SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED) NOVEMBER 10, 1995
SUNAMERICA INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
MARYLAND 1-4618 86-0176061
(STATE OR OTHER JURISDICTION (COMMISSION (IRS EMPLOYER
OF INCORPORATION) FILE NUMBER) IDENTIFICATION NO.)
1 SUNAMERICA CENTER
LOS ANGELES, CALIFORNIA 90067-6022
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including
area code (310) 772-6000
<PAGE>
Item 2. Acquisition or Disposition of Assets
------------------------------------
On November 10, 1995, SunAmerica Inc. ("SunAmerica") entered into
a definitive agreement to acquire Ford Life Insurance Company
("Ford Life") from The American Road Insurance Company, a
subsidiary of Ford Motor Company ("Ford") for a total cash
consideration of $172,500,000. Under the agreement, Ford will
retain Ford Life's credit life insurance business. Completion of
this acquisition is expected in early calendar year 1996 and is
subject to customary conditions and required regulatory approvals.
At September 30, 1995, Ford Life had reserves for fixed annuity
contracts of approximately $3,000,000,000.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
------------------------------------------------------------------
(a) The financial statements of Ford Life are included herein as
Exhibits 99.1 and 99.2 and include the following:
Audited Financial Statements (Exhibit 99.1)
Report of Independent Accountants
Statement of Income and of Earnings Retained for Use in the
Business for the Years Ended December 31, 1994, 1993 and
1992
Balance Sheet at December 31, 1994 and 1993
Statement of Stockholder's Equity for the Years Ended
December 31, 1994, 1993 and 1992
Statement of Cash Flows for the Years Ended December 31,
1994, 1993 and 1992
Notes to Financial Statements
Unaudited Interim Financial Statements (Exhibit 99.2)
Report of Independent Accountants
Condensed Statement of Income for the Nine Months Ended
September 30, 1995 and 1994
Condensed Balance Sheet at September 30, 1995 and December
31, 1994
Condensed Statement of Cash Flows for the Nine Months Ended
September 30, 1995 and 1994
Footnotes to Condensed Financial Statements
<PAGE>
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
------------------------------------------------------------------
(Continued)
-----------
(b) Pro Forma Financial Information
The pro forma condensed balance sheet set forth herein as
Exhibit 99.3 reflects the effects of the proposed acquisition
of Ford Life as if it had been consummated on September 30,
1995, the date of SunAmerica's most recently filed balance
sheet.
The pro forma condensed income statement set forth herein as
Exhibit 99.4 reflects the effects of this proposed acquisi-
tion as if it had been consummated on October 1, 1994, the
beginning of SunAmerica's most recently completed fiscal
year.
(c) Exhibits
10.1 Stock Purchase Agreement between The American Road
Insurance Company and SunAmerica Inc., dated as of
November 10, 1995
27.1 Financial Data Schedule for Ford Life Insurance
Company (Period Ended December 31, 1994)
27.2 Financial Data Schedule for Ford Life Insurance
Company (Period Ended September 30, 1995)
99.1 Audited Financial Statements and Report of Independent
Accountants as of and for the Three Years Ended
December 31, 1994, 1993 and 1992 for Ford Life
Insurance Company
99.2 Unaudited Interim Financial Statements and Report of
Independent Accountants as of and for the Nine Months
Ended September 30, 1995 and 1994 for Ford Life
Insurance Company
99.3 Pro Forma Condensed Balance Sheet at September 30,
1995, giving effect to the proposed acquisition of
Ford Life Insurance Company
99.4 Pro Forma Condensed Income Statement for the year
ended September 30, 1995, giving effect to the
proposed acquisition of Ford Life Insurance Company
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
SUNAMERICA INC.
Date: December 12, 1995 By: /s/ SCOTT L. ROBINSON
-----------------------------
Scott L. Robinson
Senior Vice President
and Controller
<PAGE>
LIST OF EXHIBITS FILED
----------------------
Exhibit
Number
- --------
10.1 Stock Purchase Agreement between The American Road Insurance
Company and SunAmerica Inc., dated as of November 10, 1995
27.1 Financial Data Schedule for Ford Life Insurance Company (Period
Ended December 31, 1994)
27.2 Financial Data Schedule for Ford Life Insurance Company (Period
Ended September 30, 1995)
99.1 Audited Financial Statements and Report of Independent Accountants
as of and for the Three Years Ended December 31, 1994, 1993 and
1992 for Ford Life Insurance Company
99.2 Unaudited Interim Financial Statements and Report of Independent
Accountants as of and for the Nine Months Ended September 30, 1995
and 1994 for Ford Life Insurance Company
99.3 Pro Forma Condensed Balance Sheet at September 30, 1995, giving
effect to the proposed acquisition of Ford Life Insurance Company
99.4 Pro Forma Condensed Income Statement for the year ended September
30, 1995, giving effect to the proposed acquisition of Ford Life
Insurance Company
CONFORMED COPY
___________________________________________________________________________
___________________________________________________________________________
STOCK PURCHASE AGREEMENT
Between
THE AMERICAN ROAD INSURANCE COMPANY
and
SUNAMERICA INC.
Dated as of
November 10, 1995
___________________________________________________________________________
___________________________________________________________________________
<PAGE>
TABLE OF CONTENTS
Page
____
ARTICLE ONE
DEFINITIONS AND TERMS
Section 1.1 Definitions . . . . . . . . . . . . . . . . . 1
Section 1.2 Other Terms . . . . . . . . . . . . . . . . . 6
Section 1.3 Other Definitional Provisions . . . . . . . . 6
ARTICLE TWO
PURCHASE PRICE OF THE STOCK; CLOSING
Section 2.1 Purchase Price . . . . . . . . . . . . . . . 7
Section 2.2 Closing . . . . . . . . . . . . . . . . . . 7
ARTICLE THREE
REPRESENTATIONS AND WARRANTIES OF SELLER
Section 3.1 Due Incorporation of Seller . . . . . . . . . 8
Section 3.2 Due Authorization of Seller; Binding
Obligation . . . . . . . . . . . . . . . 8
Section 3.3 Non-Contravention . . . . . . . . . . . . . . 9
Section 3.4 Government Approvals, Consents and
Filings . . . . . . . . . . . . . . . . . 10
Section 3.5 Title to Stock . . . . . . . . . . . . . . . 10
Section 3.6 Due Incorporation of the Company;
Capitalization . . . . . . . . . . . . . 10
Section 3.7 Qualifications . . . . . . . . . . . . . . . 11
Section 3.8 GAAP Financial Statements . . . . . . . . . . 12
Section 3.9 Statutory Statements . . . . . . . . . . . . 13
Section 3.10 Reserves . . . . . . . . . . . . . . . . . . 14
Section 3.11 No Undisclosed Liabilities . . . . . . . . . 16
Section 3.12 Taxes . . . . . . . . . . . . . . . . . . . . 16
Section 3.13 Employee Matters . . . . . . . . . . . . . . 18
Section 3.14 Litigation . . . . . . . . . . . . . . . . . 19
Section 3.15 Material Contracts . . . . . . . . . . . . . 19
Section 3.16 Regulatory Compliance . . . . . . . . . . . . 19
Section 3.16 Regulatory Compliance . . . . . . . . . . . . 22
Section 3.17 Certificate of Incorporation and By-Laws;
Books and Records . . . . . . . . . . . . 23
Section 3.18 Reinsurance and Coinsurance . . . . . . . . . 23
Section 3.19 Property . . . . . . . . . . . . . . . . . . 22
Section 3.17 Certificate of Incorporation and By-Laws;
Books and Records . . . . . . . . . . . . . . 23
Section 3.18 Reinsurance and Coinsurance . . . . . . . . . 23
Section 3.19 Property . . . . . . . . . . . . . . . . . . 24
Section 3.20 Intellectual Property and Computer
Software . . . . . . . . . . . . . . . . 24
Section 3.21 Operations of the Company . . . . . . . . . . 24
Section 3.22 Finder's Fees; Brokers . . . . . . . . . . . 27
Section 3.23 Annuity Contracts Issued by the Company . . . 27
Section 3.24 Threats of Cancellation . . . . . . . . . . . 29
Section 3.25 Operations Insurance . . . . . . . . . . . . 29
Section 3.26 Intercompany Liabilities . . . . . . . . . . 30
Section 3.27 Bank Accounts . . . . . . . . . . . . . . . . 30
Section 3.28 No Other Representations or Warranties . . . 30
ARTICLE FOUR
REPRESENTATIONS AND WARRANTIES OF BUYER
Section 4.1 Due Incorporation of Buyer . . . . . . . . . 31
Section 4.2 Due Authorization of Buyer; Binding
Obligation . . . . . . . . . . . . . . . 31
Section 4.3 Non-Contravention . . . . . . . . . . . . . . 32
Section 4.4 Government Approvals, Consents, and
Filings . . . . . . . . . . . . . . . . . 32
Section 4.5 Investment Intent . . . . . . . . . . . . . . 33
Section 4.6 Litigation . . . . . . . . . . . . . . . . . 33
Section 4.7 Financing . . . . . . . . . . . . . . . . . 33
Section 4.8 Finder's Fees; Brokers . . . . . . . . . . . 33
Section 4.9 No Other Representations or Warranties . . . 34
ARTICLE FIVE
FURTHER AGREEMENTS AND ASSURANCES
Section 5.1 Regulatory Approvals . . . . . . . . . . . . 34
Section 5.2 Further Assurances . . . . . . . . . . . . . 35
Section 5.3 Buyer's Access to Records . . . . . . . . . . 35
Section 5.4 Additional Financial Statements . . . . . . . 37
Section 5.5 Confidentiality . . . . . . . . . . . . . . . 37
Section 5.6 Conduct of Company's Business . . . . . . . . 38
Section 5.7 Post-Closing Access by Seller . . . . . . . . 43
Section 5.8 Sales and Transfer Taxes . . . . . . . . . . 43
Section 5.9 Settlement of Intercompany Accounts;
Cancellation of Intercompany
Contracts . . . . . . . . . . . . . . . . 44
Section 5.10 Public Announcements . . . . . . . . . . . . 45
Section 5.11 Existing Non-Annuity Business . . . . . . . . 45
Section 5.12 Ongoing Non-Annuity Business . . . . . . . . 46
Section 5.13 Use of Names Agreement . . . . . . . . . . . 48
Section 5.14 Resignations of Officers and Directors . . . 48
Section 5.15 Non-Discriminatory Treatment of
Company Policyholders . . . . . . . . . . 48
Section 5.16 No Negotiations, Etc. . . . . . . . . . . . . 49
Section 5.17 Non-Solicitation; Non-Churning;
Non-Competition . . . . . . . . . . . . . 50
Section 5.18 Investment of Company Cash . . . . . . . . . 53
ARTICLE SIX
TAX MATTERS
Section 6.1 Allocation; Indemnification . . . . . . . . . 53
Section 6.2 Returns and Reports . . . . . . . . . . . . . 57
Section 6.3 Cooperation; Access to Records . . . . . . . . 59
Section 6.4 Disputes . . . . . . . . . . . . . . . . . . . 60
ARTICLE SEVEN
EMPLOYEE MATTERS
Section 7.1 Employment Following Closing . . . . . . . . . 60
ARTICLE EIGHT
CONDITIONS TO OBLIGATIONS OF BUYER
Section 8.1 Accuracy of Representations and Warranties . 62
Section 8.2 Performance of Covenants . . . . . . . . . . 63
Section 8.3 Transfer of Non-Annuity Business . . . . . . 63
Section 8.4 No Pending Litigation . . . . . . . . . . . 63
Section 8.5 H-S-R Act . . . . . . . . . . . . . . . . . . 63
Section 8.6 Governmental Authorities Approvals . . . . . 64
Section 8.7 Third Party Consents . . . . . . . . . . . . 64
Section 8.8 Adequacy of Reserves . . . . . . . . . . . . 64
Section 8.9 Stock Certificates . . . . . . . . . . . . . 65
Section 8.10 Opinion of Counsel . . . . . . . . . . . . . 65
Section 8.11 Guarantee . . . . . . . . . . . . . . . . . . 68
ARTICLE NINE
CONDITIONS TO OBLIGATIONS OF SELLER
Section 9.1 Accuracy of Representations and Warranties . 68
Section 9.2 Performance of Covenants . . . . . . . . . . 69
Section 9.3 Use of Names Agreement . . . . . . . . . . . 69
Section 9.4 No Pending Litigation . . . . . . . . . . . 70
Section 9.5 H-S-R Act . . . . . . . . . . . . . . . . . 70
Section 9.6 Governmental Authorities Approvals . . . . . 70
Section 9.7 Third Party Consents . . . . . . . . . . . . 70
Section 9.8 Opinion of Counsel . . . . . . . . . . . . . 71
Section 9.9 Funds Transfer . . . . . . . . . . . . . . . 72
ARTICLE TEN
SURVIVAL; INDEMNIFICATION
Section 10.1 Survival . . . . . . . . . . . . . . . . . . 73
Section 10.2 Indemnification by Seller . . . . . . . . . 73
Section 10.3 Indemnification by Buyer . . . . . . . . . . 75
Section 10.4 Third-Party Claims . . . . . . . . . . . . . 75
Section 10.5 After Tax Damages . . . . . . . . . . . . . 78
Section 10.6 Exclusive Remedy . . . . . . . . . . . . . . 78
ARTICLE ELEVEN
TERMINATION OF AGREEMENT
Section 11.1 Termination . . . . . . . . . . . . . . . . 79
Section 11.2 Effect of Termination . . . . . . . . . . . 80
Section 11.3 Payment to Seller Upon Termination . . . . . 80
ARTICLE TWELVE
MISCELLANEOUS
Section 12.1 Notices . . . . . . . . . . . . . . . . . . 81
Section 12.2 Integration; Amendment . . . . . . . . . . . 83
Section 12.3 Schedules . . . . . . . . . . . . . . . . . 83
Section 12.4 Waiver . . . . . . . . . . . . . . . . . . . 83
Section 12.5 No Third-Party Beneficiaries . . . . . . . . 83
Section 12.6 Applicable Law . . . . . . . . . . . . . . . 84
Section 12.7 Headings . . . . . . . . . . . . . . . . . . 84
Section 12.8 Counterparts . . . . . . . . . . . . . . . . 84
Section 12.9 Effectiveness . . . . . . . . . . . . . . . 84
Section 12.10 Waiver; Requirement of Writing . . . . . . . 84
Section 12.11 Expenses . . . . . . . . . . . . . . . . . . 85
Section 12.12 Assignment . . . . . . . . . . . . . . . . . 85
Section 12.13 Severability; Enforcement . . . . . . . . . 85
SCHEDULES
- ----------
Schedule 1.1(a) In-Force Annuity Contracts
Schedule 1.1(b) Non-Annuity Business
Schedule 1.1(c) Third Party Vendors
Schedule 3.3 Non-Contravention
Schedule 3.4 Required Government Approvals,
Consents and Filings
Schedule 3.7 Qualifications
Schedule 3.9 Adjustments to Statutory Statements
Schedule 3.9(c) Pro-Forma Effect of Non-Annuity
Business Transfer
Schedule 3.10 Reserves
Schedule 3.11 Liabilities
Schedule 3.12 Taxes
Schedule 3.13 Certain Obligations
Schedule 3.14 Litigation
Schedule 3.15 Material Contracts
Schedule 3.16 Regulatory Compliance
Schedule 3.18 Reinsurance and Coinsurance
Schedule 3.20 Intellectual Property
Schedule 3.21 Operations of the Company
Schedule 3.22 Finder's Fees; Brokers (Seller)
Schedule 3.23 Annuity Contracts Issued by the
Company
Schedule 3.23(d) Agents
Schedule 3.24 Threats of Cancellation
Schedule 3.25 Operations Insurance
Schedule 3.26 Intercompany Liabilities
Schedule 3.27 Bank Accounts
Schedule 4.4 Required Government Approvals,
Consents and Filings
Schedule 4.6 Litigation
Schedule 4.8 Finder's Fees; Brokers (Buyer)
Schedule 5.4 Additional Financial Statements
Schedule 5.6 Conduct of Company's Business
Schedule 7.1 Termination and Severance Arrangements
ANNEXES
- --------
Annex 1.1(a) Confidentiality Agreements
Annex 5.11 Terms of Non-Annuity Business
Transfer
Annex 5.11(A) Ford Life Insurance Company Non-Annuity
Business Statutory Balance Sheet
Annex 5.12 Terms of Non-Annuity Business
Annex 5.13 Form of Use of Names Agreement
Annex 8.11 Form of Guarantee
<PAGE>
STOCK PURCHASE AGREEMENT
THIS AGREEMENT dated as of November 10, 1995 between The American
Road Insurance Company, a Michigan corporation ("Seller") and SunAmerica
Inc., a Maryland corporation.
W_I_T_N_E_S_S_E_T_H :
WHEREAS, Seller is the sole owner of 200,000 issued and
outstanding shares of common stock, par value $12.50 per share (the
"Stock"), of Ford Life Insurance Company, a Michigan corporation (the
"Company"); and
WHEREAS, Seller desires to sell to Buyer (as hereinafter defined),
and Buyer desires to purchase, from Seller, the Stock upon the terms and
conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and mutual
agreements hereinafter contained, the parties hereto do hereby agree
as follows:
ARTICLE ONE
DEFINITIONS AND TERMS
Section 1.1 Definitions. (a) The following terms, as used
herein, have the following meanings:
"Affiliate" means, with respect to any Person, any Person directly
or indirectly controlling, controlled by, or under common control with such
other Person. "Control" for purposes of this definition shall have the
meaning set forth in Section 115 of the Michigan Insurance Law.
"Agreement" means this Agreement together with its exhibits and
schedules as the same may be amended or supplemented from time to time in
accordance with the terms hereof.
"Ancillary Agreements" means the agreements, documents,
instruments and certificates entered into by any of Seller, the Company or
Buyer, as well as the guarantee agreement set forth in Annex 8.11 hereto,
to effect, or in connection with the consummation of, the transactions
contemplated by this Agreement.
"Annual Statement" has the meaning set forth in Section 3.9(a)
hereof.
"Annuity Contracts" means the annuity contracts sold by the
Company, including the Classic One-Year SPDA, Classic Five-Year SPDA, Money
Builder FPDA, Premier SPDA and Money Builder Premier FPDA.
"Applicable Law" means, with respect to any Person, any domestic
or foreign, federal, state or local statute, law, ordinance, rule,
administrative interpretation, regulation, order, writ, injunction,
directive, judgment, decree or other requirement of any Governmental
Authority applicable to such Person or any of its Affiliates or any of
their respective properties, assets, officers, directors, employees,
consultants or agents (in connection with such officer's, director's,
employee's, consultant's or agent's activities on behalf of such Person or
any of its Affiliates).
"Audited Financial Statements" has the meaning set forth in
Section 3.8(a) hereof.
"Books and Records" means all books, ledgers, files, reports,
documents, plans and operating records of, or maintained by, the Seller and
the Company, and all other data in the possession or control of Seller and
of the Company and primarily relating to or otherwise reasonably required
for the operation of the Company's Business.
"Business Day" means a day other than a Saturday, Sunday or other
day on which commercial banks in New York, New York are authorized or
required by law to close.
"Buyer" means SunAmerica Inc. or its Designated Affiliate. To the
extent any provision of this Agreement requires Buyer to take or omit to
take any action prior to or in connection with the Closing, said provision
shall be deemed to state that SunAmerica Inc. will take or omit to take, or
cause its Designated Affiliate to take or omit to take, such action.
"Buyer Material Adverse Effect" means an effect which is
materially adverse to the legal ability of Buyer to consummate the
transactions contemplated by this Agreement other than by reason of the
inability of Seller to consummate such transactions.
"Closing" has the meaning set forth in Section 2.2 hereof.
"Closing Date" has the meaning set forth in Section 2.2 hereof.
"Code" means the Internal Revenue Code of 1986, as amended, or any
successor thereto.
"Commercial Paper Rate" means, on any date, the Top Tier 3-month
Commercial Paper rate (CP 3MT [index]) as published by Bloomberg limited
partnership on the Bloomberg terminal on such date (or, if such date is not
a Business Day, the most recent Business Day).
"Company" has the meaning set forth in the recitals hereof.
"Company Cash" means, on any date, all cash in excess of $20
million in the aggregate held by the Company on such date, including,
without limitation, cash received as a result of (i) sales of or premium
payments on Annuity Contracts, (ii) charges or other amounts received as a
consequence of surrender or lapse of Annuity Contracts, and (iii) with
respect to the Company's portfolio investments, payments of interest or
payments of premium or principal upon redemption, maturity or sale.
"Company Material Adverse Effect" means an effect which is
materially adverse to either (a) the financial condition, regulatory
condition, capital and surplus, business or results of operations of the
Company, in each case considered on either a SAP or GAAP basis or (b) the
legal ability of Seller to consummate the transactions contemplated by this
Agreement other than by reason of the inability of Buyer to consummate such
transactions.
"Company's Business" means the business of selling Annuity
Contracts.
"Confidentiality Agreements" means the Confidentiality Agreement,
dated July 25, 1995, between Seller and Buyer, and the Confidentiality
Agreement, dated September 29, 1995, between Bankers National Life
Insurance Company and Buyer (a copy of each of which is attached as Annex
1.1(a) hereto), as each may be amended from time to time hereafter.
"Contract" means any contract, agreement, undertaking, indenture,
note, bond, loan, instrument, lease, mortgage, commitment or other binding
agreement, whether written or oral, other than any Insurance Contract.
"Credit Business" shall mean all Non-Annuity Business relating to
the lines of business numbered 1 and 2 on Schedule 1.1(b) hereto.
"Designated Affiliate" means either of SunAmerica Life Insurance
Company, an Arizona company or Anchor National Life Insurance Company, a
California company.
"Encumbrance" means any lien, pledge, option, charge, security
interest, third party claim or any other restriction or encumbrance.
"Financial Statements" has the meaning set forth in Section 3.8(b)
hereof.
"GAAP" means United States generally accepted accounting
principles consistently applied throughout the specified period.
"Governmental Authority" means any foreign, domestic, federal,
territorial, state or local governmental authority, quasi-governmental
authority, instrumentality, court, government or self-regulatory
organization, commission, tribunal or organization or any regulatory,
administrative or other agency, or any political or other subdivision,
department or branch of any of the foregoing.
"H-S-R Act" means the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended.
"In-Force Annuity Contracts" means all Annuity Contracts in-force
as of the date hereof and as of the Closing Date, as the case may be
(including all supplements, endorsements, riders and ancillary agreements
in connection therewith), (i) including (x) all Annuity Contracts set forth
on Schedule 1.1(a) hereto (except as provided in clause (ii) below) and (y)
all additional issued and in-force Annuity Contracts as of the Closing
Date, including those which have not been documented in the Company's Books
and Records and are not set forth on Schedule 1.1(a) but (ii) excluding
those Annuity Contracts set forth on Schedule 1.1(a) hereto which have been
canceled, lapsed, surrendered or otherwise terminated but which have not
been documented as terminated in the Company's Books and Records.
"Insurance Contracts" means the Annuity Contracts and the
insurance contracts and policies comprising the Non-Annuity Business.
"Interim Financial Statements" has the meaning set forth in
Section 5.4 hereof.
"Interim Quarterly Statements" has the meaning set forth in
Section 5.4 hereof.
"Investment Rate" means, for any date, the A1 Finance Paper Yield
for 5-Year Maturity Bonds (FN05YA1 [index]) as published by the Bloomberg
limited partnership on the Bloomberg terminal on such date (or, if such
date is not a Business Day, the most recent Business Day).
"Losses" has the meaning set forth in Section 10.2 hereof.
"Non-Annuity Business" means the business of selling Insurance
Contracts other than Annuity Contracts, including, without limitation, all
lines of business described on Schedule 1.1(b) hereto.
"Person" means an individual, a corporation, a partnership, an
association, a trust or other entity or organization, including a
government or political subdivision or an agency or instrumentality
thereof.
"Purchase Price" has the meaning set forth in Section 2.1 hereof.
"Qualifying Investments" means (A) readily marketable direct
obligations of the Government of the United States or any agency or
instrumentality thereof or obligations unconditionally guaranteed by the
full faith and credit of the Government of the United States, (B) demand
deposits with (1) any commercial bank that is a member of the Federal
Reserve System, the parent of which issues commercial paper rated at least
"P-1" (or the then equivalent grade) by Moody's and "A-1" (or the
equivalent grade) by S&P,is organized under the laws of the United States
or any State thereof and is rated "TWB-1" or better by Thomson BankWatch or
any other nationally recognized agency or (2) a United States branch or
agency of any commercial bank organized under the laws of any Organization
for Economic Cooperation and Development member country (as of the
effective date of this Agreement) which is rated "TBW-1" or better by
Thomson BankWatch or other internationally recognized agency, (C)
commercial paper issued by any corporation rated at least P-1 or the then
equivalent grade by Moody's and A-1 or the then equivalent grade by S&P;
provided, however that all investments other than cash described in this
definition will have a remaining maturity at the time of its acquisition by
the Company of not longer than ninety (90) days, or (D) money market mutual
funds (i) whose portfolio is comprised solely of (1) marketable direct
obligations of the United States government or its agencies, and/or (2)
bank or corporate obligations which individually meet the rating criteria
stipulated in (B) and (C) above, (ii) whose total net assets exceed $1
billion, and (iii) where the Company's investment in such fund is limited
to an amount not exceeding 10% of such fund's assets.
"Quarterly Statement" has the meaning set forth in Section 3.9(b)
hereof.
"Reinsurance Agreement" has the meaning set forth in Section 5.11
hereof.
"Reserve Liabilities" has the meaning set forth in Section 3.10
hereof.
"SAP" means the statutory accounting practices prescribed or
permitted by the Michigan Insurance Bureau, consistently applied throughout
the specified period.
"SAP Statements" has the meaning set forth in Section 3.9(b)
hereof.
"Seller" has the meaning set forth in the recitals hereof.
"Stock" means 200,000 shares of common stock, par value $12.50 per
share, of the Company.
"Subject Losses" has the meaning set forth in Section 10.2 hereof.
"Taxes" means all federal, state, local, or foreign income,
franchise, sales, property, premium, payroll, excise, Phase III or other
taxes, fees, charges or similar assessments imposed by any Governmental
Authority, other than those relating to insurance guaranty fund or other
assessments imposed by insurance regulatory authorities, and any interest
or penalties thereon.
"Tax Returns" shall mean all reports and returns required to be
filed with respect to the Taxes of the Company including, without
limitation, consolidated federal income tax returns of the Seller.
"Third Party Vendors" shall mean those vendors who provide
services to the Company in connection with the Company's Business whose
names appear on Schedule 1.1(c) hereto.
"Unaudited Financial Statements" has the meaning set forth in
Section 3.8(b) hereof.
"Use of Names Agreement" has the meaning set forth in Section 5.13
hereof.
Section 1.2 Other Terms. Other terms may be defined
elsewhere in the text of this Agreement and, unless otherwise indicated,
shall have such meaning throughout this Agreement.
Section 1.3 Other Definitional Provisions.
(a) The words "herein", "hereof", "hereto" and
"hereunder" and words of similar import, when used in this Agreement, shall
refer to this Agreement as a whole and not to any particular provision of
this Agreement.
(b) The terms defined in the singular shall have a
comparable meaning when used in the plural, and vice versa.
ARTICLE TWO
PURCHASE PRICE OF THE STOCK; CLOSING
Section 2.1 Purchase Price. Subject to all of the terms and
conditions of this Agreement, at the Closing Seller shall sell the Stock to
Buyer and Buyer shall purchase the Stock from Seller. The purchase price
of the Stock shall be an amount equal to $172.5 million (one hundred and
seventy two million five hundred thousand dollars) (the "Purchase Price").
Section 2.2 Closing. The closing of the sale and purchase
of the Stock (herein called the "Closing") shall take place at the offices
of Sullivan & Cromwell, 125 Broad Street, New York, New York 10004 at
10:00 a.m., local time on the third Business Day following the satisfaction
or waiver of all the conditions precedent set forth in Sections 8.3, 8.5,
8.6, 8.7, 9.5, 9.6 and 9.7 hereof (provided that the other conditions set
forth in Articles Eight and Nine have also been satisfied or waived as of
such date and time), or at such other location, time or date as may be
agreed to in writing by Seller and Buyer (such time and date of the Closing
being herein called the "Closing Date"). At the Closing, Buyer shall pay
to Seller the Purchase Price, in immediately available funds by wire
transfer to such account or accounts of Seller as Seller shall have
designated to Buyer not less than three Business Days prior to the Closing
Date. At the Closing, Seller shall deliver to Buyer certificates
representing the Stock, duly endorsed in blank for transfer or accompanied
by duly executed blank stock powers together with all necessary stock
transfer stamps affixed thereto and such other instruments as shall
reasonably be required by Buyer to transfer to Buyer all right, title and
interest in the Stock, free and clear of any Encumbrances, except for such
Encumbrances as may be created by, or arise due to the nature, status or
affairs of, Buyer. At the Closing, each party shall deliver executed
counterparts of each Ancillary Agreement to which it is a party, to the
extent not already delivered.
ARTICLE THREE
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents and warrants to Buyer as follows:
Section 3.1 Due Incorporation of Seller. Seller is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Michigan.
Section 3.2 Due Authorization of Seller; Binding Obligation.
Seller has full corporate power and authority to execute and deliver this
Agreement (and the Ancillary Agreements to which it is a party) and to
perform its obligations hereunder and thereunder, and the execution,
delivery and performance of this Agreement (and the Ancillary Agreements to
which it is a party) by Seller has been duly authorized by all necessary
corporate action on the part of Seller. This Agreement has been, and the
Ancillary Agreements to which Seller is a party will, when delivered, be,
duly executed and delivered by Seller and this Agreement is and such
Ancillary Agreements will, when delivered, be the legal, valid and binding
obligations of Seller enforceable in accordance with their respective
terms, subject to the qualification, however, that enforcement of the
rights and remedies created hereby and thereby is subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar
laws of general application relating to or affecting creditors' rights and
to general equity principles.
Section 3.3 Non-Contravention. The execution, delivery and
performance of this Agreement (and the Ancillary Agreements to which it is
a party) by Seller and the consummation of the transactions contemplated
hereby and thereby do not and will not contravene the articles or
certificate of incorporation or bylaws or other charter or organizational
documents of either of the Seller or the Company or (subject to receipt of
the relevant approvals and other matters addressed in Section 3.4 hereof)
violate any Applicable Law, and, except as set forth in Schedule 3.3
hereto, do not and will not conflict with or result in a breach of or
default under, or result in or permit the creation of any Encumbrance upon
the Stock or any of the assets or properties of the Company pursuant to,
any Contract, judgment, decree, order or ruling to which Seller or the
Company is a party or by which either of them or their respective assets or
properties is bound or affected.
Section 3.4 Government Approvals, Consents and Filings.
No approval, authorization, consent, order, filing, registration or
notification is required to be obtained by Seller or the Company from, or
made or given by Seller or the Company to, any Governmental Authority or
any other Person in connection with the execution, delivery and performance
of this Agreement (and the Ancillary Agreements to which the Seller or the
Company, as the case may be, is a party) by Seller, except for such
approvals, authorizations, consents, orders, filings, registrations or
notifications as are set forth on Schedule 3.4 hereto.
Section 3.5 Title to Stock. Seller is the owner of the
Stock, beneficially and of record, free and clear of any Encumbrances and
upon delivery of the certificate or certificates for the Stock at the
Closing, Buyer will acquire good and valid title to the Stock, free and
clear of any Encumbrances except for such Encumbrances as may be created
by, or arise due to the nature, status or affairs of, Buyer.
Section 3.6 Due Incorporation of the Company; Capitalization.
The Company is a corporation duly organized, validly existing and in good
standing as a domestic insurance company under the laws of the State of
Michigan, with full corporate power and authority to own and operate its
business and properties and to carry on its business as presently conducted
by it. The Company's authorized capital stock consists solely of 200,000
shares of common stock, par value $12.50 per share, all of which are issued
and outstanding. Such issued and outstanding shares are validly issued,
fully paid and nonassessable. Except for rights created pursuant to this
Agreement, there are no outstanding options, warrants or other rights to
acquire, or any outstanding securities or obligations convertible into or
exchangeable for, any shares of capital stock of the Company. Other than
the transactions contemplated by this Agreement and the Ancillary
Agreements, there are no outstanding Contracts or obligations to
restructure or recapitalize the Company. The Company has no subsidiaries
and does not control, directly or indirectly, any other Person. The
Company is not a party to any joint venture or partnership arrangement and
does not own or control any interest in any other Person except in
connection with the Company's portfolio investments.
Section 3.7 Qualifications. The Company is (i) licensed to
write those lines of insurance in the respective jurisdictions as are in
each case indicated in Schedule 3.7 hereto and (ii) qualified or otherwise
authorized to do business as a foreign corporation and is in good standing
in each jurisdiction in which the character of the properties owned or held
under lease or license or the Company's Business or the Non-Annuity
Business requires such qualification or authorization, except where the
failure so to qualify or be authorized, individually or in the aggregate,
is not reasonably likely to have a Company Material Adverse Effect. The
foregoing licenses, qualifications and authorizations are sufficient in all
material respects for the conduct of the Company's Business and the Non-
Annuity Business, in each case as presently conducted.
Section 3.8 GAAP Financial Statements. (a) Audited
Financial Statements. Seller has previously furnished to Buyer true and
complete copies of the balance sheets for the Company at December 31, 1992,
1993 and 1994 and the related income statements for the periods then ended
(the "Audited Financial Statements"). All of the Audited Financial
Statements have been examined by the Company's auditors, whose reports
thereon are included with the Audited Financial Statements. All the
Audited Financial Statements have been prepared in conformity with GAAP
applied on a consistent basis (except for changes, if any, disclosed
therein). The Audited Financial Statements present fairly in all material
respects the results of operations and cash flows of the Company for the
respective periods covered and the financial condition of the Company as of
their respective dates.
(b) Unaudited Financial Statements. Seller has
previously furnished to Buyer true and complete copies of the balance
sheets for the Company at March 31, 1995 and June 30, 1995 and the related
income statements for the periods then ended (the "Unaudited Financial
Statements"; the Audited Financial Statements and the Unaudited Financial
Statements are referred to collectively as the "Financial Statements").
All the Unaudited Financial Statements have been prepared in conformity
with GAAP applied on a consistent basis (except for changes, if any,
disclosed therein), subject to normal year-end adjustments. The Unaudited
Financial Statements present fairly in all material respects the results of
operations of the Company for the respective periods covered and the
financial condition of the Company as of their respective dates.
Section 3.9 Statutory Statements. (a) Seller has
previously furnished to Buyer true and complete copies of the Annual
Statements of the Company for the years ended December 31, 1992, 1993 and
1994, together with the exhibits, schedules and notes thereto and any
affirmations and certifications filed therewith, as filed with the
Michigan Insurance Bureau (each, an "Annual Statement"). Except as
specified therein or in Schedule 3.9, 3.10 or 3.11, each Annual Statement
complied in all material respects with all Applicable Laws when so filed,
and no material deficiencies have been asserted by any Governmental
Authority or are otherwise known by Seller with respect thereto. Except as
specified therein or, with respect to the 1994 Annual Statement, as set
forth in Schedule 3.9 hereto, each Annual Statement was prepared in
accordance with SAP, applied on a consistent basis, and presents fairly in
all material respects the statutory financial condition of the Company as
of, and the statutory results of its operations and changes in capital and
surplus and cash flow for the year ended, December 31, 1992, 1993 or 1994,
as appropriate.
(b) Seller has previously furnished to Buyer true and
complete copies of the Quarterly Statements of the Company for the three
months ended March 31, 1995 and June 30, 1995, respectively, together with
the exhibits, schedules and notes thereto and any affirmations and
certifications filed therewith, as filed with the Michigan Insurance Bureau
(each a "Quarterly Statement"; the Annual Statements together with the
Quarterly Statements are referred to collectively as the "SAP Statements").
Except as specified therein or in Schedule 3.9, 3.10 or 3.11, each
Quarterly Statement complied in all material respects with all Applicable
Laws when so filed, and no material deficiencies have been asserted by any
Governmental Authority or are otherwise known by Seller with respect
thereto. Except as specified therein or as set forth in Schedule 3.9
hereto, each Quarterly Statement was prepared in accordance with SAP,
applied on a consistent basis, and presents fairly in all material respects
the statutory financial condition of the Company as of the end of the
period to which it relates and the statutory results of its operations and
changes in capital and surplus and cash flow for the period then ended.
(c) Schedule 3.9(c) hereto sets forth pro forma financial
information presenting the pro forma effect, on a GAAP, SAP and tax basis,
of the transfer of the Company's Non-Annuity Business as contemplated by
Section 5.11 hereof, in each case as if such transfer had occurred at June
30, 1995. Such pro forma financial information was prepared in good faith
by the Company on the basis of the relevant June 30, 1995 Unaudited
Financial Statements and Quarterly Statements, as applicable, and to the
best of the Company's knowledge is based on reasonable assumptions
regarding, and gives appropriate effect at June 30, 1995 to, the
transactions described in Section 5.11 and Annex 5.11 hereof.
Section 3.10 Reserves. Except as set forth in Schedule 3.10
hereto, all reserves with respect to In-Force Annuity Contracts as
established or reflected, and all other provisions made for policy and
contract claims with respect to In-Force Annuity Contracts (collectively,
"Reserve Liabilities"), in the respective SAP Statements were determined in
accordance with SAP and generally recognized actuarial methods and
standards, consistently applied, were fairly stated in accordance with
sound actuarial principles, using prescribed morbidity and mortality tables
and interest rates that are in accordance with the nature of the benefits
specified in the related In-Force Annuity Contracts of the Company, and
such Reserve Liabilities and other provisions met the applicable
requirements of the insurance laws and regulations of the State of
Michigan. Without limitation of the foregoing sentence, to the Seller's
and the Company's knowledge adequate provision for all Reserve Liabilities
has been made to cover the total amount of all reasonably anticipated
matured and unmatured benefits, claims and other liabilities under all In-
Force Annuity Contracts. The Company owns assets that qualify as legal
reserve assets under Applicable Laws in an amount at least equal to all
such Reserve Liabilities. Except as described in Schedule 3.10, all
reserves and accrued liabilities for estimated losses, settlements, costs
and expenses from pending suits, actions and proceedings included in the
Company's most recent SAP Statement were determined in accordance with
Statement of Financial Accounting Standards No. 5 issued by the Financial
Accounting Standards Board.
Section 3.11 No Undisclosed Liabilities. There were no
liabilities of the Company as of June 30, 1995 that are of a type required
to be disclosed on a balance sheet (or in the notes related thereto)
prepared in accordance with GAAP or SAP, except (a) policyholder benefits
payable in the ordinary course of business and consistent with past
practice, (b) as disclosed in Schedule 3.11 attached hereto or (c) as
reflected in the Financial Statements or SAP Statements. Since June 30,
1995, the Company has not incurred and is not subject to any liabilities of
any kind or nature, absolute, contingent, accrued or otherwise, except (a)
policyholder benefits payable, or other liabilities incurred, in the
ordinary course of business and consistent with past practice, or (b) as
disclosed in Schedule 3.11 attached hereto.
Section 3.12 Taxes. Except as set forth in Schedule 3.12
hereto:
(a) (i) all Tax Returns with respect to Taxes that are
required to be filed by or with respect to the Company on or before the
Closing Date have been or will be duly filed on or before the Closing Date,
and all such Tax Returns are or will be true and complete in all material
respects, (ii) all Taxes due from or in respect of the Company for the
periods covered by the Tax Returns referred to in clause (i) have been or
will be paid in full on or before the Closing Date and the Company has made
or will make all payments of estimated Taxes required to be made on or
before the Closing Date, (iii) all deficiencies asserted or assessments
made on or before the Closing Date as a result of examinations by federal,
state, material local or foreign taxing authorities have been or will be
paid in full on or before the Closing Date and (iv) no issues that have
been raised by the United States Internal Revenue Service or any other
taxing authority in connection with the examination of any of the returns
or reports referred to in clause (i) are currently pending.
(b) Seller has previously delivered to Buyer copies,
which are true and complete in all material respects, of (i) the most
recent Internal Revenue Service Revenue Agent Reports and any equivalent
state reports relating to the federal income and state income or premium
Taxes due from the Company and (ii) any federal income and state income or
premium Tax Returns, for the 1992, 1993 and 1994 taxable years, filed by
the Company, and Seller has made available to Buyer for inspection true and
correct copies of such returns (insofar as such returns relate to the
Company) filed by any affiliated, combined or consolidated group of which
the Company was a member during such years.
(c) With respect to all periods through the most
recently completed fiscal quarter of the Company for which Tax Returns have
not yet been filed, or for which Taxes are not yet due or owing, the
Company has made due and sufficient current accruals for such Taxes in
accordance with SAP and GAAP, and such current accruals are duly and fully
provided for in the Financial Statements and the SAP Statements of the
Company.
(d) As of the Closing Date, the Company will not be a
party to, will not be bound by, and will have no obligation under, any tax
sharing contract and, to the knowledge of Seller, the Company does not have
any liability for indemnification of third parties with respect to Taxes or
liabilities for Taxes as a transferee.
(e) The insurance reserves set forth in the federal
income tax returns filed by or on behalf of the Company have been
determined in all material respects in accordance with section 807 or 846
of the Code, as applicable, and will be so determined in the federal income
tax return to be filed on behalf of the Company for the period ending on
the Closing Date.
Section 3.13 Employee Matters. The Company does not have any
employees or former employees, and the individuals who operate the Company
and the liabilities with respect thereto will not be transferred with the
Stock. The Company is not and has never been a party to or otherwise
obligated under any collective bargaining agreement. At Closing, except as
set forth in Schedule 3.13, the Company (i) will not be a party to,
obligated under or have any liabilities with respect to any employment,
consulting or agency contract with any Person, including any agent (other
than the Company's appointed agents for the sale of Credit Business),
director or stockholder, and (ii) will not maintain, contribute to, or have
any liability or obligation with respect to any current or former employee
benefit plan as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), or other employee program,
including, without limitation, any pension, medical, accident, life,
disability, stock or incentive plan, policy or program.
Section 3.14 Litigation. Except as set forth in Schedule
3.14 hereto, as of the date hereof (i) the Company is not engaged in, or a
party to, or, to the knowledge of Seller, threatened with, any legal action
or other proceedings before any Governmental Authority, or, to the
knowledge of Seller, the subject of any investigation by any Governmental
Authority, which, individually or in the aggregate, have resulted or are
reasonably likely to result in an injunction or similar relief, damages
(including punitive damages) in excess of $100,000 or have a Company
Material Adverse Effect and (ii) there are no outstanding orders, rulings,
decrees, judgments or stipulations by or with any Governmental Authority
(other than through general application) which, individually or in the
aggregate, exceed $100,000 or are reasonably likely to have a Company
Material Adverse Effect and (iii) there are no injunctions or similar
orders against the Company.
Section 3.15 Material Contracts. (a) Schedule 3.15 hereto
identifies each (i) Contract (other than Contracts of insurance,
reinsurance or coinsurance entered into in the ordinary course of business
and other than direct selling agreements) to which the Company is a party
or by which any of the Company's assets or properties are bound which is in
effect or in force on the date hereof or pursuant to which the Company has
any continuing liability or obligation, which provide for future payments
(contingent or otherwise) thereunder to or from the Company of more than
$200,000 per year, individually or, with respect to Contracts relating to
the same subject matter and the same counterparty, in the aggregate and
(ii) each direct selling agreement pursuant to which there have been
generated total reserves in excess of $10 million as of June 30, 1995.
(b) Schedule 3.15 hereto also identifies each Contract
(other than Contracts of insurance, reinsurance or coinsurance entered into
in the ordinary course of business and other than Contracts that shall be
terminated or canceled at or prior to the Closing) entered into by the
Company in connection with or related to the Company's Business within the
following categories:
(i) all agency or consultation Contracts other than
Contracts terminable without penalty or other liability (other
than liabilities previously accrued thereunder) upon 90 days' or
less notice;
(ii) all Contracts with any Person containing any
provision limiting the ability of the Company to engage in any
business or to compete with or to obtain products or services from
any Person or, to the knowledge of Seller, limiting the ability of
any Person to compete with or to provide products or services to
the Company;
(iii) all direct or indirect guarantees of any obligation
of the Company, or Contracts for the provision for credit support
to the Company with respect to obligations to third parties, by
the Seller or any of its Affiliates;
(iv) all Contracts relating to the future disposition or
acquisition by the Company of any assets of any Person or of any
interest in any business enterprise (other than such Contracts
entered into in the ordinary course of business and consistent
with past practice);
(v) all outstanding proxies, powers of attorney, or
similar delegations of authority (other than delegations of
authority for the service of process pursuant to applicable
insurance or corporate laws and other than such proxies, powers of
attorney, or similar delegations of authority entered into or made
in the ordinary course of business and consistent with past
practice); and
(vi) all Contracts for the provision of administrative,
managerial or other services by or for the Company to or from any
other Person.
(c) Each such Contract disclosed or required to be
disclosed on Schedule 3.15 is in full force and effect and is legal, valid
and binding on the Company, enforceable in accordance with its terms,
except to the extent that enforcement thereof may be limited by or subject
to applicable bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general application relating to or affecting
creditors' rights and to general equity principles. Neither the Company
nor, to the knowledge of Seller, any other party to such Contract, is in
violation or breach of or default under any such Contract in any material
respect or, with or without notice or lapse of time or both, would be in
violation or breach or default in any material respect under any such
Contract. There have been delivered or made available to Buyer true and
complete copies of all of the Contracts set forth in Schedule 3.15 or in
any other Schedule.
Section 3.16 Regulatory Compliance. (a) The Seller, with
respect to its operation of the Company, and the Company are in compliance
with all Applicable Laws in all material respects, except as set forth in
Schedules 3.16 and 3.23 hereto, including, but not limited to, holding and
maintaining in full force and effect all licenses, permits, approvals,
registrations and other authorizations required to conduct the Company's
businesses, operations and affairs, and except for instances of
non-compliance that are barred by an applicable statute of limitations.
(b) The Company has made available for inspection by the
Buyer all material registrations, filings or submissions made by the
Company with any Governmental Authority since January 1, 1992, including,
without limitation, each Annual Statement and Quarterly Statement, and any
reports of examinations issued by any Governmental Authority since January
1, 1992. To the best of the knowledge of the Seller, except as set forth
in Schedule 3.16 hereto, all such registrations, filings and submissions
made by the Company were in material compliance with Applicable Laws when
filed. No material deficiencies have been asserted by any such
Governmental Authorities with respect to such registrations, filings or
submissions that have not been satisfied.
(c) Except as set forth in Schedules 3.16 and 3.23, all
forms of Annuity Contracts and endorsements thereto issued by the Company,
and amendments, applications and certificates pertaining thereto have,
where required by Applicable Law, been approved by all applicable
Governmental Authorities or filed with and not objected to by such
Governmental Authorities within the period provided by Applicable Law for
objection, and all such forms comply in all material respects with, and
have been administered in all material respects in accordance with,
Applicable Law.
Section 3.17 Certificate of Incorporation and By-Laws; Books
and Records. (a) The Seller has heretofore made available to Buyer or
its counsel true and complete copies of the Certificate of Incorporation
and By-laws of the Company as in effect on the date hereof.
(b) The minute books of the Company contain a true and
complete record of all actions taken at all meetings and by all written
consents in lieu of meetings of the Company's stockholder, Board of
Directors, and each committee thereof. The stock record books of the
Company reflect accurately all transactions in its capital stock. The
Books and Records of the Company have been maintained in all material
respects in accordance with all Applicable Laws and with good business and
bookkeeping practices.
Section 3.18 Reinsurance and Coinsurance. Schedule 3.18
sets forth each reinsurance, coinsurance and other similar Contract to
which the Company is a party and under which the Company has ceded or
reinsured insurance. Except as specified in Schedule 3.18, all Contracts
disclosed or required to be disclosed therein are in full force and effect
to the respective dates provided in such treaties and agreements and
conform in all material respects to all Applicable Laws. The Company has
heretofore made available to Buyer true, correct and complete copies of
each reinsurance or coinsurance agreement listed in Schedule 3.18. Neither
the Company nor, to the knowledge of the Seller, any other party to a
reinsurance or coinsurance treaty or agreement to which the Company is a
party is in default in any material respect as to any provision thereof.
Section 3.19 Property. The Company does not own and has
never owned any real property or any material tangible property (other than
investment assets as contemplated by Section 3.21(c) hereof), nor will the
Company own any real property or any material tangible property (other than
investment assets as contemplated by Section 3.21(c) hereof) or have any
obligation under any lease at Closing.
Section 3.20 Intellectual Property and Computer Software.
The Company owns, has registered, or has valid rights to use the
trademarks, service marks, trade names, patents, copyrights and computer
software set forth in Schedule 3.20 hereto (collectively, "Intellectual
Property"). Neither Seller nor the Company has received notice that the
Company is infringing and, to Seller's knowledge the Company is not
infringing any trademark, service mark, trade name, patent, copyright,
computer software or any application pending therefor of any Person.
Section 3.21 Operations of the Company. (a) Except as set
forth in Schedule 3.21, since June 30, 1995, the Company has conducted its
operations and each action it has taken has been, in the ordinary course
consistent with past practice and there has not been, occurred or arisen
any change in the business, operations, or condition of the Company that,
individually or in the aggregate, has had or is reasonably likely to have a
Company Material Adverse Effect, other than changes resulting from a change
in general economic or market conditions or matters affecting the life
insurance or annuity industry generally. Except as set forth in Schedule
3.21, since such date, neither the Seller with respect to the Company nor
the Company has:
(i) changed in any material respect any underwriting,
actuarial, investment, financial reporting or accounting methods,
principles or practices (including, without limitation, any
changes in depreciation or amortization policies or rates or any
changes in any assumptions underlying any method of calculating
reserves) other than as required by a change in GAAP, SAP or other
Applicable Law;
(ii) declared, set aside or paid any dividend or other
distribution in respect of the Stock;
(iii) incurred any damage, destruction, or loss (whether
or not covered by insurance) affecting any of the assets of the
Company (other than claims under any Insurance Contracts), which
damage, destruction, or loss, individually or in the aggregate,
has had or is reasonably likely to have a Company Material Adverse
Effect;
(iv) terminated, amended, or executed any material
reinsurance, coinsurance or other similar Contract, as ceding or
assuming insurer;
(v) created any Encumbrance on or in any of the assets of
the Company which Encumbrance relates to liabilities individually
or in the aggregate exceeding $100,000;
(vi) prepaid any liabilities (other than pursuant to any
Annuity Contracts) individually or in the aggregate exceeding
$100,000;
(vii) amended, terminated, waived, disposed of or
otherwise failed to preserve any material license, permit or
other form of authorization of the Company;
(viii) entered into any transaction or arrangement under
which the Company paid, loaned or advanced any amount to or in
respect of, or sold, transferred, or leased any of its assets or
any services to (i) any officer or director of Seller, the Company
or of Affiliate of Seller, (ii) any Affiliate of Seller or the
Company, or (iii) any business or other Person in which Seller,
the Company, any such officer or director, or any Affiliate of
Seller or the Company has any material interest; or
(ix) entered into any contract or agreement, written or
oral, to take any of the actions set forth above.
(b) The investments of the Company reflected in the SAP
Statements comply with all applicable requirements of the insurance law of
the State of Michigan.
(c) The Company has, and on the Closing Date will have,
good and valid title, free from all Encumbrances, to all of the bonds,
stocks, and other investments which are carried as assets in the Company's
Books and Records on the date hereof, or on the Closing Date, as the case
may be.
Section 3.22 Finder's Fees; Brokers. Except as described on
Schedule 3.22 (which shall be the responsibility of Seller), the Seller
represents and warrants to the Buyer that there are no claims (or any basis
for any claims) for brokerage commissions, finder's fees or like payments
in connection with this Agreement or the transactions contemplated hereby
resulting from any action taken by Seller or on its behalf.
Section 3.23 Annuity Contracts Issued by the Company. Except
as set forth in Schedule 3.23 or 3.23(d):
(a) All In-Force Annuity Contracts are in full force
and effect and are legal, valid and binding on the Company, and enforceable
in accordance with their respective terms, except to the extent that
enforcement thereof may be limited by or subject to applicable bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar
laws of general application relating to or affecting creditors' rights and
to general equity principles.
(b) To the Seller's and the Company's knowledge, all
Annuity Contract benefits paid by the Company and, to the knowledge of
Seller, by any other Person that is a party to or bound by any reinsurance,
coinsurance, or other similar contract with the Company have been paid in
accordance with the terms of the Annuity Contracts under which they arose.
(c) No In-Force Annuity Contract issued, reinsured, or
underwritten by the Company entitles the holder thereof or any other Person
to receive dividends, distributions, or other benefits based on the
revenues or earnings of the Company or any other Person.
(d) (i) to the best of the Seller's and the Company's
knowledge, each insurance agent, at the time such agent wrote, sold, or
produced Annuity Contracts issued by the Company was duly appointed by the
Company and, to the knowledge of Seller, duly licensed as an insurance
agent (for the type of business written, sold, or produced by such
insurance agent) in the particular jurisdiction in which such agent wrote,
sold, or produced such business and (ii) to the knowledge of Seller, no
such insurance agent violated (or with or without notice or lapse of time
or both, would have violated) any term or provision of any Applicable Law
or any writ, judgment, decree, injunction, or similar order applicable to
the writing, sale, or production of business for the Company, except for
violations which have been cured, which have been resolved or settled
through agreements with applicable Governmental Authorities or which are
barred by an applicable statute of limitations.
(e) The Company has never issued any Annuity Contracts or
other products that are subject to Section 403(b) of the Code.
Section 3.24 Threats of Cancellation. Except as set forth in
Schedule 3.24, since June 30, 1995 through the date of this Agreement, no
policyholder, group of policyholder Affiliates, or Persons writing,
selling, or producing, either directly or through reinsurance assumed,
insurance business that individually or in the aggregate for each such
policyholder, group or Person, respectively, accounted for (i) 5% or more
of the annual premium or annuity income (as determined in accordance with
SAP) or (ii) 1% of reserves of the Company, in each case at or for the
twelve-month period then ended, has terminated or, to the knowledge of
Seller, threatened to terminate its relationship with the Company.
Section 3.25 Operations Insurance. Schedule 3.25 sets forth
a true and complete list and description of all casualty, liability,
property and other similar insurance contracts that insure the business,
operations, or affairs of the Company or affect or relate to the ownership,
use, or operations of any of the Company's assets and (a) that have been
issued to the Company (including without limitation the names and addresses
of the insurers and the expiration dates thereof, and coverage thereof) or
(b) that are held by Seller or by any Affiliate of Seller (other than the
Company) for the benefit of the Company. All such insurance is in full
force and effect and, to the knowledge of Seller, is with financially sound
and reputable insurers. There have been no claims by the Company pending
under such policies as to which coverage has been denied or disputed by the
underwriters of such policies. All premiums required to be paid thereunder
have been paid and no notice of cancellation or termination has been
received with respect to any such policy. All coverage under such
insurance contracts with respect to the Company shall be terminated
effective as of the Closing Date.
Section 3.26 Intercompany Liabilities. Except as reflected
in the Financial Statements, or disclosed in Schedule 3.26, there are no
liabilities, contracts or commitments between the Company on the one hand,
and Seller or any Affiliate of Seller, on the other.
Section 3.27 Bank Accounts. Schedule 3.27 sets forth (a) a
true and complete list of the names and locations of all banks, trust
companies, securities brokers, and other financial institutions at which
the Company has an account or safe deposit box or maintains a banking,
custodial, trading, or other similar relationship and (b) a true and
complete list and description of each such account, box, and relationship,
indicating in each case the account or box number and the names of the
respective employees of Seller authorized to transact business with respect
thereto.
Section 3.28 No Other Representations or Warranties. Except
for the representations and warranties contained in this Article Three or
as may be set forth in any Ancillary Agreement or any Closing certificate
hereunder, neither Seller, the Company nor any other Person makes any
express or implied representation or warranty on behalf of Seller or the
Company, and Seller hereby disclaims any such representation or warranty
whether by Seller, the Company or any of the respective Affiliates,
officers, directors, employees, agents or representatives or any other
Person.
ARTICLE FOUR
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to Seller as follows:
Section 4.1 Due Incorporation of Buyer. Buyer is a
corporation duly organized, validly existing and in good standing under the
laws of its jurisdiction of incorporation, with full corporate power and
authority to own and operate its business and properties and to carry on
the business of the Company as such business is now being conducted.
Section 4.2 Due Authorization of Buyer; Binding Obligation.
Buyer has full corporate power and authority to execute and deliver this
Agreement (and the Ancillary Agreements to which it is a party) and to
perform its obligations hereunder and thereunder, and the execution,
delivery and performance of this Agreement (and the Ancillary Agreements to
which it is a party) by Buyer have been duly authorized by all necessary
corporate action on the part of Buyer. This Agreement has been, and the
Ancillary Agreements to which Buyer is a party will, when delivered, be,
duly executed and delivered by Buyer and this Agreement is and such
Ancillary Agreements will, when delivered, be the legal, valid and binding
obligations of Buyer enforceable in accordance with their respective terms,
subject to the qualification, however, that enforcement of the rights and
remedies created hereby and thereby is subject to bankruptcy, insolvency,
application relating to or affecting creditors' rights and to general
equity principles.
Section 4.3 Non-Contravention. The execution, delivery and
performance of this Agreement (and the Ancillary Agreements to which it is
a party) by Buyer and the consummation of the transactions contemplated
hereby and thereby do not and will not contravene the articles or
certificate of incorporation or bylaws or other charter or organizational
documents of Buyer or (subject to receipt of the relevant approvals and
other matters addressed in Section 4.4 hereof) violate any Applicable Law
and do not and will not conflict with or result in a breach of or default
under any Contract, judgment, decree, order or ruling to which Buyer is a
party or by which it or any of its assets or properties is bound or
affected.
Section 4.4 Government Approvals, Consents, and Filings.
No approval, authorization, consent, order, filing, registration or
notification is required to be obtained by Buyer from, or made or given by
Buyer to, any Governmental Authority or other Person (A) in connection with
the execution, delivery and performance of this Agreement (and the
Ancillary Agreements to which it is a party) by Buyer or (B) to enable the
Company to continue to conduct the Company's Business on and after the
Closing Date in each of the jurisdictions in which the Company is currently
authorized, qualified or otherwise permitted to conduct the Company's
Business, except for such approvals, authorizations, orders, filings,
registrations or notifications as are set forth on Schedule 4.4 hereto.
Section 4.5 Investment Intent. Buyer is acquiring the Stock
for its own account for investment purposes only and not with a view to, or
for sale or resale in connection with, any public distribution thereof or
with any present intention of selling, distributing or otherwise disposing
of the Stock.
Section 4.6 Litigation. Except as set forth in Schedule 4.6
hereto, as of the date hereof (i) Buyer is not engaged in, or a party to,
or to the knowledge of Buyer, threatened with, any legal action or other
proceedings before any Governmental Authority, or, to the knowledge of
Buyer, the subject of any investigation, which, individually or in the
aggregate, have resulted or are reasonably likely to result in a Buyer
Material Adverse Effect and (ii) there are no outstanding orders, rulings,
fraudulent transfer, reorganization, moratorium and similar laws of general
decrees, judgments or stipulations by or with any Governmental Authority
(other than through general application) which, individually or in the
aggregate, are reasonably likely to have a Buyer Material Adverse Effect.
Section 4.7 Financing. Buyer has or will have, as and when
required, the funds necessary to consummate the transactions contemplated
hereby in accordance with the terms hereof.
Section 4.8 Finder's Fees; Brokers. Except as described on
Schedule 4.8 (which shall be the responsibility of Buyer), the Buyer
represents and warrants to the Seller that there are no claims (or any
basis for any claims) for brokerage commissions, finder's fees or like
payments in connection with this Agreement or the transactions contemplated
hereby resulting from any action taken by Buyer or on its behalf.
Section 4.9 No Other Representations or Warranties. Except
for the representations and warranties contained in this Article Four or as
may be set forth in any Ancillary Agreement or any Closing certificate
hereunder, neither Buyer nor any other Person makes any express or implied
representation or warranty on behalf of Buyer, and Buyer hereby disclaims
any such representation or warranty whether by Buyer or any of its
Affiliates, officers, directors, employees, agents or representatives or
any other Person.
ARTICLE FIVE
FURTHER AGREEMENTS AND ASSURANCES
Section 5.1 Regulatory Approvals. As soon as reasonably
practicable following the execution and delivery of this Agreement, (i)
Seller and Buyer agree to file or cause to be filed, respectively, an
acquired person's and acquiring person's notification and report form
required by the H-S-R Act with respect to the transactions contemplated by
this Agreement and (ii) Buyer agrees to file or cause to be filed with the
Michigan Insurance Bureau a change of control filing as required pursuant
to the Michigan Insurance Law. Buyer and Seller shall use their respective
best efforts and shall cooperate with each other as shall be reasonably
necessary to obtain as promptly as possible all other necessary approvals,
authorizations and consents of Governmental Authorities (including state
insurance authorities) required to be obtained by Buyer, Seller or the
Company, as the case may be, to consummate the transactions contemplated
hereby. Seller and Buyer further agree to use all reasonable efforts to
comply promptly with all requests or requirements which Applicable Law or
Governmental Authorities may impose on them with respect to the
transactions which are the subject of this Agreement, including but not
limited to good faith response, in cooperation with each other, to all
requests for information, documentary or otherwise, by any Governmental
Authority (including state insurance authorities) pursuant to the H-S-R
Act, any state insurance law or other Applicable Law.
Section 5.2 Further Assurances. Seller and Buyer shall, and
Seller shall cause the Company to, (i) execute such documents and other
papers and take such further actions as may be reasonably required or
desirable to carry out the provisions of this Agreement and the
transactions contemplated hereby, including the orderly transition of the
businesses, operations and affairs of the Company to Buyer and (ii) use
commercially reasonable efforts to fulfill or obtain the fulfillment of the
conditions to the Closing as promptly as practicable.
Section 5.3 Buyer's Access to Records. (a) Buyer, through
its officers, employees, counsel, accountants and other authorized
representatives, shall have reasonable access to and may inspect the Books
and Records and may discuss the affairs and accounts of the Company with
officers and other employees of the Company and Seller and their counsel,
accountants and other authorized representatives (in the presence of
representatives of Seller, at Seller's election). Buyer shall conduct any
inspection or discussion during normal business hours and in a manner that
does not interfere with normal business or contravene any Contract to which
the Seller or the Company is party. Buyer shall schedule all inspections
and discussions to be held at times and places approved in advance by Peter
Trapp or Carol Rogoff of the Company (or, in their absence, any other
officer of the Company), which approval shall not be unreasonably withheld.
From and after the Closing, Seller will give and will cause its Affiliates
to give representatives of Buyer reasonable access to all Books and Records
of Seller and its Affiliates reasonably requested by Buyer in the
preparation of any post-Closing financial statements, reports, or Tax
Returns of the Company or necessary for Buyer to make any required filings
or to respond to any audit or inquiry of any Governmental Authority (it
being agreed that any withholding of approval to hold discussions with
outside counsel with respect to litigation on the basis that such
discussions may result in a waiver of a privilege shall be deemed
reasonable).
(b) Seller will use reasonable efforts to ensure that
Buyer has access (i) to such books and records of Third Party Vendors as
are reasonably related to the provision of services by such Third Party
Vendors to Seller or the Company and (ii) to discuss the affairs and
accounts of the Company with the officers and other employees of such Third
Party Vendors, such access to be on substantially the same terms and
conditions as the access to the Company set forth in Section 5.3(a) above.
Section 5.4 Additional Financial Statements. As soon as
reasonably practicable after they become available, Seller shall cause the
Company to make available to Buyer (i) as and to the extent prepared,
unaudited GAAP income statements of the Company (without footnotes) for all
interim quarterly fiscal periods and all monthly periods subsequent to June
30, 1995 and prior to the Closing Date (each an "Interim Financial
Statement") and (ii) Quarterly Statements of the Company for all interim
quarterly fiscal periods subsequent to June 30, 1995 and prior to the
Closing Date, together with the exhibits, schedules and notes thereto and
any affirmations and certifications filed therewith, as filed with the
Michigan Insurance Bureau (each an "Interim Quarterly Statement"). Each
Interim Financial Statement will conform to the requirements of Section
3.8(b) as if set forth therein. Each Interim Quarterly Statement will
conform to the requirements of Section 3.9(b) as if set forth therein,
except as provided in Schedule 5.4.
Section 5.5 Confidentiality. Buyer and Seller agree to be
bound by all of the terms and conditions set forth in the Confidentiality
Agreements as if Evaluation Material (as defined in the Confidentiality
Agreements) additionally includes (subject to the exclusions and
limitations contained therein) all information concerning Seller, the
Company, the Company's business or any Third Party Vendor (i) provided to
Buyer by Seller, the Company or any Third Party Vendor and any of their
respective officers, directors, employees, agents, advisors,
representatives and Affiliates and (ii) otherwise learned by Buyer in the
course of its due diligence investigation of the Company, the Company's
business or any Third Party Vendor, the negotiation of this Agreement or in
the course of the transactions contemplated hereby.
Section 5.6 Conduct of Company's Business. Except as set
forth in Schedule 5.6 attached hereto or as otherwise provided in this
Agreement, Seller agrees to cause the Company, from and after the date
hereof until the Closing:
(i) to conduct the Company's business in the ordinary
course of business and substantially in accordance with present
practices and policies;
(ii) to use commercially reasonable efforts to preserve
the Company's business intact, including, but not limited to, the
Company's business reputation and customer relationships;
(iii) consistent with efficient and economical
management, to use commercially reasonable efforts to continue to
utilize the services of those individuals who operate the
Company's business, to the end that they may retain the goodwill
of the Company and preserve the business relationships of the
Company with policyholders and others;
(iv) to use commercially reasonable efforts to maintain
all material existing permits, licenses and authorizations related
to the Company's business;
(v) to use commercially reasonable efforts (excluding the
provision of any guaranty, commitment or other undertaking on
behalf of Seller or any of its Affiliates (other than the Company)
extending beyond the Closing Date, in each case other than as
contemplated by this Agreement in connection with the transfer of
the Non-Annuity Business) to maintain in full force and effect all
material Contracts, including, without limitation, all Contracts
with Third Party Vendors, related to the Company's business;
(vi) to use commercially reasonable efforts (excluding
the provision of any guaranty, commitment or other undertaking on
behalf of Seller or any of its Affiliates (other than the Company)
extending beyond the Closing Date, in each case other than as
contemplated by this Agreement in connection with the transfer of
the Non-Annuity Business) to maintain each rating classification
assigned as of the date hereof to the Company by insurance rating
agencies;
(vii) to comply in all material respects with all
Applicable Laws;
(viii) to prepare and file all Tax Returns required to be
filed prior to or on the Closing Date and to pay all Taxes
indicated on such Tax Returns or otherwise due and payable prior
to or on the Closing Date, unless such Taxes are being contested
in good faith; and
(ix) to cause all Reserve Liabilities with respect to In-
Force Annuity Contracts established or reflected in the Books and
Records of the Company to be (A) established and reflected on a
basis consistent with those Reserve Liabilities and reserving
methods followed by the Company in the preparation of the June 30,
1995 SAP Statements, subject to the exceptions described in
Schedule 3.10 and item 1 of Schedule 3.11, and (B) adequate (under
generally accepted actuarial standards consistently applied) to
cover the total amount of all reasonably anticipated matured and
unmatured benefits, dividends, losses, claims, expenses, and other
liabilities of the Company under all In-Force Annuity Contracts
pursuant to which the Company has or will have any liability; and
cause the Company to continue to own assets that qualify as legal
reserve assets under all applicable insurance laws in an amount
equal to its Reserve Liabilities.
Except as set forth on Schedule 5.6 attached hereto or as
otherwise provided in this Agreement, Seller will prevent the Company,
without the approval of Buyer, which shall not be unreasonably withheld,
from and after the date hereof until the Closing, from:
(i) selling, assigning, transferring, mortgaging,
pledging, leasing, granting or permitting to exist any Encumbrance
on or otherwise disposing of any assets which are material to the
Company's business, taken as a whole, as presently conducted,
other than with respect to investment and portfolio assets in the
ordinary course of business;
(ii) increasing the rates of compensation (including
bonuses) payable or to become payable to any officer, employee,
agent, independent contractor or consultant of the Company;
(iii) entering into any new, or amending any existing,
employment, severance or consulting Contracts or altering its
employment practices or the terms and conditions of employment;
(iv) except in the ordinary course of business, incurring
any obligation, liability or indebtedness, incurring any
extraordinary losses, or disposing of, canceling, waiving or
permitting to lapse any rights of material value;
(v) changing in any material respect its accounting
methods, principles or practices (including, without limitation,
any changes in depreciation or amortization policies or rates or
any changes in any assumptions underlying any method of
calculating reserves) other than as required by a change in GAAP,
SAP or other Applicable Law;
(vi) entering into or amending or terminating any
transaction or Contract that could reasonably be expected to have
a Company Material Adverse Effect;
(vii) splitting, combining, redeeming, repurchasing or
reclassifying the capital stock of the Company or declaring,
setting aside, making or paying any dividend or other distribution
in respect of the capital stock of the Company;
(viii) issuing or selling (or agreeing to issue or sell)
any note, debenture, stock, or other security or any options,
warrants, conversion or other rights to purchase any such
securities or any securities convertible into or exchangeable for
such securities, or granting, or agreeing to grant, any such
options;
(ix) amending the certificate of incorporation or by-laws
or other charter or organizational documents of the Company;
(x) except in the ordinary course of business,
terminating, amending, or executing any material reinsurance,
coinsurance or other similar Contract, as ceding or assuming
insurer; or
(xi) entering into any Contract to do any of the
foregoing.
Section 5.7 Post-Closing Access by Seller. Buyer shall
cause the Company to cooperate with Seller to make available to Seller all
financial, tax and other information (including the Books and Records of
the Company) reasonably required by Seller in connection with (i) any audit
or other investigation by any taxing authority or any required reports or
submissions (including any consolidated financial or statutory reporting
obligations of Seller or its Affiliates) to Governmental Authorities with
respect to the Company related to periods prior to the Closing Date or (ii)
matters relating to insurance coverage of the Company, third-party
litigation, claims, proceedings and investigations. Buyer shall cause the
Company to preserve such information and the Books and Records for at least
ten years after the Closing Date, and thereafter to dispose thereof only
after it shall have given Seller 90 days' prior notice of such disposition
and the opportunity (at Seller's expense) to remove and retain such
information and the Books and Records. Seller shall treat all information
relating to the Buyer or the Company obtained by Seller pursuant to this
Section 5.7 as confidential to the extent that such information would be
deemed to be confidential under the terms of the Confidentiality
Agreements.
Section 5.8 Sales and Transfer Taxes. Buyer and Seller
shall share equally all sales and use taxes and transfer taxes, if any,
arising from the sale by Seller and the purchase by Buyer of the Stock.
Section 5.9 Settlement of Intercompany Accounts; Cancellation
of Intercompany Contracts. Except as otherwise provided in this
Agreement, Seller shall cause all intercompany accounts, including all
accounts receivable (whether or not currently due or payable), between the
Company, on the one hand, and the Seller and its Affiliates (other than the
Company), on the other hand, to be settled in full on or prior to the
Closing Date. Within five Business Days prior to the Closing Date, Seller
will deliver to Buyer a schedule of all amounts to be so settled on the
Closing Date. Except as otherwise provided in this Agreement, Seller shall
cause any Contracts between the Company, on the one hand, and Seller and
its Affiliates (other than the Company), on the other hand, to be
canceled. Except in the ordinary course consistent with past practice or
as otherwise provided in this Agreement, the Company, on the one hand, and
Seller and its Affiliates (other than the Company), on the other hand,
shall not after the date hereof until the Closing Date enter into any
material Contracts with each other or engage in any material transactions
with each other without the consent of Buyer, which shall not be
unreasonably withheld. Notwithstanding anything in this Section 5.9 to the
contrary, the Seller shall not be obligated to cause the Company to (i)
cancel or refrain from entering into any reinsurance, coinsurance or
similar Contract pursuant to which the Company has ceded or will cede or
has transferred or will transfer liabilities to the Seller or any Affiliate
of the Seller in connection with the transfer of the Non-Annuity Business
contemplated by Sections 5.11 and 5.12 and Annexes 5.11 and 5.12 hereof,
(ii) settle any intercompany accounts related to any such Contract
described in clause (i) above, or (iii) cancel, settle or terminate any
interest rate swap agreement between the Company and Ford Motor Credit
Company.
Section 5.10 Public Announcements. Buyer and Seller agree
that, except (a) to the minimum extent necessary to comply with the
requirements of (i) any Applicable Law or (ii) any listing agreements with
securities exchanges or (b) in the case of information provided to or other
communications with any agency or organization which rates the financial
solvency or claims-paying ability of the Seller or the Company, including,
without limitation, A.M. Best Company, Inc., Duff & Phelps, Standard &
Poor's and Moody's Investors Service, Inc., no press release or similar
public announcement or communication shall ever, whether prior to or
subsequent to the Closing, be made or caused to be made concerning the
execution of this Agreement or the transactions contemplated hereby unless
specifically approved in advance by each of Buyer and Seller.
Section 5.11 Existing Non-Annuity Business. (a) Not
withstanding any other provision of this Agreement to the contrary, Seller
shall, prior to or concurrent with the Closing, cause the Company to
reinsure with (i) Seller, (ii) Vista Life Insurance Company ("Vista"),
(iii) Crown Life Insurance Company (solely with respect to the transfer of
Canadian credit life and disability business) or (iv) a third-party
reinsurer approved by Buyer, which approval shall not be unreasonably
withheld (any reinsurer described in the preceding clauses (i)-(iv), an
("Approved Reinsurer"), all Non-Annuity Business (in each case as
contemplated by Schedule 5.6) and to transfer all related reserves by
entering into one or more reinsurance agreements or treaties (each a
"Reinsurance Agreement") in accordance with the terms set forth in Annex
5.11. No such reinsurance or transfer pursuant to a Reinsurance Agreement
shall in any way affect the amount of the Purchase Price. Seller agrees
that, for purposes of clause (iv) of the second preceding sentence, it
shall not be unreasonable for Buyer to withhold its approval of any
reinsurer that is not equivalent to the Company with respect to insurance
ratings and general reputation in the industry.
(b) In connection with the foregoing Section 5.11(a) and
the Non-Annuity Separation (as described in Annex 5.11), Buyer agrees that,
notwithstanding any other provision of this Agreement, the Company shall be
obligated to pay over to Seller or any of its Affiliates at or prior to the
Closing Date an amount equal to the product of (w) [1 minus .35] times (x)
[$52,868,786] times (y) [the Commercial Paper Rate on the date on which the
Non-Annuity Separation is completed] times (z) [the number of days from and
including the date on which the Non-Annuity Separation is completed
(including without limitation the Company having net Non-Annuity SAP
Surplus (as defined in Annex 5.11) of $52,868,786) to but not including the
Closing Date, divided by 365.
Section 5.12 Ongoing Non-Annuity Business. (a) Buyer shall,
if so requested by Seller, cause the Company after the Closing to (i)(A)
continue to write Credit Business in substantially the same manner and on
substantially the same terms (including the use of the "Ford Life" name) as
currently employed by the Company (as such terms are set forth in Annex
5.12 hereto) for so long as and in such jurisdictions as may be necessary
to transition the direct writing of such business to Union Security Life
Insurance Company ("Union"), and (B) continuously cede all such newly
written Credit Business to an Approved Reinsurer, on substantially the same
terms as set forth in Annex 5.11, and (ii) (A) continue to write such other
Non-Annuity Business as Seller may from time to time request, in each case
in substantially the same manner and on substantially the same terms
(including the use of the "Ford Life" name) as currently employed by the
Company (as such terms are set forth in Annex 5.12 hereto), and (B) to
continuously cede all such newly written business as set forth in clause
(a)(i)(B) above. Seller shall promptly reimburse Buyer for all costs and
expenses incurred by the Company or Buyer in connection with this Section.
Seller agrees that Buyer shall be entitled to withhold its consent to any
reinsurer on the same basis as set forth in Section 5.11, provided, that
for purposes of this Section 5.12 Buyer hereby approves the use of Vista or
Union as reinsurers.
(b) For purposes of this Section 5.12, Seller and Buyer
agree that any obligation of Buyer to continue to write Non-Annuity
business using the "Ford Life" name shall cease on the date upon which
Buyer's right to use the "Ford" or "Ford Life" names shall terminate in
accordance with the provisions of the Use of Names Agreement.
Section 5.13 Use of Names Agreement. Seller and Buyer shall
prior to or concurrent with the Closing enter into an agreement
substantially in the form of the Use of Names Agreement attached hereto as
Annex 5.13 (the "Use of Names Agreement") pursuant to which Buyer shall
agree not to use the "Ford" or "Ford Life" names or any variations thereof
or any other trademarks or trade names of the Company, Seller or any of
their Affiliates, except as specifically permitted in the Use of Names
Agreement.
Section 5.14 Resignations of Officers and Directors. Seller
will cause the officers and members of the board of directors of the
Company to tender, effective at the Closing, their resignations.
Section 5.15 Non-Discriminatory Treatment of Company
Policyholders. Buyer covenants and agrees that from and after the Closing
Date Buyer shall use all commercially reasonable efforts to provide, at all
times and from time to time, to the Company's policyholders on the Closing
Date crediting rates and renewal rates and standards of policyholder
service and administration which are similar to those provided to other
policyholders of Buyer with respect to policies of a similar type and
nature (including issue date and surrender charge periods) as the Company's
policies. Buyer further covenants and agrees that (i) it will include a
provision substantially similar to this Section 5.15 in any agreement for
the sale, transfer or bulk reinsurance of all or substantially all of the
Company's Business, or for the sale of the Company, (ii) it will deliver to
Seller on each of the first four anniversaries of the Closing Date a
certificate signed by an appropriate officer of the Buyer to the effect
that the obligations of Buyer contained in this Section 5.15 have been
satisfied at all times during the then preceding year and (iii) it will
provide Seller from time to time with such information as Seller shall
reasonably request in support of Buyer's certification that it has
satisfied its obligations under this Section 5.15.
Section 5.16 No Negotiations, Etc. Except as otherwise
contemplated by this Agreement, Seller will not take, will not permit the
Company or any other Affiliate of Seller to take, and will use commercially
reasonable efforts to prevent any other Person acting for or on behalf of
any of them, from taking directly or indirectly, any action (a) to seek or
encourage any offer or proposal from any Person to acquire any shares of
capital stock or any other securities of the Company or any material assets
of the Company, (b) to merge, consolidate or combine, or to permit any
other Person to merge, consolidate or combine, with the Company, (c) to
liquidate, dissolve, or reorganize the Company, (d) to acquire or transfer
any assets of the Company or any interests therein, except as contemplated
by the terms of this Agreement, (e) to reach any agreement or understanding
(whether or not such agreement or understanding is absolute, revocable,
contingent, or conditional) for, or otherwise to attempt to consummate, any
such acquisition, transfer, merger, consolidation, combination, or
reorganization, or (f) to furnish to cause to be furnished any information
with respect to the Company to any Person (other than Buyer) that Seller or
the Company knows is in the process of attempting or considering any such
acquisition, transfer, merger, consolidation, combination, liquidation,
dissolution, or reorganization. If Seller, the Company or any other
Affiliate of Seller receives from any Person (other than Buyer) any offer,
proposal or informational request that is subject to this section, Seller
will promptly advise such Person, by written notice, of the terms of this
section and will promptly deliver a copy of such notice to Buyer.
Section 5.17 Non-Solicitation; Non-Churning; Non-Competition.
(a) Seller will refrain and will cause its present and
future Affiliates to refrain from causing or attempting to cause or
influence (or assisting any other Person in causing or attempting to cause
or influence) (i) any policyholder or customer to replace or terminate any
annuity Contract issued, reinsured, underwritten, or sold by the Company,
in whole or in part, with products of any other Person at any time, (ii)
other than as contemplated herein in connection with the transfer of the
Non-Annuity Business, any reinsurer to terminate or reduce any reinsurance,
coinsurance, or other similar contract, or sever a relationship, with the
Company at any time, or (iii) other than as contemplated herein in
connection with the transfer of the Non-Annuity Business, any agent
(including without limitation any insurance agent), consultant, or other
similar representative of the Company to resign or sever or reduce a
relationship with the Company at any time.
(b) Seller agrees that, after the Closing, Purchaser and
any Designated Affiliate shall be entitled to protect and preserve the
goodwill of the Company's Business to the maximum extent permitted by law.
For these and other reasons and as an inducement to Purchaser to enter into
this Agreement, Seller agrees that neither Seller nor any of its present or
future subsidiaries engaged in the insurance business shall, directly or
indirectly, for its own benefit or as agent for another, for a period of
five (5) years after the Closing Date, carry on or participate in the
ownership, management or control of any present or future business
enterprise engaged primarily or predominantly in the Fixed Annuity
Business, in any county or city in which the Company's business has been
carried on and in which Purchaser or any Designated Affiliate conducts a
similar business after the Closing Date. For purposes of the foregoing,
"Fixed Annuity Business" means the marketing, issuance and administration
of fixed annuity products similar to the Annuity Contracts, excluding in
each case products which are designed to provide a funding mechanism
utilized by policyholders to finance the purchase or lease of vehicles.
(c) The provisions of paragraph (b) shall not limit the
right of Seller or any of its present or future subsidiaries engaged in the
insurance business to purchase or hold securities of any corporation or
other entity that is registered on a national securities exchange or
admitted to trading privileges thereon or actively traded in a generally
recognized over-the-counter market, provided the aggregate holdings therein
of Seller and its insurance subsidiaries do not exceed 10% of the
outstanding shares or interests therein.
(d) Seller recognizes and agrees that a breach by Seller
or any of its Affiliates of paragraph (b) above could cause irreparable
harm to Buyer, that Buyer's remedies at law in the event of such breach or
threatened breach could be inadequate, and that, accordingly, in the event
of such breach or threatened breach, Buyer may seek a restraining order or
injunction or both against Seller or any such Affiliate, in addition to any
other rights and remedies which are available to Buyer.
(e) If the provisions of this Section are more
restrictive, as to duration, geographic limitations or scope, than
permitted by the laws of any jurisdiction in which Buyer seeks enforcement
hereof, it shall be limited to the extent required to permit enforcement
under such laws. In particular, the parties intend that the covenants
contained in this Section 5.17 shall be construed as a series of separate
and divisible covenants, one for each county and city in which the
Company's Business has been carried on and in which Buyer conducts a
similar business after the Closing Date. Except for geographic coverage,
each such separate covenant shall be deemed identical in all respects. If,
in any judicial proceeding, a court shall refuse to enforce any of the
separate covenants deemed included in this Section, then such unenforceable
covenant shall be deemed reformed or eliminated for the purpose of those
proceedings to the extent necessary to permit the remaining separate
covenants to be enforced.
Section 5.18 Investment of Company Cash. Unless Buyer
directs the Company in writing to invest Company Cash in accordance with
the Company's ordinary course practice, from the date hereof to the Closing
Date or until such time as this Agreement is earlier terminated in
accordance with the terms of Article Eleven hereof, the Seller shall cause
the Company to invest all Company Cash only in Qualifying Investments.
ARTICLE SIX
TAX MATTERS
Section 6.1 Allocation; Indemnification.
(a) The Company shall be liable for and shall hold Seller
harmless against any liability for Taxes of the Company for the period from
and including July 1, 1995 through the Closing Date other than (i) Taxes
for such period that are attributable to the Non-Annuity Business, (ii)
Taxes arising as a result of the joint election under Section 338(h) (10)
as provided in Section 6.1(f) hereof or the Company ceasing to be a member
of any affiliated or combined group of which the Company is now a member,
and (iii) Taxes that would not have been payable but for Seller's breach of
any representation, warranty or covenant contained in this Agreement. For
this purpose, Taxes attributable to the Non-Annuity Business shall be
determined as if the Non-Annuity Business were conducted in a separate
corporation during such period.
(b) Subject to Section 6.1(a), Seller shall be liable for
and shall hold Buyer and the Company harmless against any liability for
Taxes of (i) the Company, for any taxable year or other taxable period that
ends on or before the Closing Date and, in the case of any taxable year or
other taxable period that includes the Closing Date, that part of the
taxable year or other taxable period that ends at the close of the Closing
Date, (ii) any other corporation that was a member of an affiliated group
of corporations of which the Company was a member prior to the Closing Date
and (iii) Taxes attributable to Seller's breach of any representation,
warranty or covenant contained in this Agreement. Seller shall be
entitled to any refund of Taxes (net of Taxes payable by the Company
thereon) of the Company (other than Taxes for which the Company is liable
pursuant to Section 6.1(a) which refunds shall be retained by or paid over
to the Company) received in respect of any taxable period or portion
thereof to which this Section 6.1(b) applies, except to the extent that
such refund is reflected as an asset in the June 30, 1995 Quarterly
Statement. Notwithstanding anything contained in this Agreement to the
contrary, all Taxes related to the transfer of the Non-Annuity Business as
described in Section 8.3 hereof, or to the Section 338(h)(10) election to
be made pursuant to Section 6.1(f) hereof shall be paid by Seller and no
payments in respect thereof shall be made directly or indirectly by the
Company prior to or on the Closing Date (whether through estimated tax
payments, tax sharing agreements or otherwise).
(c) Buyer shall be liable for and shall hold Seller
harmless against any liability for Taxes of the Company (other than Taxes
for which Seller is responsible pursuant to Section 6.1(b)) for any taxable
year or other taxable period that begins after the close of the Closing
Date and, in the case of any taxable year or other taxable period that
includes the Closing Date, that part of the taxable year or other taxable
period that begins after the close of the Closing Date shall be entitled to
any refund of Taxes of the Company received for such periods.
(d) Whenever it is necessary for purposes of this
Section 6.1 to determine the liability for Taxes of the Company for a
taxable year or period that begins on or before and ends after the Closing
Date, the determination shall be made by assuming that the Company had a
taxable year which ended at the close of business on the Closing Date,
except that exemptions, allowances or deductions that are calculated on an
annual basis (such as the deduction for depreciation) shall be apportioned
on a time basis.
(e) Buyer shall promptly (and in any event within 15
Business Days) notify Seller in writing upon receipt by Buyer, any of its
affiliates or the Company of notice of any pending or threatened audits or
assessments relating to Taxes which may materially affect the Tax
liabilities of the Company for which Seller would be required to indemnify
Buyer pursuant to Section 6.1(b); provided, however, that no failure or
delay in giving any such notice shall relieve Seller of its obligations
except to the extent that Seller is materially prejudiced thereby. Seller
shall have the sole right to represent the Company's interests in any audit
or administrative or court proceeding relating to taxable periods ending on
or before the Closing Date, and to employ counsel of its choice at its
expense; provided that Buyer shall be given notice of, and have the right
to monitor all proceedings and to review in advance and comment on all
submissions made by Seller in connection therewith. Notwithstanding the
foregoing, Seller shall not be entitled to settle, either administratively
or after the commencement of litigation, any claim for Taxes which would
adversely affect the liability for Taxes of the Buyer or the Company for
any period after the Closing Date or for the period described in Section
6.1(a) to any extent without the prior written consent of Buyer. Such
consent shall not be unreasonably withheld, and shall not be necessary to
the extent that Seller has indemnified the Buyer against the effects of any
such settlement. Seller shall be entitled to participate at its expense in
the defense of any claim for Taxes for a year or period ending after the
Closing Date which may be the subject of indemnification by Seller pursuant
to Section 6.1(b) and, with the written consent of Buyer, and at its sole
expense, may assume the entire defense of such claim. Neither Buyer nor
the Company may agree to settle any claim for Taxes for the portion of the
year or period ending on the Closing Date which may be the subject of
indemnification by Seller under Section 6.1(b) without the prior written
consent of Seller, which consent shall not be unreasonably withheld.
(f) Seller shall make a joint election with the Buyer
under Section 338(h)(10) of the Code with respect to the purchase of the
Stock and under any similar provisions of state law. Seller represents
that its sale of the Stock is eligible for, and the Buyer represents that
it is qualified to make, such election. Seller and the Buyer shall on the
Closing Date exchange completed and executed copies of Internal Revenue
Service Form 8023, required schedules thereto, and any similar state forms.
If any changes are required in these forms as a result of information that
is first available after the Closing Date, the parties will promptly agree
on such changes. Seller and the Buyer will negotiate in good faith, and
attempt to agree to, an allocation of the Purchase Price among the assets
of the Company that are deemed to have been acquired pursuant to Section
338(h)(10) of the Code or state law equivalent. Seller and the Buyer shall
use the asset values determined from such allocation for purposes of all
reports and returns with respect to Taxes, including Internal Revenue
Service Form 8594 or any equivalent statement.
Section 6.2 Returns and Reports.
(a) Seller shall file or cause to be filed when due all
Tax Returns with respect to Taxes that are required to be filed by or with
respect to the Company for taxable years or periods ending on or before the
Closing Date and shall pay any Taxes due in respect of such reports or
returns. Unless otherwise required by Applicable Law, any such Tax Return
shall be prepared on a basis consistent with past practice and not in a
manner calculated to accelerate or defer any income or deductions into any
taxable period in order to achieve a result favorable to Seller and
detrimental to Buyer as a result of the transactions contemplated by this
Agreement. Buyer shall be given the opportunity to review any such Tax
Return prior to the filing thereof and Seller shall consult with Buyer in
good faith with respect to any issues that Buyer may have regarding such
Tax Return. Buyer shall have the right to approve (which approval shall
not be unreasonably withheld) any such Tax Return to the extent that it
relates to Taxes for which the Company is liable pursuant to Section
6.1(a). Buyer shall file or cause to be filed when due all Tax Returns
with respect to Taxes that are required to be filed by or with respect to
the Company for taxable years or periods ending after the Closing Date and
shall pay any Taxes due in respect of such Tax Returns.
(b) With respect to any such Tax Return that covers a
period beginning before and ending after the Closing Date, a copy of such
Tax Return shall be provided to Seller within 15 days prior to the due date
(including extensions) for the filing thereof, and Seller shall have the
right to approve (which approval shall not be unreasonably withheld) such
Tax Return to the extent it relates to the portion of the period ending on
the Closing Date. Seller shall promptly pay to Buyer the amount of Taxes
(other than Taxes for which the Company is liable pursuant to Section
6.1(a)) attributable to such period (as determined pursuant to Section
6.1(d) above) at the time such Tax Return is filed.
(c) With respect to the taxable year of the Company
ending December 31, 1995 and any subsequent taxable year of the Company
ending on or prior to the Closing Date, Buyer shall promptly cause the
Company to prepare and provide to Seller a package of tax information
materials (the "Tax Package"), which shall be completed in accordance with
past practice including past practice as to providing the information,
schedules and work papers and as to the method of computation of separate
taxable income or other relevant measure of income of the Company.
(d) Nothing in this Section 6.2 shall reduce Seller's
obligations under Section 6.1(b).
Section 6.3 Cooperation; Access to Records.
After the Closing Date, each of Seller and Buyer shall:
(i) assist (and cause their respective affiliates to assist) the
other party in preparing any Tax Returns or reports which such other party
is responsible for preparing and filing in accordance with Section 6.2;
(ii) cooperate fully in preparing for and conducting any audits
of, or disputes with taxing authorities regarding, any Tax Returns of the
Company;
(iii) in accordance with current practices of the Company or with
respect to the Company and the provisions of Section 5.7 hereof, retain
such records, documents, accounting data and other information as are
necessary for the preparation or filing of Tax Returns with respect to
Taxes of the Company or with respect to the Company;
(iv) make available to the other party and to any taxing
authority as reasonably requested all records, documents, accounting data
and other information relating to Taxes of the Company;
(v) furnish the other party with copies of all correspondence
received from any taxing authority in connection with any tax audit or
information request with respect to any such taxable period for which the
other party may have a liability under Section 6.1; and
(vi) execute and deliver such powers of attorney and other
documents as are necessary to carry out the intent of this Article Six.
Section 6.4 Disputes.
If Seller and Buyer cannot agree on any calculation required to be
made under Section 6.1(a), 6.1.(b), 6.1(d), or Section 6.2(b) with respect
to any taxable year of the Company ending on or prior to the Closing Date,
such calculation shall be made by an independent public accounting firm of
national standing selected by Seller and reasonably acceptable to Buyer.
The decision of such firm shall be final and binding, and the fees and
expenses charged or incurred by it in connection with such calculation
shall be shared equally by Seller and Buyer.
ARTICLE SEVEN
EMPLOYEE MATTERS
Section 7.1 Employment Following Closing.
(a) Buyer shall have no liability for, and Seller will
indemnify and hold Buyer harmless with respect to, any claims by any
present or former employees of Ford Motor Credit Company ("Ford Credit") or
any of its Affiliates or other individuals who operate the Company's
Business in connection with any action arising in connection with the
Seller's sale of the Stock to Buyer or the conduct of the Company's
Business prior to the Closing Date.
(b) Employee Benefits and Arrangements. The Buyer and
the Company shall have the right to offer employment to any of the
employees of Ford Credit and its Affiliates who operate the Company's
Business. Any such individuals who accept employment with the Buyer or
Company ("Qualified Beneficiaries") shall be entitled to participate in any
current or future employee benefit plans, programs and arrangements
maintained by Buyer ("Buyer Plans"), subject to the terms and conditions of
such Buyer Plans; provided however, that (i) to the extent that eligibility
to participate in a Buyer Plan is conditioned on length of service with
Buyer (or any other employer), such Buyer Plan shall recognize the service
of any Qualified Beneficiary with Ford Credit or any of its Affiliates,
(ii) a Qualified Beneficiary who, at the time of the Closing, participates
in a group health or life insurance plan maintained by the Seller shall (A)
not be prohibited from participating in and receiving benefits under any
Buyer Plan as a result of any preexisting conditions and (B) shall be
entitled to receive (under the Buyer Plans or from the Buyer) benefits
payments for any medical conditions that exist and are covered (as of the
Closing) under any medical plan maintained by the Seller and (iii) the
Buyer shall assume each termination and severance agreement that (A) is set
forth on Schedule 7.1 and (B) covers a Qualified Beneficiary.
ARTICLE EIGHT
CONDITIONS TO OBLIGATIONS OF BUYER
The obligations of Buyer hereunder are subject to the
satisfaction, or waiver in writing by Buyer, on or prior to the Closing
Date, of the following conditions:
Section 8.1 Accuracy of Representations and Warranties.
The representations and warranties of Seller set forth in Article Three
hereof (excluding those set forth in Section 3.24) shall be true and
correct on the Closing Date with the same effect as though such
representations and warranties had been made on and as of such date, except
that any such representations and warranties that are given as of a
specified date and relate solely to a specified date or period shall be
true and correct only as of such date or period, and except to the extent
any breach thereof, individually or when aggregated with all such breaches,
has not and would not reasonably be expected to have a material adverse
effect on the validity or enforceability of this Agreement or the ability
of the Seller to perform its obligations under this Agreement, or have a
Company Material Adverse Effect. Seller shall have delivered to Buyer at
the Closing a certificate, to the effect that the representations and
warranties of Seller set forth in Article Three hereof (excluding those set
forth in Section 3.24) are true and correct on the Closing Date with the
same effect as though such representations and warranties had been made on
and as of such date, except that any such representations and warranties
that are given as of a specified date and relate solely to a specified date
or period shall be true and correct only as of such date or period, dated
the Closing Date and signed by the Chairman, Vice Chairman, President or
any duly authorized Vice President of Seller.
Section 8.2 Performance of Covenants. Each and all of the
covenants and agreements of Seller to be performed or complied with prior
to or on the Closing Date shall have been duly performed or complied with
by Seller in all material respects, and Seller shall have delivered to
Buyer a certificate to the foregoing effect, dated the Closing Date and
signed by the Chairman, Vice Chairman, President or any duly authorized
Vice President of Seller.
Section 8.3 Transfer of Non-Annuity Business. The Non-Annuity
Business of the Company shall have been transferred as contemplated by
Section 5.11 hereof.
Section 8.4 No Pending Litigation. There shall not be
pending, instituted or, to the knowledge of Buyer or Seller, threatened,
any litigation, investigation or proceeding against Buyer or Seller which
seeks to impose, individually or in the aggregate, substantial damages in
connection with, or to restrain, materially modify or invalidate the
transactions contemplated by this Agreement and no preliminary or permanent
injunction or order that would prohibit, materially modify or restrain such
transactions shall be in effect.
Section 8.5 H-S-R Act. The waiting period under the H-S-R
Act shall have expired or have been earlier terminated.
Section 8.6 Governmental Authorities Approvals. The change of
control of the Company contemplated hereby shall have been approved by all
relevant Governmental Authorities, in each case without the material
abrogation or diminution of the authority or license of the Company or the
imposition of material restrictions upon or conditions to the transactions
contemplated hereby or on Buyer, including but not limited to the
Commissioner of Insurance of the State of Michigan, which approvals shall
be in full force and effect.
Section 8.7 Third Party Consents. There shall have been
obtained all material permits, waivers, consents and approvals from every
Person that are required in connection with the performance by Seller of
its obligations under this Agreement, to permit Buyer to acquire the Stock
pursuant to this Agreement and to preserve the rights, benefits and
privileges of the Company in its assets.
Section 8.8 Adequacy of Reserves. The aggregate amount of
Reserve Liabilities as of the Closing Date shall not be less than the
specified percentages set forth below of the aggregate amount of Reserve
Liabilities shown on the Company's unaudited balance sheet, as of June 30,
1995 ($2,968,840,999.00), (in each case prepared in accordance with GAAP
and calculated on a consistent basis), and Seller's Vice President -
Controller shall have delivered to Buyer a certificate confirming the
foregoing:
Closing Date Percentage
On or before December 31, 1995 99.0%
January 1 to January 31, 1996 98.5%
On or after February 1, 1996 98.0%
Section 8.9 Stock Certificates. Seller shall have tendered
to Buyer the certificate or certificates representing the Stock, duly
endorsed in blank, or accompanied by appropriate stock powers, in proper
form for transfer.
Section 8.10 Opinion of Counsel. Seller shall have delivered
to Buyer opinions dated the Closing Date of (i) J.D. Bringard, Esq., Vice
President and General Counsel of the Company and Vista, in form and sub-
stance reasonably satisfactory to Buyer and its counsel, to the effect
that:
(a) each of the Company and Vista is a corporation duly
organized, validly existing and in good standing under the laws of the
state of Michigan;
(b) the Company's authorized capital stock consists
solely of 200,000 shares of Common Stock, par value $12.50 per share, all
of which are issued and outstanding, and such issued and outstanding shares
are duly authorized, validly issued, fully paid and nonassessable;
(c) each of the Company and Vista has full corporate
power and authority to execute and deliver the Reinsurance Agreements and
the Service Agreement and to perform its respective obligations thereunder,
and the execution, delivery and performance by Company and Vista of the
Reinsurance Agreements and the Service Agreement have been duly authorized
by all necessary corporate action on the part of the Company and Vista,
respectively;
(d) the Reinsurance Agreements and the Service Agreement
have been duly executed and delivered by each of the Company and Vista and
each of the Reinsurance Agreements and the Services Agreement is the valid
and binding obligation of each of Company and Vista, in each case
enforceable in accordance with its terms, subject to the qualification,
however, that enforcement of the rights and remedies created thereby is, in
each case, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general application relating
to or affecting creditors' rights and to general equity principles; and
(e) the execution, delivery and performance of the
Reinsurance Agreements and the Service Agreement by each of the Company and
Vista and the consummation of the transactions contemplated thereby do not
and will not contravene the certificate of incorporation or bylaws or other
charter or organizational documents of the Company or Vista;
and (ii) J.D. Bringard, Esq., Vice President and General Counsel of the
Seller, in form and substance reasonably satisfactory to Buyer and its
counsel, to the effect that:
(a) Seller is a corporation duly organized, validly
existing and in good standing under the laws of the state of Michigan;
(b) Seller has full corporate power and authority to
execute and deliver this Agreement and the Use of Names Agreement and to
perform its obligations hereunder and thereunder, and the execution,
delivery and performance by Seller of this Agreement and the Use of Names
Agreement have been duly authorized by all necessary corporate action on
the part of Seller;
(c) this Agreement and the Use of Names Agreement have
been duly executed and delivered by Seller and each of this Agreement and
the Use of Names Agreement is the valid and binding obligation of the
Seller, in each case enforceable in accordance with its terms, subject to
the qualification, however, that enforcement of the rights and remedies
created thereby is, in each case, subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws of general
application relating to or affecting creditors' rights and to general
equity principles;
(d) the execution, delivery and performance of this
Agreement and the Use of Names Agreement by Seller and the consummation of
the transactions contemplated hereby and thereby do not and will not
contravene the articles or certificate of incorporation or bylaws or other
charter or organizational documents of Seller;
(e) Seller is the owner of the Stock, free and clear of
any Encumbrances; and
(f) to the best of such counsel's knowledge, there are no
actions, suits or proceedings pending or threatened against Seller or the
Company that in the opinion of such counsel question the validity of this
Agreement or the Use of Names Agreement or any action taken or to be taken
by Seller or the Company pursuant to or in connection with the transactions
contemplated by this Agreement or the Use of Names Agreement;
and (iii) J.D. Bringard, Esq., General Counsel of the guarantor, in form
and substance reasonably satisfactory to Buyer and its counsel, to the
effect that:
(a) Guarantor is a corporation duly organized validly
existing and in good standing under the laws of the State of Delaware;
(b) Guarantor has full corporate power and authority to
execute and deliver the guarantee and to perform its obligations
thereunder, and the guarantee has been duly authorized by all necessary
corporate action on the part of Guarantor;
(c) the guarantee has been duly executed and delivered by
Guarantor;
(d) the execution, delivery and performance of the
guarantee do not and will not contravene the articles or certificate of
incorporation or bylaws or other charter or organizational documents of
guarantor;
and (iv) Sullivan & Cromwell, counsel to the Seller, in form and substance
reasonably satisfactory to the Buyer and its counsel, to the effect that:
assuming this Agreement, the Use of Names Agreement and the
guarantee set forth in Annex 8.11 each has been duly authorized,
executed and delivered, this Agreement and the Use of Names
Agreement each is the valid and binding obligation of Seller, and
such guarantee is the valid and binding obligation of the
guarantor thereunder, in each case enforceable in accordance with
its terms, subject to the qualification, however, that
enforcement of the rights and remedies created by the Agreement,
the Use of Name Agreement and such guarantee is in each case
subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general application
relating to or affecting creditors' rights and to general equity
principles;
In rendering such opinions, each such counsel may rely upon opinions of
other counsel reasonably satisfactory to Buyer and its counsel as to
matters of insurance laws and matters other than the federal laws of the
United States and, with respect to J.D. Bringard, Esq., the laws of the
State of Michigan, and with respect to Sullivan & Cromwell, the laws of the
State of New York; provided that any such counsel shall state that it
believes both Buyer and it are justified in relying upon such opinions.
Section 8.11 Guarantee. The guarantee agreement set
forth as Annex 8.11 hereto shall have been entered into substantially in
the form set forth in such Annex.
ARTICLE NINE
CONDITIONS TO OBLIGATIONS OF SELLER
The obligations of Seller hereunder are subject to the
satisfaction, or waiver in writing by Seller, on or prior to the Closing
Date, of the following conditions:
Section 9.1 Accuracy of Representations and Warranties.
The representations and warranties of Buyer set forth in Article Four
hereof shall be true and correct on the Closing Date with the same effect
as though such representations and warranties had been made on and as of
such date, except that any such representations and warranties that are
given as of a specified date and relate solely to a specified date or
period shall be true and correct only as of such date or period, and except
to the extent any breach thereof, individually or when aggregated with all
such breaches, has not and would not reasonably be expected to have a
material adverse effect on the validity or enforceability of this Agreement
or the ability of the Buyer to perform its obligations under this
Agreement. Buyer shall have delivered to Seller at the Closing a
certificate, to the effect that the representations and warranties of Buyer
set forth in Article Four hereof are true and correct on the Closing Date
with the same effect as though such representations and warranties had been
made on and as of such date, except that any such representations and
warranties that are given as of a specified date and relate solely to a
specified date or period shall be true and correct only as of such date or
period, dated the Closing Date and signed by the President or any duly
authorized Vice President of Buyer.
Section 9.2 Performance of Covenants. Each and all of the
covenants and agreements of Buyer to be performed or complied with prior to
or on the Closing Date shall have been duly performed or complied with by
Buyer in all material respects, and Buyer shall have delivered to Seller a
certificate to the foregoing effect, dated the Closing Date and signed by
the President or any duly authorized Vice President of Buyer, as the case
may be.
Section 9.3 Use of Names Agreement. Buyer and Seller shall
have executed and delivered the Use of Names Agreement as contemplated by
Section 5.13.
Section 9.4 No Pending Litigation. There shall not be
pending, instituted or, to the knowledge of Buyer or Seller, threatened,
any litigation, investigation or proceeding against Buyer or Seller which
seeks to impose, individually or in the aggregate, substantial damages in
connection with, or to restrain, materially modify or invalidate the
transactions contemplated by this Agreement and no preliminary or permanent
injunction or order that would prohibit, materially modify or restrain such
transactions shall be in effect.
Section 9.5 H-S-R Act. The waiting period under the H-S-R
Act shall have expired or have been earlier terminated.
Section 9.6 Governmental Authorities Approvals. The change
of control of the Company contemplated hereby shall have been approved by
all relevant Governmental Authorities, in each case without the material
abrogation or diminution of the authority or license of the Company or the
imposition of material restrictions upon or conditions to the transactions
contemplated hereby or on Buyer, including but not limited to the
Commissioner of Insurance of the State of Michigan, which approvals shall
be in full force and effect.
Section 9.7 Third Party Consents. There shall have been
obtained all material permits, waivers, consents and approvals from every
Person that are required in connection with the performance by Seller of
its obligations under this Agreement, to permit Buyer to acquire the Stock
pursuant to this Agreement and to preserve the rights, benefits and
privileges of the Company in its assets.
Section 9.8 Opinion of Counsel. Buyer shall have delivered
to Seller opinions dated the Closing Date of (i) Lorin M. Fife, Esq.,
General Counsel of the Buyer in form and substance reasonably satisfactory
to Seller and its counsel, to the effect that:
(i) Buyer is a corporation duly organized, validly existing and
in good standing under the laws of the jurisdiction of its incorporation;
(ii) Buyer has full corporate power and authority to execute and
deliver this Agreement and the Use of Names Agreement and to perform its
obligations hereunder and thereunder, and the execution, delivery and
performance by Buyer of this Agreement and the Use of Names Agreement have
been duly authorized by all necessary corporate action on the part of
Buyer;
(iii) the execution, delivery and performance of this Agreement
and the Use of Names Agreement by Buyer and the consummation of the
transactions contemplated hereby and thereby do not and will not contravene
the articles or certificate of incorporation or bylaws or other charter or
organizational documents of Buyer;
(iv) to the best of such counsel's knowledge, there are no
actions, suits or proceedings pending or threatened against Buyer that in
the opinion of such counsel question the validity of this Agreement or the
Use of Names Agreement or any action taken or to be taken by Buyer pursuant
to or in connection with the transactions contemplated by this Agreement or
the Use of Names Agreement;
and (ii) O'Melveny & Myers, counsel to the Buyer, in form and substance
reasonably satisfactory to the Seller and its counsel, to the effect that:
assuming this Agreement and the Use of Names Agreement each has been duly
authorized, executed and delivered, this Agreement and the Use of Names
Agreement have been duly executed and delivered by Buyer and each is the
valid and binding obligation of Buyer enforceable in accordance with its
terms, subject to the qualification, however, that enforcement of the
rights and remedies created by this Agreement and the Use of Names
Agreement is subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general application relating
to or affecting creditors' rights and to general equity principles;
In rendering such opinions, such counsel may rely upon opinions of other
counsel reasonably satisfactory to Seller and its counsel as to matters of
insurance laws and matters other than the federal laws of the United States
and the laws of the State of New York; provided that such counsel shall
state that it believes both Seller and it are justified in relying upon
such opinions.
Section 9.9 Funds Transfer. Buyer shall have delivered
to Seller, and Seller shall have received, the Purchase Price for the Stock
pursuant to Article Two above.
ARTICLE TEN
SURVIVAL; INDEMNIFICATION
Section 10.1 Survival. The representations and warranties of
Seller and Buyer set forth herein shall survive the execution and delivery
hereof and the Closing hereunder and thereafter 18 months after the Closing
Date; provided, however, that the representations and warranties contained
in Sections 3.2, 3.3, 3.5 and 3.12 hereof shall survive for the limitations
period provided under Applicable Law.
Section 10.2 Indemnification by Seller. Subject to Section 6.1
hereof, Seller hereby agrees to indemnify, defend, save and hold Buyer
harmless from and against any and all damage, liability, loss, expense,
assessment, judgment or deficiency of any nature whatsoever (including,
without limitation, reasonable attorneys' fees and other costs and expenses
incident to any suit, action or proceeding) (together, "Losses") incurred
or sustained by Buyer which shall arise out of or result from (a) any
breach of any representation or warranty of Seller in this Agreement or in
the certificate delivered by Seller pursuant to Section 8.1 hereof (unless
any such breach relates to matters for which indemnification is provided
pursuant to Section 10.2(c) hereof), (b) the failure by Seller to perform
any covenant or agreement of Seller in this Agreement, or (c) any liability
or obligation of any kind or nature, absolute, contingent, known or
unknown, arising from or relating to the ownership or operation of the Non-
Annuity Business, including but not limited to the recapture and transfer
thereof contemplated by Sections 5.11 and 5.12 and Annexes 5.11 and 5.12
hereof, whether arising before or after the Closing, after offset by any
related insurance proceeds or other recovery on account of such Losses;
provided, however, that, solely with respect to Losses indemnifiable under
Sections 10.2(a) and 10.2(b) above (the "Subject Losses"), Seller shall not
be obligated to indemnify, defend, save and hold Buyer harmless from and
against any and all Subject Losses in accordance with the foregoing until
the aggregate amount of Subject Losses exceeds $2,000,000, at which time
Buyer shall be entitled to indemnification as set forth above for all
Subject Losses in excess of such $2,000,000; provided, further, however,
that the aggregate amount of Subject Losses in respect of which Buyer shall
be entitled to indemnification in accordance with this Section 10.2 shall
not exceed the Purchase Price. Notwithstanding the foregoing, no
indemnification under this Section 10.2 for any breach of a representation
or warranty of Seller or any failure to perform any covenant or agreement
of Seller set forth in Article V (other than those set forth in Section
5.2(i), 5.3(a), 5.7, 5.8, 5.11, 5.12 or 5.17 thereof) shall be made unless
a claim therefore is made by notice to Seller within the applicable time
period specified in Section 10.1 hereof.
Section 10.3 Indemnification by Buyer. Subject to Section
6.1 hereof, Sun America Inc. hereby agrees on behalf of itself and its
Designated Affiliate (if any) to indemnify, defend, save and hold Seller
harmless from and against any and all Losses incurred or sustained by
Seller which shall arise out of or result from (a) any breach of any
representation or warranty of Buyer in this Agreement or in the certificate
delivered by Buyer pursuant to Section 9.1 hereof, (b) the failure by Buyer
to perform any covenant or agreement of Buyer in this Agreement or (c)
claims against Seller arising after the Closing Date and relating to or
arising under the Seller guarantees described in item 7 of Schedule 5.6
hereof, in each case after offset by any related insurance proceeds or
other recovery. Notwithstanding the foregoing, no indemnification under
this Section 10.3 shall be made unless a claim therefor is made by notice
to Buyer within the applicable time period specified in Section 10.1
hereof.
Section 10.4 Third-Party Claims. (a) Within 10 Business Days
after service of notice of any claim or of process by any third person in
any matter in respect of which indemnity may be sought from the other party
pursuant to this Agreement, the party so served shall notify the
indemnifying party of the receipt thereof (a "Claim Notice"); provided,
however, that no failure or delay in giving any such Claim Notice shall
relieve the indemnifying party of its obligations except to the extent that
it is materially prejudiced thereby. The indemnifying party shall give
notice to the indemnified party within 45 days of receipt of a Claim Notice
setting forth whether the indemnifying party disputes its liability with
respect to matters covered by such notice and whether the Indemnifying
Party at the sole cost and expense of the indemnifying party, desires to
assume the defense of the matters set forth therein. The indemnified party
may take any action it deems necessary to preserve its rights prior to
receipt of such response from the indemnifying party but shall not settle
or proceed to final judgment with respect to such claim prior to the
expiration of such 45-day period.
(b) Defense. The indemnifying party shall have the
right to direct, through counsel of its own choosing, the defense or
settlement of any action or proceeding brought against the indemnified
party with respect to which indemnification is sought hereunder; provided,
however, that the indemnifying party shall not settle any matter without
obtaining the indemnified party's prior written consent thereto if such
settlement does not provide for a full release of the indemnified party on
terms satisfactory to it or, regardless of the terms of such settlement, if
the indemnified party disputes its liability with respect to the claim, and
provided, further, that notwithstanding the foregoing, Seller as
indemnifying party with respect to Section 10.2(c) hereof shall at its own
cost and expense assume and direct the defense and settlement of any action
or proceeding currently pending against or involving the Company relating
to the Non-Annuity Business (including, but not limited to, those matters
set forth in item B under Schedule 3.14) and any action or proceeding
hereafter brought against or involving the Company or Buyer and relating to
the Non-Annuity Business with respect to which indemnification is sought
pursuant to Section 10.2(c). The indemnified party may participate in any
such defense at its own expense. If the indemnifying party fails to defend
or if after commencing or undertaking any such defense fails to prosecute
or withdraws from such defense other than as a result of a settlement, the
indemnified party shall have the right to direct, at the indemnifying
party's sole cost and expense, through counsel of the indemnified party's
own choosing, the defense or settlement of any such action or proceeding.
Notwithstanding the foregoing, if the indemnifying party disputes its
liability to the indemnified party and if such dispute is resolved in favor
of the indemnifying party by final, nonappealable order of a court of
competent jurisdiction, the indemnifying party will not be required to bear
the costs and expenses of the indemnified party's defense and the
indemnified party shall reimburse the indemnifying party in full for all
costs and expenses incurred in connection therewith.
(c) Claims Between the Parties and their Affiliates.
If the indemnified party has a claim against the indemnifying party that
does not involve a claim by a third party (an "Inter-Party Claim"), the
indemnified party will notify the indemnifying party with reasonable
promptness of such claim, specifying the nature, estimated amount and the
specific basis of such claim. The indemnifying party shall respond within
45 days of receipt of such notice of an Inter-Party Claim. If the
indemnifying party fails to so respond the estimated amount of such claim
specified by the indemnifying party shall be conclusively deemed a
liability of the indemnifying party.
Section 10.5 After Tax Damages. With respect to the
indemnification obligations set forth in Section 6.1 and this Article Ten,
Seller and Buyer agree that the amount of any indemnification payment will
be adjusted downward by the Tax benefit and upward by the Tax cost to the
indemnified party resulting from the receipt of the indemnification payment
or the payment of the underlying claim or liability with respect to which
such indemnity payment relates. For this purpose, a Tax cost or Tax
benefit (i) shall be taken into account only to the extent that it is
actually realized or incurred by the indemnified party or its Affiliates no
later than the later of (A) the taxable year following the year in which
the indemnification payment is made or (B) the fourth year following the
year to which the liability for Taxes or other Loss that is the subject of
the indemnification relates, and (ii) shall be computed on the assumption
that such party is subject to the maximum federal, state, local, or
foreign, as the case may be, corporate tax rate in effect for the relevant
year.
Section 10.6 Exclusive Remedy. Except as provided in Section
6.1 hereof, the indemnity provided in this Article Ten, as it relates to a
breach of a representation or warranty or a failure to perform any covenant
or agreement, shall be the exclusive remedy for money damages with respect
to matters addressed by such covenant, agreement, representation or
warranty.
ARTICLE ELEVEN
TERMINATION OF AGREEMENT
Section 11.1 Termination. This Agreement may be terminated
prior to the Closing as follows:
(a) by mutual written agreement of Seller and Buyer;
(b) at the election of Seller, if any one or more of the
conditions to the obligation of Seller to close contained in Article Nine
hereof has not been fulfilled as of the date falling six calendar months
after the date of this Agreement;
(c) at the election of Buyer, if any one or more of the
conditions to the obligation of Buyer to close contained in Article Eight
hereof has not been fulfilled as of the date falling six calendar months
after the date of this Agreement;
(d) at the election of Seller, if Buyer has breached any
material representation, warranty, covenant or agreement contained in this
Agreement; provided, that Seller shall have no termination right hereunder
unless such representation, warranty, covenant or agreement shall not have
been cured by Buyer by the earlier of (i) the date falling six calendar
months after the date of this Agreement and (ii) 30 days after Buyer shall
have received notice from Seller that it intends to exercise its right to
terminate under this Section 11.1(d);
(e) at the election of Buyer, if Seller has breached any
material representation, warranty, covenant or agreement contained in this
Agreement, provided that Buyer shall have no termination right hereunder
unless such representation, warranty, covenant or agreement shall not have
been cured by Seller by the earlier of (i) the date falling six calendar
months after the date of this Agreement and (ii) 30 days after Seller shall
have received notice from Buyer that it intends to exercise its right to
terminate under this Section 11.1(e); and
(f) at the election of Seller or Buyer, if any court of
competent jurisdiction shall have issued an order, decree or ruling or
taken any other action enjoining or otherwise prohibiting the transactions
contemplated under this Agreement and such order, decree, ruling or other
action shall have become final and nonappealable.
Section 11.2 Effect of Termination. Subject to the
provisions of Section 11.3, if this Agreement is validly terminated
pursuant to Section 11.1 hereof, this Agreement will thereupon become null
and void, and there will be no liability on the part of the Seller or Buyer
(or any of their respective employees, consultants, or other
representatives), except that any such termination shall be without
prejudice to any claim which either party may have against the other for
breach of this Agreement (or any representation, warranty, covenant, or
agreement included herein).
Section 11.3 Payment to Seller Upon Termination. If this
Agreement shall be terminated prior to the Closing Date other than pursuant
to Section 11.1(e) hereof (the date of any such termination, the
"Termination Date"), Buyer shall pay to the Company no later than ten (10)
Business Days after the Termination Date the Investment Adjustment in
immediately available funds by wire transfer to such account or accounts of
Seller as Seller shall have designated in writing to Buyer not less than
three Business Days prior to the date of such payment. For purposes of the
foregoing, the "Investment Adjustment" means an amount (not less than zero)
equal to:
Dt
[SUMMATION Cd (Ri - Rc)
SYMBOL] ____________
365
Da
Where,
Da = the Date of this Agreement;
Dt = the Termination Date;
Cd = the aggregate amount of Qualifying
Investments and Company Cash at the
close of business on such date;
Ri = the Investment Rate on such date; and
Rc = the Commercial Paper Rate on such date.
ARTICLE TWELVE
MISCELLANEOUS
Section 12.1 Notices. Any notice, request, consent, waiver
or other communication required or permitted hereunder shall be effective
only if it is in writing and personally delivered, telecopied or sent by
certified or registered mail, postage prepaid, addressed as follows:
If to Seller:
The American Road Insurance Company
The American Road
Dearborn, Michigan 48121
Attention: K.J. Coates
Vice Chairman
Fax:(313) 390-0500
with a copy to:
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
Attention: William D. Torchiana, Esq.
Fax: (212) 558-3588
If to Buyer:
SunAmerica Inc.
1999 Avenue of the Stars, Suite 3700
Los Angeles, California 90067
Attention: Jay Wintrob
Fax: (310) 772-6604
with a copy to:
SunAmerica Inc.
1999 Avenue of the Stars, Suite 3700
Los Angeles, California 90067
Attention: Lorin M. Fife, Esq.
Fax: (310) 772-6574
and to:
O'Melveny & Myers
1999 Avenue of the Stars, Suite 700
Los Angeles, California 90067
Attention: Marc Gamsin, Esq.
Fax: (310) 246-6779
or such other person or address as the addressee may have specified in a
notice duly given to the sender as provided herein. Such notice or
communication shall be deemed to have been given, if delivered personally
as of the date so personally delivered, if delivered by telecopy, when
confirmed and if delivered by mail, on the third Business Day after
deposited in the United States mail or mailed.
Section 12.2 Integration; Amendment. This Agreement
(including the Schedules and Annexes attached hereto) constitutes the
entire agreement and understanding of the parties relating to the subject
matter hereof and supersedes all prior and contemporaneous agreements and
understandings, whether oral or written, relating to the subject matter
hereof. The terms of this Agreement cannot be changed, modified, released
or discharged orally.
Section 12.3 Schedules. A matter disclosed in any schedule
to this Agreement shall be deemed to be disclosed in any other schedule to
this Agreement to which such matter could reasonably be expected to be
pertinent. The disclosure of matters in schedules to this Agreement shall
expressly not be deemed to constitute an admission by Seller or otherwise
imply that such matter is material for the purposes of this Agreement.
Section 12.4 Waiver. No delay or failure on the part of any
party in exercising any rights hereunder, and no partial or single exercise
thereof, will constitute a waiver of such rights or of any other rights
hereunder.
Section 12.5 No Third-Party Beneficiaries. Nothing in this
Agreement will be construed as giving any Person, other than the parties
hereto and their successors and permitted assigns, any right, remedy or
claim under or in respect of this Agreement or any provision hereof.
Section 12.6 APPLICABLE LAW. THIS AGREEMENT WILL BE
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF
THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF
LAWS.
Section 12.7 Headings. The headings in this Agreement are
included for convenience of reference only and shall not in any way affect
the meaning or interpretation of this Agreement.
Section 12.8 Counterparts. This Agreement may be executed in
any number of counterparts, each of which shall be deemed to be an
original, but all of which together shall constitute one and the same
instrument.
Section 12.9 Effectiveness. This Agreement shall become
effective only when signed and delivered by Seller and Buyer.
Section 12.10 Waiver; Requirement of Writing. This Agreement
cannot be changed or any performance, term or condition waived in whole or
in part except by a writing signed by the party against whom enforcement of
the change or waiver is sought. Any term or condition of this Agreement
may be waived at any time by the party hereto entitled to the benefit
thereof and any such term or condition may be modified at any time by an
agreement in writing executed by Seller and Buyer.
Section 12.11 Expenses. Subject to the provisions of Section
11.3, each of the parties hereto shall pay, without right of reimbursement
from the other party or from the Company, all the costs incurred by it
incident to the preparation, execution and delivery of this Agreement or
the performance of its obligations hereunder, whether or not the
transactions contemplated by this Agreement shall be consummated. In
addition, if the Closing occurs, Seller shall pay all unpaid costs and
expenses incurred by the Company in connection with any divestiture
(whether or not consummated) of any of its assets occurring prior to or
after the Closing (to the extent contemplated by this Agreement) and all
unpaid costs and expenses associated with any efforts by Seller or the
Company to sell the Company or any of their respective assets, including,
but not limited to, any costs and expenses (including any Taxes) associated
with the transfer and reinsurance of the Non-Annuity Business.
Section 12.12 Assignment. This Agreement shall be binding
upon, and inure to the benefit of, the parties hereto and their respective
successors and permitted assigns, but, except as otherwise permitted hereby
with respect to Buyer's Designated Affiliate, may not be assigned by either
party without the prior written consent of the other party hereto.
Section 12.13 Severability; Enforcement. Whenever possible,
each provision of this Agreement will be interpreted in such a manner as to
be effective and valid under Applicable Law, but if any provision of this
Agreement is held to be invalid, illegal or unenforceable under any
Applicable Law in any jurisdiction, such provision will be ineffective only
to the extent of such invalidity, illegality or unenforceability in such
jurisdiction, without invalidating the remainder of this Agreement in such
jurisdiction or any provision hereof in any other jurisdiction.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their respective officers thereunto duly
authorized as of the date first above written.
THE AMERICAN ROAD INSURANCE COMPANY
By/s/ Kenneth J. Coates
Name: Kenneth J. Coates
Title: Executive Vice President
SUNAMERICA INC.
By/s/ James W. Rowan
Name: James W. Rowan
Title: Senior Vice President
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<DEBT-HELD-FOR-SALE> 2,375,340
<DEBT-CARRYING-VALUE> 2,102
<DEBT-MARKET-VALUE> 2,056
<EQUITIES> 897
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 2,378,339
<CASH> 212,195
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 201,764
<TOTAL-ASSETS> 3,063,635
<POLICY-LOSSES> 2,776,746
<UNEARNED-PREMIUMS> 163,181
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
<COMMON> 2,500
0
0
<OTHER-SE> 109,095
<TOTAL-LIABILITY-AND-EQUITY> 3,063,635
40,526
<INVESTMENT-INCOME> 147,462
<INVESTMENT-GAINS> (23,184)
<OTHER-INCOME> 6,294
<BENEFITS> 136,852
<UNDERWRITING-AMORTIZATION> 16,649
<UNDERWRITING-OTHER> 15,605
<INCOME-PRETAX> 20,248
<INCOME-TAX> 6,526
<INCOME-CONTINUING> 13,722
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,722
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<RESERVE-OPEN> 54,485
<PROVISION-CURRENT> 22,812
<PROVISION-PRIOR> (2,227)
<PAYMENTS-CURRENT> 17,447
<PAYMENTS-PRIOR> 5,876
<RESERVE-CLOSE> 50,170
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> SEP-30-1995
<DEBT-HELD-FOR-SALE> 2,979,486
<DEBT-CARRYING-VALUE> 2,097
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 2,981,583
<CASH> 112,077
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 156,677
<TOTAL-ASSETS> 3,460,675
<POLICY-LOSSES> 3,046,107
<UNEARNED-PREMIUMS> 156,196
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
<COMMON> 2,500
0
0
<OTHER-SE> 218,578
<TOTAL-LIABILITY-AND-EQUITY> 3,460,675
29,081
<INVESTMENT-INCOME> 153,400
<INVESTMENT-GAINS> (9,726)
<OTHER-INCOME> 4,743
<BENEFITS> 143,975
<UNDERWRITING-AMORTIZATION> 27,323
<UNDERWRITING-OTHER> 19,075
<INCOME-PRETAX> (3,149)
<INCOME-TAX> 657
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,806)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
<PAGE>
FORD LIFE INSURANCE COMPANY
1994 AUDIT OF FINANCIAL STATEMENTS
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder of
Ford Life Insurance Company:
We have audited the balance sheet of Ford Life Insurance Company at December
31, 1994 and 1993, and the related statements of income and of earnings
retained for use in the business, and cash flows for each of the three years in
the period ended December 31, 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these 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, the financial statements referred to above present fairly, in
all material respects, the financial position of Ford Life Insurance Company at
December 31, 1994 and 1993, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1994 in
conformity with generally accepted accounting principles.
As discussed in Note 1 to the financial statements, Ford Life changed its
method of accounting for investments as of January 1, 1994. In addition, as
discussed in Note 8, Ford Life changed its method of accounting for income
taxes in 1992.
/s/ Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
Detroit, Michigan
January 27, 1995
1
<PAGE>
FORD LIFE INSURANCE COMPANY
STATEMENT OF INCOME AND OF EARNINGS RETAINED FOR USE IN THE BUSINESS
(in thousands)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
------------------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Revenue
Premiums earned $ 40,526 $ 43,974 $ 49,490
Investment and other income 153,756 152,897 67,051
-------- -------- --------
Total revenue 194,282 196,871 116,541
-------- -------- --------
Expenses
Losses incurred 20,585 25,588 27,654
Amortization of deferred acquisition costs 16,649 50,799 27,479
Interest credited on annuities 116,267 69,982 24,154
Interest on short-term borrowings 4,928 - -
Operating expenses 15,605 16,340 14,503
-------- -------- --------
Total expenses 174,034 162,709 93,790
-------- -------- --------
Income before income taxes and cumulative effect of change
in accounting principle 20,248 34,162 22,751
Provision for income taxes 6,526 13,024 7,109
-------- -------- --------
Income before cumulative effect of change in accounting
principle 13,722 21,138 15,642
Cumulative effect of change in accounting principle (Note 6) - - 321
-------- -------- --------
Net income 13,722 21,138 15,963
Earnings retained for use in the business
Beginning of year 185,641 164,503 148,540
-------- -------- --------
End of year $199,363 $185,641 $164,503
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
2
<PAGE>
FORD LIFE INSURANCE COMPANY
BALANCE SHEET
(in thousands)
<TABLE>
<CAPTION>
DECEMBER 31
-----------------
ASSETS 1994 1993
---------- ----------
<S> <C> <C>
Cash and cash equivalents $ 212,195 $ 106,781
Investment securities
Available for sale at market 2,376,237 -
Held to maturity, at amortized cost 2,102 -
Held for investment, at amortized cost - 1,733,122
Marketable equity securities, at market - 1,031
Investment income due and accrued 42,834 26,737
Reinsurance receivables
Affiliated companies 38,140 39,005
Other 5,933 6,645
Accounts receivable
Affiliated companies 4,306 260
Other 927 857
Agents' balances receivable 7,548 7,638
Prepaid reinsurance premiums 101,042 102,209
Deferred income taxes 68,723 14,609
Deferred acquisition costs
Annuity contracts 172,137 65,608
Insurance policies 29,627 30,661
Other 1,884 3,126
---------- ----------
Total assets $3,063,635 $2,138,289
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES
Unearned premiums $ 163,181 $ 166,242
Annuity contracts 2,726,576 1,598,046
Unpaid losses 50,170 54,485
Accounts payable
Affiliated companies 5,595 38,560
Other 4,471 79,640
Deferred income and other liabilities 2,047 2,594
---------- ----------
Total liabilities 2,952,040 1,939,567
---------- ----------
STOCKHOLDER'S EQUITY
Capital stock, par value $12.50 a share, 200,000 shares authorized, issued and
outstanding 2,500 2,500
Paid-in surplus (contributions by stockholder) 21,859 11,859
Unrealized (loss) gain on investments, net of taxes of $(59,068) in 1994 and $32
in 1993 (109,587) 61
Foreign currency translation adjustments (2,540) (1,339)
Earnings retained for use in the business 199,363 185,641
---------- ----------
Total stockholder's equity 111,595 198,722
---------- ----------
Total liabilities and stockholder's equity $3,063,635 $2,138,289
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
FORD LIFE INSURANCE COMPANY
STATEMENT OF STOCKHOLDER'S EQUITY
for the years ended December 31, 1994, 1993 and 1992
(in thousands)
<TABLE>
<CAPTION>
FOREIGN EARNINGS
UNREALIZED CURRENCY RETAINED TOTAL
CAPITAL PAID-IN GAINS/(LOSSES) TRANSLATION FOR USE STOCKHOLDER'S
STOCK SURPLUS ON INVESTMENTS ADJUSTMENTS IN THE BUSINESS EQUITY
----- ------- -------------- ----------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balances, January 1, 1992 $ 2,500 $10,500 $ 46 $ 947 $ 148,540 $ 162,533
Change in unrealized gains, net
of tax (28) (28)
Change in foreign currency
translation (1,542) 1,542
Net income 15,963 15,963
------- ------- --------- ------- --------- ---------
Balances, December 31, 1992 2,500 10,500 18 (595) 164,503 176,926
Contribution by stockholder 1,359 1,359
Change in unrealized gains, net of
tax 43 43
Change in foreign currency
translation (744) (744)
Net income 21,138 21,138
------- ------- --------- ------- --------- ---------
Balances, December 31, 1993 2,500 11,859 61 (1,339) 185,641 198,722
Contribution by stockholder 10,000 10,000
Change in unrealized gains
(losses),
net of tax (109,648) (109,648)
Change in foreign currency
translation (1,201) (1,201)
Net income 13,722 13,722
------- ------- --------- ------- --------- ---------
Balances, December 31, 1994 $ 2,500 $21,859 $(109,587) $(2,540) $ 199,363 $ 111,595
======= ======= ========= ======= ========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
FORD LIFE INSURANCE COMPANY
STATEMENT OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
----------------------------------------
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities
Net income $ 13,722 $ 21,138 $ 15,963
Adjustments to reconcile net income to net cash used in operating
activities:
Cumulative effect of change in accounting principle - - (321)
Interest credited to annuity contracts 125,296 77,794 27,595
Deferred income taxes 4,947 (12,611) 8,112
Amortization of discounts on investments (15) (357) (2,509)
Losses (gains) on sale of investments 23,184 (44,627) (15,480)
Changes in
Unearned premiums (3,061) (15,813) (34,758)
Unpaid losses (4,315) 4,718 (2,334)
Deferred acquisition costs (74,895) (19,813) (33,852)
Reinsurance receivables, affiliate 865 (6,534) (990)
Reinsurance receivables, other 712 306 2,148
Prepaid reinsurance premiums 1,167 6,467 20,395
Other assets (18,881) (3,938) (18,640)
Other liabilities (30,146) 16,938 (13,476)
----------- ----------- -----------
Net cash used in operating activities 38,580 23,668 (48,147)
----------- ----------- -----------
Cash flows from investing activities
Acquisition of investments:
Held-to-maturity (681) * *
Available for sale (3,231,656) * *
----------- ----------- -----------
Total acquisitions of investments (3,232,337) (3,803,818) (2,455,994)
Proceeds from investment sales and maturities:
Sales of available for sale 2,285,526 * *
Maturities of available for sale 411 * *
----------- ----------- -----------
Total proceeds from investment sales and maturities 2,285,937 3,124,884 1,772,344
----------- ----------- -----------
Net cash used in investing activities (946,400) (678,934) (683,650)
----------- ------------ -----------
Cash flows provided by financing activities
Receipts from annuity contracts 1,105,706 789,863 717,635
Payment of annuity benefits (102,472) (46,719) (14,276)
Paid-in surplus 10,000 - -
----------- ----------- -----------
Net cash provided by financing activities 1,013,234 743,144 703,359
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents 105,414 87,878 (28,438)
Cash and cash equivalents, beginning of year 106,781 18,903 47,341
----------- ----------- -----------
Cash and cash equivalents, end of year $ 212,195 $ 106,781 $ 18,903
=========== =========== ===========
Supplementary cash flow information
Income taxes paid (refunded) $ (4,098) $ 32,246 $ 7,777
Interest paid 4,928 - -
</TABLE>
*Securities were not separately identified as held-to-maturity or available
for sale in prior years.
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
FORD LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES:
a. BUSINESS: Ford Life Insurance Company ("Ford Life") offers single
premium and flexible premium deferred annuity contracts (generally
without life contingencies) through financial institutions, general
agents and brokers. Ford Life also issues credit life and credit
disability insurance covering purchasers of vehicles financed by
Ford Motor Credit Company ("Ford Credit") and other financial
institutions.
b. AFFILIATES: Ford Life is a wholly owned subsidiary of The American
Road Insurance Company ("American Road"), which is wholly owned by Ford
Holdings, Inc. ("Ford Holdings"). All of the outstanding common stock
of Ford Holdings, representing 75 percent of the combined voting power
of all classes of capital stock of Ford Holdings, is owned by Ford
Motor Company ("Ford") and Ford Credit. The balance of the capital
stock and voting power, consisting of shares of Flexible Rate Auction
preferred stock, is held by nonaffiliated persons.
c. CASH EQUIVALENTS: Ford Life considers all highly liquid investments
purchased with a maturity of three months or less to be cash equivalents.
d. INVESTMENTS: Ford Life adopted Statement of Financial Accounting
Standards No. 115 ("SFAS 115"), "Accounting for Certain Investments in
Debt and Equity Securities," as of January 1, 1994. Prior to 1994,
investments in debt securities were held for investment purposes and
recorded at amortized cost. The effect of this change in accounting
principle on Ford Life's financial statements was to increase
stockholder's equity by $25.2 million. For the year ended December 31,
1994, the adoption of SFAS 115 resulted in a decrease in stockholder's
equity of $109.6 million, reflecting the change in market value of
available for sale securities, after adjustment of deferred acquisition
costs and deferred income taxes.
Available-for-sale securities are recorded at fair value with
unrealized gains and losses, net of applicable income taxes, excluded
from income and reported in a separate component of stockholder's
equity. Held-to-maturity securities are recorded at amortized cost.
Marketable equity securities are recorded at market value, with
unrealized gains or losses, net of applicable income taxes, recorded
directly in stockholder's equity.
Realized gains and losses on the sale of investments are included in
investment and other income. The cost of investments sold generally is
determined on a specific security basis for debt securities and on a
first-in, first-out basis for marketable equity securities.
6
<PAGE>
NOTES TO FINANCIAL STATEMENTS, CONTINUED
1. ACCOUNTING POLICIES, CONTINUED:
e. DEFERRED ACQUISITION COSTS: Costs incurred in the acquisition of
annuity contracts, consisting primarily of commissions, are deferred
and amortized over the life of the related contracts using the interest
method. Anticipated returns from the investment of annuity contract
receipts, including any unrealized gains or losses on available for sale
securities, are considered in determining the amortization of such
costs.
Costs of acquiring new credit life and disability business are
deferred and amortized over the terms of the related policies on the
same bases on which premiums are earned. Deferred acquisition costs are
reviewed to determine that the unamortized portion of such costs does
not exceed recoverable amounts after considering anticipated investment
income.
f. PREMIUMS: The liability for unearned premiums represents the amount of
premiums applicable to the unexpired terms of the credit life and
disability policies in force. Premiums are earned over the policy
periods based on amounts at risk, primarily using the sum-of-the-digits
method.
g. ANNUITIES: The liability for annuity contracts reflects deposits
received and interest credited, less related withdrawals including
surrender charges. At December 31, 1994 and 1993, the weighted average
interest rate on annuity contracts outstanding was 6.3 and 6.2 percent,
respectively. The interest rates offered are initially guaranteed for
periods of either one or five years. Interest credited to annuity
account balances is recognized as expense; surrender charges are
recognized as a reduction of interest credited to annuitants.
h. UNPAID LOSSES: The liability for unpaid losses includes provisions for
reported insurance losses and an estimate of unreported losses based on
past experience.
i. FOREIGN CURRENCY TRANSLATION: Assets and liabilities of the Canadian
branch are translated at current exchange rates, and the effects of
these translation adjustments are accumulated in a separate component of
stockholder's equity. The change in this account results from
translation adjustments accumulated during the year.
j. DERIVATIVE FINANCIAL INSTRUMENTS: Ford Life has entered into agreements
to manage exposure to fluctuations in interest rates related to annuity
contracts. Interest rate exposure exists because the interest rate
payable on annuity contracts is reset annually whereas interest rates on
related investments are generally fixed.
Ford Life has interest rate swap agreements with Ford Credit. The
differential paid or received on interest rate swap agreements is
recognized as an adjustment to interest credited to annuities in the
period. For 1994, a differential of $766 thousand was received related
to interest rate swap agreements. Gains and losses on terminated
interest rate swaps are amortized and reflected in interest credited to
annuities over the remaining term of the original agreement.
7
<PAGE>
NOTES TO FINANCIAL STATEMENTS, CONTINUED
1. ACCOUNTING POLICIES, CONTINUED:
j. DERIVATIVE FINANCIAL INSTRUMENTS, CONTINUED: Ford Life also has an
option from a third party to enter into an interest rate swap agreement
("swaption"). The purchase price is capitalized and amortized to
interest credited to annuities over the life of the swaption.
All instruments are classified as "held for purposes other than
trading"; company policy specifically prohibits the use of derivatives
for speculative purposes.
k. FINANCIAL STATEMENT RECLASSIFICATIONS: Certain amounts in prior year
financial statements have been reclassified to conform with the 1994
presentation.
2. INVESTMENT AND OTHER INCOME:
Investment and other income is comprised of the following:
<TABLE>
<CAPTION>
1994 1993 1992
---------- ---------- ----------
(in thousands)
<S> <C> <C> <C>
Interest on debt securities and cash equivalents $ 172,228 $ 103,515 $ 46,201
Dividends on marketable equity securities 149 154 176
Net (loss) gains on sales of investments (23,184) 44,624 15,465
---------- ---------- ---------
Total investment income 149,193 148,293 61,842
Less investment expense 1,731 1,359 581
---------- ---------- ---------
Net investment income 147,462 146,934 61,261
Other income, primarily ceding fees 6,294 5,963 5,790
---------- ---------- ---------
Investment and other income $ 153,756 $ 152,897 $ 67,051
========== ========== =========
</TABLE>
8
<PAGE>
NOTES TO FINANCIAL STATEMENTS, CONTINUED
3. INVESTMENT SECURITIES:
At December 31, 1994 and 1993, the amortized cost and estimated market
values of investment securities were as follows:
<TABLE>
<CAPTION>
1994
----------------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
ISSUER COST GAINS LOSSES VALUE
- ---------------------------------------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Held to maturity:
U.S. government and agencies $ 2,102 $ 9 $ (55) $ 2,056
Available for sale:
U. S. government and agencies 78,369 15 (4,928) 73,456
Municipal securities 42,580 - (3,696) 38,884
Foreign governments 93,151 80 (9,534) 83,697
Corporate securities 1,642,860 383 (127,107) 1,516,136
Mortgage-backed securities 717,568 255 (54,656) 663,167
Equity securities 938 - (41) 897
---------- --------- ---------- ----------
Total available for sale 2,575,466 733 (199,962) 2,376,237
---------- --------- ---------- ----------
Total investments in securities $2,577,568 $ 742 $ (200,017) $2,378,293
========== ========= ========== ==========
</TABLE>
<TABLE>
<CAPTION>
1993
----------------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
ISSUER COST GAINS LOSSES VALUE
- ---------------------------------------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U. S. government and agencies $ 79,147 $ 5,099 $ - $ 84,246
Municipal securities 39,171 921 (131) 39,961
Foreign governments 67,193 3,281 (586) 69,888
Corporate securities 1,057,282 32,354 (11,032) 1,078,604
Mortgage-backed securities 490,329 10,523 (1,673) 499,179
---------- --------- ---------- ----------
Totals $1,733,122 $ 52,178 $ (13,422) $1,771,878
========== ========= ========== ==========
</TABLE>
Proceeds from sales of investments in available for sale securities during
1994, and securities held for investment in 1993 and 1992 were $2,285.5
million, $3,124.3 million and $1,767.9 million, respectively. Gross gains
of $9.2, $51.7 and $19.9 million and gross losses of $32.4, $7.1 and $4.4
million were realized on those sales in 1994, 1993 and 1992, respectively.
9
<PAGE>
NOTES TO FINANCIAL STATEMENTS, CONTINUED
3. INVESTMENT SECURITIES, CONTINUED:
The amortized cost and estimated market value of investments in debt
securities at December 31, 1994, by contractual maturity, are shown below.
Expected maturities may differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without
call or prepayment penalties.
<TABLE>
<CAPTION>
HELD TO MATURITY AVAILABLE FOR SALE
--------------------- ----------------------
ESTIMATED ESTIMATED
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
--------- --------- --------- ---------
(in thousands)
<S> <C> <C> <C> <C>
Due after one year through five years $ 1,616 $ 1,565 $ 281,001 $ 272,223
Due after five years through ten years 190 188 533,239 507,258
Due after ten years 296 303 1,042,720 932,692
Mortgage-backed securities -- -- 717,568 663,167
--------- -------- ---------- ----------
$ 2,102 $ 2,056 $2,574,528 $2,375,340
========= ======== ========== ==========
</TABLE>
4. SHORT-TERM BORROWINGS:
During 1994, as part of its investment strategy, Ford Life entered into
repurchase agreements and dollar roll transactions to increase its return
on investments and improve liquidity. These transactions are
accounted for as collateralized borrowings. The maximum amount of
outstanding agreements at any month-end during 1994 was $95.9 million, and
the average amount of outstanding agreements during 1994 was $56.6 million.
There were no outstanding agreements as of December 31, 1994.
10
<PAGE>
NOTES TO FINANCIAL STATEMENTS, CONTINUED
5. DEFERRED ACQUISITION COSTS:
Following is an analysis of changes in deferred acquisition costs:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Balance, beginning of year $ 96,269 $ 75,825 $ 41,973
Additions
Commissions paid 82,051 62,235 56,934
Premium taxes 977 1,029 1,011
Interest bonus 8,516 7,979 3,386
--------- --------- ---------
Net additions 91,544 71,243 61,331
Adjustment related to unrealized loss on investments 30,600 -- --
Amortization of acquisition costs (16,649) (50,799) (27,479)
--------- --------- ---------
Balance, end of year $ 201,764 $ 96,269 $ 75,825
========= ========= =========
</TABLE>
6. REINSURANCE:
Reinsurance contracts do not relieve Ford Life from its obligations to
policyholders. Failure of reinsurers to honor their obligations could
result in losses to Ford Life. Therefore, Ford Life evaluates the
financial condition of its reinsurers and monitors concentrations of credit
risk arising from similar geographic regions, activities or economic
characteristics of the reinsurers to minimize its exposure to significant
losses from reinsurance insolvencies. Ford Life holds collateral under
reinsurance agreements with nonaffiliates in the form of trust balances,
custodial balances and letters of credit approximating $13 million at
December 31, 1994.
Ford Life cedes most of its credit disability insurance business as written
to American Road for a ceding fee. In addition, Ford Life cedes and assumes
credit life and credit disability insurance business to and from other
affiliates. Reinsurance ceding fees received and ceding commissions paid
are deferred and earned or amortized over the terms of the related policies
on the same bases on which the related premiums are earned. Amounts
deductible from losses incurred in connection with insurance ceded to
affiliated and unaffiliated companies were (in millions): 1994 - $33.0 and
$7.5; 1993 - $43.8 and $10.9; 1992 - $33.4 and $13.3. Amounts added to
losses incurred relating to reinsurance assumed from certain of its
affiliates were (in millions): 1994 - $2.6; 1993 - $4.8; 1992 - $7.8.
11
<PAGE>
NOTES TO FINANCIAL STATEMENTS, CONTINUED
6. REINSURANCE, CONTINUED:
The effect of reinsurance on premiums written and earned is as follows
(in millions):
<TABLE>
<CAPTION>
1994 1993 1992
------------------ ----------------- -----------------
WRITTEN EARNED WRITTEN EARNED WRITTEN EARNED
------- ------ ------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C>
Direct $101.7 $102.5 $99.0 $109.6 $96.4 $124.3
Assumed from American Road and affiliates 4.4 6.1 4.1 9.3 6.4 13.3
Ceded to
American Road and affiliates (49.5) (49.9) *** (52.7) *** (55.2)
Nonaffiliates (17.4) (18.2) *** (22.2) *** (32.9)
------- ------ ------- ------ ------- ------
Net premiums $38.2 $40.5 $35.0 $44.0 $35.1 $49.5
======= ====== ======= ====== ======= ======
</TABLE>
In 1993, Ford Life assumed all insurance in force and other outstanding
liabilities from Vista Life Insurance Company of Texas, an affiliate. Ford
Life received assets of $8.1 million, an amount equal to the liabilities
assumed, in consideration for this assumption. Ford Life also guaranteed
all of the outstanding liabilities of Vista Life Insurance Company of Texas
as of April 1, 1993. Concurrent with this reinsurance transaction, Ford
Life received a $1.3 million capital contribution from American Road.
7. UNPAID LOSSES:
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Balance at January 1 $ 54,485 $ 48,636 $ 50,970
Less reinsurance receivables 45,650 39,422 40,580
--------- --------- ---------
Net balance at January 1 8,835 9,214 10,390
--------- --------- ---------
Incurred related to:
Current year 22,812 27,245 26,693
Prior years (2,227) (1,657) 961
--------- --------- ---------
Total incurred 20,585 25,588 27,654
--------- --------- ---------
Paid related to:
Current year 17,447 19,619 20,427
Prior years 5,876 6,348 8,403
--------- --------- ---------
Total paid 23,323 25,967 28,830
--------- --------- ---------
Net balance at December 31 6,097 8,835 9,214
Plus reinsurance receivables 44,073 45,650 39,422
--------- --------- ---------
Balance at December 31 $ 50,170 $ 54,485 $ 48,636
========= ========= =========
</TABLE>
12
<PAGE>
NOTES TO FINANCIAL STATEMENTS, CONTINUED
7. UNPAID LOSSES, CONTINUED:
The liability for unpaid claims and claim adjustment expenses is
calculated using factors, such as average claim amount, morbidity tables
and IBNR factors, which are applied to statistical amounts of premium in
force, policies in force and open claim counts. As a result of decreases
in new business production over the last several years, the in-force
premium and policy counts, as well as paid losses, have been on the
decline. The decrease in-force premium and policy counts more than offset
the nominal increase in average claim count and IBNR factors which occurred
in 1993, and has caused the net unpaid loss reserve to decrease each year.
8. INCOME TAXES:
Ford Life joins with American Road and Ford Holdings in filing
consolidated United States income tax returns. Pursuant to an agreement
with Ford Holdings, income tax liabilities or credits are allocated to Ford
Life in accordance with Ford Life's contribution to Ford Holdings'
consolidated tax position.
The provision for income taxes consisted of the following:
<TABLE>
<CAPTION>
1994 1993 1992
------- --------- -------
(in thousands)
<S> <C> <C> <C>
Currently (refundable) payable
Federal $ 757 $ 24,901 $(1,567)
Foreign 618 664 340
State 204 70 224
------- --------- -------
Total currently (refundable) payable 1,579 25,635 (1,003)
Deferred, primarily federal 4,947 (12,611) 8,112
------- --------- -------
Provision for income taxes $ 6,526 $ 13,024 $ 7,109 *
======= ========= =======
</TABLE>
*Excludes cumulative effect of change in accounting principle.
Ford Life adopted Statement of Financial Accounting Standards ("SFAS") No.
109, "Accounting for Income Taxes," as of January 1, 1992. The cumulative
effect of this change is reported in the 1992 Statement of Income and of
Earnings Retained for Use in the Business as a $321 thousand increase in
net income.
13
<PAGE>
NOTES TO FINANCIAL STATEMENTS, CONTINUED
8. INCOME TAXES, CONTINUED:
Deferred income taxes, on a SFAS No. 109 basis, reflect the estimated
future tax effect of temporary differences between the amount of assets and
liabilities for financial reporting purposes and such amounts as measured
by tax laws and regulations. The components of deferred income tax assets
and liabilities as of December 31 were are as follows:
<TABLE>
<CAPTION>
1994 1993
------------------------------- ---------------------------
DEFERRED DEFERRED DEFERRED DEFERRED
TAX TAX TAX TAX
ASSETS LIABILITIES ASSETS LIABILITIES
-------- ----------- -------- -----------
(in thousands)
<S> <C> <C> <C> <C>
Unrealized gain/loss on securities $ 59,068 -- -- $ 33
Unearned premium reserves 10,654 -- $ 10,220 --
Deferred acquisition costs -- $ 47,228 -- 24,346
Annuity reserve 47,220 -- 28,076 --
All other 711 1,702 692 --
----------- ---------- ---------- ---------
Total deferred taxes $ 117,653 $ 48,930 $ 38,988 $ 24,379
=========== ========== ========== =========
</TABLE>
The effective tax rate was 32 percent in 1994, 38 percent in 1993 and 31
percent in 1992. Differences between the effective tax rates and the U. S.
statutory tax rate principally were the result of investment income not
subject to tax or subject to tax at reduced rates and the impact of foreign
and state income taxes.
14
<PAGE>
NOTES TO FINANCIAL STATEMENTS, CONTINUED
9. FINANCIAL INSTRUMENTS:
The estimated fair value of financial instruments held by Ford Life at
December 31, and the valuation techniques used to estimate the fair value,
were as follows:
<TABLE>
<CAPTION>
1994 1993
--------------------- ------------------------
ESTIMATED ESTIMATED
BOOK FAIR BOOK FAIR
VALUE VALUE VALUE VALUE
---------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 212,195 $ 212,195 $ 106,781 $ 106,781
Investment securities 2,378,339 2,378,293 1,734,153 1,772,909
Accrued interest and dividends 42,834 42,834 26,737 26,737
Receivables 56,854 56,854 54,405 54,405
LIABILITIES
Annuity contracts 2,726,576 2,726,576 1,598,046 1,598,046
Accounts payable 10,066 10,066 118,200 118,200
DERIVATIVE INSTRUMENTS
Interest rate instruments
Swap contracts 83 3,527 258 1,100
Swaption 1,844 1,844 - -
</TABLE>
a. CASH AND CASH EQUIVALENTS: The book value approximates fair value
because of the short maturity of these instruments.
b. INVESTMENT SECURITIES: The fair value of substantially all securities
was estimated based on quoted market prices for those securities. For
securities for which there were no quoted market prices, the estimate of
fair value was based on similar types of securities that are traded in
the market.
c. ACCRUED INTEREST AND DIVIDENDS: The book value approximates fair
value because accrued amounts are expected to be received within one year.
d. RECEIVABLES: Receivables include reinsurance and agents' balances
receivable and accounts receivable. The book value approximates fair value
because amounts are expected to be received within one year.
15
<PAGE>
NOTES TO FINANCIAL STATEMENTS, CONTINUED
9. FINANCIAL INSTRUMENTS, CONTINUED:
e. ACCOUNTS PAYABLE: The book value approximates fair value because
amounts are expected to be paid within one year.
f. ANNUITY CONTRACTS: The fair value of annuity contracts at December
31, 1994 approximates carrying value as the contractual interest rate
due holders is reset to market annually by Ford Life for over 97
percent of contracts outstanding.
g. DERIVATIVE INSTRUMENTS: The estimated fair value of interest rate
swap and swaption contracts are based on fees currently charged to
enter into similar agreements, taking into account the
remaining terms of the agreements and counterparties' credit
standing.
Information with respect to Ford Life's interest rate swap and
swaption contracts is summarized as follows:
<TABLE>
<CAPTION>
NOTIONAL OR
CONTRACT
AMOUNT
----------------
1994 1993 COUNTERPARTY
---- ---- ------------
(in millions)
<S> <C> <C> <C>
Interest rate swaps
Matures 1999, receive fixed-pay floating $ 10 $ 10 Ford Credit
Matures 1999, receive floating-pay fixed 500 -- Ford Credit
Matures 2000, receive fixed-pay floating 10 10 Ford Credit
Matures 2002, receive fixed-pay floating 10 10 Ford Credit
Swaption, exercisable 1995, matures 1995, receive
floating-pay fixed 1,870 -- Third party
</TABLE>
10. TRANSACTIONS WITH AFFILIATED COMPANIES:
Ford and certain subsidiaries provide Ford Life with technical and
administrative advice and services for which Ford Life paid the following
(in thousands): 1994 - $5,857; 1993 - $5,960; 1992 - $9,409.
In 1992, based on employee headcount, Ford Life was assessed for
postretirement health care benefits accrued by Ford Credit, in connection
with its adoption of Statement of Financial Accounting Standards No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions."
The 1992 assessment increased operating expenses by $1.5 million.
16
<PAGE>
NOTES TO FINANCIAL STATEMENTS, CONTINUED
10. TRANSACTIONS WITH AFFILIATED COMPANIES, CONTINUED:
All of the liabilities of Ford Life are guaranteed by American Road, its
parent. All related credit risk is guaranteed by Ford Credit.
See other Notes for additional information regarding transactions with
affiliated companies.
11. DIVIDEND RESTRICTION:
Payment of dividends by Ford Life to a company within its holding company
system is regulated by the State of Michigan. Under Michigan regulation
all dividends must be reported to the Michigan Insurance Commissioner
prior to payment.
12. LITIGATION AND CLAIMS:
Various legal actions, governmental proceedings and other claims are
pending or may be instituted or asserted in the future against Ford Life.
Some of these matters involve or may involve class actions, compensatory,
punitive, or antitrust or other treble damage claims in very large
amounts, or other requested relief.
Litigation is subject to many uncertainties, the outcome of individual
litigated matters is not predictable with assurance, and it is reasonably
possible that some of the foregoing matters could be decided unfavorably to
Ford Life. Although the amount of liability at December 31, 1994 with
respect to these actions, governmental proceedings and claims cannot be
ascertained, Ford Life believes that any resulting liability should not
materially affect the financial statements of Ford Life at December 31,
1994.
13. STATUTORY NET INCOME AND STOCKHOLDER'S EQUITY:
Generally accepted accounting principles differ in certain respects from
statutory accounting practices prescribed or permitted by insurance
regulatory authorities. Statutory net income (loss) was (in thousands):
1994 - ($17,145); 1993 - $11,887; 1992 - $5,818. Statutory stockholder's
equity was (in thousands) $96,256 and $115,682 at December 31, 1994 and
1993, respectively.
Ford Life, domiciled in Michigan, prepares its statutory financial
statements in accordance with accounting practices prescribed or permitted
by the Michigan Insurance Bureau. Prescribed statutory accounting
practices include a variety of publications of the National Association of
Insurance Commissioners ("NAIC"), as well as state laws, regulations and
general administrative rules.
17
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder of
Ford Life Insurance Company:
We have reviewed the condensed balance sheet of Ford Life Insurance Company at
September 30, 1995, and the related condensed statements of income and cash
flows for the nine-month periods ended September 30, 1995 and 1994. These
financial statements are the responsibility of the company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying condensed financial statements for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the balance sheet at December 31, 1994 and the related statements of
income and of earnings retained for use in the business and cash flows for the
year then ended (not presented herein); and in our report dated January 27,
1995, we expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the accompanying
condensed balance sheet at December 31, 1994 is fairly stated in all material
respects in relation to the balance sheet from which it has been derived.
/s/ Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
Detroit, Michigan
November 28, 1995
1
<PAGE>
FORD LIFE INSURANCE COMPANY
CONDENSED STATEMENT OF INCOME
for the periods ended September 30, 1995 and 1994
(in thousands)
<TABLE>
<CAPTION>
NINE NINE
MONTHS MONTHS
ENDED ENDED
SEP 30, SEP 30,
1995 1994
-------- --------
(Unaudited)
<S> <C> <C>
Revenues
Premiums earned $ 29,081 $ 30,404
Interest income 163,126 118,851
Net (loss) gain on sales of investments (9,726) (8,616)
Other income 4,743 5,058
-------- --------
Total revenues 187,224 145,697
-------- --------
Expenses
Losses incurred 13,647 16,144
Amortization of deferred acquisition costs 27,323 16,287
Interest credited on annuities 130,328 80,175
Other expenses 19,075 14,708
-------- --------
Total expenses 190,373 127,314
-------- --------
(Loss) income before income taxes (3,149) 18,383
Provision for income taxes 657 6,754
-------- --------
Net (loss) income $ (3,806) $ 11,629
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
2
<PAGE>
FORD LIFE INSURANCE COMPANY
CONDENSED BALANCE SHEET
(in thousands)
<TABLE>
<CAPTION>
SEP 30, DEC 31,
ASSETS 1995 1994
----------- -------------
(Unaudited)
<S> <C> <C>
Cash and cash equivalents $ 112,077 $ 212,195
Investment securities
Available for sale, at market 2,979,486 2,376,237
Held to maturity, at amortized cost 2,097 2,102
Investment income due and accrued 45,122 42,834
Reinsurance balances and other assets 148,309 159,780
Deferred income taxes 16,907 68,723
Deferred acquisition costs 156,677 201,764
------------ ------------
Total assets $ 3,460,675 $ 3,063,635
============ ============
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities
Unearned premiums $ 156,196 $ 163,181
Annuity contracts 2,998,216 2,726,576
Unpaid losses 47,891 50,170
Accounts payable and other liabilities 37,294 12,113
------------ ------------
Total liabilities 3,239,597 2,952,040
Stockholder's equity
Capital stock, par value $12.50 a share, 200,000 shares authorized,
issued and outstanding 2,500 2,500
Paid-in surplus (contribution by stockholder) 21,859 21,859
Unrealized gain (loss) on investments, net of taxes 3,010 (109,587)
Foreign currency translation adjustments (1,848) (2,540)
Earnings retained for use in the business 195,557 199,363
------------ ------------
Total stockholder's equity 221,078 111,595
------------ ------------
Total liabilities and stockholder's equity $ 3,460,675 $ 3,063,635
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
FORD LIFE INSURANCE COMPANY
CONDENSED STATEMENT OF CASH FLOWS
for the periods ended September 30, 1995 and 1994
(in thousands)
<TABLE>
<CAPTION>
NINE NINE
MONTHS MONTHS
ENDED ENDED
SEP 30, SEP 30,
1995 1994
------------ ------------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities
Cash flows from operating activities before loss on sale of investments
in securities $ 101,538 $ 28,569
Loss on sale of investments in securities 9,726 8,616
------------ -----------
Net cash provided by operating activities 111,264 37,185
------------ -----------
Cash flows from investing activities
Acquisition of investments, available for sale (2,241,991) (2,406,947)
Proceeds from investments sales and maturities, available for sale 1,856,914 1,660,897
------------ -----------
Net cash used in investing activities (385,077) (746,050)
------------ -----------
Cash flows from financing activities
Receipts from annuity contracts 289,323 824,804
Payment of annuity benefits (115,628) (68,494)
------------ -----------
Net cash provided by financing activities 173,695 756,310
------------ -----------
Net increase in cash and cash equivalents (100,118) 47,445
Cash and cash equivalents, January 1 212,195 106,781
------------ -----------
Cash and cash equivalents, September 30 $ 112,077 $ 154,226
============ ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
FORD LIFE INSURANCE COMPANY
FOOTNOTES TO CONDENSED FINANCIAL STATEMENTS
1. Ford Life Insurance Company ("FLIC") is a wholly owned subsidiary of The
American Road Insurance Company ("TARIC"). TARIC is a wholly owned
subsidiary of Ford Holdings, Inc. which is a controlled subsidiary of Ford
Motor Company.
2. The financial data presented herein are unaudited, but in the opinion of
management reflect all normal and recurring adjustments necessary for fair
presentation of such information.
3. The year-end condensed balance sheet data was derived from audited
financial statements, but does not include all disclosures required by
generally accepted accounting principles.
4. Subsequent to September 30, 1995, TARIC agreed to sell FLIC to SunAmerica
("Sun") for cash of $172.5 million. It is anticipated that this
transaction will close in the first quarter of 1996. Prior to closing, all
of FLIC's lines of business, except for annuities, will be ceded
(reinsured) with other subsidiaries of TARIC. As of September 30, 1995,
FLIC's balance sheet and income statement reflect the following assets,
liabilities, equity, revenues and expenses related to the business which
will be ceded:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1995
(000s omitted)
--------------
<S> <C>
Total assets $142,000
Total liabilities 84,324
Total equity 57,676
Total revenues 35,228
Total expenses 37,308
</TABLE>
5
<TABLE>
SUNAMERICA INC.
PRO FORMA CONDENSED BALANCE SHEET
SEPTEMBER 30, 1995
(IN THOUSANDS)
<CAPTION>
Historical cost financial
information as reported Pro forma adjustments
-------------------------- -----------------------------
Elimination of Purchase
SunAmerica Ford Life Ford Life's credit accounting Pro forma
At 9/30/94 At 9/30/94 life business adjustments combined
---------- ---------- ------------- ----------- ----------
<C>
<S>
Assets
Investments $10,808,959 $ 3,093,660 $ (65,127) $ (172,500) (1) $13,664,992
Variable annuity assets 5,263,006 - - - 5,263,006
Deferred acquisition costs 526,415 156,677 (3,946) (35,408) (2) 643,738
Other assets 245,787 193,431 (148,496) - 290,722
----------- ----------- ------------- ---------- -----------
Total assets $16,844,167 $ 3,443,768 $ (217,569) $ (207,908) $19,862,458
=========== =========== ============= ========== ===========
Liabilities and shareholders' equity
Reserves for fixed annuity
contracts $ 4,862,250 $ 2,998,216 $ (22,231) $ - $ 7,838,235
Reserves for guaranteed
investment contracts 3,607,192 - - - 3,607,192
Trust deposits 426,595 - - - 426,595
Unearned premiums - 156,196 (156,196) - -
Other liabilities 747,733 85,185 (49,968) 40,650 (3) 823,600
Variable annuity liabilities 5,263,006 - - - 5,263,006
Senior indebtedness 524,835 - - - 524,835
Deferred income taxes 146,847 (16,907) (4,261) (12,393) (4) 113,286
Preferred securities of
grantor trust 52,631 - - - 52,631
Shareholders' equity 1,213,078 221,078 15,087 (236,165) (5) 1,213,078
------------ ------------ -------------- ---------- -----------
Total liabilities and
shareholders' equity $ 16,844,167 $ 3,443,768 $ (217,569) $ (207,908) $19,862,458
============ ============ ============== ========== ===========
Footnotes to the Pro Forma Condensed Balance Sheet appear on the following page.
<PAGE>
SUNAMERICA INC.
PRO FORMA CONDENSED BALANCE SHEET
SEPTEMBER 30, 1995
(IN THOUSANDS)
(CONTINUED)
Note (1) - To record the contractual purchase price.
Note (2) - To adjust deferred acquisition costs to $117,323, computed as follows:
Ford Life's equity at September 30, 1995 after cession of credit life business $ 236,165
Write off Ford Life's deferred acquisition costs, net of related deferred taxes (99,275)
Record acquisition taxes and other costs (40,650)
Record deferred taxes on excess purchase price (41,063)
-------------
Purchase accounting adjusted equity 55,177
Purchase price 172,500
-------------
Deferred acquisition costs arising from this transaction $ 117,323
=============
Note (3) - To record $37,650 of Federal taxes payable resulting from the election to use Section 338 (h)(10)
of the Internal Revenue Code and $3,000 of other acquisition costs.
Note (4) - To adjust deferred taxes for the tax effect, at 35%, of the adjustment made to deferred acquisition costs.
Note (5) - To eliminate Ford Life's adjusted equity.
</TABLE>
<TABLE>
SUNAMERICA INC.
PRO FORMA CONDENSED INCOME STATEMENT
FOR THE YEAR ENDED SEPTEMBER 30, 1995
(IN THOUSANDS)
<CAPTION>
Historical financial
information as reported Pro forma adjustments
----------------------------- --------------------------------------------------
SunAmerica Ford Life Ford Life Elimination of
year ended nine months three months Ford Life's credit Other Pro forma
9/30/95 ended 9/30/95 ended 12/31/94 life business adjustments combined
----------- ------------- -------------- ---------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Investment income $ 905,802 $ 163,126 $ 48,796 $ (5,937) $ (10,800) (1) $ 1,100,987
Interest expense (540,247) (130,328) (36,092) - - (706,667)
----------- ------------ ------------- ---------------- ----------- -----------
Net investment income 365,555 32,798 12,704 (5,937) (10,800) 394,320
Net realized investment
losses (33,012) (9,726) (14,568) 1,015 - (56,291)
Fee income 179,288 - - - - 179,288
Premiums earned - 29,081 10,122 (39,203) - -
Losses incurred - (13,647) (4,441) 18,088 - -
General and administrative
expenses (166,540) (19,075) (5,825) 9,015 - (182,425)
Amortization of deferred
acquisition costs (80,829) (27,323) (362) 18,690 6,995 (2) (82,829)
Other income (expenses), net 15,144 4,743 4,235 (3,901) - 20,221
----------- ----------- ------------ -------------- --------- -----------
Pretax income (loss) 279,606 (3,149) 1,865 (2,233) (3,805) 272,284
Income tax expense (benefit) 85,400 657 (228) (1,220) (1,309) (3) 83,300
----------- ----------- ------------ --------------- --------- -----------
Net income (loss) $ 194,206 $ (3,806) $ 2,093 $ (1,013) $ (2,496) $ 188,984
=========== =========== ============ =============== ========= ===========
Net income per share $ 2.84 $ 2.76
=========== ===========
Operating net income
per share (4) $ 3.18 $ 3.34
=========== ===========
Footnotes to the Pro Forma Condensed Income Statement appear on the following page.
<PAGE>
SUNAMERICA INC.
PRO FORMA CONDENSED INCOME STATEMENT
FOR THE YEAR ENDED SEPTEMBER 30, 1995
(IN THOUSANDS)
(CONTINUED)
Note (1) - To reflect lost interest income on the $172,500 purchase price at SunAmerica's average short-term
portfolio yield of 6-1/4%.
Note (2) - To eliminate Ford Life's recorded amortization and to reflect pro forma amortization of $2,000
based on the deferred acquisition cost arising from this transaction, Ford Life's realized gross
profits for the 12 months ended September 30, 1995 after elimination of the credit life business,
and SunAmerica's projection of estimated future gross profits for Ford Life.
Note (3) - Related tax effects which approximate the statutory rate of 35%.
Note (4) - Operating net income per share excludes after-tax net realized investment losses, and represents
a common performance measure used by financial analysts.
</TABLE>
