION>
TARGET INCENTIVE
GRADE (CURRENT TITLE) OPPORTUNITY PERCENTAGE
--------------------- ----------------------
<S> <C> <C>
41 (CHIEF EXECUTIVE OFFICER) 150%
40 (PRESIDENT) 90%
39 (SENIOR EXECUTIVE VICE PRESIDENT) 80%
38 (EXECUTIVE VICE PRESIDENT) 70%
37 (SENIOR VICE PRESIDENT) 50%
36 (VICE PRESIDENT/SENIOR VICE PRESIDENT) 50%
35 (VICE PRESIDENT) 45%
34 (VICE PRESIDENT) 40%
33 (VICE PRESIDENT) 40%
32 (ASSISTANT VICE PRESIDENT) 25%
29-31 (VARIOUS NON-OFFICER TITLES) 5%-15%
</TABLE>
V. CALCULATION OF INDIVIDUAL AWARDS
Annual incentive awards are discretionary and significant weight is
given to individual performance and relative contributions among plan
participants. It is anticipated that there will be significant
differentiation of annual incentive awards
2
<PAGE> 3
based on individual performance. Where performance indicates,
individuals may receive no award at all.
The total of all individual awards under the Plan may not exceed the
maximum aggregate incentive pool.
VI. ADMINISTRATION OF AWARDS
A. Incentive awards for any performance year shall be made as
soon as possible during the following calendar year in the
form of lump sum payments.
B. Participants who voluntarily terminate their employment or
whose employment is discontinued for cause after the
performance year, but before the payout, or during the
performance year are not eligible to receive an award.
C. Participants terminating employment during or after the
performance year due to death, disability, or retirement may
be eligible to receive awards on a pro-rata basis, at the
Company's discretion. PARTICIPANTS WHOSE EMPLOYMENT IS
TERMINATED DURING THE PERFORMANCE YEAR AND WHO ARE ELIGIBLE TO
RECEIVE A SEVERANCE PAYMENT FROM THE COMPANY MAY RECEIVE A PRO
RATA AWARD AT THE COMPANY'S DISCRETION, IN EXCHANGE FOR THEIR
VALID RELEASE.
D. Incentive awards paid prior to retirement or discontinuance of
employment will be taken into account for purposes of
determining the level of Insurance and Retirement benefits and
contributions to the Savings and Investment Plan, subject to
any regulatory limitations or approvals. Incentive awards paid
subsequent to retirement or discontinuance of employment will
not be taken into account for purposes of determining the
level of Insurance and Retirement benefits or contributions to
the Savings and Investment Plan, except as may be provided
otherwise in any other Company plan or program.
VII. ROLE OF THE NOMINATING AND COMPENSATION COMMITTEE
The Committee exercises overall responsibility and has broad discretion
in the administration of the Plan.
With respect to corporate performance, inasmuch as other unforeseen
matters have an impact on overall performance during the year, the
Committee, at its discretion, may adjust THE MAXIMUM POOL either
positively or negatively. The Committee may use its discretion to
adjust for unusual events that are beyond the
3
<PAGE> 4
control of management and obviously influence performance results
unduly, such as material changes in accounting policy, tax and other
government regulations, and the acquisition or sale of a business.
With respect to individual awards, the Committee will report its
recommendations for individual incentive awards for Officers of the
rank of Executive Vice President and above, OR SUCH OTHER GROUP OF
OFFICERS AS THE COMMITTEE MAY FROM TIME TO TIME SELECT, to the Board
following the performance year. Following the determination of awards,
the Committee will receive a summary report of all incentive award
payments.
4
<PAGE> 1
Exhibit 10.36
NEW ENGLAND FINANCIAL
LONG TERM PERFORMANCE COMPENSATION PLAN
(FOR PERFORMANCE PERIODS STARTING ON OR AFTER JANUARY 1, 2000)
I. PURPOSE OF THE PLAN
- - Align management with policyholders' interests
- - Provide competitive levels of total pay for senior executives for
competitive levels of performance
- - Encourage a long term strategic perspective
- - Encourage/reward performance that supports the Company's long term
performance results
- - Attract and promote retention of key executives with long term business
perspective
II. PARTICIPATION
The Board of Directors will determine THE LEVELS of Officers and others
eligible to participate in the Plan for each performance period. An
individual who becomes a participant in the Plan will participate pro
rata in any performance period then in progress from the effective date
of participation. Upon the recommendation of the Chief Executive
Officer, the Board of Directors may determine participation on a basis
other than proration. Participants' incentive opportunities under the
Plan shall not be vested or assignable in any respect.
III. PERFORMANCE PERIODS
The period over which long term performance shall be measured is three
years. Each performance period will begin on January 1.
IV. TARGET INCENTIVE OPPORTUNITIES
The Nominating and Compensation Committee (the "Committee") will
establish the incentive opportunity for each LEVEL of Plan participant
for each performance period.
The schedule of target percentage opportunities for the various levels of
participants is:
<PAGE> 2
<TABLE>
<CAPTION>
GRADE LEVEL (CURRENT TITLE) TARGET PERCENTAGE OPPORTUNITY
--------------------------- -----------------------------
<S> <C> <C>
41 (CHIEF EXECUTIVE OFFICER) 250%
40 (PRESIDENT) 200%
39 (SENIOR EXECUTIVE VICE PRESIDENT) 185%
38 (EXECUTIVE VICE PRESIDENT) 150%
36/37 (SENIOR VICE PRESIDENT) 95%
33-35 (VICE PRESIDENT/SR. VICE PRESIDENT) 30%/65%/85%
</TABLE>
At the beginning of each plan period, management recommends individual
incentive opportunities for each participant. These incentive
opportunities may be higher or lower than the above targets established
for the various levels based on the individual's relative contribution
to or impact on long term business results, the individual's potential
and the individual's level of personal performance.
The incentive opportunity ($) for each participant is determined by
multiplying the applicable percentage for the individual by the
individual's average base salary over the performance period. If the
participant was not an employee of the Company at the beginning of the
performance period, the Committee, at the Chief Executive Officer's
recommendation, will determine in its discretion, the appropriate
incentive opportunity.
The total incentive opportunity for any performance period is equal to
the total of the incentive opportunities of all individuals
participating in that performance period.
Where an individual changes participation levels or becomes a
participant in the Plan for the first time during a performance period,
incentive opportunities are prorated accordingly.
V. GUIDELINES FOR DETERMINING CORPORATE PERFORMANCE
At the beginning of each performance period, the Nominating and
Compensation Committee will determine the measures and specific goals
for that plan period. The measures for the Plan will include both
financial and strategic business goals against which corporate
performance will be measured.
Performance assessment at the end of each period will consider
achievement of established goals. In addition to performance as
measured against these goals, the
2
<PAGE> 3
overall assessment will involve the broad discretion and judgment of
the Committee and may take into account changes in corporate strategy
and in the market, economic, tax and regulatory environment during the
performance period. The Committee will determine a corporate
performance percentage that may vary between 0% and 200%.
VI. AWARDS
Following the end of each performance period the Committee will
determine the amount which may be awarded to the participants with
respect to such period. Such amount will be the incentive opportunities
multiplied by the corporate performance percentage. The Committee will
recommend individual awards to the Board. These awards will generally
be equal to the participant's incentive opportunity multiplied by the
corporate performance percentage. However, line of business
performance, changes in an individual's responsibilities, or individual
performance may be taken into account when determining individual
awards. The Committee has discretion in determining the amount of any
recommended award, may decline to recommend an award, and may modify
the time of payment of any award.
THE PAYMENT OF ANY AWARDS AS A RESULT OF PERFORMANCE UNDER THE PLAN FOR
THE 2000 - 2002 PERFORMANCE PERIOD WILL BE PAID OUT IN 2003. IT IS
ANTICIPATED THAT A PORTION OF ANY INDIVIDUAL AWARD PAID OUT IN 2003
WILL BE PAYABLE IN STOCK.
No amount shall become payable unless it is approved by the Board in
its discretion and no award may be made unless the participant was an
employee of the Company or a subsidiary at the end of the performance
period or died, retired or became totally disabled during such period
while such an employee.
A participant who retires, dies or becomes totally disabled while such
an employee during the course of a performance period may be granted
for such performance period, at the discretion of the Board, a pro rata
portion of the full award that would have been payable if such event
had not occurred, or at the recommendation of the Chief Executive
Officer, an award may be recommended on other than a pro rata basis.
Awards under the Plan will not be taken into account for purposes of
determining the level of Insurance and Retirement benefits and
contributions to the Savings and Investment Plan.
3
<PAGE> 4
VII. ROLE OF THE COMMITTEE
The Committee exercises overall responsibility and has broad discretion
with respect to all aspects of the Plan and for performance assessment.
4
<PAGE> 1
Exhibit 10.38
NEW ENGLAND LIFE INSURANCE COMPANY
SUPPLEMENTAL RETIREMENT PLAN
As amended and restated
effective January 1, 2000
<PAGE> 2
I. GENERAL
1.1. Purpose. The purpose of this plan is to provide retirement income
to those Participants who (1) retire under the New England Life Insurance
Company Retirement Plan and Trust (the "Funded Plan") and (2) who have their
retirement benefits reduced by the limitations imposed by Section 415 of the
Internal Revenue Code of 1954 as amended from time to time. This Plan is an
unfunded excess benefit plan within the meaning of Section 3(36) of the Employee
Retirement Income Security Act of 1974, and is completely separate from the
Funded Plan.
1.2. Prior Documents. This Plan is the restatement with amendments of
The New England Mutual Life Insurance Company Supplemental Retirement Plan, The
New England Supplemental Retirement Plan, and the New England Life Insurance
Company Supplemental Retirement Plan.
1.3. Defined Terms. Terms used herein shall have the same meanings as
they have in the Funded Plan.
II. BENEFITS
2.1. Amount of Benefits. Any person entitled to benefits under the
Funded Plan shall be entitled to a benefit under this Plan equal to (a) less (b)
where:
(a) equals the amount of such payee's annual benefit under the
Funded Plan, determined without regard to the limitations of
Section 415, and
(b) equals the amount of such payee's annual benefit under the
Funded Plan, determined subject to the limitations of Section 415.
2.2. Form of Benefits and Non-Forfeitability. Benefits under the Plan
shall be payable at the same time, in the same manner and subject to the same
options, conditions, privileges and restrictions (including Section 3.8 of the
Funded Plan, "Non-Forfeitability of Benefits"), as applied to the benefits
payable under the Funded Plan.
2.3. Benefits Unfunded. The benefits payable under the Plan shall be
paid during each year by each Employer which adopts the plan out of its
respective general assets and shall not be funded in any manner.
<PAGE> 3
III. ADMINISTRATION
3.1. Duties of Administrative Committee. The Plan shall be administered
by the Administrative Committee in accordance with its terms and purposes. To
the extent applicable, the provisions of the Funded Plan shall govern the
responsibilities of the Administrative Committee. The decisions made and the
actions taken by the Administrative Committee in the administration of the Plan
shall be final and conclusive on all persons.
IV. AMENDMENT AND TERMINATION
Section 4.01. Amendment. The Company reserves the right at any time,
and from time to time, to amend the Plan by action of its Board of Directors.
Further, the Company may amend this Plan at any time by means of a written
instrument executed by the President of the Company, except that any such
amendment or group of amendments adopted on the same date with respect to the
same plan shall not increase or decrease the annual cost of contributions to the
Company for active plan participants and former plan participants by more than
two million dollars (exclusive of employee voluntary contributions under a
qualified plan or employee elective deferrals under a nonqualified plan). No
such amendment shall:
(a) decrease any interest of any Participant or Beneficiary
existing immediately prior to such amendment, or
(b) reduce the non-forfeitable portion of a Participant's
Accrued Benefit existing immediately prior to such amendment.
Section 4.02. Termination. The Company reserves the right at any time
to terminate the Plan, and each other Employer which adopts this Plan reserves
the right to discontinue its participation in the Plan at any time.
V. MISCELLANEOUS
5.1. No Employment Rights. Nothing contained in the Plan shall be
construed as a contract of employment between the Employer and an Employee, or
as a right of any Employee to be continued in the employment of the Employer, or
as a limitation of the right of the Employer to discharge any of its Employees,
with or without cause.
2
<PAGE> 4
5.2. Assignment. The Benefits payable under this Plan may not be
assigned or alienated.
5.3. Applicable Law. This Plan shall be governed by the laws of the
Commonwealth of Massachusetts.
IN WITNESS WHEREOF, THIS AMENDMENT AND RESTATEMENT OF THE NEW ENGLAND LIFE
INSURANCE COMPANY SUPPLEMENTAL RETIREMENT PLAN is executed on behalf of the
Company, this 7th day of February, 2000.
NEW ENGLAND LIFE INSURANCE COMPANY
By: /s/ James M. Benson
------------------------------------
Attest: /s/
--------------------------------
3
<PAGE> 1
Exhibit 10.39
NEW ENGLAND LIFE INSURANCE COMPANY
SELECT EMPLOYEES SUPPLEMENTAL RETIREMENT PLAN
Amended and restated
effective January 1, 2000
<PAGE> 2
Table of Contents
<TABLE>
<S> <C>
ARTICLE I PURPOSE .......................................................... 1
1.01. Purpose ............................................................ 1
1.02. Prior Documents .................................................... 1
ARTICLE II DEFINITIONS ..................................................... 1
2.01. Defined Terms ...................................................... 1
ARTICLE III ELIGIBILITY .................................................... 2
3.01. Eligibility ........................................................ 2
ARTICLE IV BENEFITS ........................................................ 2
4.01. Time and Form of Payment ........................................... 2
4.02. Amount of Benefits ................................................. 2
4.03. Nonalienation of Participant's Benefits ............................ 3
ARTICLE V ADMINISTRATION ................................................... 3
5.01. Power and Authority ................................................ 3
5.02. Indemnification .................................................... 4
5.03. Facility of Payment ................................................ 4
5.04. Claims Procedure ................................................... 4
5.05. Appeals Procedure .................................................. 5
ARTICLE VI AMENDMENT AND TERMINATION ....................................... 5
6.01. Amendment .......................................................... 5
6.02. Termination ........................................................ 6
ARTICLE VII MISCELLANEOUS .................................................. 6
7.01. Unfunded Plan ...................................................... 6
7.02. No Right, Title or Interest in the Company's Assets ................ 6
7.03. No Right to Continued Employment or Award .......................... 6
7.04. Governing Law ...................................................... 7
</TABLE>
<PAGE> 3
I. PURPOSE
1.01. Purpose. The New England Life Insurance Company Select Employees
Supplemental Retirement Plan ("Plan" or "Select Employees Plan"), adopted as of
February 20, 1985, is intended to constitute an unfunded employer plan for the
purpose of supplementing retirement benefits payable under the New England Life
Insurance Company Retirement Plan and Trust maintained by New England Life
Insurance Company ("Company"). This Supplemental Plan shall be an unfunded plan,
maintained by the Company solely for the purpose of providing deferred
compensation for a select group of management or highly compensated employees
within the meaning of Sections 201(2), 301(a)(3) and 401 (a)(1) of the Employee
Retirement Income Security Act.
1.02. Prior Documents. This Plan is the restatement with amendments of
The New England Mutual Life Insurance Company Select Employees Supplementary
Retirement Plan, The New England Select Employees Supplemental Retirement Plan,
and the New England Life Insurance Company Select Employees Supplemental
Retirement Plan.
II. DEFINITIONS
2.01. Defined Terms. Terms used herein and not specifically defined
below shall have the same meanings as they have in The New England Life
Insurance Company Retirement Plan and Trust.
Unless the context indicates otherwise, the following additional terms
used herein shall have the following meanings:
(a) "Current Bonus" shall mean, with respect to a Plan Year, the
amount of any bonus payments attributable solely to such Plan Year, which
payments are paid to a Participant in this Plan, or payable but deferred
pursuant to such Participant's election. Such Current Bonuses shall not
include any payments actually paid or authorized for payment under the New
England Life Executive Incentive Deferred Bonus Plan.
(b) "Participant" for purposes of this Plan shall mean any participant
in The New England Retirement Plan and Trust who satisfies the further
conditions for eligibility set forth in Article III hereof.
<PAGE> 4
(c) "Select Employees Plan" or "Plan" shall mean this Select Employees
Supplemental Retirement Plan.
(d) "Supplemental Retirement Plan" shall mean the Plan maintained by
the Company for the purpose of providing retirement benefits to the extent
that retirement benefits are otherwise limited under The New England
Retirement Plan and Trust by Section 415 of the Internal Revenue Code of
1954, as amended.
III. ELIGIBILITY
3.01. Eligibility. The persons who shall be eligible to receive
supplemental retirement income under this Plan shall include New England
Retirement Plan Participants who are Senior Officers of the Company, or whose
base compensation exceeds $125,000, or whose Compensation exceeds $160,000.
IV. BENEFITS
4.01. Time and Form of Payment. Any benefit payable under this Select
Employees Plan shall be payable at the same time, in the same form, and subject
to the same options, conditions, beneficiary designations, privileges and
restrictions (including Section 3.08 of the Retirement Plan and Trust) as
otherwise applicable to the New England Insurance Company Retirement Plan and
Trust.
4.02. Amount of Benefits. The amount of any benefit payable to a
Participant hereunder shall be determined as the net result of (a) less (b),
where:
(a) equals the benefit which would be payable at the time and in the
form provided in Section 4.01 hereof, by applying the benefit
provisions of the New England Life Insurance Company Retirement
Plan and Trust (including the offset for such Participant's
Primary Insurance Amount as provided in Subsection 3.01(b)
thereof), based upon such Participant's annual Compensation,
determined without regard to the limitation of Section 6.05
thereof, and further adjusted to include such Participant's
Current Bonuses and Employer contributions to any plan for
Participant-elective deferral of Compensation; and
(b) equals the amount of benefits which would be payable from the
Supplemental Retirement Plan and the Retirement Plan and Trust
after
2
<PAGE> 5
offset for such Participant's Primary Insurance Amount as
provided in Subsection 3.01(b) thereof,
where benefits are determined as payable at the same time and in the same form
as the benefit payable hereunder.
4.03. Nonalienation of Participant's Benefits. Except as may be
required by any domestic relations order which the Committee determines to be a
qualified domestic relations order as defined in Section 414(p) of the Internal
Revenue Code of 1954, as amended, or as otherwise required by law, no amount
payable at any time during the life of the Participant under this Plan shall be
subject in any manner to alienation by anticipation, sale, transfer, assignment,
bankruptcy, pledge, attachment, charge, or encumbrance of any kind nor in any
manner be subject to the debts or liabilities of any person, and any attempt to
so alienate or subject any such amount, whether presently or thereafter payable,
shall be void. If any person shall attempt to, or shall, alienate, sell,
transfer, assign, pledge, attach, charge or otherwise encumber any amount
payable under this Plan, or any part thereof, or if by reason of his bankruptcy
or other event happening at any such time, such amount would be made subject to
her/his debts or liabilities or would otherwise not be enjoyed by her/him, then
the Committee, if it so elects, may direct that such amount be withheld and that
the same or any part thereof be paid or applied to or for the benefit of such
person, her/his spouse, or other dependents, or any of them, in such manner and
proportion as the Committee may deem proper.
V. ADMINISTRATION
5.01. Power and Authority. The Committee shall have full power and
authority to construe, interpret and administer this Plan. All decisions, acts,
or interpretations of the Committee shall be final, conclusive, and binding upon
all parties. If any person objects to any such interpretation or action,
formally or informally, the expenses of the Committee and its agents and counsel
in connection with such objections shall be chargeable against any amounts
otherwise payable under the Plan to or on account of the Participant.
5.02. Indemnification. No member of the committee shall be personally
liable by reason of any contract or other instrument executed by her/him or on
her/his behalf in her/his capacity as a member of the Committee nor for any
mistake of judgment made, and the Company shall indemnify and hold harmless each
member of the Committee and each other officer, employee, or director of the
Company to whom any duty or power relating to the administration or
interpretation of the Plan may be allocated or delegated, against any cost or
expense (including counsel fees) or liability (including any sum paid
3
<PAGE> 6
in settlement of a claim with the approval of the Board) arising out of any act
or omission to act in connection with Plan unless arising out of such person's
own fraud or bad faith.
5.03. Facility of Payment. If the Committee shall find that any person
to whom any amount is payable under the Plan is unable to care for her/his
affairs because of illness or accident, or is a minor, or has died, then any
payment due her/his or her/his estate (unless a prior claim therefore has been
made by a duly appointed legal representative), may, if the Committee so directs
the Company, be paid to her/his spouse, a child, a relative, an institution
maintaining or having custody of such person, or any other person by the
Committee to be a proper recipient on behalf of such person otherwise entitled
to payment. Any such payment shall be a complete discharge of the liability of
the Committee and the Company therefore.
5.04. Claims Procedure. Any person who thinks that she/he is entitled
to a benefit under the Plan shall have the right to file with The New England
Benefit Plan Administrative Committee (the "Committee") a written notice of
claim for such benefit.
Within 60 days after its receipt of such written notice of the claim,
the Committee shall either grant or deny such claim provided, however, that any
delay on the part of the Committee in arriving at a decision shall not adversely
affect benefits payable under a granted claim. The Committee shall, upon denial,
provide to each claimant:
(a) The specific reasons for denial;
(b) Specific reference to pertinent Plan provisions on which the
denial is based;
(c) A description of any additional material or information necessary
for the claimant to perfect the claim and an explanation of why such
material or information is necessary;
(d) An explanation of the Plan's appeals procedure.
5.05. Appeals Procedure. Each claimant shall have the right to appeal
the denial of a claim at any time within 75 days after the claimant receives
written notice of such denial by filing with the Committee a written notice of
appeal. The Committee shall afford the claimant or the claimants duly authorized
representative the opportunity:
(a) to review documents pertinent to the claim;
(b) to submit issues and comments in writing; and
(c) to discuss such documents and issues with the Committee.
4
<PAGE> 7
The final decision of the Committee shall be made promptly, and not
later than 60 days after its receipt from the claimant of a request for review,
unless special circumstances require an extension of time for processing, in
which case a decision shall be made as soon as possible, but not later than 120
days after receipt of a request for review. If such an extension of time is
required because of special circumstances, written notice of the extension shall
be furnished to the claimant prior to the commencement of the extension.
The final decision shall be made in writing and shall include specific
reasons for the decision, written in a manner calculated to be understood by the
claimant, and specific references to the pertinent Plan provisions on which the
decision is based.
VI. AMENDMENT AND TERMINATION
6.01. Amendment. The Company reserves the right at any time, and from
time to time, to amend the Plan by action of its Board of Directors. Further,
the Company may amend this Plan at any time by means of a written instrument
executed by the President of the Company, except that any such amendment or
group of amendments adopted on the same date with respect to the same plan shall
not increase or decrease the annual cost of contributions to the Company for
active plan participants and former plan participants by more than two million
dollars (exclusive of employee voluntary contributions under a qualified plan or
employee elective deferrals under a nonqualified plan). No such amendment shall:
(a) decrease any interest of any Participant or Beneficiary existing
immediately prior to such amendment, or
(b) reduce the non-forfeitable portion of a Participant's Accrued
Benefit existing immediately prior to such amendment.
6.02. Termination. The Company reserves the right at any time to
terminate the Plan, and each other Employer which adopts this Plan reserves the
right to discontinue its participation in the Plan at any time.
VII. MISCELLANEOUS
7.01. Unfunded Plan. This Plan is intended to constitute an unfunded
deferred compensation arrangement for a select group of management or highly
compensated employees.
5
<PAGE> 8
7.02. No Right, Title or Interest in the Company's Assets. The
Participant shall have no right, title, or interest whatsoever in or to any
investments which the Company may make to aid it in meeting its obligations
under this Plan. Nothing contained in this Plan, and no action taken pursuant to
its provisions, shall create or be construed to create a trust of any kind, or a
fiduciary relationship between the Company and any eligible employee or any
other person. To the extent that any person acquires a right to receive payments
from the Company under this Plan, such right shall be no greater than the night
of an unsecured general creditor of the Company. All payments to be made
hereunder shall be paid from the general funds of the Company and no special or
separate fund shall be established and no segregation of assets shall be made to
assure payment of such amounts.
7.03. No Right to Continued Employment or Award. Nothing contained in
this Plan shall give any employee the right to be retained in the employ of the
Company or affect the right of the Company to dismiss any employee. No eligible
employee shall receive any right to be granted an award hereunder nor shall any
such award be considered as compensation under any employee benefit plan of the
Company, except as otherwise determined by the Company.
7.04. Governing Law. All rights under this Plan shall be governed by
and construed in accordance with the laws of the Commonwealth of Massachusetts.
IN WITNESS WHEREOF, THIS AMENDMENT AND RESTATEMENT OF THE NEW ENGLAND LIFE
INSURANCE COMPANY SELECT EMPLOYEES SUPPLEMENTAL RETIREMENT PLAN is executed on
behalf of the Company, this 7th day of February, 2000.
NEW ENGLAND LIFE INSURANCE COMPANY
By: /s/ James M.Benson
-------------------------------------
Attest: /s/
---------------------------------
6
<PAGE> 1
Exhibit 10.40
THE NEW ENGLAND LIFE INSURANCE COMPANY
SENIOR EXECUTIVE NONQUALIFIED ELECTIVE DEFERRAL PLAN
Effective January 1, 1998
<PAGE> 2
Table of Contents
<TABLE>
<S> <C>
PREAMBLE .................................................................. 1
ARTICLE I DEFINITIONS ..................................................... 1
ARTICLE II PARTICIPATION .................................................. 4
2.1. Eligible Class .................................................... 4
2.2. Commencement of Participation ..................................... 5
2.3. Ongoing Participation ............................................. 5
ARTICLE III PARTICIPANT DEFERRALS ......................................... 5
3.1. Pay Deferrals ..................................................... 5
3.2. Changes in Base Pay ............................................... 6
3.3. Resumption of Deferrals ........................................... 7
3.4. Crediting of Participant Deferrals ................................ 7
3.5. Impact on Other Benefits .......................................... 7
3.6. Taxation .......................................................... 7
3.7. Deemed Investment of Deferral ..................................... 7
3.8. Company Investments ............................................... 7
ARTICLE IV TRANSFER ACCOUNTS .............................................. 8
ARTICLE V VALUATION AND DISTRIBUTION OF ACCOUNTS .......................... 8
5.1. Valuation of Accounts ............................................. 8
5.2. Forms and Amount of Distribution .................................. 8
5.3. Time and Manner of Distribution Election .......................... 8
5.4. Death Benefit ..................................................... 9
5.5. Termination of Employment ......................................... 9
5.6. Commencement of Payments .......................................... 9
5.7. Payor ............................................................. 10
ARTICLE VI ADMINISTRATION ................................................. 10
ARTICLE VII FUNDING ....................................................... 10
ARTICLE VIII AMENDMENT AND TERMINATION .................................... 11
ARTICLE IX GENERAL PROVISIONS ............................................. 11
9.1. Payment to Minors and Incompetents ................................ 11
9.2. No Contract ....................................................... 11
9.3. Use of Masculine and Feminine, Singular and Plural ................ 11
9.4. Non-Alienation of Benefits ........................................ 11
9.5. Protective Provisions ............................................. 11
9.6. Governing Law ..................................................... 12
9.7. Captions .......................................................... 12
9.8. Claims for Benefits ............................................... 12
</TABLE>
<PAGE> 3
PREAMBLE
Effective January 1, 1998 New England Life Insurance Company hereby
establishes this non-qualified deferred compensation plan referred to as the New
England Life Insurance Company Senior Executive Non-qualified Elective Deferral
Plan (the "Plan").
The purpose of this Plan is to enable Eligible Employees to electively
defer base and incentive pay on a non-qualified, tax-deferred basis. This Plan
shall be unfunded and maintained primarily for the purpose of providing deferred
compensation for a select group of management or highly compensated employees
within the meaning of Sections 201(2), 301(a)(3) and 401(a)(1) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"). The Plan is
intended to be effective with respect to compensation earned and bonuses
approved after December 31, 1997.
It is intended that funds accumulated under this Plan on a
Participant's behalf will be paid to such Participant at a specified future date
as described herein or upon disability or Termination of Employment. Upon the
Participant's death, his Account, if any, under the Plan will be paid in a lump
sum to his named Beneficiary.
Accounts under the Plan may be credited with investment return that
corresponds to specific investment funds designated under the Plan, and the
Company may choose to set aside assets relating to Plan obligations in a Rabbi
Trust, the corpus of which will be available to the Company's creditors in the
event of bankruptcy. However, the Company is under no obligation to invest
deferrals made under the Plan or to set aside funds in a Rabbi Trust. In all
cases, the Company may elect to pay the benefits promised hereunder from general
assets.
Notwithstanding the fact that the Company may set aside assets in
respect of its obligations under the Plan, the Plan is unfunded and the rights
of Participants and Beneficiaries are limited to those of a general, unsecured
creditor of the Company.
ARTICLE I
DEFINITIONS
The following words and phrases when used in the Plan shall have the
following meanings, unless a different meaning is plainly required by the
context:
"Account" means the undistributed credit balance of a Participant
under the Plan represented by his accumulated Base Pay Deferrals, his Short Term
Incentive Pay Deferrals and his Long Term Incentive Pay Deferrals, if
applicable, and investment earnings and losses credited to each under the terms
of the Plan.
<PAGE> 4
"Annual Enrollment Period" means an annual period specified by the
Committee during which all Eligible Employees may elect to make pay deferral
elections for the following Plan Year.
"Base Pay" means an Eligible Employee's regular salary from the
Company exclusive of any incentive compensation, extraordinary pay,
reimbursements of any kind and the value of any benefits provided by the
Company. Base Pay for purposes of this Plan will not reflect any reduction due
to an Eligible Employee's participation in a qualified cash or deferred
arrangement under Code Section 401(k) or a cafeteria plan described in Code
Section 125.
"Base Pay Deferral" means a Participant's voluntary reduction in Base
Pay pursuant to Section 3.1 hereof.
"Beneficiary" means the person, persons or trust designated by the
Participant or former Participant to receive benefits under the Plan in the
event of the Participant's death prior to the full distribution of his Account.
A Participant shall designate his Beneficiary or Beneficiaries in writing under
the specific procedures as shall be established by the Committee. A Participant
may change his Beneficiaries at any time by delivering written instructions to
the Committee. In the event a Participant dies without a valid designation of
Beneficiary in effect, such Participant's remaining Account shall be payable to
his spouse, or if the Participant is not married at the time of death, his
estate.
"Board" or "Board of Directors" means the Board of Directors of New
England Life Insurance Company.
"Code" means the Internal Revenue Code of 1986, as amended from time
to time and any regulations issued thereunder. Reference to any section of the
Code shall include any successor provision thereto.
"Committee" means the Company's Benefit Plan Administration Committee
or such other person or persons designated by the Company to administer the Plan
in accordance with Article VI.
"Company" means New England Mutual Life Insurance Company, New England
Life Insurance Company and their successor or successors.
"Effective Date" means January 1, 1998.
"Eligible Employee" means an employee of the Company who is included
in the eligible class described in Section 2.1.
2
<PAGE> 5
"Investment Fund" means any fund specified by the Committee for the
hypothetical investment of Accounts as provided in Section 3.5. If, at the
Committee's discretion, pay deferrals under the Plan are actually invested in a
particular fund, such fund shall at all times remain part of the general assets
of the Company, and at the Company's discretion, may be deposited to a Rabbi
Trust.
"Long Term Incentive Pay" means special pay for which an Eligible
Employee may be entitled (other than Short Term Incentive Pay or Base Pay) under
any Company long term bonus or incentive program designated by the Committee as
eligible under this Plan.
"Long Term Incentive Pay Deferral" means a Participant's voluntary
deferral of Long Term Incentive Pay pursuant to Section 3.1(d) hereof.
"Participant" means an Eligible Employee who is actively participating
in the Plan pursuant to Section 2.3 or an individual who is not making current
pay deferrals under the Plan, but who retains an Account under the Plan.
"Plan" means the New England Life Insurance Company Home Office
Non-Qualified Elective Deferred Compensation Plan as set forth in this document
and as amended from time to time.
"Plan Year" means each calendar year commencing January 1, 1998 and
thereafter.
"Rabbi Trust" means a grantor trust of which the Company is treated as
the owner under Subpart E of Subchapter J of Chapter 1 of the Code, the assets
of which trust may be reached by the Company's general creditors and which may
be established by the Company for the accumulation and investment of Participant
pay deferrals under the Plan, the terms of said trust to be governed by a
separate written agreement.
"Senior Officer" means an individual elected as a senior officer by
the Board of Directors of the Company.
"Short Term Incentive Pay" means special pay to which an Eligible
Employee may be entitled (other than Base Pay or Long Term Incentive Pay) under
any Company short term bonus, hiring bonus or incentive program designated by
the Committee as eligible under this Plan.
"Short Term Incentive Pay Deferral" means a Participant's voluntary
deferral of short term incentive pay, pursuant to Section 3.1(c) hereof.
3
<PAGE> 6
"Termination of Employment" means any severance of the
employee/employer relationship between a Participant and the Company including
retirement, death, voluntary resignation or involuntary termination.
"Valuation Date" means each December 31 and such other dates
established by the Committee from time to time at which date Account values,
including deemed investment earnings and losses, are credited for Plan record
keeping purposes.
ARTICLE II
PARTICIPATION
2.1. Eligible Class. (a) Except as provided in (b) and (c) below, an
individual who is employed by the Company at its Home Office is an Eligible
Employee with respect to a particular Plan Year if he is within a select group
of management or highly compensated Employees within the meaning of Section
201(2), 301 (a)(3) and 401 (a)(1) of ERISA, as determined by the Committee (the
"Select Group") in its sole discretion and qualifies as an "Accredited Investor"
within the meaning of Rule 501 under the Securities Act of 1933 by meeting one
of the following requirements. He or she must be:
(i) an "Executive Officer" of the Company. For purposes of this
Section, an "Executive Officer" is defined as the President, any Vice
President in charge of a principal business unit, division or
function, any officer who performs a policy making function, or any
other person who performs similar policy making functions for the
Company, or
(ii) a natural person who had an individual income in excess of
$200,000, or joint income with his spouse in excess of $300,000, in
each of the two most recent years and has a reasonable expectation of
making that income level in the current year, or
(iii) a natural person whose individual net worth, or joint net
worth with his spouse, at the time of purchase, exceeds $1,000,000.
(b) Notwithstanding any provision in the Plan to the contrary
(i) under no circumstances will any Employee who is not within
the Select Group, as determined by the Committee in its sole
discretion, be eligible to participate in the Plan.
(ii) an individual who would otherwise be eligible to make pay
deferrals under the Plan shall nevertheless be considered ineligible
if the Company requests
4
<PAGE> 7
that he complete applications for life insurance in connection with
Company investments related to this Plan and such individual refuses
to do so.
(c) If a newly hired individual is a Senior Officer, and otherwise
qualifies under this Section, such individual will be an Eligible Employee and
will be entitled to make a deferral election for the current Plan Year with
respect to pay not yet earned as provided in Sections 3.1(a) and 3.1(f)(iii).
(d) The Committee, in its sole discretion, shall determine whether an
individual is an Eligible Employee for a Plan Year based on Sections 2.1(a),
2.1(b) and 2.1(c) above and administrative rules it may adopt.
2.2. Commencement of Participation. Each Eligible Employee shall first
become a Participant as of the initial pay period for which he has a valid pay
deferral election in effect pursuant to Section 3.1.
2.3. Ongoing Participation. (a) Each Eligible Employee who has a pay
deferral election in effect for a given Plan Year pursuant to Section 3.1 shall
be an active Participant under the Plan for such Plan Year. Active participation
shall end on the earliest of (i) the Employee's Termination of Employment, (ii)
the date on which the Participant has no pay deferral election in effect under
Section 3.1, or the date the Participant is no longer an Eligible Employee as
described under Section 2.1.
(b) Each Participant who does not have a pay deferral election in
effect for a given calendar year pursuant to Section 3.1, but who has an Account
which is not fully distributed, shall be an inactive Participant until his
Account is fully distributed and shall be entitled to make hypothetical
investment elections pursuant to Section 3.5.
ARTICLE III
PARTICIPANT DEFERRALS
3.1. Pay Deferrals. (a) An Eligible Employee may authorize the Company
to defer a portion of his pay to the Plan under the rules and procedures
established under this Article III. Except as provided in (f)(iii) below,
written election of a pay deferral hereunder must be made by the Participant
prior to the calendar year for which such deferral is effective and must remain
in effect for the entire calendar year. Pay deferrals elected under this Section
3.1 shall apply to discrete calendar years and will not automatically renew from
year to year. Pay deferrals hereunder shall be irrevocable and all such
deferrals shall remain part of the general assets of the Company and, at the
Company's discretion, may be deposited to a Rabbi Trust.
5
<PAGE> 8
(b) Base Pay Deferrals may be elected by an Eligible Employee in
accordance with the further provisions of this Section 3.1 in any whole
percentage up to 15% of such pay or in any specific dollar amount not to exceed
such 15%.
(c) Short Term Incentive Pay Deferrals may be elected by an Eligible
Employee in accordance with the further provisions of this Section 3.1 in any
25% increment of such pay (25%, 50%, 75% or 100%) or in any specific dollar
amount subject to the minimum amount described in (e) below.
(d) Long Term Incentive Deferrals may be elected by an Eligible
Employee in accordance with the further provisions of this Section 3.1 in any
25% increment of such pay (25%, 50%, 75% or 100%) or in any specific dollar
amount subject to the minimum amount described in (e) below.
(e) Deferrals under (b), (c) and (d) above are each subject to an
annual minimum of $2,500 or such other amount set by the Committee from time to
time.
(f) (i) Pay deferral elections hereunder shall be tendered in writing
on forms prescribed by the Committee.
(ii) Ongoing elections are permitted once each calendar year
during the Annual Enrollment Period with respect to compensation that
will be earned in the immediately following calendar year.
(iii) A special one-time election is permitted in the year an
Eligible Employee is first hired. This election is available with
respect to Base Pay and Short Term Incentive Pay that will be earned
in the calendar year of hire after the pay deferral election is made.
Such election must be made in writing within 30 days of the date the
individual's eligibility is established by the Committee. The special
election hereunder will be effective with respect only to pay which
has yet to be earned.
(g) The Committee may establish other rules and procedures which shall
govern the election of pay deferrals under this Section 3.1, including whatever
actions it deems necessary to ensure that the plan is entitled to exemption from
registration under the securities law. Such rules and procedures shall be
binding upon all Participants.
3.2. Changes in Base Pay. If the Participant elects to defer a
percentage of Base Pay, the percentage of such pay designated by the Participant
shall continue in effect for the entire calendar year to which the election
applies, notwithstanding any change in such pay during such year.
6
<PAGE> 9
3.3. Resumption of Deferrals. A Participant who has no current pay
deferral election in effect may make a pay deferral election during the Annual
Enrollment Period if he is then an Eligible Employee. Such pay deferral election
will be effective as of the calendar year immediately following such Annual
Enrollment Period. All such pay deferrals will be credited to the Participant's
existing Plan Account and are subject to the initial distribution mode elected
by the Participant under Section 5.3(a), except as provided in Section 5.3(b).
3.4. Crediting of Participant Deferrals. Participant pay deferrals
will be retained by the Company and credited to such Participant's Account
within a reasonable time after the period during which such amount would have
otherwise been payable to the Participant had no deferral election in effect.
3.5. Impact on Other Benefits. Participation in this plan will not
affect the amount of a participant's life insurance, AD&D, disability benefits
or 401k match. Any reduction in a Company Profit Sharing Contribution or pension
benefit from the Home Office Retirement Plan due to participation in this plan
will be provided through the Select Employees Supplemental Retirement Plan and
Profit Sharing Plan.
3.6. Taxation. Deferrals under this plan are subject to then
applicable rules of taxation. Any taxes owing will be deducted from base salary
pursuant to rules established by the Plan Committee.
3.7. Deemed Investment of Deferral. Pay deferrals shall be deemed to
be invested at the Participant's election in one or more Investment Funds
offered under the Plan, but such election shall not be binding upon the
Committee (or the Trustee if a Rabbi Trust is established) with respect to any
actual investments. The terms, conditions and procedures under which a
Participant may elect to hypothetically invest his Account hereunder shall be
specified by the Committee, in its sole discretion, from time to time.
Investment income or losses credited to such account as of any Valuation Date
shall reflect the actual experience (plus or minus .25% as determined by the
Committee) of the funds which correspond to those in which the Participant's
Account is deemed to be invested. The Committee will set rules governing
Participant's elections with respect to the various Investment Funds including,
but not limited to, the timing of deemed transfers between and among funds, the
frequency of fund exchange privileges and liquidation procedures required for
Plan distributions.
3.8. Company Investments. The Company, in its sole discretion, shall
decide whether or not to underwrite its obligations under the Plan by actually
investing pay deferrals. If the Company decides to invest pay deferrals made
under the Plan, Participants and Beneficiaries shall have no interest (other
than that of an unsecured general creditor), in such actual investments even if
they correspond to Investment Funds.
7
<PAGE> 10
Any investment the Company makes in connection with the Plan shall at all times
remain part of the general assets of the Company whether or not held in a Rabbi
Trust.
ARTICLE IV
TRANSFER ACCOUNTS
Under procedures to be established by the Committee, the non-qualified
deferred compensation of a Participant under any other non-qualified deferred
compensation program sponsored by the Company may be transferred by the Company
to this Plan. Any such transferred amount shall be subject to all of the terms
and conditions of this Plan.
ARTICLE V
VALUATION AND DISTRIBUTION OF ACCOUNTS
5.1. Valuation of Accounts. A Participant's Account shall be valued as
of each Valuation Date under procedures established by the Committee.
5.2. Forms and Amount of Distribution. A Participant's election of a
distribution form shall apply to his entire Account. Forms of payment available
under the Plan are:
(a) A full lump sum on a specified commencement date equal to the
Account value as of the Valuation Date immediately preceding payment; or
(b) Five, ten or fifteen annual installments beginning on a specified
commencement date, subject to a minimum Account of $10,000 when payments
first begin. Annual installments shall be equal to the Account balance on
the Valuation Date immediately preceding first payment (and each
anniversary thereof during the installment period) divided by the remaining
number of years in the elected installment period. If a Participant elects
an annual installment method of payment, the undistributed portion of his
Account will continue to be hypothetically invested in accordance with the
Participant's ongoing election(s) under Section 3.5.
5.3. Time and Manner of Distribution Election. (a) At the time of an
Eligible Employee's initial enrollment in the Plan, such individual shall be
required to make a written election indicating the date distribution of his Plan
Account will commence and the form of payment. This election will be binding and
apply to all pay deferrals made under the Plan except as provided under (b) and
(c) below.
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<PAGE> 11
The Participant's election shall be either (i) or (ii), as follows:
(i) payment beginning at the later of a specified date or
Termination of Employment; or
(ii) payment at the earlier of a specified date or Termination of
Employment.
(b) A Participant will have one opportunity to change his initial
election regarding the commencement date and form of distribution of his
Account, as follows. At least 12 months prior to the date his Account would
otherwise commence to be paid (or such shorter period as the Committee, in its
sole discretion, may permit), the Participant may elect to postpone commencement
to a later specified date and specify a different form of payment under
procedures established by the Committee.
(c) In the event a Participant becomes disabled and would be
considered eligible for benefits under the Company's long-term disability plan,
the Committee, in its sole discretion, may approve an early distribution of the
Participant's Account. Such distribution will occur before the date elected by
the Participant under Section 5.3(a).
5.4. Death Benefit. Upon the Participant's death prior to the full
distribution of his Account, the remaining Account shall be payable to his named
Beneficiary(ies) in one lump sum or in another form permitted by the Committee
on an exception basis as requested by a Beneficiary. Such payment will be made
as soon as practicable under procedures established by the Committee.
5.5. Termination of Employment. Following a Participant's Termination
of Employment, the Participant's Account will either:
(a) remain under the Plan and continue to be subject to the
Participant's hypothetical investment elections under Section 3.5 in the
case of a Participant who elected a specific distribution date which is
later than the Termination of Employment date; or
(b) begin to be distributed as provided in Section 5.6 if, pursuant to
Section 5.3, the Participant had previously elected payments to commence
upon Termination of Employment.
5.6. Commencement of Payments. (a) If a Participant elected to have
his Account distributed upon Termination of Employment, payment shall begin
within 60 days of such termination or as soon as practicable thereafter.
9
<PAGE> 12
(b) If a Participant elected to have his Account distributed on a
specific date, payment shall begin as of the first payroll cycle after such
specified date or as soon as practicable thereafter.
5.7. Payor. The Company may directly make payments due under the Plan
to Participants and Beneficiaries or it may delegate responsibility for such
payments to a third party such as the trustee of a Rabbi Trust.
ARTICLE VI
ADMINISTRATION
This Plan shall be administered by the Company through the Committee.
The Committee shall have full discretion to interpret and administer this Plan
and its decision in any matter involving the interpretation and application of
this Plan shall be final and binding on all parties. The Company and the
Committee (and the trustee of any Rabbi Trust) shall have no fiduciary duties of
any nature under, or in connection with, the Plan.
ARTICLE VII
FUNDING
This Plan is unfunded. Benefits under this Plan will be paid, at the
discretion of the Company, from the Company's general assets (including, but not
limited to, any Investment Funds) and/or from assets (including, but not limited
to, any Investment Funds) held under a Rabbi Trust. As required by law to
achieve tax deferral to the date payment of an Account is made, the rights of a
Participant or Beneficiary are those of an unsecured general creditor of the
Company.
Participants and their Beneficiaries, heirs, successors, and assigns
shall have no legal or equitable rights, claims, or interests in any specific
property or assets of the Company, nor shall they be beneficiaries of, or have
any rights, claims, or interests in any life insurance policies, annuity
contracts, or the proceeds therefrom owned or which may be acquired by the
Company ("Policies"). Such Policies or other assets of the Company shall not be
held under any trust for the benefit of Participants, their Beneficiaries,
heirs, successors, or assigns (other than under a Rabbi Trust established to
assist the Company in meeting its obligations hereunder and the assets of which
are available to general creditors if the Company becomes insolvent), or held as
collateral security for the fulfilling of the obligations of the Company under
this Plan. Any and all of the Company's assets and Policies shall be, and
remain, the general, unpledged, unrestricted assets of the Company. The
Company's obligation under the Plan shall be merely that of an unfunded and
unsecured promise of the Company to pay money in the future.
10
<PAGE> 13
ARTICLE VIII
AMENDMENT AND TERMINATION
The Company reserves the right to amend, modify, suspend or terminate
this Plan in whole or in part at any time by action of its Board or by a written
instrument executed by a duly authorized officer of the Company. No amendment
shall reduce the Account credited to a Participant under this Plan as of the
amendment date, except to the extent that the Participant agrees in writing to
such reduction.
ARTICLE IX
GENERAL PROVISIONS
9.1. Payment to Minors and Incompetents. If any Participant or
Beneficiary entitled to receive any benefits hereunder is a minor or is deemed
by the Committee or is adjudged to be legally incapable of giving valid receipt
and discharge for such benefits, they will be paid to such person or institution
as the Committee may designate or to the duly appointed guardian. Such payment
shall, to the extent made, be deemed a complete discharge of any such payment
under the Plan.
9.2. No Contract. This Plan shall not be deemed a contract of
employment with any Participant, nor shall any provision of the Plan affect the
right of the Company or any affiliated employer to terminate a Participant's
employment.
9.3. Use of Masculine and Feminine, Singular and Plural. Wherever used
in this Plan, the masculine gender will include the feminine gender and the
singular will include the plural, unless the context indicates otherwise.
9.4. Non-Alienation of Benefits. No amount payable to, or held under
the Plan for the account of, any Participant or Beneficiary shall be subject in
any manner to anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance, or charge, and any attempt to so anticipate, alienate, sell,
transfer, assign, pledge, encumber, or charge the same shall be void; nor shall
any amount payable to, or held under the Plan for the account of, any
Participant be in any manner liable for his debts, contracts, liabilities,
engagements, or torts, or be subject to any legal process to levy upon or
attach.
9.5. Protective Provisions. Each participant shall cooperate with the
Company by furnishing any and all information requested by the Company in order
to facilitate the payment of benefits hereunder, taking such physical
examinations as the Company may deem necessary and taking such other relevant
action as may be requested by the Company. If a Participant refuses to
cooperate, the Company shall have no further obligation to the Participant under
the Plan, other than payment to such Participant of the cumulative deferrals of
base and incentive pay heretofore made pursuant to this plan.
11
<PAGE> 14
9.6. Governing Law. The provisions of the Plan shall be interpreted,
construed, and administered in accordance with the laws of the Commonwealth of
Massachusetts, except to the extent federal law (including, but not limited to,
ERISA) applies. ERISA shall govern all issues and matters relating to the Plan
and shall preempt all state laws (including those of Massachusetts) relating to
the Plan.
9.7. Captions.. The captions contained in the Plan are inserted only
as a matter of convenience and for reference and in no way define, limit,
enlarge, or describe the scope or intent of the Plan nor in any way affect the
construction of any provision of the Plan.
9.8. Claims for Benefits. If a written request by a Participant or
Beneficiary for the payment of any benefits hereunder has been rejected by the
Committee, then the Committee shall within a reasonable period of time notify
the Participant of such rejection in writing setting forth the specific reasons
for such rejection. Such written explanation shall be written in a manner
calculated to be understood by the Participant. The Committee shall afford any
Participant whose claim for benefits has been rejected a reasonable opportunity
for review of such claim under procedures consistent with the Employee
Retirement Income Security Act of 1974.
EXECUTED this __________________ day of ___________________________, 1997 by the
Company's duly empowered officer.
New England Life Insurance Company
ATTEST ________________________ ____________________________________
Signature
____________________________________
Title
____________________________________
Date
12
<PAGE> 1
Exhibit 10.41
NEW ENGLAND FINANCIAL (NEF) LONG-TERM INCENTIVE PLAN (LTI)
Plan Document
OBJECTIVE: To reward long term growth and value creation.
TIME HORIZON: Performance is measured over three year periods. Each year is the
first year of a new three year performance cycle. Grants may be made annually
under the Plan for successive three year cycles.
ELIGIBILITY: Selected senior officers and managing partners. The CEO will
recommend selected officers and managing partners to participate in the Plan,
subject to the approval of the Personnel Committee of the Board.
INCENTIVE POTENTIAL: The target incentive potential for a participant will be
based on competitive compensation data for similar jobs at comparator
companies. The actual incentive potential for a participant will vary around
target based on the CEO's assessment performance and level of impact on future
company performance over the ensuing three year period. The actual incentive
potential for a participant may be expressed as a percentage of base salary or
in cash units as described below. Managing partners may be awarded units based
on the performance of their agency relative to the performance of other NEF
agencies; which performance will be measured on selected pre-established
criteria.
TARGET AWARD POOL: The total Target Award Pool will be the sum of the
individual target awards. For purposes of continuity with prior grants, the CEO
may elect to denominate this pool in a stipulated number of cash units with a
targeted unit value, the sum of which will not exceed the total Target Award
Pool. These units may represent a pre-established share expressed in basis
points of the equity growth of NEF over a three year performance cycle as
defined below.
LONG TERM VALUE MEASURE: For purposes of this Plan, long-term performance will
be measured using the following criteria:
A.) for grants made before 1/1/98, equity growth, defined as growth in the sum
of: GAAP surplus, plus the present value of future profits on in-force
business over a three year performance cycle, or
B.) for grants made after 1/1/98, benchmarked business results for earnings
and sales growth across the three year period. Earnings are assessed
against benchmarked return on equity measures, and sales growth against
benchmarked rate of growth measures. The weight of each measure is
established at the beginning of the three year performance period.
<PAGE> 2
PERFORMANCE ASSESSMENT: LTI performance targets consistent with the criteria
described above, and integrated with the company's three year business plan will
be established. At the completion of the three year performance period, the
Personnel Committee, with input from management, will assess performance versus
plan taking into account the broader issues of changes in the economic,
business, and regulatory environments. The Committee will exercise discretion
based on the guidelines shown below in interpreting performance and in
determining an LTI performance percentage which may vary form 0 to 200%; this
factor will be applied to the targeted unit value or the actual incentive
potential expressed as a percentage of base salary, to determine the earned
incentive amount payable to participants under the Plan.
EARNED INCENTIVE GUIDELINES: target unit value will be referenced below,
however, if applicable, actual incentive potential expressed as a percentage of
base salary may be substituted for target unit value.
- Achievement of plan = between 100% and 150% X target unit value.
(Business plan goals are generally "stretch targets" and are intended
to represent a degree of difficulty above the benchmarked median.
Benchmarked competitive data will be considered in calibrating
incentive guidelines.)
- Performance above plan = Up to 200% X target unit value.
- Performance below plan = between 0 and 100% X target unit value.
BOARD DISCRETION: The Board may interpret, amend or terminate the Plan, and may
delegate administration of the Plan to the Personnel Committee. This is a
discretionary management incentive plan and does not constitute an employment
contract or a contract to pay any specific amount.
LTI PAYOUT: At the end of each three year plan cycle, 100% of the earned
incentive amount for that performance period will be paid in cash to each
participant. To be eligible to receive a payout, participants must be active
employees or, if applicable, managing partners in good standing, at the time of
payout. Under established procedures, all or a portion of this payment may be
deferred at the participant's election, under the terms of the applicable
non-qualified elective deferral plan.
TERMINATION OF EMPLOYMENT: If a plan participant leaves employment of their own
volition, any amounts payable under the Plan are forfeited. If a participant's
employment is terminated by the company other than for cause (as defined), or in
the event of retirement, or permanent disability (as defined) the participant
will have a time pro-ration percentage, based on the number of months of active
employment during the three year performance cycle, applied to the earned
incentive amount as determined at the end of the third year of the applicable
performance cycle.
<PAGE> 1
EXHIBIT 21.1
METLIFE, INC.
LIST OF SUBSIDIARIES
AS OF DECEMBER 31, 1999
(PRO FORMA FOR THE ACQUISITION OF GENAMERICA CORPORATION)
23RD STREET INVESTMENTS, INC. (DE)
334 MADISON EURO INVESTMENTS, INC. (DE)
AEW II CORPORATION (MA)
AEW ADVISORS, INC. (MA)
AEW CAPITAL MANAGEMENT, INC. (MA)
AEW CAPITAL MANAGEMENT, L.P. (DE)
AEW CURZON LIMITED (ENGLAND)
AEW EXCHANGE MANAGEMENT, LLC (DE)
AEW HOTEL INVESTMENT CORPORATION (MA)
AEW HOTEL INVESTMENT, LIMITED PARTNERSHIP (MA)
AEW INVESTMENT GROUP, INC. (MA)
AEW MANAGEMENT AND ADVISORS, L.P. (DE)
AEW PARTNERS III, INC. (DE)
AEW REAL ESTATE ADVISORS, INC. (MA)
AEW REAL ESTATE ADVISORS, LIMITED PARTNERSHIP (MA)
AEW SECURITIES, L.P. (MA)
AEW TSF, INC. (DE)
AEWPN, LLC (DE)
ALDRICH EASTMAN GLOBAL INVESTMENT STRATEGIES, LLC (DE)
AURORA LIMITED PARTNERSHIP (IL)
BACK BAY ADVISORS, INC. (MA)
BACK BAY ADVISORS, L.P. (DE)
BCOP ASSOCIATES, L.P. (MA)
BENEFIT RESOURCE LIFE INSURANCE COMPANY (BERMUDA) LTD. (BERMUDA)
BENEFIT SERVICES CORPORATION (GA)
BHIF AMERICA SEGUROS DE VIDA, S.A. (CHILE)
CBNJ, INC. (NJ)
COATING TECHNOLOGIES INTERNATIONAL, INC. (DE)
COLLABORATIVE STRATEGIES, INC. (MO)
CONNING & COMPANY (CT)
CONNING ASSET MANAGEMENT COMPANY (MO)
CONNING CORPORATION (MO)
CONNING, INC. (DE)
CONVENT STATION EURO INVESTMENTS FOUR COMPANY (UNITED KINGDOM)
COPLEY PROPERTIES COMPANY, INC. (MA)
COPLEY PROPERTIES COMPANY II, INC. (MA)
COPLEY PROPERTIES COMPANY III, INC. (MA)
COPLEY PUBLIC PARTNERSHIP HOLDING, L.P. (DE)
COVA CORPORATION (MO)
COVA FINANCIAL LIFE INSURANCE COMPANY (CA)
COVA FINANCIAL SERVICES LIFE INSURANCE COMPANY (MO)
COVA INVESTMENT ADVISORY CORPORATION (IL)
COVA INVESTMENT ALLOCATION CORPORATION (IL)
COVA LIFE ADMINISTRATION SERVICES COMPANY (IL)
COVA LIFE MANAGEMENT COMPANY (DE)
<PAGE> 2
COVA LIFE SALES COMPANY (DE)
CP&S COMMUNICATIONS, INC. (NY)
CRB CO., INC. (MA)
CREA INVESTORS/SANTA FE SPRINGS, INC. (MA)
CREA WESTERN INVESTORS I, INC. (MA)
CRH CO., INC. (MA)
CROSS & BROWN COMPANY (NY)
ECONOMY FIRE & CASUALTY COMPANY (IL)
ECONOMY PREFERRED INSURANCE COMPANY (IL)
ECONOMY PREMIER ASSURANCE COMPANY (IL)
EDISON SUPPLY AND DISTRIBUTION, INC. (DE)
EIGHTH COPLEY CORP. (MA)
EQUITY INTERMEDIARY COMPANY (MO)
EXETER REASSURANCE COMPANY, LTD. (MA)
FAIRFIELD INSURANCE AGENCY OF TEXAS, INC. (TX)
FAIRFIELD MANAGEMENT GROUP, INC. (MO)
FARMERS NATIONAL COMMODITIES, INC. (NE)
FARMERS NATIONAL COMPANY (NE)
FIFTH COPLEY CORP. (MA)
FIFTH SINGLETON CORP. (MA)
FIRST CONNECT INSURANCE NETWORK, INC. (DE)
FIRST COVA LIFE INSURANCE COMPANY (NY)
FOURTH COPLEY CORP. (MA)
FOURTH INCOME CORP. (MA)
FOURTH SINGLETON CORP. (MA)
FULCRUM FINANCIAL ADVISORS, INC. (MA)
G.A. HOLDING CORPORATION (MA)
GENAM BENEFITS INSURANCE COMPANY (MO)
GENAM HOLDING COMPANY (DE)
GENAMERICA CAPITAL I (DE)
GENAMERICA CORPORATION (MO)
GENAMERICA MANAGEMENT CORPORATION (MO)
GENERAL AMERICAN ARGENTINA SEGUROS DE VIDA, S.A. (ARGENTINA)
GENERAL AMERICAN LIFE INSURANCE COMPANY (MO)
GENERAL LIFE INSURANCE COMPANY (TX)
GENERAL LIFE INSURANCE COMPANY OF AMERICA (IL)
GENESIS SEGUROS GENERALES, SOCIEDAD ANONIMA DE SEGUROS Y
REASEGUROS (SPAIN)
GENMARK INCORPORATED (MO)
GENMARK INSURANCE AGENCY OF ALABAMA, INC. (AL)
GENMARK INSURANCE AGENCY OF MASSACHUSETTS, INC. (MA)
GENMARK INSURANCE AGENCY OF OHIO, INC. (OH)
GENMARK INSURANCE AGENCY OF TEXAS, INC. (TX)
GREAT RIVERS REINSURANCE MANAGEMENT, INC. (MO)
HARRIS ASSOCIATES, INC. (DE)
HARRIS ASSOCIATES, L.P. (DE)
HARRIS ASSOCIATES SECURITIES, L.P. (DE)
HARRIS PARTNERS, INC. (DE)
HARRIS PARTNERS L.L.C. (DE)
HEREFORD INSURANCE AGENCY, INC. (MA)
HEREFORD INSURANCE AGENCY OF ALABAMA, INC. (AL)
HEREFORD INSURANCE AGENCY OF IDAHO, INC. (ID)
HEREFORD INSURANCE AGENCY OF MINNESOTA, INC. (MN)
2
<PAGE> 3
HEREFORD INSURANCE AGENCY OF NEW MEXICO, INC. (NM)
HEREFORD INSURANCE AGENCY OF OHIO, INC. (OH)
HEREFORD INSURANCE AGENCY OF OKLAHOMA, INC. (OK)
HEREFORD INSURANCE AGENCY OF WYOMING, INC. (WY)
HYATT LEGAL PLANS, INC. (DE)
HYATT LEGAL PLANS of FLORIDA, INC. (FL)
INTERACTIVE FINANCIAL SOLUTIONS, INC. (MA)
JURIKA & VOYLES, INC. (DE)
JURIKA & VOYLES, L.P. (DE)
KOBRICK FUNDS LLC (DE)
L/C DEVELOPMENT CORPORATION (CA)
LOOMIS, SAYLES & COMPANY, INC. (MA)
LOOMIS, SAYLES & COMPANY, L.P. (DE)
LOOMIS, SAYLES DISTRIBUTORS, INC. (MA)
LOOMIS, SAYLES DISTRIBUTORS, L.P. (DE)
LOOMIS SAYLES (AUSTRALIA) HOLDINGS, LLC (AUSTRALIA)
LOOMIS SAYLES (AUSTRALIA) PTY LIMITED (AUSTRALIA)
LOOMIS, SAYLES (EURO) LIMITED (UNITED KINGDOM)
MC MANAGEMENT, INC. (MA)
MC MANAGEMENT, L.P. (DE)
MERCADIAN CAPITAL L.P. (DE)
MERCADIAN FUNDING L.P. (DE)
MET LIFE HOLDINGS LUXEMBOURG S.A. (LUXEMBOURG)
MET P&C MANAGING GENERAL AGENCY, INC. (TX)
METLIFE CAPITAL CFLI HOLDINGS, LLC (DE)
METLIFE CAPITAL CFLI LEASING, LLC (DE)
METLIFE CAPITAL CREDIT L.P. (DE)
METLIFE CAPITAL, LIMITED PARTNERSHIP (DE)
METLIFE CENTRAL EUROPEAN SERVICES SPOLKA Z ORGANICZONA
ODPOWIEDZIALMOSCIA (POLAND)
METLIFE CREDIT CORP. (DE)
METLIFE EUROPE I, INC. (DE)
METLIFE EUROPE II, INC. (DE)
METLIFE EUROPE III, INC.(DE)
METLIFE EUROPE IV, INC. (DE)
METLIFE EUROPE V, INC. (DE)
METLIFE FINANCIAL ACCEPTANCE CORPORATION (DE)
METLIFE FUNDING, INC. (DE)
METLIFE GENERAL INSURANCE AGENCY, INC. (DE)
METLIFE GENERAL INSURANCE AGENCY OF ALABAMA, INC. (DE)
METLIFE GENERAL INSURANCE AGENCY OF KENTUCKY, INC. (DE)
METLIFE GENERAL INSURANCE AGENCY OF MASSACHUSETTS, INC.(MA)
METLIFE GENERAL INSURANCE AGENCY OF MISSISSIPPI, INC. (DE)
METLIFE GENERAL INSURANCE AGENCY OF NORTH CAROLINA, INC. (DE)
METLIFE GENERAL INSURANCE AGENCY OF TEXAS, INC. (DE)
METLIFE HOLDINGS, INC. (DE)
METLIFE (INDIA) LTD. (INDIA)
METLIFE INTERNATIONAL HOLDINGS, INC. (DE)
METLIFE INVESTMENTS ASIA LIMITED (HONG KONG)
METLIFE INVESTMENTS LIMITED (UNITED KINGDOM)
METLIFE INVESTMENTS, S.A. (ARGENTINA)
METLIFE NEW ENGLAND HOLDINGS, INC. (DE)
METLIFE SAENGMYOUNG INSURANCE COMPANY LTD. (SOUTH KOREA)
3
<PAGE> 4
METLIFE SECURITIES, INC. (DE)
METLIFE SECURITY INSURANCE COMPANY OF LOUISIANA (LA)
METLIFE TEXAS HOLDINGS, INC. (DE)
METLIFE TRUST COMPANY, NATIONAL ASSOCIATION (USA)
METPARK FUNDING, INC. (DE)
METRIC ASSIGNOR, INC. (CA)
METRIC CAPITAL CORPORATION (CA)
METRIC COLORADO, INC. (CO)
METRIC MANAGEMENT, INC. (DE)
METRIC PROPERTY MANAGEMENT, INC. (DE)
METRIC REALTY (IL)
METROPOLITAN ASSET MANAGEMENT CORPORATION (DE)
METROPOLITAN CASUALTY INSURANCE COMPANY (RI)
METROPOLITAN DIRECT PROPERTY AND CASUALTY INSURANCE COMPANY (RI)
METROPOLITAN GENERAL INSURANCE COMPANY (RI)
METROPOLITAN GROUP PROPERTY AND CASUALTY INSURANCE COMPANY (RI)
METROPOLITAN INSURANCE AND ANNUITY COMPANY (DE)
METROPOLITAN LIFE HOLDINGS, NETHERLANDS BV (NETHERLANDS)
METROPOLITAN LIFE INSURANCE COMPANY OF HONG KONG LIMITED
(HONG KONG)
METROPOLITAN LIFE SEGUROS DE RETIRO S.A. (ARGENTINA)
METROPOLITAN LIFE SEGUROS DE VIDA S.A. (ARGENTINA)
METROPOLITAN LIFE SEGUROS DE VIDA S.A. (URUGUAY)
METROPOLITAN LIFE SEGUROS E PREVIDENCIA PRIVADA S.A. (BRAZIL)
METROPOLITAN LLOYDS, INC. (TX)
METROPOLITAN LLOYDS INSURANCE COMPANY OF TEXAS (TX)
METROPOLITAN MARINE WAY INVESTMENTS LIMITED (CANADA)
METROPOLITAN P&C INSURANCE SERVICES, INC. (CA)
METROPOLITAN PROPERTY AND CASUALTY INSURANCE COMPANY (RI)
METROPOLITAN REALTY MANAGEMENT, INC. (DE)
METROPOLITAN REINSURANCE COMPANY (U.K.) LIMITED (UNITED KINGDOM)
METROPOLITAN STRUCTURES (IL)
METROPOLITAN TOWER CORP. (DE)
METROPOLITAN TOWER LIFE INSURANCE COMPANY (DE)
METROPOLITAN TOWER REALTY COMPANY, INC. (DE)
MEZZANINE INVESTMENT LIMITED PARTNERSHIP-8 (DE)
MEZZANINE INVESTMENT LIMITED PARTNERSHIP-BDR (DE)
MEZZANINE INVESTMENT LIMITED PARTNERSHIP-LG (DE)
MISSOURI REINSURANCE (BARBADOS), INC. (BARBADOS)
NATHAN & LEWIS ASSOCIATES-ARIZONA, INC. (AZ)
NATHAN & LEWIS ASSOCIATES, INC. (NY)
NATHAN & LEWIS OF NEVADA, INC. (NV)
NATHAN & LEWIS SECURITIES, INC. (NY)
NATHAN AND LEWIS ASSOCIATES OHIO, INCORPORATED (OH)
NATHAN AND LEWIS ASSOCIATES OF TEXAS, INC. (TX)
NATHAN AND LEWIS INSURANCE AGENCY OF MASSACHUSETTS, INC. (MA)
NATILOPORTEM HOLDINGS, INC. (DE)
NAVISYS ASIA PACIFIC LIMITED (HONG KONG)
NAVISYS DE MEXICO S.A. DE C.V. (MEXICO)
NAVISYS ENTERPRISE SOLUTIONS, INC. (NJ)
NAVISYS ILLUSTRATION SOLUTIONS, INC. (PA)
NAVISYS INCORPORATED (MO)
NEF CORPORATION (MA)
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NEW ENGLAND FUNDS, L.P. (DE)
NEW ENGLAND FUNDS MANAGEMENT, L.P. (DE)
NEW ENGLAND INVESTMENT MANAGEMENT, INC. (MA)
NEW ENGLAND LIFE HOLDINGS, INC. (DE)
NEW ENGLAND LIFE INSURANCE COMPANY (MA)
NEW ENGLAND LIFE MORTGAGE FUNDING CORPORATION (MA)
NEW ENGLAND PENSION AND ANNUITY COMPANY (DE)
NEW ENGLAND PORTFOLIO ADVISORS, INC. (MA)
NEW ENGLAND SECURITIES CORPORATION (MA)
NEWBURY INSURANCE COMPANY, LIMITED (BERMUDA)
N.L. HOLDING CORP. (DE)
NVEST, L.P. (DE)
NVEST ASSOCIATES, INC. (DE)
NVEST COMPANIES, L.P. (DE)
NVEST CORPORATION (MA)
NVEST HOLDINGS, INC. (MA)
NVEST PARTNERSHIPS, LLC (DE)
NVEST SERVICES COMPANY, INC. (MA)
OMEGA REINSURANCE CORPORATION (AZ)
ONE MADISON INVESTMENTS (CAYCO) LIMITED (CAYMAN ISLANDS)
ONE MADISON MERCHANDISING L.L.C. (CT)
PARAGON LIFE INSURANCE COMPANY (MO)
PARK TWENTY THREE INVESTMENTS COMPANY (UNITED KINGDOM)
PERSEUS PARTNERS L.P. (DE)
PLEIADES PARTNERS L.P. (DE)
P.T. METLIFE SEJAHTERA (INDONESIA)
R&T ASSET MANAGEMENT, INC. (MA)
RED OAK REALTY COMPANY (MO)
REICH & TANG ASSET MANAGEMENT, L.P. (DE)
REICH & TANG DISTRIBUTORS, INC. (DE)
REICH & TANG SERVICES, INC. (DE)
REINSURANCE COMPANY OF MISSOURI, INCORPORATED (MO)
REINSURANCE GROUP OF AMERICA, INCORPORATED (MO)
REINSURANCE PARTNERS, INC. (MO)
RGA AMERICAS REINSURANCE COMPANY, LTD. (BARBADOS)
RGA ARGENTINA, S.A. (ARGENTINA)
RGA AUSTRALIAN HOLDINGS PTY LIMITED (AUSTRALIA)
RGA CANADA MANAGEMENT COMPANY, LTD. (CANADA)
RGA CAPITAL LIMITED (UNITED KINGDOM)
RGA FINANCIAL PRODUCTS LIMITED (CANADA)
RGA HOLDINGS LIMITED (UNITED KINGDOM)
RGA INTERNATIONAL LTD. (CANADA)
RGA LIFE REINSURANCE COMPANY OF CANADA (CANADA)
RGA MANAGING AGENCY LIMITED (UNITED KINGDOM)
RGA REINSURANCE COMPANY (MO)
RGA REINSURANCE COMPANY (BARBADOS) LTD. (BARBADOS)
RGA REINSURANCE COMPANY CHILE S.A. (CHILE)
RGA REINSURANCE COMPANY OF AUSTRALIA LIMITED (AUSTRALIA)
RGA REINSURANCE COMPANY OF SOUTH AFRICA LIMITED (SOUTH AFRICA)
RGA SOUTH AFRICAN HOLDINGS (PTY) LTD. (SOUTH AFRICA)
RGA SUDAMERICA, S.A. (CHILE)
RGA (U.K.) UNDERWRITING AGENCY LIMITED (UNITED KINGDOM)
RGA/SWISS FINANCIAL GROUP, L.L.C. (DE)
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SANTANDER MET, S.A. (SPAIN)
SECOND INCOME CORP. (MA)
SECURITY EQUITY LIFE INSURANCE COMPANY (NY)
SECURITY FIRST FINANCIAL, INC. (DE)
SECURITY FIRST FINANCIAL AGENCY, INC. (TX)
SECURITY FIRST GROUP, INC. (FL)
SECURITY FIRST GROUP OF OHIO, INC. (OH)
SECURITY FIRST INSURANCE AGENCY, INC. (MA)
SECURITY FIRST INSURANCE AGENCY, INC. (NV)
SECURITY FIRST INVESTMENT MANAGEMENT CORPORATION (DE)
SECURITY FIRST LIFE INSURANCE COMPANY (DE)
SEGUROS GENESIS, S.A. (MEXICO)
SEGUROS GENESIS, S.A. (SPAIN)
SERVICIOS ADMINISTRATIVOS GEN, S.A. DE C.V. (MEXICO)
SEVENTH COPLEY CORP. (MA)
SIXTH COPLEY CORP. (MA)
SIXTH SINGLETON CORP. (MA)
SNYDER CAPITAL MANAGEMENT, INC. (DE)
SNYDER CAPITAL MANAGEMENT, L.P. (DE)
SPA PARTNERS L.P. (DE)
SSR AV, INC. (DE)
SSR REALTY ADVISORS, INC. (DE)
SSRM HOLDINGS, INC. (DE)
ST. JAMES FLEET INVESTMENTS TWO LIMITED (CAYMAN ISLANDS)
STAN MINTZ ASSOCIATES, INC. (WI)
STATE STREET RESEARCH INTELLIQUANT PORTFOLIOS: SMALL CAP VALUE (MA)
STATE STREET RESEARCH INVESTMENT SERVICES, INC. (MA)
STATE STREET RESEARCH & MANAGEMENT COMPANY (DE)
STATE STREET RESEARCH STRATEGIC INCOME PLUS (MA)
STATE STREET RESEARCH STRATEGIC PORTFOLIOS: AGGRESSIVE (MA)
STELLAR PARTNERS L.P. (DE)
TEXAS LIFE AGENCY SERVICES, INC. (TX)
TEXAS LIFE AGENCY SERVICES OF KANSAS, INC. (KS)
TEXAS LIFE INSURANCE COMPANY (TX)
THIRD INCOME CORP. (MA)
THIRD SINGLETON CORP. (MA)
TNE INFORMATION SERVICES, INC. (MA)
TRANSMOUNTAIN LAND & LIVESTOCK COMPANY (MT)
TRIAD RE, LTD. (BARBADOS)
VAUGHAN, NELSON, SCARBOROUGH & MCCULLOUGH (DE)
VAUGHAN, NELSON, SCARBOROUGH & MCCULLOUGH, L.P. (DE)
VIRTUALFINANCES.COM, INC. (MO)
VNSM TRUST COMPANY (TX)
WALNUT STREET ADVISERS, INC. (MO)
WALNUT STREET SECURITIES, INC. (MO)
WESTPEAK INVESTMENT ADVISORS, INC. (MA)
WESTPEAK INVESTMENT ADVISORS, L.P. (DE)
WESTPEAK INVESTMENT ADVISORS AUSTRALIA LIMITED PTY (AUSTRALIA)
WHITE OAK ROYALTY COMPANY (OK)
WSS INSURANCE AGENCY OF ALABAMA, INC. (AL)
WSS INSURANCE AGENCY OF MASSACHUSETTS, INC. (MA)
WSS INSURANCE AGENCY OF OHIO, INC. (OH)
WSS INSURANCE AGENCY OF TEXAS, INC. (TX)
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EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors and Policyholders of
Metropolitan Life Insurance Company:
We consent to the use in this Amendment No. 1 to Registration Statement No.
333-91517 of our reports dated February 7, 2000 and February 11, 2000, relating
to the consolidated financial statements of Metropolitan Life Insurance Company
and subsidiaries and the balance sheet of MetLife, Inc. appearing in the
Prospectus, which is part of such Registration Statement, and of our report
dated February 7, 2000 relating to the consolidated financial statement
schedules of Metropolitan Life Insurance Company and subsidiaries appearing
elsewhere in such Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
Deloitte & Touche LLP
New York, New York
March 3, 2000
